<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COGNIZANT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 06-1450569
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880
(203) 222-4200
</TABLE>
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
KENNETH S. SIEGEL, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880
(203) 222-4200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER J. GORDON, ESQ. ROBERT A. SCHWED, ESQ.
SIMPSON THACHER & BARTLETT REBOUL, MACMURRAY, HEWITT,
425 LEXINGTON AVENUE MAYNARD & KRISTOL
NEW YORK, NY 10017 45 ROCKEFELLER PLAZA
NEW YORK, NY 10111
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this Registration Statement is declared effective.
------------------------
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) UNIT PRICE(3) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value of $.01 per share
(including Series A Junior Participating
Preferred Stock Purchase Rights)(4)............ 5,133,992 shares Not applicable $173,173,865 $51,303.68
</TABLE>
(1) This Registration Statement relates to securities of the Registrant issuable
to holders of common stock, par value $.01 per share ("Walsh Common Stock"),
of Walsh International Inc., a Delaware corporation ("Walsh"), in the
proposed acquisition of Walsh (the "Merger") by the Registrant or IMS Health
Incorporated, a Delaware corporation, which presently is a subsidiary of the
Registrant.
(2) The amount of common stock, par value $.01 per share, of the Registrant
("Cognizant Common Stock") to be registered has been determined on the basis
of an exchange ratio of 0.4362 of a share of Cognizant Common Stock for each
outstanding share of Walsh Common Stock and the maximum aggregate number of
shares of Walsh Common Stock (11,769,811) to be exchanged in the Merger for
shares of Cognizant Common Stock, assuming solely for the purpose of
calculating the registration fee that (i) all outstanding Walsh stock
options are exercised prior to the effective time of the Merger and (ii) all
outstanding Walsh warrants are exercised prior to the effective time of the
Merger.
(3) The registration fee was calculated, pursuant to Rule 457(f)(1), based on
the market value of shares of Walsh Common Stock computed, in accordance
with Rule 457(c), on the high and low prices per share of Walsh Common Stock
on the Nasdaq National Market on May 27, 1998. In accordance with Rule
457(b), the total registration fee of $51,303.68 has been reduced by
$36,367.94, which was paid on April 3, 1998, at the time of the filing under
the Securities Exchange Act of 1934, as amended, of preliminary copies of
Walsh's proxy materials included herein. Therefore, the registration fee
payable upon filing of this Registration Statement is $14,935.74.
(4) Includes associated rights (the "Rights") to purchase 1/1,000th of a share
of the Registrant's Series A Junior Participating Preferred Stock. Until the
occurrence of certain prescribed events, the Rights are not exercisable, are
evidenced by the certificates representing Cognizant Common Stock and will
be transferred only with such shares of Cognizant Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WALSH INTERNATIONAL INC.
PROXY STATEMENT
--------------------------
COGNIZANT CORPORATION
IMS HEALTH INCORPORATED
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Walsh International Inc., a Delaware corporation ("Walsh" or the "Company"), in
connection with the solicitation of proxies by the Board of Directors of Walsh
(the "Walsh Board") for use at the special meeting of stockholders of Walsh to
be held on June 24, 1998, at 10:00 a.m, local time, at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, 11th floor, New
York, New York (including any adjournments or postponements thereof, the
"Special Meeting").
At the Special Meeting, the holders of shares of common stock, par value
$.01 per share, of Walsh (together with the associated Walsh Rights (as defined
herein), the "Walsh Common Stock") will consider and vote upon the approval and
adoption of the Agreement and Plan of Merger, dated as of March 23, 1998 (the
"Merger Agreement"), among Cognizant Corporation, a Delaware corporation
("Cognizant"), WAC Inc., a Delaware corporation and a wholly owned subsidiary of
Cognizant ("Merger Sub"), and Walsh with respect to the merger of Merger Sub
with and into Walsh upon the terms and subject to the conditions thereof (the
"Merger"). Pursuant to the Merger Agreement, each share of Walsh Common Stock
issued and outstanding immediately prior to the Effective Time of the Merger
(the "Effective Time of the Merger") will be converted into a fraction of a
share of either (i) common stock, par value $.01 per share, of Cognizant
(together with the associated fraction of a Cognizant Right (as defined below),
the "Cognizant Common Stock"), or (ii) common stock, par value $.01 per share,
of IMS Health Incorporated, a Delaware corporation ("IMS HEALTH") (together with
the associated fraction of an IMS HEALTH Right (as defined herein), the "IMS
HEALTH Common Stock" and, together with the Cognizant Common Stock, the "Merger
Stock"). The form of Merger Stock and terms of conversion will depend upon
whether the Effective Time of the Merger occurs prior or subsequent to the
Cognizant Distribution Record Date (as defined below). As more fully described
in this Proxy Statement/Prospectus, Cognizant has announced plans for a tax-free
spin-off distribution (the "Cognizant Distribution") that will result in its
reorganization into two separately-owned, publicly-traded corporations: IMS
HEALTH and Nielsen Media Research, Inc., a Delaware corporation ("NMR").
Pursuant to a distribution agreement to be entered into prior to the Cognizant
Distribution, the assets and liabilities relating to the IMS HEALTH business
will be allocated to IMS HEALTH, and the assets and liabilities relating to the
Nielsen Media Research business will be allocated to NMR. See "Relationship
Between IMS HEALTH and Nielsen Media Research After the Distribution," "IMS
HEALTH Business" and "Nielsen Media Research Business" in Annex IV hereto.
Cognizant has received a ruling from the Internal Revenue Service (the "IRS") to
the effect that the Cognizant Distribution will be tax-free for Federal income
tax purposes. Assuming the Merger is approved at the Special Meeting as
scheduled, it is probable that the Effective Time of the Merger will occur prior
to the Cognizant Distribution Record Date and that the stockholders of Walsh
will receive Cognizant Common Stock as Merger Stock.
If the Effective Time of the Merger occurs prior to the record date for the
determination of holders of Cognizant Common Stock entitled to receive shares of
IMS HEALTH Common Stock in the Cognizant Distribution (the "Cognizant
Distribution Record Date"), each share of Walsh Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger will be
converted into a fraction of a share of Cognizant Common Stock, based upon an
exchange ratio determined by reference to the average of the closing sale prices
per share of Cognizant Common Stock on the New York Stock Exchange Composite
Transactions Tape (the "Composite Tape") on each of the 15 consecutive trading
days immediately preceding the second trading day prior to the Effective Time of
the Merger (the "Cognizant Common Stock Price"), as more fully described under
the caption "The Merger--Merger Consideration" in this Proxy Statement/
Prospectus. The former stockholders of Walsh would then (i) participate in the
Cognizant Distribution, (ii) receive shares of IMS HEALTH Common Stock on the
same basis as other Cognizant stockholders and (iii) own shares of IMS HEALTH
Common Stock and of common stock, par value $.01 per share, of NMR ("NMR Common
Stock") after the Cognizant Distribution.
If the Effective Time of the Merger occurs after the Cognizant Distribution
Record Date, each share of Walsh Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger will be converted into a fraction of a
share of IMS HEALTH Common Stock, based upon an exchange ratio determined by
reference to the average of the closing sale prices per share of IMS HEALTH
Common Stock on the Composite Tape on each of the 10 consecutive trading days
immediately preceding the second trading day prior to the Effective Time of the
Merger (the "IMS HEALTH Common Stock Price"), as more fully described under the
caption "The Merger--Merger Consideration" in this Proxy Statement/ Prospectus.
The former stockholders of Walsh would therefore have no ownership interest in
NMR as a result of the Merger.
There are certain risks that may apply with respect to the consideration to
be received by Walsh stockholders in the Merger if the Effective Time of the
Merger occurs after the Cognizant Distribution Record Date. See "Risk
Factors--Risks Relating to Cognizant Distribution and Merger--Nonparticipation
in NMR Future Performance" and "--Risks Relating to
(CONTINUED ON NEXT PAGE)
HOLDERS OF WALSH COMMON STOCK SHOULD CAREFULLY READ THIS PROXY
STATEMENT/PROSPECTUS, INCLUDING ITS ANNEXES, THE MATERIALS IT INCORPORATES BY
REFERENCE AND THE MATERIAL UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE
32.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Walsh on or about June 2, 1998.
