UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________ 
FORM 8-K
_______________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 8, 2019  
Cerner Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
0-15386
43-1196944
(State or Other Jurisdiction
of Incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
 
 
2800 Rockcreek Parkway, North Kansas City, Missouri
64117
(Address of Principal Executive Offices)
(Zip Code)
(816) 221-1024
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (240.12b-2 of this chapter).

Emerging growth company      ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ¨




Item 1.01 Entry into a Material Definitive Agreement.

On April 8, 2019, Cerner Corporation (the “Company”) entered into a cooperation agreement (the “Agreement”) with Starboard Value LP and certain of its affiliates (collectively, “Starboard”), which has a combined economic and beneficial ownership interest in the Company’s shares of outstanding stock (the “Common Stock”) totaling, in the aggregate, 3,744,394 shares. The following is a summary of the material terms of the Agreement. The summary does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copy of which is attached as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Pursuant to the Agreement and effective immediately following the execution thereof, the board of directors of the Company (the “Board”) increased the size of the Board from eight to eleven directors and expanded the membership of each of class II and class III of the Board by one and two, respectively. As part of the Board’s planned refreshment, it has appointed each of R. Halsey Wise and John J. Greisch (the “Company Appointees”). In addition, the Board has appointed George A. Riedel and Melinda J. Mount (the “Starboard Designees”, and together with the Company Appointees, the “New Independent Directors”). Mr. Riedel and Mr. Wise will serve as class III directors, with their terms expiring at the 2019 annual meeting of stockholders (the “2019 Annual Meeting”). Mr. Greisch and Ms. Mount will each serve as class II directors, with terms expiring at the 2021 annual meeting of stockholders. The parties agreed that immediately prior to the 2019 Annual Meeting, the size of the Board will be decreased from eleven to ten directors, reducing the number of directors comprising the class III directors by one. The parties also agreed that the Company would nominate each of Gerald E. Bisbee, Jr., Ph.D., M.B.A., Linda M. Dillman, George A. Riedel and R. Halsey Wise to stand for election as class III directors of the Board at the 2019 Annual Meeting.

Pursuant to the Agreement, if any Starboard Designee is unable or unwilling to serve as a director, resigns as a director or is removed as a director during the Standstill Period (defined below), and if at such time Starboard has combined beneficial and economic ownership of at least 1,872,197 shares of Common Stock, Starboard may recommend a substitute individual for appointment to the Board who must meet certain criteria specified in the Agreement.

Promptly following the execution of the Agreement, the Board established a finance and strategy committee of the Board (the “Finance & Strategy Committee”) to coordinate and oversee management’s review of the Company’s operational efficiency and margin expansion efforts and capital deployment strategy, including taking into consideration recommendations from AlixPartners LLP, the Company’s risk profile and the potential impact of any recommended changes on the Company’s business model, strategic plan and ability to meet commitments to clients. The Board appointed Messrs. Greisch, Riedel and Wise and Ms. Mount as initial members of the Finance & Strategy Committee, with Mr. Greisch serving as chairman of the committee. Under the terms of the Agreement, the Company also agreed, as soon as reasonably practicable following the date of the Agreement, but no later than 10 business days after execution of the Agreement, and through the end of the Standstill Period, to take all necessary actions to appoint each New Independent Director as a member of at least one standing committee of the Board (in addition to the Finance & Strategy Committee), and to ensure that each committee and subcommittee of the Board includes at least one Starboard Designee.

Furthermore, following the execution of the Agreement, the Board authorized and approved an amendment to the Company’s $1 billion share repurchase program that was previously approved by the Board in May 2018, which will permit the continued repurchase of Common Stock in an amount up to an additional aggregate purchase price of $1.2 billion. When combined with the $0.3 billion of authorization remaining under the May 2018 program, the total authorized amount available for repurchase is approximately $1.5 billion.

Starboard agreed, on behalf of itself and its affiliates, to irrevocably withdraw, concurrently with the execution of the Agreement, its letter providing notice of Starboard’s intent to nominate director candidates for election as class III directors of the Board at the 2019 Annual Meeting. With respect to the 2019 Annual Meeting, Starboard agreed to vote in favor of each of Gerald E. Bisbee, Jr., Ph.D., M.B.A., Linda M. Dillman, George A. Riedel and R. Halsey Wise, the Company's nominees for election as class III directors at the 2019 Annual Meeting, and in favor of the Company’s other proposals, unless Institutional Shareholder Services or Glass Lewis & Co., LLC recommends otherwise with respect to one of the Company’s other proposals, in which case Starboard shall be permitted to vote in accordance




with their recommendation on the Company’s proposals other than with respect to the director nominees. Starboard also agreed not to (i) submit director nominations or proposals at the 2019 Annual Meeting or (ii) initiate, encourage or participate in any “vote no,” “withhold” or similar campaign with respect to the 2019 Annual Meeting.

Starboard also agreed to certain customary standstill provisions, effective as of the date of the Agreement through the earlier of (x) 15 business days prior to the deadline for the submission of stockholder nominations for the Company’s 2020 annual meeting of stockholders and (y) 100 days prior to the first anniversary of the 2019 Annual Meeting (the “Standstill Period”), prohibiting it from, among other things: (i) soliciting proxies or consents with respect to the securities of the Company, (ii) entering into a voting agreement or “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) with other stockholders of the Company, other than affiliates of Starboard, (iii) seeking or submitting, or knowingly encouraging any person to seek or submit, nominees in furtherance of a contested solicitation for the election or removal of directors, (iv) making any proposal for consideration by stockholders of the Company at any annual or special meeting of stockholders, (v) making any offer or proposal with respect to any merger or other business combination involving the Company, (vi) affirmatively soliciting a third party to make an offer or proposal with respect to a merger or other business combination involving the Company, (vii) publicly commenting on any third party proposal regarding any merger or other business combination with respect to the Company by such third party prior to such proposal becoming public or (viii) calling or seeking to call a special meeting of stockholders.

The Company agreed to hold its 2019 Annual Meeting no later than June 15, 2019, subject to any delay necessitated by compliance with applicable law or regulatory or judicial or stock exchange order, published interpretation or requirement.

The Company agreed to reimburse Starboard for its reasonable, documented out-of-pocket fees and expenses (including legal expenses) incurred through the date of the Agreement in connection with Starboard’s involvement at the Company up to a maximum of $275,000.

The Company and Starboard also made certain customary representations, agreed to mutual non-disparagement provisions and agreed to jointly issue a press release announcing certain terms of the Agreement.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b) Director Retirement, Resignation, Removal or Refusal to Stand for re-Election

On April 8, 2019, the Company received notice from Denis A. Cortese, M.D., a class III member of the Board, that he does not intend to stand for re-election to the Board at the Company’s 2019 Annual Meeting and that he will retire effective immediately prior to the 2019 Annual Meeting. His decision not to stand for re-election did not involve any disagreement with the Company.

The Board intends to nominate Gerald E. Bisbee, Jr., Ph.D., M.B.A., Linda M. Dillman, George A. Riedel and R. Halsey Wise to stand for election as class III directors of the Board at the 2019 Annual Meeting.

(d) Election of New Director

The disclosure set forth in Item 1.01 of this Current Report on Form 8-K with respect to the Board composition is incorporated by reference into this Item 5.02.

The New Independent Directors’ compensation will be consistent with the compensation payable to our other directors beginning as of the new board term to commence immediately following the 2019 Annual Meeting. A description of compensation payable to our directors can be found under “Director Compensation” in our most recent Proxy Statement filed with the Securities and Exchange Commission on April 6, 2018. Each of the New Independent Directors and the Company have entered, or each such New Independent Director will promptly enter, into indemnification agreements,




in the form approved by the Board for the Company's other executive officers and directors and previously disclosed by the Company. The form of indemnification agreement was filed as Exhibit 99.1 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on June 3, 2010 and is incorporated herein by reference.

There have been no related party transactions between the Company and the New Independent Directors that are reportable under Item 404(a) of Regulation S-K.

Item 7.01 Regulation FD.