--------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE 2, 1998.
<PAGE>
IMS HEALTH--Absence of Prior Trading Market for the IMS HEALTH Common Stock."
Whether the Effective Time of the Merger occurs prior to or after the Cognizant
Distribution Record Date is expected to be principally dependent upon whether
the stockholders of Walsh approve and adopt the Merger Agreement prior to the
Cognizant Distribution Record Date. It currently is anticipated that the
Cognizant Distribution Record Date will be on or about June 25, 1998.
The equivalent per share value for the Walsh Common Stock received in the
Merger will vary under the terms of the foregoing exchange ratios depending upon
a number of factors, including: (a) if the Merger occurs prior to the Cognizant
Distribution Record Date, the trading prices of the Cognizant Common Stock
during the specified trading period preceding the Merger; and (b) if the Merger
occurs after the Cognizant Distribution Record Date, both the relative trading
prices of the NMR Common Stock and the IMS HEALTH Common Stock during the
specified trading period following the Cognizant Distribution and the trading
prices of the IMS HEALTH Common Stock during the specified trading period
preceding the Merger. Walsh stockholders may call toll-free 1-877-530-8879 at
any time until June 24, 1998 to hear a tape-recorded message stating what the
relevant exchange ratio would be if that date were the closing date of the
Merger. See "Risk Factors--Risks Relating to the Cognizant Distribution and
Merger--The Effect of Stock Price Fluctuations on the Consideration to be
Received by Holders of Walsh Common Stock in the Merger."
The aggregate and per share consideration (whether the consideration is
Cognizant Common Stock or IMS HEALTH Common Stock) to be received by
stockholders of Walsh will be determined based on the exchange ratio applicable
to the date on which the Merger is consummated. The terms of the Merger
Agreement do not provide for minimum or maximum exchange ratios or for minimum
or maximum share amounts to be issued in the Merger. For purposes of
illustration, if the closing sale price of the Cognizant Common Stock on The New
York Stock Exchange, Inc. (the "NYSE") on May 27, 1998-- $50 1/2--was the
Cognizant Common Stock Price (as defined below), the Cognizant Exchange Ratio
(as defined below) would have been 0.3041 and each outstanding share of Walsh
Common Stock would have been converted into 0.3041 shares of Cognizant Common
Stock, which would have resulted in the aggregate issuance of 3,228,382 shares
of Cognizant Common Stock, at an aggregate consideration amount of approximately
$163,033,000. The actual value and number of shares to be issued in the Merger
will not be determined, however, until immediately prior to the Effective Time
of the Merger.
THE WALSH BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF WALSH VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
This Proxy Statement/Prospectus also serves as a Prospectus of Cognizant and
IMS HEALTH under the Securities Act of 1933, as amended (the "Securities Act"),
relating to shares of Merger Stock issuable in connection with the Merger. The
Cognizant Common Stock is listed for trading on the NYSE. On May 27, 1998, the
closing sale price of Cognizant Common Stock as reported on the Composite Tape
was $50 1/2. As of the date hereof, there is no established trading market for
the IMS HEALTH Common Stock. It is a condition to the Cognizant Distribution
that the IMS HEALTH Common Stock be accepted for listing on the NYSE, and a
"when issued" market is expected to develop prior to the Cognizant Distribution.
There can be no assurance, however, as to the prices at which the IMS HEALTH
Common Stock may trade in such "when issued" market or upon commencement of
"regular way" trading.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................ 2
SUMMARY.................................................................................................... 3
The Special Meeting.................................................................................... 3
The Parties............................................................................................ 4
The Merger............................................................................................. 6
SELECTED HISTORICAL FINANCIAL DATA......................................................................... 13
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA................................................................ 15
COMPARATIVE PRICES OF COGNIZANT AND WALSH COMMON STOCK AND DIVIDEND INFORMATION............................ 25
ABSENCE OF PRIOR TRADING MARKET FOR IMS HEALTH COMMON STOCK................................................ 26
COMPARATIVE PER SHARE DATA (UNAUDITED)..................................................................... 27
RISK FACTORS............................................................................................... 32
Risks Relating to Cognizant Distribution and Merger.................................................... 32
Risks Relating to IMS HEALTH........................................................................... 35
Risks Relating to NMR.................................................................................. 37
THE SPECIAL MEETING........................................................................................ 40
Date, Time and Place................................................................................... 40
Matters To Be Considered at the Special Meeting........................................................ 40
Vote Required.......................................................................................... 40
Voting of Proxies...................................................................................... 40
Revocability of Proxies................................................................................ 41
Record Date; Stock Entitled to Vote; Quorum............................................................ 41
Solicitation of Proxies................................................................................ 41
THE PARTIES................................................................................................ 42
Cognizant Corporation and IMS Health Incorporated...................................................... 42
Walsh International Inc................................................................................ 42
WAC Inc................................................................................................ 43
THE MERGER................................................................................................. 44
General................................................................................................ 44
Background of the Merger............................................................................... 44
Reasons for the Merger................................................................................. 45
Recommendation of the Walsh Board...................................................................... 47
Opinion of Financial Advisor to Walsh.................................................................. 47
Structure of the Merger................................................................................ 51
Merger Consideration................................................................................... 52
Effective Time of the Merger........................................................................... 58
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares....................... 58
Representations and Warranties......................................................................... 58
Conduct of Business Pending Merger..................................................................... 59
No Solicitation........................................................................................ 60
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conditions to the Consummation of the Merger........................................................... 61
Stock Exchange Listings................................................................................ 62
Regulatory Approvals Required.......................................................................... 62
Termination............................................................................................ 62
Termination Fee and Expense Reimbursement.............................................................. 63
Amendment and Waiver................................................................................... 64
Contemplated Assignment................................................................................ 64
Expenses............................................................................................... 64
Effect on Employee Benefits, Stock Plans and Stock Options............................................. 64
Effect on Warrants..................................................................................... 65
United States Federal Income Tax Consequences.......................................................... 65
Anticipated Accounting Treatment....................................................................... 66
Interests of Certain Persons in the Merger............................................................. 67
Stock Option Agreement................................................................................. 68
Amendment to Walsh Rights Agreement.................................................................... 69
Resale of Merger Stock................................................................................. 70
No Appraisal Rights.................................................................................... 70
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 71
General................................................................................................ 71
Comparison of Rights of Holders of Walsh Common Stock and Rights of Holders of Cognizant Common Stock
and IMS HEALTH Common Stock Following the Merger...................................................... 71
DESCRIPTION OF COGNIZANT CAPITAL STOCK..................................................................... 76
Authorized Capital Stock............................................................................... 76
Cognizant Common Stock................................................................................. 76
Cognizant Preferred Stock and Cognizant Series Common Stock............................................ 76
Authorized But Unissued Capital Stock.................................................................. 76
Cognizant Rights Plan.................................................................................. 77
Certain Effects of the Cognizant Rights Agreement...................................................... 79
No Preemptive Rights................................................................................... 80
Delaware General Corporation Law....................................................................... 80
Provisions of Cognizant Charter and Cognizant By-Laws Affecting Change in Control...................... 80
Indemnification and Limitation of Liability for Directors and Officers................................. 83
Transfer Agent and Registrar........................................................................... 83
Stock Exchange Listing; Delisting and Deregistration of Walsh Common Stock............................. 83
DESCRIPTION OF IMS HEALTH CAPITAL STOCK.................................................................... 84
Authorized Capital Stock............................................................................... 84
IMS HEALTH Common Stock................................................................................ 84
IMS HEALTH Preferred Stock and IMS HEALTH Series Common Stock.......................................... 84
Authorized But Unissued Capital Stock.................................................................. 85
IMS HEALTH Rights Plan................................................................................. 85
Certain Effects of the IMS HEALTH Rights Agreement..................................................... 88
No Preemptive Rights................................................................................... 88
Delaware General Corporation Law....................................................................... 88
Provisions of IMS HEALTH Charter and IMS HEALTH By-Laws Affecting Change in Control.................... 89
Indemnification and Limitation of Liability for Directors and Officers................................. 91
Transfer Agent and Registrar........................................................................... 91
Stock Exchange Listing; Delisting and Deregistration of Walsh Common Stock............................. 91
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CERTAIN MATTERS RELATING TO COGNIZANT
Cognizant Management's Discussion and Analysis of Financial Condition and Results of Operations........ 92
Cognizant Business..................................................................................... 92
Cognizant Management and Executive Compensation........................................................ 92
Cognizant Security Ownership by Certain Beneficial Owners and Management............................... 92
Cognizant Financial Statements......................................................................... 92
CERTAIN MATTERS RELATING TO WALSH.......................................................................... 92
Walsh Management's Discussion and Analysis of Financial Condition and Results of Operations............ 92
Walsh Business......................................................................................... 96
Walsh Security Ownership By Certain Beneficial Owners and Management................................... 103
EXPERTS.................................................................................................... 105
LEGAL OPINIONS............................................................................................. 105
STOCKHOLDER PROPOSALS...................................................................................... 105
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE OF
WALSH INTERNATIONAL INC. AND SUBSIDIARIES................................................................ F-1
</TABLE>
ANNEXES
<TABLE>
<S> <C>
Annex I Agreement and Plan of Merger
Annex II Stock Option Agreement
Annex III Opinion of NationsBanc Montgomery Securities
Annex IV Additional Information Relating to the Cognizant Distribution
</TABLE>
iii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY COGNIZANT CORPORATION, WALSH
INTERNATIONAL INC. OR IMS HEALTH INCORPORATED. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION OR TO ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF COGNIZANT CORPORATION, WALSH INTERNATIONAL INC. OR IMS
HEALTH INCORPORATED SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF, EXCEPT TO THE EXTENT THAT
APPLICABLE LAW REQUIRES COGNIZANT CORPORATION, WALSH INTERNATIONAL INC. OR IMS
HEALTH INCORPORATED TO MODIFY THE INFORMATION SET FORTH THEREIN.