On April 9, 2019, the Company issued a press release relating to the Agreement and the changes to the Board, as described in Item 1.01 and Item 5.02 above. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated by reference herein.

The information in Item 7.01 of this report (including Exhibit 99.1) is being furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Item 8.01 Other Events .

On April 8, 2019, the Board established the position of Lead Independent Director and the independent directors of the Board (the “Independent Directors”) appointed William D. Zollars to that position. Mr. Zollars has served on the Board as an independent director since 2005 and is a member of the Board’s Audit Committee, Compensation Committee and Nominating, Governance and Public Policy Committee.

The creation of the Lead Independent Director role and Mr. Zollars’ appointment reflects the Company’s continued commitment to corporate governance best practices. The Lead Independent Director will, among other things, preside over all executive sessions of the Independent Directors, convene meetings of the Independent Directors at the request of any Independent Director, establish the agenda and approve the materials for such meetings, act as a liaison between the Chairman of the Board and the Independent Directors and carry out such other responsibilities as defined by the Board.

Item 9.01 Financial Statements and Exhibits.
d) Exhibits

*Exhibits have been omitted pursuant to Item 601(b)(10) of Regulation S-K.






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
CERNER CORPORATION
 
 
 
 
Date: April 9, 2019
 
 
 
By:
 
/s/ Randy D. Sims
 
 
 
 
 
 
Randy D. Sims, Executive Vice
 
 
 
 
 
 
President & Chief Legal Officer





Exhibit 10.1
COOPERATION AGREEMENT

This Cooperation Agreement (this “ Agreement ”) is made and entered into as of April 8, 2019 by and among Cerner Corporation, a Delaware corporation (the “ Company ”) and the entities and natural persons set forth in the signature pages hereto (collectively, “ Starboard ”) (each of the Company and Starboard, a “ Party ” to this Agreement, and collectively, the “ Parties ”).

RECITALS

WHEREAS, Starboard submitted a letter to the Company on February 15, 2019 (the “ Nomination Letter ”), as supplemented on March 14, 2019, providing notice of Starboard’s intent to nominate director candidates for election as Class III Directors (the “ Class III Directors ”) of the Board of the Directors of the Company (the “ Board ”) at the Company’s 2019 annual meeting of stockholders (the “ 2019 Annual Meeting ”);

WHEREAS, the Company and Starboard have engaged in various discussions and communications concerning the Company’s business, financial performance and strategic plans;

WHEREAS, as of the date of this Agreement, Starboard has a combined economic and beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act (as defined below)) interest in the common stock, par value $0.01 per share, of the Company (the “ Common Stock ”) totaling, in the aggregate, 3,744,394 shares (“ Starboard’s Ownership ”);

WHEREAS, Denis Cortese has advised the Company he does not intend to stand for re-election at its 2019 Annual Meeting;

WHEREAS, as of the date of this Agreement, the Company and Starboard have determined to come to an agreement with respect to the composition of the Board, as provided in this Agreement;

WHEREAS, the Company and Starboard have determined to come to an agreement with respect to certain targets for improving operational performance at the Company and the Company has agreed to make public those targets and implement certain processes around such improvements; and

WHEREAS, the Company and Starboard have reached agreement on certain other matters.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties to this Agreement, intending to be legally bound, agree as follows:

1.
Board Appointments; Board Nominations and Related Agreements .

(a)
Board Appointments .

i.
The Company agrees that immediately following the execution of this Agreement, the Board and all applicable committees of the Board shall take all necessary actions to (A) increase the size of the Board from eight (8) to eleven (11) directors and, in connection therewith, expand the number of directors comprising each of the Class II and III Directors of the Board by one (1) and two (2), respectively, (B) appoint to the Board as a Class II Director Melinda Mount, who will fill the vacancy in the Class II Directors created by the expanded classes, (C) appoint to the Board as Class III Directors George Riedel and R. Halsey Wise, who will fill the vacancies among the Class III Directors created by the expanded classes (each of Melinda Mount and George Riedel are referred to herein as the “ Starboard Designees ”) and (D) appoint to the Board as a Class II Director John Greisch, who will fill the existing vacancy among the



Class II Directors left by Clifford W. Illig, who retired from the Board effective January 15, 2019 (R. Halsey Wise and John Greisch are referred to herein as the “ Company Designees ”, and collectively with the Starboard Designees, the “ New Independent Directors ”). Messrs. Riedel and Wise will be nominated as Class III directors pursuant to Section 1(b)(i) below for election to the Board at the 2019 Annual Meeting. The Company agrees that immediately prior to the 2019 Annual Meeting, the Board and all applicable committees of the Board shall take all necessary actions to decrease the size of the Board from eleven (11) to ten (10) directors, reducing the number of directors comprising Class III Directors of the Board by one (1).

ii.
During the period commencing with the date of this Agreement through the 2019 Annual Meeting, the Board and all applicable committees of the Board shall take all necessary actions so that the size of the Board is not increased to more than eleven (11) directors unless Starboard consents in writing to any proposal to increase the size of the Board. During the period commencing as of the 2019 Annual Meeting through the expiration of the Standstill Period (as defined below), the Board and all applicable committees of the Board shall take all necessary actions so that the size of the Board is not increased to more than ten (10) directors unless Starboard consents in writing to any proposal to increase the size of the Board.

iii.
If any Starboard Designee (or any Starboard Replacement Director (as defined below)) is unable or unwilling to serve as a director, resigns as a director or is removed as a director prior to the expiration of the Standstill Period, and at such time Starboard’s Ownership (which at any measurement time during the Standstill Period shall include a combination of Starboard’s economic and beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act) of shares of Common Stock as of such time) is at least 1,872,197 shares of Common Stock (subject to adjustment for stock splits, reclassifications, combinations and similar adjustments), Starboard shall have the ability to recommend a substitute person(s) for appointment to the Board in lieu of such Starboard Designee in accordance with this Section 1(a)(iii) (any such replacement nominee shall be referred to as a “ Starboard Replacement Director ”, and upon becoming a Starboard Replacement Director, such person shall replace the applicable Starboard Designee for purposes of this Agreement). Any Starboard Replacement Director must, as reasonably determined by the Nominating, Governance & Public Policy Committee of the Board (the “ NG&PP Committee ”) (A) qualify as “independent” of the Company pursuant to Nasdaq listing standards, (B) have the relevant financial and business experience to be a director of the Company, (C) otherwise comply with the qualifications for directors set forth in the Company’s Corporate Governance Guidelines as in effect as of the date of this Agreement and (D) be independent of Starboard (for the avoidance of doubt, the nomination by Starboard of such person to serve on the board of directors of any other company shall not (in and of itself) cause such person to not be deemed independent of Starboard). The NG&PP Committee shall make its determination and recommendation (which it shall undertake reasonably and in good faith) to the Board regarding whether such person meets the foregoing criteria within five (5) business days after (1) such nominee to be a Starboard Replacement Director has submitted to the Company the documentation required by Section 1(h)(iv) and (2) representatives of the Board have, if requested by the Company, conducted customary interview(s) of such nominee. The Company shall use its reasonable best efforts to conduct any interview(s) contemplated by this Section 1(a)(iii) as promptly as practicable, but in any case, assuming reasonable availability of the nominee, within ten (10) business days after Starboard’s submission of such nominee. In the event the NG&PP Committee does not accept a person recommended by Starboard as the Starboard Replacement Director, Starboard shall have the right to recommend additional substitute person(s) whose appointment shall be subject to the NG&PP Committee recommending such person to the Board in accordance with the procedures described above. The Board shall vote on the appointment of such Starboard Replacement Director to the Board no later than five (5) business days after the NG&PP Committee recommendation of such



Starboard Replacement Director; provided , however , that if the Board does not appoint such Starboard Replacement Director to the Board pursuant to this Section 1(a)(iii) , the Parties shall continue to follow the procedures of this Section 1(a)(iii) until a Starboard Replacement Director is appointed to the Board. Upon a Starboard Replacement Director’s appointment to the Board, the Board and all applicable committees of the Board shall, subject to Nasdaq rules and applicable law, take all necessary actions to appoint such Starboard Replacement Director to any applicable committee of the Board of which the replaced director was a member immediately prior to such director’s resignation or removal, and, subject to Nasdaq rules and applicable law, shall appoint such Starboard Replacement Director to either such committees or, if the qualifications for such committees are not met, to alternative committees of the Board in accordance with Section 1(c) below. Subject to Nasdaq rules and applicable law, until such time as any Starboard Replacement Director is appointed to any applicable committee, the other Starboard Designee will serve as an interim member of such applicable committee. Any Starboard Replacement Director designated pursuant to this Section 1(a)(iii) to replace a Starboard Designee that is a Class III Director prior to the mailing of the Company’s definitive proxy statement for the 2019 Annual Meeting, shall stand for election at the 2019 Annual Meeting together with the other Class III Nominees (as defined below), in accordance with Section 1(b)(i) of this Agreement.

(b)
Board Nominees .

i.
The Company agrees, for so long as they consent, and are able and willing, to serve as directors, that the Board shall nominate the following individuals for election as Class III Directors to the Board at the 2019 Annual Meeting: R. Halsey Wise, George Riedel, Gerald E. Bisbee, Jr., Ph.D., M.B.A and Linda M. Dillman (collectively, the “ Class III Nominees ”). The Company will recommend, support and solicit proxies for the election of the New Independent Directors that are Class III Directors at the 2019 Annual Meeting in the same manner as for the other Class III Nominees at the 2019 Annual Meeting.

ii.
Starboard, on behalf of itself and its Affiliates, hereby (A) irrevocably withdraws the Nomination Letter, and (B) irrevocably withdraws any related materials or notices submitted to the Company in connection therewith.

(c)
New Committee Representation .

i.
Subject to the Company’s Corporate Governance Guidelines and Nasdaq rules and applicable laws, the Board and all applicable committees of the Board shall take all actions necessary to (A) appoint each of the New Independent Directors to at least one (1) standing committee of the Board in addition to the Finance & Strategy Committee (as defined below) as promptly as practicable upon the execution of this Agreement, but in any event no later than ten (10) business days following the execution of this Agreement and (B) as promptly as practicable upon the execution of this Agreement, but in any event no later than ten (10) business days following the execution of this Agreement, and throughout the duration of the Standstill Period, ensure that each committee and subcommittee of the Board, including any new committee(s) and subcommittee(s) that may be established, shall include at least one (1) Starboard Designee.

ii.
Without limiting Section 1(c)(i), the Board shall give each Starboard Designee the same due consideration for membership to any committee of the Board as any other independent director.

(d)
Finance & Strategy Committee . Immediately following the execution of this Agreement, the Board shall take all necessary actions to establish a finance and strategy committee of the Board which shall be named the “Finance & Strategy Committee” (the “ Finance & Strategy Committee ”) to coordinate and oversee management’s review of the Company’s operational efficiency and margin expansion



efforts and capital deployment strategy, including taking into consideration recommendations from AlixPartners LLP, the Company’s risk profile and the potential impact of any recommended changes on the Company’s business model, strategic plan and ability to meet commitments to clients. The Finance & Strategy Committee shall remain in effect during the Standstill Period and thereafter until the Board otherwise determines. The Finance & Strategy Committee shall be comprised solely of members of the Board who qualify as “independent” pursuant to Nasdaq listing standards. The members of the Finance & Strategy Committee shall initially be William Zollars, John Greisch, R. Halsey Wise, Melinda Mount and George Riedel, with Mr. Greisch serving as Chairman of the Finance & Strategy Committee. The Finance & Strategy Committee shall promptly meet after the date of this Agreement to organize, plan and commence the evaluation and review to be performed in accordance with this Section 1(d) . The Finance & Strategy Committee shall report on the status and substance of its work to the full Board at such times as the Board Chairman, Lead Independent Director of the Board, or any two directors may request.

(f)
Operational Targets . The Company agrees to publicly identify the operating margin targets as set forth in, and pursuant to, the Press Release (as defined below).

(g)
2019 Annual Meeting . The Company agrees to hold the 2019 Annual Meeting no later than June 15, 2019, subject to any delay necessitated by compliance with applicable law or regulatory or judicial or stock exchange order, published interpretation or requirement.

(h)
Additional Agreements .

i.
Starboard agrees that it will cause its controlled Affiliates and Associates to comply with the terms of this Agreement and shall be responsible for any breach of this Agreement by any such controlled Affiliate or Associate. As used in this Agreement, the terms “Affiliate” and “Associate” shall have the respective meanings set forth in Rule 12b-2 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the rules or regulations promulgated thereunder (the “ Exchange Act ”) and shall include all persons or entities that at any time during the term of this Agreement become Affiliates or Associates of any person or entity referred to in this Agreement.

ii.
Upon execution of this Agreement, Starboard hereby agrees that Starboard will not, and that it will not permit any of its controlled Affiliates or Associates to, (A) nominate or recommend for nomination any person for election at the 2019 Annual Meeting, directly or indirectly, (B) submit any proposal for consideration at, or bring any other business before, the 2019 Annual Meeting, directly or indirectly, or (C) initiate, encourage or participate in any “vote no,” “withhold” or similar campaign with respect to the 2019 Annual Meeting, directly or indirectly. Starboard shall not publicly or privately encourage or support any other stockholder to take any of the actions described in this Section 1(h)(ii) .

iii.
Starboard agrees that it will appear in person or by proxy at the 2019 Annual Meeting and vote all shares of Common Stock beneficially owned by Starboard at the 2019 Annual Meeting (A) in favor of the election of each and all of the four (4) Class III Nominees as Class III Directors to the Board, (B) in favor of the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 28, 2019, (C) in favor of the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers and (D) in favor of the proposed amendment and restatement of the Cerner Corporation 2011 Omnibus Equity Incentive Plan, including an increase in the number of authorized shares under the plan (clauses (B) through (D), the “ Non-Election Proposals ”), provided , however , that in the event Institutional Shareholder Services Inc. (ISS) or Glass Lewis & Co., LLC (Glass Lewis) recommends otherwise with respect to any Non-Election Proposal, Starboard shall be permitted to vote in accordance with



the ISS or Glass Lewis recommendation. As used in this Agreement, the term “Named Executive Officers” shall have the meaning set forth in Section 229.402 promulgated by the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended, or the rules or regulations promulgated thereunder.

iv.
(A) Each of the New Independent Directors, prior to the date of this Agreement, shall and (B) any Starboard Replacement Director shall promptly (but in any event prior to being placed on the Board in accordance with this Agreement) following their designation by Starboard hereunder, in each case, submit to the Company, (x) fully completed and executed copies of the Company’s standard director & officer questionnaire, representation and agreement letter, and other reasonable and customary director onboarding documentation including (1) all information reasonably requested by the Company that is required to be disclosed for directors, candidates for directors, and their affiliates and representatives in a proxy statement or other filings under applicable law or regulation or stock exchange rules or listing standards, in each case, relating to their appointment, nomination or election as a director of the Company and (2) information reasonably requested by the Company in connection with assessing eligibility, independence and other criteria applicable to directors or satisfying compliance and legal or regulatory obligations, in each case, relating to their appointment, nomination or election as a director of the Company and required by the Company in connection with the appointment or election of new Board members, (y) solely with respect to the New Independent Directors or any Starboard Replacement Director being nominated as Class III Directors at the 2019 Annual Meeting, an executed consent of such New Independent Director or Starboard Replacement Director, as applicable, to be named in any proxy statement or other filings under applicable law or stock exchange rules or listing standards with respect to the 2019 Annual Meeting and to serve as a director if elected and (z) a written representation that such person, if elected as a director of the Company, would be in compliance, and will comply with, all applicable confidentiality, corporate governance, conflict of interest, Regulation FD, code of conduct and ethics, stock ownership and trading policies and guidelines, and other policies of the Company applicable to members of the Board as of the date of this Agreement.