AVAILABLE INFORMATION
Cognizant and Walsh are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Each of Cognizant and
IMS HEALTH has filed with the Commission a Registration Statement on Form S-4
(collectively, together with any amendments thereto, the "Registration
Statements") under the Securities Act with respect to the Merger Stock issuable
to holders of Walsh Common Stock pursuant to the Merger Agreement. The
Registration Statements and the exhibits thereto, as well as the reports, proxy
statements and other information filed by Cognizant (File No. 1-12275) and Walsh
(File No. 0-28202) with the Commission, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Commission's Regional Offices in
New York (Suite 1300, Seven World Trade Center, New York, New York 10048) and in
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661). Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates or through the Commission's Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR"). Recent materials filed by Cognizant and Walsh
also may be accessed electronically by means of the Commission's homepage on the
Internet at http://www.sec.gov. In addition, the Cognizant Common Stock is
listed on the NYSE, and material filed by Cognizant can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Following the
Cognizant Distribution it is expected that IMS HEALTH Common Stock will be
listed on the NYSE and material filed by IMS HEALTH will be available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York,
10005. The Walsh Common Stock is quoted on the Nasdaq National Market
("Nasdaq"), and material filed by Walsh can be inspected at the offices of The
Nasdaq Stock Market, Inc., Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006. This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statements and the exhibits thereto, a portion of
which has been omitted in accordance with the rules and regulations of the
Commission.
Although statements contained in this Proxy Statement/Prospectus, or in any
document incorporated in this Proxy Statement/Prospectus by reference, as to the
contents of any contract or other document referred to herein or therein are
accurate in all material respects, such statements are qualified in all respects
by reference to the copy of such contract or other document filed as an exhibit
to the Registration Statements or such other document incorporated herein by
reference. Such documents are available through EDGAR.
1
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus (including the documents incorporated herein
by reference) and other materials filed or to be filed by Cognizant, IMS HEALTH
and Walsh with the Commission, as well as information included in oral
statements or other written statements made or to be made by Cognizant, IMS
HEALTH and Walsh, contain statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements appear in a number of places in this document and
include, but are not limited to, all statements and information relating to the
financial and operating effects of the transactions contemplated by the Merger
Agreement and other planned acquisition transactions, other plans for future
growth and other business development activities as well as capital
expenditures, financing sources and the effects of regulation and competition,
the terms of the Cognizant Distribution and all other statements regarding the
intent, plans, belief or expectations of the parties or their directors or
officers. Walsh stockholders are cautioned that such forward looking statements
are not assurances of future performance or events and involve risks and
uncertainties that could cause actual results and developments to differ
materially from those covered in such forward looking statements. These risks
and uncertainties include, but are not limited to, risks associated with
operating on a global basis, including fluctuations in the value of foreign
currencies relative to the U.S. dollar, and the ability to successfully hedge
such risks; to the extent the companies seek growth through acquisition, the
ability to identify and consummate acquisitions on satisfactory terms; the
ability of the companies to complete development of or to develop new or
advanced technologies and systems for their businesses on a cost-effective
basis; the ability to successfully achieve estimated effective tax rates and
corporate overhead levels; competition, particularly in the markets for
pharmaceutical information and audience measurement services; regulatory and
legislative initiatives, particularly in the area of medical privacy; the
ability to timely and cost-effectively resolve any problems associated with the
Year 2000 issue; leverage and debt service (including sensitivity to
fluctuations in interest rates); compliance with covenants in loan agreements;
the ability to obtain future financing on satisfactory terms; deterioration in
economic conditions, particularly in the pharmaceutical, healthcare, media,
information technology or other industries in which customers operate;
conditions in the securities markets which may affect the value or liquidity of
portfolio investments; the determination and allocation of the purchase price in
connection with the proposed Merger; and the final allocation of assets and
liabilities between IMS HEALTH and NMR in the Cognizant Distribution.
Consequently, all the forward looking statements contained in this Proxy
Statement/Prospectus are qualified by the information contained or incorporated
herein, including, but not limited to, the information contained under this
heading and in "Selected Unaudited Financial Data," "Risk Factors," "The Merger"
and Annex IV hereto. None of Cognizant, Walsh or IMS HEALTH has any obligation
to publicly release any revision to any forward looking statement contained or
incorporated herein to reflect any future events or occurrences.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. STOCKHOLDERS ARE URGED TO
READ THIS PROXY STATEMENT/ PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
THE SPECIAL MEETING
<TABLE>
<S> <C>
DATE, TIME AND PLACE.............. The Special Meeting will be held at 10:00 a.m., local
time, on June 24, 1998 at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller
Plaza, 11th floor, New York, New York.
MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING................. At the Special Meeting, holders of Walsh Common Stock
will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement.
RECORD DATE....................... The record date for the Special Meeting is the close of
business in New York on May 14, 1998 (the "Record
Date"). See "The Special Meeting--Record Date; Stock
Entitled to Vote; Quorum."
VOTE REQUIRED..................... The approval and adoption of the Merger Agreement will
require the affirmative vote of the holders of a
majority of the shares of Walsh Common Stock outstanding
on the Record Date.
Holders of Walsh Common Stock as of the Record Date are
entitled to one vote per share on each matter to be
voted on at the Special Meeting. The approval and
adoption of the Merger Agreement does not require the
approval of the holders of any other outstanding
securities of Walsh. See "The Special Meeting--Votes
Required."
SECURITY OWNERSHIP OF MANAGEMENT
AND OTHERS...................... As of the Record Date, directors and executive officers
of Walsh and their affiliates beneficially owned and
were entitled to vote 450,955 shares of Walsh Common
Stock, which represented approximately 4.23% of the
shares of Walsh Common Stock outstanding on the Record
Date. Each Walsh director and executive officer has
indicated his present intention to vote, or cause to be
voted, the Walsh Common Stock so owned by him for
approval and adoption of the Merger Agreement. See "The
Special Meeting--Votes Required" and "The
Merger--Interests of Certain Persons in the Merger."