v.
The Starboard Designees (including any Starboard Replacement Director) and the Company Designees, in addition to all current directors, will be required to (A) comply with all policies, procedures, codes, rules, standards and guidelines applicable to members of the Board and (B) keep confidential all Company confidential information and not disclose to any third parties (including Starboard) discussions or matters considered in meetings of the Board or Board committees.

vi.
The Company agrees that the Board and all applicable committees of the Board shall, to the extent the Board or such committees have such authority or are entitled to so determine, take all necessary actions, effective no later than immediately following the execution of this Agreement, to determine, in connection with their initial appointment as a director and nomination (as applicable) by the Company at the 2019 Annual Meeting, that each of the New Independent Directors is deemed to be (A) a member of the “Incumbent Board” (as such term may be defined in the definition of “Change in Control,” “Change of Control” (or any similar term) under any Company incentive plans, options plans, severance agreements, employment agreements or any other material agreements, including the Company’s Employment Agreements with certain executives, the Company’s 2004 Long-Term Incentive Plan G and 2001 Long-Term Incentive Plan F, or any other related plans or agreements that refer to any such plan’s or agreement’s definition of “Change in Control”, “Change of Control” (or any similar term)) and (B) a member of the Board as of the beginning of any applicable measurement period for the purposes of the definition of “Change in Control,” “Change of Control” (or any similar term) under any Company incentive plans, options plans, severance agreements, employment agreements or any other material agreements, including the



Company’s Employment Agreements with certain executives, the Company’s 2004 Long-Term Incentive Plan G and 2001 Long-Term Incentive Plan F, or any other related plans or agreements that refer to any such plan’s or agreement’s definition of “Change in Control”, “Change of Control” (or any similar term).

vii.
The Company agrees that the Board and all applicable committees of the Board shall take all necessary actions to authorize and approve an amendment to the Company’s $1 billion share repurchase program approved by the Board in May 2018 (the “ 2018 Repurchase Program ”) that would permit the continued repurchase of common stock in an amount up to an additional aggregate purchase price of $1.2 billion, such that the aggregate amount available for share repurchases under the 2018 Repurchase Program shall be an amount equal to the remaining availability under the initial 2018 Repurchase Program immediately prior to such increase in availability, plus $1.2 billion.

2.
Standstill Provisions .

(a)
Starboard agrees that, from the date of this Agreement until the earlier of (x) the date that is fifteen (15) business days prior to the deadline for the submission of stockholder nominations for the Company’s 2020 annual meeting of stockholders (the “ 2020 Annual Meeting ”) pursuant to the Company’s Amended and Restated Bylaws, effective March 2, 2018 (the “ Company Bylaws ”), or (y) the date that is one hundred (100) days prior to the first anniversary of the 2019 Annual Meeting (the “ Standstill Period ”), neither it nor any of its controlled Affiliates or Associates will, and it will cause each of its controlled Affiliates and Associates not to, directly or indirectly, in any manner:

i.
engage in any solicitation of proxies or consents or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A under the Exchange Act) of proxies or consents (including, without limitation, any solicitation of consents that seeks to call a special meeting of stockholders), in each case, with respect to securities of the Company;

ii.
form, join or in any way participate in any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to the Common Stock (other than a “group” that includes all or some of the entities or persons identified on Exhibit A , but does not include any other entities or persons not identified on Exhibit A as of the date hereof); provided , however , that nothing herein shall limit the ability of an Affiliate of Starboard to join the “group” following the execution of this Agreement, so long as any such Affiliate agrees to be bound by the terms and conditions of this Agreement;

iii.
deposit any Common Stock in any voting trust or subject any Common Stock to any arrangement or agreement with respect to the voting of any Common Stock, other than any such voting trust, arrangement or agreement solely among the members of Starboard and otherwise in accordance with this Agreement;

iv.
seek or submit, or knowingly encourage any person or entity, to seek or submit nomination(s) in furtherance of a “contested solicitation” for the appointment, election or removal of directors with respect to the Company or seek, knowingly encourage or take any other action with respect to the election or removal of any directors; provided , however , that nothing in this Agreement shall prevent Starboard or its Affiliates or Associates from taking actions in furtherance of identifying director candidates in connection with the 2020 Annual Meeting so long as such actions do not create a public disclosure obligation for Starboard or the Company and are undertaken on a basis reasonably designed to be confidential and in accordance in all material respects with Starboard’s normal practices in the circumstances;




v.
(A) make any proposal for consideration by stockholders at any annual or special meeting of stockholders of the Company, (B) make any offer or proposal (with or without conditions) with respect to any merger, acquisition, recapitalization, restructuring, disposition or other business combination involving the Company, (C) affirmatively solicit a third party to make an offer or proposal (with or without conditions) with respect to any merger, acquisition, recapitalization, restructuring, disposition or other business combination involving the Company, or publicly encourage, or support any third party in making such an offer or proposal, (D) publicly comment on any third party proposal regarding any merger, acquisition, recapitalization, restructuring, disposition, or other business combination with respect to the Company by such third party prior to such proposal becoming public or (E) call or seek to call a special meeting of stockholders;

vi.
seek, alone or in concert with others, representation on the Board, except as specifically permitted in Section 1 ;

vii.
advise, knowingly encourage, support or knowingly influence any person or entity with respect to the voting or disposition of any securities of the Company at any annual or special meeting of stockholders, except in accordance with Section 1 ; or

viii.
make any request or submit any proposal to amend the terms of this Agreement other than through non-public communications with the Company that would not be reasonably determined to trigger public disclosure obligations for any Party.

(b)
Except as expressly provided in Section 1 or Section 2(a) , Starboard shall be entitled to (i) vote its shares on any other proposal duly brought before the 2019 Annual Meeting or otherwise vote as Starboard determines in its sole discretion and (ii) disclose, publicly or otherwise, how it intends to vote or act with respect to any securities of the Company, any stockholder proposal or other matter to be voted on by the stockholders of the Company and the reasons therefor (in each case, subject to Section 1(h)(ii) ).

(c)
Nothing in Section 2(a) shall be deemed to limit the exercise in good faith by the Starboard Designees of such individual’s fiduciary duties solely in his capacity as a director of the Company and in a manner consistent with such person’s and Starboard’s obligations under this Agreement.

3.
Representations and Warranties of the Company . The Company represents and warrants to Starboard that (a) the Company has the corporate power and authority to execute this Agreement and to bind it thereto, (b) this Agreement has been duly and validly authorized, executed and delivered by the Company, constitutes a valid and binding obligation and agreement of the Company, and is enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws generally affecting the rights of creditors and subject to general equity principles, and (c) the execution, delivery and performance of this Agreement by the Company does not and will not (i) violate or conflict with any law, rule, regulation, order, judgment or decree applicable to the Company, or (ii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would constitute such a breach, violation or default) under or pursuant to, or result in the loss of a material benefit under, or give any right of termination, amendment, acceleration or cancellation of, any organizational document or agreement to which the Company is a party or by which it is bound.

4.
Representations and Warranties of Starboard . Starboard represents and warrants to the Company that (a) the authorized signatory of Starboard set forth on the signature page hereto has the power and authority to execute this Agreement and any other documents or agreements to be entered into in connection with this Agreement and to bind Starboard thereto, (b) this Agreement has been duly authorized, executed and delivered by Starboard, and is a valid and binding obligation of Starboard, enforceable against Starboard in accordance with its terms,



except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws generally affecting the rights of creditors and subject to general equity principles, (c) the execution of this Agreement, the consummation of any of the transactions contemplated hereby, and the fulfillment of the terms hereof, in each case in accordance with the terms hereof, will not conflict with, or result in a breach or violation of the organizational documents of Starboard as currently in effect, (d) the execution, delivery and performance of this Agreement by Starboard does not and will not (i) violate or conflict with any law, rule, regulation, order, judgment or decree applicable to Starboard, or (ii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would constitute such a breach, violation or default) under or pursuant to, or result in the loss of a material benefit under, or give any right of termination, amendment, acceleration or cancellation of, any organizational document, agreement, contract, commitment, understanding or arrangement to which such member is a party or by which it is bound, (e) as of the date of this Agreement, Starboard’s Ownership is 3,744,394 shares of Common Stock, including 648,543 shares underlying certain forward purchase contracts exercisable within sixty (60) days hereof, (f) as of the date hereof, other than as disclosed herein, Starboard does not currently have, and does not currently have any right to acquire, any interest in any other securities of the Company (or any rights, options or other securities convertible into or exercisable or exchangeable (whether or not convertible, exercisable or exchangeable immediately or only after the passage of time or the occurrence of a specified event) for such securities or any obligations measured by the price or value of any securities of the Company or any of its controlled Affiliates, including any swaps or other derivative arrangements designed to produce economic benefits and risks that correspond to the ownership of Common Stock, whether or not any of the foregoing would give rise to beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act), and whether or not to be settled by delivery of Common Stock, payment of cash or by other consideration, and without regard to any short position under any such contract or arrangement) and (g) except pursuant to the nomination materials submitted by Starboard to the Company in connection with its Nomination Letter, Starboard will not, directly or indirectly, compensate or agree to compensate any Starboard Designee for their respective service as a director of the Company with any cash, securities (including any rights or options convertible into or exercisable for or exchangeable into securities or any profit sharing agreement or arrangement), or other form of compensation directly or indirectly related to the Company or its securities. For the avoidance of doubt, nothing herein shall prohibit Starboard from compensating or agreeing to compensate any person for his or her respective service as a nominee or director of any other company.

5.
Press Release . Promptly following the execution of this Agreement, the Company and Starboard shall jointly issue a mutually agreeable press release (the “ Press Release ”) announcing certain terms of this Agreement in the form attached hereto as Exhibit B . Prior to the issuance of the Press Release and subject to the terms of this Agreement, neither the Company (including the Board and any committee thereof) nor Starboard shall issue any press release or make a public announcement regarding this Agreement or the matters contemplated hereby without the prior written consent of the other Party. During the Standstill Period, neither the Company nor Starboard shall make any public announcement or statement that is inconsistent with or contrary to the terms of this Agreement.

6.
Specific Performance . Each of Starboard, on the one hand, and the Company, on the other hand, acknowledges and agrees that irreparable injury to the other Party hereto would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that such injury would not be adequately compensable by the remedies available at law (including the payment of money damages). It is accordingly agreed that Starboard, on the one hand, and the Company, on the other hand (the “ Moving Party ”), shall each be entitled to specific enforcement of, and injunctive relief to prevent any violation of, the terms hereof, and the other Party hereto will not take action, directly or indirectly, in opposition to the Moving Party seeking such relief on the grounds that any other remedy or relief is available at law or in equity. This Section 6 is not the exclusive remedy for any violation of this Agreement.

7.
Expenses . The Company shall reimburse Starboard for its reasonable, documented out-of-pocket fees and expenses (including legal expenses) incurred through the date of this Agreement in connection with Starboard’s



involvement at the Company, including, but not limited to, the negotiation and execution of this Agreement, provided that such reimbursement shall not exceed $275,000 in the aggregate.

8.
Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the Parties that the Parties would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. In addition, the Parties agree to use their best efforts to agree upon and substitute a valid and enforceable term, provision, covenant or restriction for any of such that is held invalid, void or enforceable by a court of competent jurisdiction.

9.
Notices . Any notices, consents, determinations, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending Party); (c) upon confirmation of receipt, when sent by email (provided such confirmation is not automatically generated); or (d) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the Party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
 
 
 
 
Cerner Corporation
 
2850 Rockcreek Parkway
 
Attention: Marc Naughton, Chief Financial Officer  
 
Facsimile: +1 816 571 1989
 
Email: mnaughton@cerner.com
 
 
 
with a copy (which shall not constitute notice) to:
 
 
 
 
Cerner Corporation
 
2800 Rockcreek Parkway
 
North Kansas City, Missouri 64117
 
Attention: Randy Sims, Chief Legal Officer
 
Facsimile: +1 816 571 2556
 
Email: rsims@cerner.com
 
 
 
 
and
 
 
 
 
 
Latham & Watkins LLP
 
355 South Grand Avenue, Suite 100
 
Los Angeles, CA 90071-1560
 
Attention:
Jim Beaubien
 
 
Mark Gerstein
 
 
Josh Dubofsky
 
Facsimile:
(424) 653-5501
 
 
(312) 993-9767
 
 
(650) 463-2600




 
E-mail:
james.beaubien@lw.com
 
 
mark.gerstein@lw.com
 
 
josh.dubofsky@lw.com
 
 
 
If to Starboard or any member thereof:
 
 
 
 
Starboard Value LP
 
777 Third Avenue, 18th Floor
 
New York, NY 10017
 
Attention: Jeffrey C. Smith
 
Email:      jsmith@Starboardvalue.com
 
 
 
with a copy (which shall not constitute notice) to:
 
 
 
 
Olshan Frome Wolosky LLP
 
1325 Avenue of the Americas
 
New York, New York 10019
 
Attention:
Steve Wolosky
 
 
Andrew Freedman
 
 
Meagan M. Reda
 
Facsimile:
(212) 451-2222
 
Email:
swolosky@olshanlaw.com
 
 
afreedman@olshanlaw.com
 
 
mreda@olshanlaw.com

10.
Applicable Law . This Agreement and all claims and causes of action hereunder, whether in tort or contract, or at law or in equity, shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without reference to the conflict of laws principles thereof. Each of the Parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other Party hereto or its successors or assigns, whether in tort or contract or at law or in equity, shall be brought and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any federal court within the State of Delaware). Each of the Parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement in any court other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by applicable legal requirements, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

11.
Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party (including by means of electronic delivery or facsimile).




12.
Mutual Non-Disparagement . Subject to applicable law, each of the Parties covenants and agrees that, during the Standstill Period or if earlier, until such time as the other Party or any of its agents, subsidiaries, affiliates, successors, assigns, officers, key employees or directors shall have breached this Section 12 , neither it nor any of its respective agents, subsidiaries, affiliates, successors, assigns, officers, key employees or directors, shall in any way publicly criticize, disparage, call into disrepute or otherwise defame or slander the other Party or such other Party’s subsidiaries, affiliates, successors, assigns, officers (including any current officer of a Party or a Party’s subsidiaries who no longer serves in such capacity at any time following the execution of this Agreement), directors (including any current director of a Party or a Party’s subsidiaries who no longer serves in such capacity at any time following the execution of this Agreement), employees, stockholders, agents, attorneys or representatives, or any of their businesses, products or services, in any manner that would reasonably be expected to damage the business or reputation of such other Party, their businesses, products or services or their subsidiaries, affiliates, successors, assigns, officers (or former officers), directors (or former directors), employees, stockholders, agents, attorneys or representatives. For purposes of this Section 12 , no actions taken by any director, agent or other representative of a Party in any capacity other than on behalf of, and at the direction of, such Party will be covered by this Agreement.

13.
Securities Laws . Starboard acknowledges that it is aware, and will advise each of its representatives who are informed as to the matters that are the subject of this Agreement, that the United States securities laws may prohibit any person who has received from an issuer material, non-public information from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities, and Starboard will comply with such securities laws with respect to the Company and its securities.

14.
Entire Agreement; Amendment and Waiver; Successors and Assigns; Third Party Beneficiaries; Term . This Agreement contains the entire understanding of the Parties with respect to the subject matter of this Agreement. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings between the Parties with respect to the subject matter of this Agreement other than those expressly set forth herein. No modifications of this Agreement can be made except in writing signed by an authorized representative of each the Company and Starboard. No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. The terms and conditions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties hereto and their respective successors, heirs, executors, legal representatives, and permitted assigns. No Party shall assign this Agreement or any rights or obligations hereunder without, with respect to Starboard, the prior written consent of the Company, and with respect to the Company, the prior written consent of Starboard. The term “including” shall be deemed to be followed by the words “without limitation.” This Agreement is solely for the benefit of the Parties and is not enforceable by any other persons or entities. This Agreement shall terminate at the end of the Standstill Period, except the provisions of Sections 6 , 9 , 10 , 13 and 14 , which shall survive such termination; provided , however , that either Party may bring an action following such termination alleging a breach of this Agreement occurring prior to the end of the Standstill Period.