</TABLE>
3
<PAGE>
THE PARTIES
<TABLE>
<S> <C>
COGNIZANT CORPORATION, IMS HEALTH
INCORPORATED AND NIELSEN MEDIA
RESEARCH, INC................... Cognizant is a Delaware corporation that was
incorporated in 1996 and began operating as an
independent publicly held company on November 1, 1996 as
a result of its spin-off from The Dun & Bradstreet
Corporation ("D&B"). Prior to that spin-off, Cognizant
was wholly owned by D&B. Cognizant primarily is engaged
in the integration of information and technology to
create business insight. IMS HEALTH is a newly created
Delaware corporation. Following the Cognizant
Distribution, the businesses of IMS HEALTH will focus on
information solutions to the pharmaceutical and
healthcare industries. Providing services in over 90
countries with over 7,200 employees worldwide, IMS
HEALTH's businesses will include those of I.M.S.
International, Inc. ("IMS"), the leading global supplier
of market information and decision-support services to
the pharmaceutical and healthcare industries; Erisco,
Inc. ("Erisco"), a leading supplier of software-based
administrative and analytical solutions to the managed
care industry; Cognizant Enterprises, Inc.
("Enterprises"), a venture capital unit with a principal
focus on investments in emerging healthcare businesses;
Cognizant Technology Solutions Corporation ("CTS"), a
provider of software application development and
maintenance services and Year 2000 and Eurocurrency
compliance services; and a substantial equity interest
(47.2% on March 31, 1998) in Gartner Group, Inc.
("Gartner") the leading supplier of research and
analysis to the information technology industry.
Simultaneously with the execution and delivery of the
Merger Agreement, Cognizant entered into a similar
agreement to acquire Pharmaceutical Marketing Services
Inc. ("PMSI"), which provides a range of information
services to pharmaceutical and healthcare companies in
the United States, Europe and Japan to enable them to
optimize their sales and marketing performance. Most of
PMSI's information services are generated from databases
containing unique prescription, managed care, healthcare
market and medical prescriber data. The PMSI acquisition
is expected to be consummated following the Cognizant
Distribution, at which time PMSI will become a wholly
owned subsidiary of IMS HEALTH.
</TABLE>
4
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As a result of the Cognizant Distribution, the
electronic audience measurement services business of NMR
will remain with Cognizant, and, concurrently with the
Cognizant Distribution, Cognizant will change its name
to Nielsen Media Research, Inc. If the Merger is
consummated prior to the Cognizant Distribution Record
Date, stockholders of Walsh will receive common stock of
IMS HEALTH and NMR in the Cognizant Distribution on the
same basis as all other stockholders of Cognizant.
The principal executive offices of each of Cognizant,
IMS HEALTH and NMR currently are located at 200 Nyala
Farms, Westport, Connecticut 06880 and their telephone
number is (203) 222-4200.
ANNEX IV TO THIS PROXY STATEMENT/PROSPECTUS CONTAINS
DETAILED INFORMATION WITH RESPECT TO IMS HEALTH AND NMR,
AS WELL AS THE TERMS OF THE COGNIZANT DISTRIBUTION.
HOLDERS OF WALSH COMMON STOCK ARE URGED TO CAREFULLY
READ ANNEX IV IN ITS ENTIRETY.
WALSH INTERNATIONAL INC........... Walsh develops, markets, provides and supports
comprehensive sales and marketing information systems
for pharmaceutical companies to assist them in more
efficient management of their sales organizations. Walsh
is a market leader in providing electronic territory
management systems ("ETMS") and sales management
information solutions ("SMIS") to the pharmaceutical
industry worldwide. Walsh also provides data services
and marketing support services based on proprietary
databases of medical professionals and others who
influence prescribing decisions.
Walsh's principal executive offices are located at 105
Terry Drive, Suite 118, Newtown, Pennsylvania 18940 and
its telephone number is (215) 860-4949.
WAC INC........................... Merger Sub is a Delaware corporation and a wholly owned
subsidiary of Cognizant which was formed solely for the
purpose of entering into the Merger Agreement and
consummating the Merger. If the Merger is not
consummated prior to the Cognizant Distribution Record
Date, Cognizant will transfer its ownership in Merger
Sub to IMS HEALTH.
</TABLE>
5
<PAGE>
THE MERGER
<TABLE>
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RECOMMENDATION OF THE WALSH BOARD; The Walsh Board has determined that the terms of the
REASONS FOR THE MERGER.......... Merger Agreement and the Stock Option Agreement (as
defined herein) and the transactions contemplated
thereby, including the Merger, are fair to and in the
best interests of the stockholders of Walsh. The Walsh
Board has, by unanimous vote of all directors, approved
the Merger Agreement and the Stock Option Agreement and
the transactions contemplated thereby and recommends
that Walsh's stockholders vote to approve and adopt the
Merger Agreement. See "The Merger-- Recommendation of
the Walsh Board."
In making its determination to approve the Merger
Agreement, the Stock Option Agreement and the
transactions contemplated thereby, the Walsh Board
considered a number of factors described under "The
Merger--Reasons for the Merger-- Walsh." In making its
determination to approve the Merger Agreement, the Stock
Option Agreement and the transactions contemplated
thereby, the Cognizant Board considered a number of
factors described under "The Merger--Reasons for the
Merger--Cognizant."
OPINION OF FINANCIAL ADVISOR TO NationsBanc Montgomery Securities ("NMS"), the financial
WALSH........................... advisor to Walsh, has delivered to the Walsh Board its
written opinion, dated March 23, 1998, to the effect
that, as of the date of such opinion, the Cognizant
Exchange Ratio and the IMS HEALTH Adjustment Factor (as
defined in the Merger Agreement) are fair, from a
financial point of view, to the holders of Walsh Common
Stock (other than Cognizant and its affiliates). The
full text of the opinion of NMS, which sets forth the
assumptions made, procedures followed, matters
considered and limitations on the review undertaken, is
attached to this Proxy Statement/Prospectus as Annex
III. HOLDERS OF WALSH COMMON STOCK ARE URGED TO READ THE
OPINION OF NATIONSBANC MONTGOMERY SECURITIES CAREFULLY
IN ITS ENTIRETY.
Walsh has agreed to pay to NMS aggregate fees of up to
1.3% of the equity value of Walsh for NMS' services in
connection with the Merger, 50% of which is contingent
upon consummation of the Merger. Based on the price for
Cognizant Common Stock on the date of the Merger
Agreement, the aggregate fee payable to NMS would be
approximately $2.3 million, plus reasonable out-
of-pocket expenses.
For information on the assumptions made, procedures
followed, matters considered and limitations on the
review undertaken by NMS, see "The Merger--Opinion of
Financial Advisor to Walsh."
EFFECTS OF THE MERGER............. At the Effective Time of the Merger, Merger Sub will
merge with and into Walsh, with Walsh surviving the
Merger as a wholly owned subsidiary of Cognizant (if the
Effective Time of the Merger occurs prior to the
Cognizant Distribution Record Date)
</TABLE>
6
<PAGE>
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<S> <C>
or IMS HEALTH (if the Effective Time of the Merger
occurs after the Cognizant Distribution Record Date)
(Walsh, as the surviving corporation in the Merger, is
sometimes referred to herein as the "Surviving
Corporation").
At the Effective Time of the Merger, subject to certain
exceptions as described herein with respect to shares
owned by Cognizant, Walsh or their respective
subsidiaries, each outstanding share of Walsh Common
Stock will be automatically converted into: (a) if the
Effective Time of the Merger occurs prior to the
Cognizant Distribution Record Date, a fraction equal to
the Cognizant Exchange Ratio (as defined herein) of a
share of Cognizant Common Stock, and (b) if the
Effective Time of the Merger occurs on or after the
Cognizant Distribution Record Date, a fraction equal to
the IMS HEALTH Exchange Ratio (as defined herein) of a
share of IMS HEALTH Common Stock, except that, in either
case, cash will be paid in lieu of fractional shares of
Merger Stock.
EXCHANGE RATIOS................... The "Cognizant Exchange Ratio" and the "IMS HEALTH
Exchange Ratio" are defined and described under "The
Merger--Merger Consideration." Also see "Risk Factors--
Risks Relating to the Cognizant Distribution and
Merger--The Effect of Stock Price Fluctuations on the
Consideration to be Received by the Holders of Walsh
Common Stock in the Merger," "The Merger--Termination"
and "--Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares."
The aggregate and per share consideration (whether the
consideration is Cognizant Common Stock or IMS HEALTH
Common Stock) to be received by stockholders of Walsh
will be determined based on the exchange ratio
applicable to the date on which the Merger is
consummated. The terms of the Merger Agreement do not
provide for minimum or maximum exchange ratios or for
minimum or maximum share amounts to be issued in the
Merger. For purposes of illustration, if the closing
sale price of Cognizant Common Stock on the NYSE on May
27, 1998--$50 1/2--was the Cognizant Common Stock Price,
the Cognizant Exchange Ratio would have been 0.3041 and
each outstanding share of Walsh Common Stock would have
been converted into 0.3041 shares of Cognizant Common
Stock, which would have resulted in the aggregate
issuance of 3,228,382 shares of Cognizant Common Stock
on such date (at an aggregate consideration amount of
approximately $163,033,000). The actual value and number
of shares to be issued in the Merger will not be
determined, however, until immediately prior to the
Effective Time of the Merger. See "The Merger--Merger
Consideration."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
The following table provides examples of the Cognizant
Exchange Ratio, the aggregate consideration to be issued
in the Merger and certain other exchange information
utilizing representative Cognizant Common Stock Prices.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE SHARES
OF COGNIZANT PER SHARE
COGNIZANT COGNIZANT COMMON STOCK EQUIVALENT
COMMON EXCHANGE CONSIDERATION ISSUABLE PRICE OF WALSH
STOCK PRICE RATIO (IN MILLIONS) (IN MILLIONS) COMMON STOCK
- --------------- ----------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C>
$ 15 0.4621 $ 73.5 4.898 $ 6.93
$ 30 0.3953 $ 125.7 4.190 $ 11.86
$ 45 0.3162 $ 150.8 3.352 $ 14.23
$ 50 0.3041 $ 161.2 3.223 $ 15.21
$ 60 0.2878 $ 183.0 3.051 $ 17.27
$ 70 0.2592 $ 192.3 2.748 $ 18.14
$ 85 0.2282 $ 205.6 2.419 $ 19.40
</TABLE>
<TABLE>
<S> <C>
The following table provides examples of the IMS HEALTH
Exchange Ratio, the aggregate consideration to be issued
in the Merger and certain other exchange information
utilizing representative IMS HEALTH Common Stock Prices.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE SHARES OF
IMS IMS HEALTH COMMON PER SHARE
IMS HEALTH STOCK EQUIVALENT
HEALTH COMMON EXCHANGE CONSIDERATION ISSUABLE PRICE OF WALSH
STOCK PRICE RATIO (IN MILLIONS) (IN MILLIONS) COMMON STOCK
- --------------- ----------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C>
$ 15 0.4931 $ 78.4 5.227 $ 7.40
$ 30 0.4193 $ 133.3 4.445 $ 12.58
$ 45 0.3379 $ 161.2 3.582 $ 15.21
$ 50 0.3379 $ 179.1 3.582 $ 16.90
$ 60 0.2969 $ 188.8 3.147 $ 17.81
$ 70 0.2734 $ 202.9 2.898 $ 19.14
$ 85 0.2394 $ 215.7 2.538 $ 20.35
</TABLE>
<TABLE>
<S> <C>
CONDITIONS TO THE MERGER.......... The obligations of Cognizant and Merger Sub, on the one
hand, and Walsh, on the other hand, to consummate the
Merger are subject to various conditions, including,
among others: obtaining Walsh stockholder approval of
the Merger Agreement at the Special Meeting; the
termination or expiration of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the receipt of
certain regulatory and third party approvals; the
effectiveness of the Registration Statements; and
approval for listing on the NYSE, subject to official
notice of issuance, of the shares of Merger Stock to be
issued pursuant to the Merger. See "The
Merger--Conditions to the Consummation of the Merger."
REGULATORY APPROVALS REQUIRED..... See "The Merger--Regulatory Approvals Required" for
matters relating to regulatory approvals required in
connection with the Merger, each of which has been
obtained.
TERMINATION....................... The Merger Agreement may be terminated at any time prior
to the Effective Time of the Merger, whether before or
after approval and adoption by the stockholders of
Walsh, (i) by mutual written consent of Cognizant and
Walsh, (ii) by either party if (A) any governmental
authority shall have taken any
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
final, nonappealable action permanently enjoining,
restraining or otherwise prohibiting the Merger, (B) the
approval of stockholders of Walsh required for
consummation of the Merger shall not have been obtained
at the Special Meeting or (C) the Merger shall not have
been consummated on or before December 31, 1998, (iii)
by Cognizant, if the Walsh Board shall have withdrawn or
adversely modified or amended its approval or
recommendation of the Merger Agreement, failed to
include such recommendation therein, failed to timely
mail this Proxy Statement/Prospectus to Walsh's
stockholders, failed to recommend rejection of a third
party Transaction Proposal (as defined under "The
Merger--No Solicitation"), or failed to recommend the
rejection of any tender offer or exchange offer for more
than 15% of the outstanding shares of the Walsh Common
Stock, or (iv) by Walsh, if in compliance with the
Merger Agreement, the Walsh Board shall have concluded,
based on written advice of outside counsel, that in
order to avoid acting contrary to its fiduciary duties
it must not make or must withdraw or modify its
recommendation of the Merger Agreement.
TERMINATION FEE................... Walsh has agreed to pay Cognizant a termination fee of
$4,700,000 and to reimburse Cognizant's out-of-pocket
expenses up to a maximum of $850,000 if (i) the Merger
Agreement shall have been terminated (other than because
a final, nonappealable order or other action has been
issued or taken by a governmental authority permanently
prohibiting the Merger) and either (A) prior to such
termination a Person (as defined below) shall have
become the owner of more than 15% of the Walsh Common
Stock then outstanding (it being understood that no
owner of Walsh Common Stock as of the date of the Merger
Agreement shall be deemed such a Person unless, after
the date of the Merger Agreement, it acquires beneficial
ownership of at least 3% of the outstanding Walsh Common
Stock or becomes a member of a group of which it was not
a member as of such date or which includes a person
which was not a member thereof as of such date) or (B)
(1) prior to such termination a person or group shall
have made a Transaction Proposal or made public its
intention to make such a proposal and (2) on or prior to
March 23, 1999, Walsh shall have consummated or agreed
to consummate a Transaction Proposal or (ii) the Merger
Agreement is terminated under certain other
circumstances. See "The Merger--Termination," "--
Termination Fee and Expense Reimbursement" and "--No
Solicitation."
UNITED STATES FEDERAL INCOME TAX The Merger is intended by the parties to be a tax-free
CONSEQUENCES.................... reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and, more
likely than not, the Merger should constitute such a
reorganization. Assuming the Merger qualifies as such a
reorganization, no amount of gain or loss will be
recognized by Cognizant (or IMS HEALTH, as applicable),
Merger Sub or Walsh, and no gain or loss will be
recognized by Walsh stockholders, except in respect
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
of cash received by holders of Walsh Common Stock in
lieu of fractional shares of Cognizant Common Stock (or
IMS HEALTH Common Stock, as applicable). Consummation of
the Merger, however, is not conditioned upon either a
ruling from the IRS or opinions of counsel to the effect
that the Merger will constitute such a reorganization.
If the Merger occurs prior to the Cognizant
Distribution, the IRS may take the position that the
Merger does not qualify as such a reorganization. In the
event that the Merger were determined not to constitute
a reorganization under Section 368(a) of the Code, a
stockholder of Walsh will recognize gain or loss equal
to the difference between the fair market value of the
Cognizant Common Stock received by the stockholder and
the stockholder's adjusted tax basis in the shares of
Walsh Common Stock surrendered pursuant to the Merger.
See "Risk Factors--Risks Relating to Cognizant
Distribution and Merger--Potential Taxation of Merger"
and "The Merger--United States Federal Income Tax
Consequences."
ANTICIPATED ACCOUNTING The Merger will be treated as a "purchase" for
TREATMENT....................... accounting and financial reporting purposes. See "The
Merger--Anticipated Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN It is anticipated that after consummation of the Merger
THE MERGER...................... certain employees of Walsh, including certain senior
officers, will be employed by the Surviving Corporation
or IMS HEALTH. Cognizant anticipates that Michael Hauck,
Chief Executive Officer, Robert Mander, President and
Chief Operating Officer, and Martyn Williams, Chief
Financial Officer of Walsh, will be employed by IMS
HEALTH. Cognizant is currently discussing the terms of
such employment, but no definitive agreements have been
reached.