[The remainder of this page intentionally left blank]



IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the Parties as of the date hereof.

COMPANY:
 
 
 
 
 
CERNER CORPORATION
 
 
 
 
 
By:
/s/ Randy D. Sims
 
 
Name:
Randy D. Sims
 
 
Title:
Executive Vice President & Chief Legal Officer




STARBOARD:
 
 
 
STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD
 
 
 
By:
Starboard Value LP, its investment manager
 
 
 
STARBOARD VALUE AND OPPORTUNITY S LLC
 
 
 
By:
Starboard Value LP, its manager
 
 
 
STARBOARD VALUE AND OPPORTUNITY C LP
 
 
 
By:
Starboard Value R LP, its general partner
 
 
 
STARBOARD VALUE AND OPPORTUNITY MASTER FUND L LP
 
 
 
By:
Starboard Value L LP, its general partner
 
 
 
STARBOARD VALUE L LP
 
 
 
By:
Starboard Value R GP LLC, its general partner
 
 
 
STARBOARD VALUE R LP
 
 
 
By:
Starboard Value R GP LLC, its general partner
 
 
 
STARBOARD VALUE LP
 
 
 
By:
Starboard Value GP LLC, its general partner
 
 
 
STARBOARD VALUE GP LLC
 
 
 
By:
Starboard Principal Co LP, its member
 
 
 
STARBOARD PRINCIPAL CO GP LLC
 
 
 
STARBOARD PRINCIPAL CO LP
 
 
 
By:
Starboard Principal Co GP LLC, its general partner
 
 
 
STARBOARD VALUE R GP LLC
 
 
 
By:
/s/ Peter A. Feld
 
Name:
Peter A. Feld
 
Title:
Authorized Signatory




Exhibit 99.1

Cerner Announces Agreement with Starboard Value Regarding Board Refreshment,
Operational Improvement Initiatives and Expanded Capital Return Program to
Drive Next Phase of Profitable Growth and Value Creation

Four New Directors to Be Immediately Appointed to the Board of Directors

Commitment to Adjusted Operating Margin Targets for Q4 2019 and Q4 2020 of 20% and 22.5%, Respectively 1  

Creation of Finance and Strategy Committee of the Board to Oversee Operational Improvement Initiatives

Increases Share Repurchase Authorization Resulting in $1.5 Billion Available for Repurchase

Kansas City, Mo., April 9, 2019 - Cerner Corporation (NASDAQ: CERN) (“Cerner” or the “Company”) today announced that the Company has entered into a cooperation agreement (the “Cooperation Agreement”) with Starboard Value LP (together with certain of its affiliates, “Starboard”). The Cooperation Agreement includes a Board refreshment plan, operational improvement initiatives, commitments for operating margin targets, a new Finance and Strategy Committee of the Board and an expanded capital return program to drive the next phase of profitable growth and value creation.

The Company’s Board of Directors (the “Board”) has appointed four new directors, effective immediately: John Greisch , former President and Chief Executive Officer of Hill-Rom Holdings, Inc., R. Halsey Wise , former Chairman and Chief Executive Officer of MedAssets Inc., Melinda Mount , former President of AliphCom, Inc. (d/b/a Jawbone), and George Riedel , former Chairman and Chief Executive Officer of Cloudmark, Inc. and a former Senior Partner of McKinsey & Co. The four new directors have been appointed to Classes II, III, II and III, respectively. As members of Class III, Messrs. Wise and Riedel will be standing for election at the 2019 Annual Meeting of Shareholders (the “Annual Meeting”). Current Cerner Board member William Zollars has been appointed to the newly created position of Lead Independent Director.

The Company also announced that Denis Cortese is retiring from the Board at the end of his term and will not stand for re-election. Following the Annual Meeting, the Board will comprise 10 members, nine of whom are independent. With Mr. Cortese’s retirement, the previously announced retirement of co-founder Cliff Illig, and the additions of the four new directors, Cerner will have refreshed more than one half of its Board since 2017.

“Since assuming the role of Chief Executive Officer in 2018, I, along with our entire Board and leadership team, have been reviewing Cerner’s operational and financial performance to identify opportunities to unlock the Company’s significant potential,” said Brent Shafer, Chairman and Chief Executive Officer of Cerner. “We are focused on effectively implementing a refined operating model to improve efficiency and profitability, while also innovating at scale for our clients and preparing Cerner for its next phase of growth and shareholder value creation. We are committed to delivering significant operating margin improvement and returning capital to our shareholders, while maintaining an unwavering focus on delivering value to our clients.”
 

1 Future period non-GAAP guidance includes adjustments for items not indicative of our core operations, which may include, without limitation, share-based compensation expense, voluntary separation plan expense and acquisition-related expenses. Such adjustments may be affected by changes in ongoing assumptions and judgments, as well as nonrecurring, unusual or unanticipated charges, expenses or gains or other items that may not directly correlate to the underlying performance of our business operations. The exact amounts of these adjustments are not currently determinable but may be significant. It is therefore not practicable to provide the comparable GAAP measures or reconcile this non-GAAP guidance to the most comparable GAAP measures. See reconciliation for historical GAAP operating margin in the Appendix.




“We welcome John, Melinda, George and Halsey to the Cerner Board,” said Mitch Daniels, Chair of the Board’s Nominating, Governance & Public Policy Committee. “These directors will bring invaluable counsel from their experience in leading, operating and advising software and healthcare technology companies. I believe we will greatly benefit from their perspectives as we continue to execute on our operational initiatives and build on our position as a leading innovator in health care. We feel strongly that the actions we are taking today will generate long-term value for all Cerner stakeholders.”

Peter Feld, Managing Member of Starboard, added, “We are pleased to have reached this agreement with Cerner which includes a meaningful refreshment of the Board, as well as important steps towards implementing operational improvement initiatives that will drive profitable growth. We believe the operating margin targets and the significantly expanded capital return program demonstrate a strong commitment to driving improved results and shareholder value creation. We are confident that the new directors announced today will bring fresh perspectives and added expertise to the Board. Cerner is a great company with significant value potential, and we look forward to seeing the results of the initiatives announced today.”

Mr. Daniels continued, “On behalf of the entire Board and management team, I’d like to thank Denis for his years of service to Cerner. Cerner has valued his counsel, extensive industry research and medical experience, and we wish him well.”

Operational Improvement Initiatives

After a thorough internal and external review over the last year, Cerner is making a series of changes to its organizational structure, go-to-market philosophy and capital allocation program. Notably Cerner has taken the following actions:

•
Eliminated the President role and created a more client-focused organization under the Chief Client Officer;

•
Eliminated the Strategic Business Unit (SBU) structure, which has streamlined operations by reducing redundancy, improving efficiency and focusing the organization on profitable growth areas and client commitments;

•
Undertaken a comprehensive portfolio review to drive efficiencies and focus within Cerner’s product development teams;

•
Centralized operational functions that were formerly spread across different leaders under the Chief Operating Officer;

•
Announced the intent to initiate a dividend, significantly increase the share repurchase authorization and focus on free cash flow generation by linking it to executives’ variable compensation;

•
Committed to operating margin expansion resulting from anticipated benefits of the new operating model and additional efficiencies expected to be identified in the new operating structure; and

•
Formed a new Finance and Strategy Committee of the Board to oversee operational and financial improvement initiatives.

Cerner transitioned to its new operating structure in the first quarter of 2019. The Company has been focused on leveraging the impact of this reorganization and identifying additional efficiencies. Currently, Cerner is focused on reducing operating expense and generating other efficiencies that will improve its adjusted operating margin, with targeted adjusted operating margins of 20% for the fourth quarter of 2019 and 22.5% for the fourth quarter of 2020. 1  

To assist in these efforts, Cerner has engaged AlixPartners, LLP, a leading outside consulting firm, to conduct a detailed review of its operations and cost structure. Our goal is to identify opportunities to operate more efficiently and achieve



and improve upon the efficiencies without impacting important investments in Cerner’s solutions and commitments to the Company’s clients.