In the event he ceases to be employed by Walsh for any
reason (including if he chooses to cease such employment
for any reason), Mr. Hauck will become entitled to
receive approximately $1.5 million upon the consummation
of the Merger because it constitutes a "change of
control" pursuant to his existing employment agreement
with Walsh. Pursuant to his agreement with Walsh, Dennis
Turner, Chairman of the Board of Walsh, is entitled to a
payment of $300,000 if for any reason he ceases to serve
on the Walsh Board following a change of control. While
Messrs. Hauck and Turner were involved in the
negotiations of the Merger Agreement, the Merger
Agreement was unanimously approved by all six members of
the Walsh Board, after full disclosure to the Walsh
Board of the interests and potential interests described
above.
Each of Robert Mander, Martyn Williams and Leonard
Benjamin (none of whom was involved in the negotiation
of the Merger Agreement) will become entitled to receive
lump sum cash payments if, following the Merger (which
constitutes a "change of control" pursuant to their
existing employment agreements with Walsh), such
executive officer is terminated without cause or
terminates his employment with good reason (as such
terms are defined under their respective employment
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
agreements). The aggregate of such payments for the
three executive officers is approximately $2.3 million.
As of the Effective Time of the Merger, each vested and
unvested option to purchase shares of Walsh Common Stock
will become an option to acquire, on the same terms and
conditions as were applicable under such Walsh option,
the number of shares of Cognizant Common Stock (or IMS
HEALTH Common Stock, if the Effective Time of the Merger
occurs on or after the Cognizant Distribution Record
Date) which the holder of such Walsh option would have
been entitled to receive pursuant to the Merger if such
holder had exercised such Walsh option in full
immediately prior to the Effective Time of the Merger.
Options to purchase 280,075 shares of Walsh Common Stock
with an average exercise price of $10.64 per share will
become vested as a result of the Merger. Assuming a
price of Cognizant Common Stock to be received as Merger
Consideration of $51.792 per Cognizant share (or $15.75
per share of Walsh Common Stock), the aggregate option
spread would be approximately $1.4 million (or an
average of $5.11 per option). In addition, Cognizant
(or, as the case may be, IMS HEALTH) will establish an
employee stock option plan for the grant of additional
options at the Effective Time of the Merger to certain
employees of Walsh, which plan will be comparable to
currently existing Cognizant stock option plans, and
Cognizant (or, as the case may be, IMS HEALTH) may issue
restricted stock to certain employees of Walsh after the
Effective Time of the Merger.
Under the Merger Agreement, during the period preceding
the Merger, Walsh may enter into commitments with
certain Walsh employees (other than Walsh's executive
officers) with respect to the payment of "stay bonuses"
and similar incentive compensation not exceeding
$300,000 in the aggregate. In addition, Cognizant and
the Surviving Corporation have agreed to indemnify, and
maintain directors' and officers' insurance covering,
directors and officers of Walsh following the Merger.
See "The Merger--Effect on Employee Benefits, Stock
Plans and Stock Options" and "--Interests of Certain
Persons in the Merger."
The Walsh Board, in determining annual bonuses of
certain senior officers, conditioned part of such
bonuses on the completion of the Merger.
STOCK OPTION AGREEMENT............ Concurrently with and as a condition to entering into
the Merger Agreement, Cognizant and Walsh entered into a
Stock Option Agreement, dated as of March 23, 1998 (the
"Stock Option Agreement"), pursuant to which Walsh has
granted to Cognizant the option to purchase up to an
aggregate of 2,111,815 shares of Walsh Common Stock
(subject to adjustment under certain circumstances) at a
price of $15.75 per share. The option may be exercised
only upon the termination of the Merger Agreement under
circumstances that would entitle Cognizant (presently or
in the future) to receive a termination fee. No such
circumstances exist as of the date hereof. Upon the
</TABLE>
11
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<TABLE>
<S> <C>
occurrence of certain events (none of which has occurred
as of the date hereof), the Stock Option Agreement
requires Walsh, upon request of Cognizant or any holder
of Walsh Common Stock issued upon exercise of the
option, to repurchase the option and/or any shares
previously issued upon exercise thereof. The Stock
Option Agreement provides that the maximum compensation
received by Cognizant under the Stock Option Agreement,
together with any termination fee and expense
reimbursement received under the Merger Agreement, shall
not exceed $5,550,000. See "The Merger--Stock Option
Agreement."
NO APPRAISAL RIGHTS............... No holder of Walsh Common Stock will have any appraisal
rights under Delaware law in connection with, or as a
result of, the matters to be acted upon at the Special
Meeting. See "The Merger--No Appraisal Rights."
COMPARISON OF STOCKHOLDER The rights of stockholders of Walsh currently are
RIGHTS.......................... determined by reference to the Delaware General
Corporation Law (the "DGCL"), Walsh's Restated
Certificate of Incorporation, as amended (the "Walsh
Charter"), and Walsh's amended and restated by-laws (the
"Walsh By-Laws"). At the Effective Time of the Merger,
stockholders of Walsh will become stockholders of either
Cognizant or IMS HEALTH. As a result, their rights as
stockholders will then be determined by reference to the
DGCL and the provisions of either Cognizant's Amended
and Restated Certificate of Incorporation (the
"Cognizant Charter") and Cognizant's amended and
restated by-laws ( the "Cognizant By-Laws") or IMS
HEALTH's Restated Certificate of Incorporation (the "IMS
HEALTH Charter") and IMS HEALTH's amended and restated
by-laws (the "IMS HEALTH By-Laws"). See "Description of
Cognizant Capital Stock," "Description of IMS HEALTH
Capital Stock" and "Comparison of Stockholder Rights."
</TABLE>
12
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(UNAUDITED)
Set forth below is the selected historical financial data (unaudited) for
Walsh for the year ended December 31, 1992, the six months ended June 30, 1993,
for each of the four years in the period ended June 30, 1997 and the nine-month
periods ended March 31, 1998 and 1997. Set forth on page F-31 of Annex IV hereto
is selected historical financial data of IMS HEALTH(1) for each of the years in
the five years ended December 31, 1997 and for the three months ended March 31,
1998 and 1997. All such information has been derived from and should be read in
conjunction with the audited consolidated financial statements of IMS HEALTH (as
accounting successor to Cognizant) and Walsh, including the respective notes
thereto and management's discussions and analyses of financial condition and
results of operations, which are included in Annex IV hereto, in the case of IMS
HEALTH, and are included elsewhere herein, in the case of Walsh. The selected
historical financial information (unaudited) for the three-month periods ended
March 31, 1998 and 1997, in the case of IMS HEALTH (as accounting successor to
Cognizant), and for the nine-month periods ended March 31, 1998 and 1997, in the
case of Walsh, in each case reflect, in the opinion of the managements of IMS
HEALTH and Walsh, respectively, all adjustments (comprising only normal
recurring accruals) necessary for a fair presentation of the consolidated
operating results and financial position of IMS HEALTH and Walsh, as the case
may be, for such interim periods. Results for the interim periods are not
necessarily indicative of results for the full year or any other period.
- ------------------------
(1) Because of the relative significance of the IMS HEALTH business to
Cognizant, IMS HEALTH will be treated as the "accounting successor" to
Cognizant for financial reporting purposes; see "The Distribution--Form of
Transaction; Basis of Presentation" in Annex IV to this Proxy Statement/
Prospectus.
13
<PAGE>
WALSH INTERNATIONAL INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX
YEAR MONTHS YEAR ENDED
ENDED ENDED JUNE 30,
DECEMBER 31, JUNE 30, ------------------------------------------
1992 1993 1994 1995 1996 1997
------------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 33,293 $ 16,506 $ 34,532 $ 40,269 $ 47,262 $ 54,088
------------- ----------- --------- --------- --------- ---------
Costs and expenses:
Production costs................................... 16,023 7,374 15,401 17,733 18,442 20,049
Selling, general and administrative expenses....... 24,080 11,121 21,366 19,423 21,348 24,433
Research and development costs..................... 3,898 1,152 3,049 3,953 3,510 3,683
In process research and development write-off...... -- -- -- -- -- --
Amortization of intangible assets.................. 4,982 142 138 112 130 144
Restructuring costs................................ -- -- 824 -- -- --
------------- ----------- --------- --------- --------- ---------
Total costs and expenses............................. 48,983 19,789 40,778 41,221 43,430 48,309
------------- ----------- --------- --------- --------- ---------
Operating profit (loss).............................. (15,690) (3,283) (6,246) (952) 3,832 5,779
Interest income.................................... 793 132 525 950 843 796
Interest expense................................... (2,393) (1,162) (2,076) (2,325) (2,045) (265)
Gain on sale of shares in PMSI..................... 10,026 -- 2,420 402 -- --
Equity income of PMSI.............................. 3,165 555 973 1,180 -- --
Other income, net.................................. -- 838 -- -- -- --
Minority interest.................................. -- -- -- -- 113 20
------------- ----------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes....................................... (4,099) (2,920) (4,404) (745) 2,743 6,330
Income tax benefit (provision)....................... 483 237 (1,509) (2,212) (658) (1,540)
------------- ----------- --------- --------- --------- ---------
(Loss) income from continuing operations............. (3,616) (2,683) (5,913) (2,957) 2,085 4,790
Discontinued operations:
Loss from discontinued operations, net............. (18,214) (5,123) (5,800) (1,554) (1,755) --
------------- ----------- --------- --------- --------- ---------
Net (loss) income.................................... $ (21,830) $ (7,806) $ (11,713) $ (4,511) $ 330 $ 4,790
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
Income (loss) per share data (1):
Continued operations, basic........................ $ (0.67) $ (0.48) $ (1.02) $ (0.51) $ 0.31 $ 0.46
Net (loss) income, basic........................... $ (4.06) $ (1.41) $ (2.02) $ (0.78) $ 0.05 $ 0.46
Continued operations, diluted...................... $ (0.67) $ (0.48) $ (1.02) $ (0.51) $ 0.25 $ 0.45
Net (loss) income, diluted......................... $ (4.06) $ (1.41) $ (2.02) $ (0.78) $ 0.04 $ 0.45
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 39,815 $ 45,632
--------- ---------
Costs and expenses:
Production costs................................... 15,043 17,453
Selling, general and administrative expenses....... 18,087 19,165
Research and development costs..................... 2,812 2,757
In process research and development write-off...... -- 2,000
Amortization of intangible assets.................. 108 214
Restructuring costs................................ -- --
--------- ---------
Total costs and expenses............................. 36,050 41,589
--------- ---------
Operating profit (loss).............................. 3,765 4,043
Interest income.................................... 578 436
Interest expense................................... (191) (194)
Gain on sale of shares in PMSI..................... -- --
Equity income of PMSI.............................. -- --
Other income, net.................................. -- 424
Minority interest.................................. 78 (122)
--------- ---------
Income (loss) from continuing operations before
income taxes....................................... 4,230 4,587
Income tax benefit (provision)....................... (1,004) (1,655)
--------- ---------
(Loss) income from continuing operations............. 3,226 2,932
Discontinued operations:
Loss from discontinued operations, net............. -- --
--------- ---------
Net (loss) income.................................... $ 3,226 $ 2,932
--------- ---------
--------- ---------
Income (loss) per share data (1):
Continued operations, basic........................ $ 0.31 $ 0.28
Net (loss) income, basic........................... $ 0.31 $ 0.28
Continued operations, diluted...................... $ 0.30 $ 0.27
Net (loss) income, diluted......................... $ 0.30 $ 0.27
</TABLE>
<TABLE>
<CAPTION>
AS AT
AS AT AS AT JUNE 30, MARCH 31,
DECEMBER 31, ----------------------------------------------------- ---------
1992 1993 1994 1995 1996 1997 1997
------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 1,901 $ 2,083 $ 11,881 $ 15,110 $ 8,629 $ 5,784 $ 6,833
Working capital (deficit) (2)............. (3,536) (6,448) 7,061 (14,168) 2,323 4,825 5,122
Total assets.............................. 58,771 40,440 51,402 49,391 44,017 40,288 40,704
Total long-term debt and capital lease
obligations (less current portion)...... 17,101 17,115 17,792 17,022 2,757 2,667 2,808
Series A convertible preferred stock,
redemption value $25,000,000............ -- -- 23,491 23,911 -- -- --
Total stockholders' (deficit) equity...... (232) (24,406) (35,878) (38,844) 4,546 9,657 8,041
<CAPTION>
1998
---------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 10,553
Working capital (deficit) (2)............. 6,338
Total assets.............................. 42,849
Total long-term debt and capital lease
obligations (less current portion)...... 2,699
Series A convertible preferred stock,
redemption value $25,000,000............ --
Total stockholders' (deficit) equity...... 12,930
</TABLE>
- ------------------------
(1) Walsh adopted the provision of Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" and accordingly all per share data has been
restated to comply with this standard.
(2) As at June 30, 1995, includes net liabilities of discontinued operations of
$10,310.
14
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Combined Condensed Balance Sheet and notes
thereto as of March 31, 1998 ("Pro Forma Balance Sheet") and the Unaudited Pro
Forma Combined Condensed Income Statements and notes thereto for the year ended
December 31, 1997 and the three-month period ended March 31, 1998 ("Pro Forma
Income Statements") combine certain financial data for Cognizant and Walsh and
include unaudited pro forma adjustments, as described in the accompanying notes.
The historical financial information of Cognizant is the historical
financial information of IMS HEALTH. This determination reflects the relative
significance of the IMS HEALTH business to Cognizant, and the fact that IMS
HEALTH will be treated as the "accounting successor" to Cognizant for financial
reporting purposes after the Cognizant Distribution. For purposes of the pro
forma financial presentation, the pro forma statements of IMS HEALTH (accounting
successor to Cognizant) give effect to NMR as a discontinued operation, although
not yet required to be reflected as such in the historical financial statements.
Upon approval of the plan of the Cognizant Distribution, the historical
financial statements of IMS HEALTH (accounting successor to Cognizant) will be
restated to present NMR as a discontinued operation for accounting purposes.
The Cognizant Distribution is subject to, and requires the approval of, the
Cognizant Board of Directors of the plan of the Cognizant Distribution as well
as of the material terms of distribution, tax sharing, employee benefits and
other similar agreements pursuant to which assets and liabilities are allocated
as part of the Cognizant Distribution.
The Pro Forma Income Statements give effect to the Merger as if it had
occurred on January 1, 1997. The Pro Forma Balance Sheet gives effect to the
Merger as if it had occurred on the Balance Sheet date. These Pro Forma
Statements are based on pro forma historical financial statements of IMS HEALTH
(accounting successor to Cognizant) and Walsh (see Notes to Pro Forma Income
Statements), adjusted to conform to IMS HEALTH's fiscal year ended December 31,
1997. The unaudited pro forma adjustments give effect to the Merger, including
the impact of purchase accounting.
If the Merger occurs before the Cognizant Distribution Record Date, Walsh
stockholders will receive shares of Cognizant Common Stock in exchange for
shares of Walsh Common Stock based upon the Cognizant Exchange Ratio. The former
stockholders of Walsh would then (i) participate in the Cognizant Distribution,
(ii) receive shares of IMS Health Common Stock on the same basis as other
Cognizant stockholders and (iii) own shares of both IMS HEALTH Common Stock and
NMR Common Stock after the Cognizant Distribution. The selected unaudited pro
forma financial data present the impact of the Merger on IMS HEALTH. Financial
statements for NMR are included in Annex IV.
If the Merger occurs after the Cognizant Distribution Record Date, Walsh
stockholders will receive shares of IMS HEALTH Common Stock in exchange for
shares of Walsh Common Stock, and they would therefore have no ownership
interest in NMR as a result of the Merger.