The review of these efforts will be overseen by a newly formed Finance and Strategy Committee of the Board, which comprises five members, including Mr. Greisch as Committee Chair, Messrs. Riedel, Wise and Zollars and Ms. Mount. The Finance and Strategy Committee will work closely with management and AlixPartners as Cerner executes its strategy to achieve the operational targets identified. In addition to the Finance and Strategy Committee, each of the four newly appointed directors will join a minimum of one additional Board committee.

Share Repurchase Authorization

Cerner also today announced that its Board has approved an amendment to its stock repurchase program, authorizing the repurchase of an additional $1.2 billion of its common stock. When combined with the $0.3 billion of authorization remaining on the program that was approved in May 2018, the total authorized amount available for repurchase is approximately $1.5 billion. The Company intends to fund the repurchase program with cash from operations and by issuing debt.

Cerner plans to repurchase shares opportunistically in the open market, by block purchase, in privately negotiated transactions or possibly through other transactions managed by broker-dealers. The Company expects to execute the majority of the repurchase authorization in the next 12 months, subject to market conditions and other factors, including price.

Significantly increasing the repurchase program and the recently announced initiation of a dividend reflects Cerner’s commitment to returning capital to shareholders and the Company’s belief in Cerner’s long-term potential as it executes a balanced capital allocation program combined with the operational improvement initiatives identified.

Cooperation Agreement with Starboard

Starboard, which owns approximately 1.2% of Cerner’s outstanding shares, has agreed to vote all of its shares in favor of Cerner’s nominees at the Annual Meeting and has entered into other customary standstill and voting commitments. The full Cooperation Agreement between Cerner and Starboard will be filed on a Form 8-K with the U.S. Securities and Exchange Commission.

2019 Annual Meeting

The Annual Meeting is scheduled to be held on Thursday, May 30, 2019 at 10:00 a.m. Central Time, in the Cerner Round Auditorium in the Cerner Vision Center, located on the Cerner campus at 2850 Rockcreek Parkway, North Kansas City, Missouri. The record date for determining eligibility to vote at the Annual Meeting is Tuesday, April 30, 2019.

Goldman Sachs & Co. LLC is acting as financial advisor and Latham & Watkins LLP is acting as legal advisor to Cerner.

About John Greisch

Mr. Greisch most recently served as President and Chief Executive Officer of Hill-Rom Holdings, Inc. (NYSE: HRC), a leading provider of medical technologies for the health care industry, including vital sign monitoring systems, hospital beds, patient lifts and non-invasive therapeutic products. He brings to Cerner significant operating experience based on his prior roles as CEO and CFO at notable public healthcare companies.

Prior to Hill-Rom, Mr. Greisch served as President International Operations for Baxter International, Inc. (NYSE: BAX). During his seven-year tenure with Baxter, he also served as Baxter’s Chief Financial Officer and as President of Baxter’s BioScience division. He also previously served as President and Chief Executive Officer for FleetPride



Corporation, an independent after-market distribution company serving the transportation industry, and held various positions at The Interlake Corporation, including serving as President of its Materials Handling Group.

Mr. Greisch currently serves as a director at Idorsia Pharmaceuticals Ltd. (SIX Swiss Exchange: IDIA) and Catalent, Inc. He previously served on the Boards of Directors of Hill-Rom Holdings, Inc. (NYSE: HRC), Actelion Ltd., TomoTherapy, Inc. (formerly Nasdaq: TOMO) and The Advanced Medical Technology Association (AdvaMed). Additionally, he serves as a senior advisor to TPG Capital and is on the Board of Directors for Ann & Robert H. Lurie Children’s Hospital of Chicago. He received a Master’s in Management from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.S. degree from Miami University.

About Melinda J. Mount

Ms. Melinda J. Mount most recently served as the President of AliphCom, Inc. (d/b/a Jawbone), a consumer technology and wearable products company. Previously, she held various senior level positions at Microsoft Corporation (Nasdaq: MSFT), including Corporate Vice President and Chief Financial Officer of the Online Services Division and Corporate Vice President of Operations and Finance and Chief Financial Officer of the Entertainment and Device Division. Prior to joining Microsoft, Ms. Mount served as the Vice President of Strategy and Development at Time Warner, Inc. (formerly NYSE: TWX) and Executive Vice President and Co-Managing Director of the United Kingdom Division of AOL Inc. (formerly NYSE: AOL). She also previously served as Vice President of Mergers and Acquisitions at Morgan Stanley (NYSE: MS).

She is Vice Chairman of the Board of Directors of Technicolor SA (TCH: FP) and a member of the Board of Directors of the Learning Care Group, Inc.

Ms. Mount has a Master’s of Business Administration with distinction from Harvard Business School and a B.B.A from the University of Wisconsin-Madison. She is a member of the Board of Directors of the University of Wisconsin Foundation.

About George A. Riedel

Mr. Riedel most recently served as the Chairman and Chief Executive Officer of Cloudmark, Inc., a leader in security, protecting traffic, data and infrastructure from network threats. He brings to Cerner 15 years of experience in various executive and entrepreneurial roles in technology related industries.

Prior to Cloudmark, Mr. Riedel held various senior management positions at Nortel Networks Corporation, including Chief Strategy Officer. He also has served as Vice President of Strategy and Corporate Development of Juniper Networks, Inc. and Senior Partner at McKinsey & Company where he spent 15 years serving clients in the telecom and technology sectors in Asia and North America on a range of strategy and growth issues.

Mr. Riedel currently serves on the Board of Directors of Xperi Corporation (f/k/a Tessera Holding Corporation) (Nasdaq: XPER) and previously served as the Chairman of the Board of Accedian Networks Inc. He also previously served on the Boards of Directors of NextDocs Corporation, PeerApp Ltd. and Blade Network Technologies.

Mr. Riedel earned a B.S. with Distinction in Mechanical Engineering from the University of Virginia and a Master of Business Administration from Harvard Business School. Mr. Riedel attended the Stanford Graduate Business School Executive Education Program for Directors. He is currently a professor at Harvard Business School.

About R. Halsey Wise

Mr. Wise is Chairman and Chief Executive of Lime Barrel Advisors, LLC, a private investment firm he founded in 2010. He brings to Cerner more than 30 years of experience leading, operating and advising
software and healthcare technology companies.




He previously served as Chairman and Chief Executive Officer of MedAssets Inc. (formerly Nasdaq: MDAS), a leading health care technology performance improvement company that provides technology-enabled products and services for hospitals, health systems, non-acute healthcare providers, payers and other service providers and product manufacturers in the United States. Prior to that, Mr. Wise served as Chairman, President, and Chief Executive Officer of Intergraph Corporation (formerly Nasdaq: INGR), a provider of geospatial and engineering software; Chairman, Chief Executive Officer, and President of the North American region for Solution 6 Holdings, Ltd.; General Manager of the North American region for Global Services for CA, Inc. and President and Chief Operating Officer of Computer Management Sciences, Inc. (formerly Nasdaq: CMSX), a software and services provider.

Mr. Wise serves on the Boards of Directors of WellSky and Aspen Technology, Inc. (Nasdaq: AZPN), and he has also served on the Boards at several publicly held companies, including Cotiviti Health Inc. (formerly NYSE: COTV), Acxiom Corporation (Nasdaq: ACXM)) and Intergraph Corporation (formerly Nasdaq: INGR). He holds a Master’s of Business Administration in finance and marketing from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.A. degree in history from the University of Virginia.

About Cerner

Cerner relentlessly seeks breakthrough innovation that will shape the health care of tomorrow. The company connects people and information systems at more than 27,500 contracted provider facilities worldwide. Cerner’s integrated system assists clinicians in making care decisions, and helps providers manage the health of their populations, along with their daily financial operations. For more information, visit Cerner.com, The Cerner Blog, The Cerner Podcast or connect on Facebook, Instagram, LinkedIn or Twitter.

About Starboard Value LP

Starboard Value LP is a New York-based investment adviser with a focused and differentiated fundamental approach to investing primarily in publicly traded U.S. companies. Starboard invests in deeply undervalued companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute forward-looking statements. These forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner’s management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words “expects”, “expected”, “believe”, “belief,” “plans”, “anticipate,” “opportunities,” “strategy,” “continue,” “potential,” “possible,” “should,” “predict,” “will,” “may,” “target,” “view,” “estimate” or the negative of these words, variations thereof or similar expressions are intended to identify such forward-looking statements. For example, our forward-looking statements include statements regarding improvements to our adjusted operating margin for the full calendar year 2020 and the fourth quarter of 2020 and statements regarding actions to be taken by Cerner. Factors that could cause or contribute to such differences include, but are not limited to: possibility of significant costs and reputational harm related to product related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities, or those of third parties with whom we have contracted (such as public cloud providers), that could expose us to significant costs and reputational harm; the possibility of increased expenses, exposure to legal claims and regulatory actions and reputational harm associated with a cyberattack or other breach in our IT security or the IT security of third parties on which we rely; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; potential claims or other risks associated with relying on open source software in our proprietary software solutions or technology- enabled services; material adverse resolution of legal proceedings or other claims; risks associated with our global operations, including without limitation greater difficulty in collecting accounts receivable; risks associated with fluctuations in foreign currency exchange rates; changes in tax laws, regulations or guidance that could adversely affect



our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; the uncertainty surrounding the impact of the United Kingdom’s vote to leave the European Union (commonly referred to as Brexit) on our global business; risks associated with the unexpected loss or recruitment and retention of key personnel or the failure to successfully develop and execute succession planning to assure transitions of key associates and their knowledge, relationships and expertise; risks associated with failure to timely or effectively manage publicity related to harassment or discrimination claims and legal proceedings if such claims are raised against key personnel; risks related to our dependence on strategic relationships and third-party suppliers; risks inherent with business acquisitions and combinations and the integration thereof into our business or relating to disputes involving such acquisitions or combinations; risks associated with volatility and disruption resulting from global economic or market conditions; significant competition and our ability to quickly respond to market changes, changing technologies and evolving pricing and deployment methods and to bring competitive new solutions, devices, features and services to market in a timely fashion; managing growth in the new markets in which we offer solutions, health care devices or services; long sales cycles for our solutions and services; risks inherent in contracting with government clients, including without
limitation, complying with strict compliance and disclosure obligations, navigating complex procurement rules and processes and defending against bid protests; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements; the potential for losses resulting from asset impairment charges; changing political, economic, regulatory and judicial influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; non-compliance with laws, government regulation or certain industry initiatives or failure to deliver solutions or services that enable our clients to comply with laws or regulations applicable to their businesses; variations in our quarterly operating results; potential variations in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity; inability to reduce expenses and costs to the extent currently anticipated; risks that Cerner’s revenue growth be lower than anticipated and/or the mix of revenue shifts more to low margin revenue; political, legal or reputational impediments to Cerner’s ability to implement certain cost-cutting measures both domestically and internationally; risks that our stock repurchase program or quarterly dividend program will not be fully implemented or enhance long-term shareholder value; and our directors’ authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents. Additional discussion of these and other risks, uncertainties and factors affecting Cerner’s business is contained in Cerner’s filings with the Securities and Exchange Commission. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. Except as required by law, Cerner undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in our business, results of operations or financial condition over time.

Cerner Media Contact: Joe Mandacina, (816) 571-9637, joe.mandacina@cerner.com
Cerner Investors Contact: Allan Kells, (816) 201-2445, AKells@cerner.com

Joele Frank, Wilkinson Brimmer Katcher
Tim Lynch / Dan Moore / Jill Kary, 212-355-4449




APPENDIX I
CERNER CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
For the years ended December 29, 2018 and December 30, 2017
(unaudited)

ADJUSTED OPERATING EARNINGS AND ADJUSTED OPERATING MARGIN
(In thousands)
 
Years Ended
 
 
2018
2017
 
 
 
 
Operating earnings (GAAP)
 
$
774,785

$
960,471

 
 
 
 
Share-based compensation expense
 
102,419

88,969

Health Services acquisition-related amortization
 
83,483

83,285

Acquisition-related deferred revenue adjustment
 
—

16,885

Allowance on non-current asset
 
45,320

—

Other adjustments
 
4,868

72

 
 
 
 
Adjusted Operating Earnings (non-GAAP)
 
$
1,010,875

$
1,149,682

 
 
 
 
Operating Margin (GAAP)
 
14.44
%
18.68
%
 
 
 
 
Adjusted Operating Margin (non-GAAP)
 
18.84
%
22.36
%

Explanation of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, we supplement our GAAP results with certain non-GAAP financial measures, which we believe enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance. These non-GAAP financial measures are not meant to be considered in isolation, as a substitute for, or superior to GAAP results and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with Cerner's consolidated financial statements prepared in accordance with GAAP. These non-GAAP measures may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculations. We provide the measures of Adjusted Operating Earnings and Adjusted Operating Margin as such measures are used by management, along with GAAP results, to analyze Cerner's business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes.

We calculate each of our non-GAAP financial measures as follows:

Adjusted Operating Earnings - Consists of GAAP operating earnings adjusted for: (i) share-based compensation expense, (ii) Health Services acquisition-related amortization, (iii) acquisition-related deferred revenue adjustment, (iv) an allowance on non-current asset, and (v) other adjustments.

Adjusted Operating Margin - Consists of Adjusted Operating Earnings, as defined above, divided by revenues, in the applicable period; the result presented as a percentage.

Adjustments included in the calculations of Adjusted Operating Earnings are described below:

Share-based compensation expense - Non-cash expense arising from our equity compensation and stock purchase plans available to our associates and directors. We exclude share-based compensation expense as we believe the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations.



Share-based compensation expense is included in our Condensed Consolidated Statements of Operations as follows:
(In thousands)
 
Years Ended
 
 
2018
2017
 
 
 
 
Sales and client service
 
$
46,239

$
48,063

Software development
 
21,468

19,196

General and administrative
 
34,712

21,710

Total share-based compensation expense
 
$
102,419

$
88,969


Health Services acquisition-related amortization - Non-cash expense consisting of the amortization of customer relationships, acquired technology, and trade name intangible assets recorded in connection with our acquisition of the Health Services business in February 2015. We exclude Health Services acquisition-related amortization as we believe the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations. Such amount is included in our Condensed Consolidated Statements of Operations in the caption "Amortization of acquisition-related intangibles."

Acquisition-related deferred revenue adjustment - Consists of acquisition-related deferred revenue adjustments in connection with our acquisition of the Health Services business in February 2015. Accounting guidance requires that deferred revenue acquired in a business combination be written-down to an estimate of fulfillment cost, plus a normal profit margin, as a part of the allocation of purchase price to assets acquired and liabilities assumed. We add back the amount of the write-down applicable to the period as we believe such amount directly correlates to the underlying performance of our business operations.

Allowance on non-current asset - Consists of a pre-tax charge to provide an allowance against certain disputed client receivables with a specific former client. Such disputed receivables are included in our Condensed Consolidated Balance Sheets in the caption "Other assets," as the process for resolution has been on-going for approximately 10 years. We have excluded this charge as we believe the amount of such charge does not directly correlate to the underlying performance of our business operations in the period it was recorded. Such charge is included in our Condensed Consolidated Statements of Operations in the caption "Sales and client service" expense.

Other adjustments - Consists of certain charges which we believe may not directly correlate to the underlying performance of our business operations. Other adjustments for the three and twelve months ended December 29, 2018 are comprised of certain employee separation expenses including such expenses incurred in connection with our former president's separation from the Company. Other adjustments for the twelve months ended December 30, 2017 are comprised of acquisition, employee separation, and other costs associated with our acquisition of the Health Services business in February 2015. Such amounts are included in our Condensed Consolidated Statements of Operations in the caption "General and administrative" expense.