The information herein is qualified in its entirety by the consolidated
historical financial statements and respective notes thereto of IMS HEALTH
(which are included at pages F-2 through F-33 in Annex IV to this Proxy
Statement/Prospectus) and Walsh (which are attached hereto). The determination
and allocation of the purchase price and the unaudited pro forma adjustments
described in the notes to the following tables are based upon current
preliminary estimates and certain assumptions that Cognizant and Walsh
management believe are reasonable in such circumstances. The unaudited pro forma
data are presented for comparative purposes only and are not necessarily
indicative of the combined financial position or results of operations which
would have been realized had the Merger been consummated during the period or as
of the date for which the pro forma data are presented.
Cognizant expects to incur one-time expenses as a result of the Merger.
These expenses include a write-off related to in-process research and
development, currently estimated in the range of $50,000,000
15
<PAGE>
to $55,000,000. These one-time expenses have not been factored into the pro
forma income statement information.
A substantial portion of the purchase price for the Merger is currently
expected to be allocated to acquired completed technologies and acquired
in-process research and development. Completed technologies, which are expected
to have reached technological feasibility by the acquisition date, include
certain existing products of Walsh that will continue to be offered subsequent
to the Merger. In-process research and development, which is not expected to
have reached technological feasibility by the acquisition date and which will
have no alternative future use, includes: certain research and development
projects that are currently underway at Walsh which are expected to continue
after the Merger, and certain existing products of Walsh, which are expected to
be integrated into existing IMS HEALTH products or research and development
projects to form new products to be offered subsequent to the Merger. If, due to
the uncertainties surrounding the successful completion of the acquired
in-process research and development, IMS HEALTH is unable to establish
technological feasibility and produce a commercially viable product, then
anticipated incremental future cash flows attributable to expected profits from
such new products may not be realized. Although there are significant
technological issues to be overcome in order to successfully complete the
acquired in-process research and development, including migrating to new
software platforms, adding new features and functionality, integrating and
expanding data using processes that are statistically valid, comparable to past
data and compatible with existing or newly-developed data processing systems,
IMS HEALTH expects to successfully complete the in-process research and
development to be acquired from Walsh. Furthermore, the anticipated efforts
necessary and risks related to completing the acquired in-process research and
development, as well as the potential changes in future target markets and
limited product life cycles, have been taken into account in estimating the
values.
For purposes of the preliminary purchase price allocation, Cognizant has
assumed an in-process research and development write-off of $50,000,000. To the
extent the actual in-process research and development write-off differs from
this amount, the goodwill and resulting amortization expense will change.
Cognizant also anticipates that the Merger will provide the combined company
with financial benefits including, among other things, reduced operating
expenses. These anticipated expense reductions, as well as expected growth in
operating income of Walsh, have not been factored into the pro forma income
statement information. Such expense reductions and operating income growth are
expected to offset any earnings per share dilution.
Simultaneously with the execution and delivery of the Merger Agreement,
Cognizant entered into a similar agreement to acquire PMSI. The PMSI acquisition
is expected to be consummated following the Cognizant Distribution, at which
time PMSI will become a wholly owned subsidiary of IMS HEALTH.
Based on the terms of the PMSI merger agreement, Cognizant estimates that
PMSI stockholders will receive approximately 3,852,000 shares of IMS HEALTH
Common Stock (or, based on an IMS HEALTH Common Stock Price (as defined in the
PMSI merger agreement) of $46.613, consideration of approximately $179,600,000).
The number of shares of IMS HEALTH Common Stock to be issued in connection with
the PMSI acquisition is subject to a collar adjustment based on the price of IMS
HEALTH Common Stock during a period prior to the closing of the PMSI
acquisition. In connection with the PMSI transaction, a one-time non-cash charge
to write off in-process research and development is expected in the range of
$60,000,000 to $70,000,000. The following pro forma financial statements do not
reflect the pro forma impact of the PMSI acquisition. Without regard to the
one-time non-cash charge, had the PMSI acquisition occurred as of the beginning
of the period presented, the impact would not be material to the pro forma
combined IMS HEALTH/Walsh revenue and net income.
The estimated amount of the in-process research and development charge
represents a preliminary estimate which could materially differ from the actual
results that will be experienced by IMS HEALTH, as final values will not be
established until after the closing of the PMSI acquisition, when integration
plans
16
<PAGE>
are finalized and the status of these and other projects are determined. To the
extent that it is determined that there is no allocable in-process research and
development, these amounts would be allocated to other intangible assets and
amortized over the expected life of such assets (currently estimated at 15
years). If it is determined that there is no allowable research and development,
amortization costs of such intangible assets are expected to increase by
$4,700,000 per year and reduce earnings per share ("EPS") by $.02.
The total purchase price of the PMSI acquisition, exclusive of debt assumed,
is currently estimated at $235,200,000, including $179,600,000 of estimated
consideration for the outstanding common stock of PMSI ("PMSI Common Stock"),
$16,400,000 for estimated stock options to be issued, and $39,200,000 of
estimated accrued acquisition and integration costs (principally severance,
lease terminations and cancellations of duplicate and other contracts). The
basis for determining the consideration to be issued is a price per share of IMS
HEALTH Common Stock equal to $46.613, the midpoint of the range of IMS HEALTH
Common Stock prices at which the IMS HEALTH Exchange Ratio will equal 0.3111 for
the PMSI acquisition. Such price per share is provided for illustration purposes
only, and the actual IMS HEALTH Common Stock Price to be used in determining
such consideration (which will not be determined until immediately prior to
consummation of the PMSI acquisition) may vary. Stock options to be issued have
been valued at fair value using the Black-Scholes method. Accrued acquisition
and integration costs are based on Cognizant management's current estimates of
expected PMSI employee, lease and contract terminations. For purposes of the
preliminary purchase price allocation, as of the pro forma balance sheet date,
Cognizant has estimated $159,068,000 of tangible assets acquired, $124,028,000
of assumed liabilities, $130,190,000 of intangible assets, and an in-process
research and development write-off of $70,000,000. To the extent the actual
in-process research and development write-off differs from this amount, the
goodwill and resulting amortization expense will change. Tangible assets to be
acquired principally include cash, accounts receivable and other current assets.
Liabilities to be assumed principally include accounts payable, accrued and
other current liabilities, and convertible debt of $69,041,000, which is
expected to be purchased for cash at face value as a consequence of the PMSI
acquisition.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
IMS HEALTH WALSH IMS HEALTH/
PRO FORMA WALSH PRO FORMA WALSH
HISTORICAL(1) REPORTED ADJUSTMENTS(2) PRO FORMA
------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents................................ $ 340,247 $ 10,553 $ 0 $ 350,800
Accounts Receivable--Net................................. 250,081 17,569 0 267,650
Other Current Assets..................................... 72,094 1,010 0 73,104
------------ ----------- -------------- --------------
Current Assets........................................... 662,422 29,132 0 691,554
Investment in Gartner Group.............................. 212,863 0 0 212,863
Property,Plant and Equipment-Net 175,555 4,147 0 179,702
Notes Receivable and Other Investments................... 99,956 0 0 99,956
Goodwill................................................. 91,464 5,087 122,452(3) 219,003
Other Assets--Net 182,776 4,483 12,047(4) 199,306
Net Assets of Discontinued Operations.................... 131,176 0 0 131,176
------------ ----------- -------------- --------------
Total Assets............................................. $1,556,212 $ 42,849 $ 134,499 $1,733,560
------------ ----------- -------------- --------------
------------ ----------- -------------- --------------
Accounts and Notes Payable, Accrued Income Taxes and
Deferred Revenues....................................... $ 197,383 $ 11,224 $ 0 $ 208,607
Accrued and Other Liabilities............................ 184,701 11,570 14,200(5) 210,471
------------ ----------- -------------- --------------
Current Liabilities...................................... 382,084 22,794 14,200 419,078
Long-Term debt........................................... 0 1,151 0 1,151
Other Long-Term Liabilities.............................. 301,866 5,974 4,384(6) 312,224
------------ ----------- -------------- --------------
Total Liabilities........................................ 683,950 29,919 18,584 732,453
Total Shareholders' Equity 872,262 12,930 115,915(7) 1,001,107
------------ ----------- -------------- --------------
Total Liabilities and Shareholders' Equity............... $1,556,212 $ 42,849 $ 134,499 $1,733,560
------------ ----------- -------------- --------------
------------ ----------- -------------- --------------
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(1) IMS HEALTH Pro Forma Historical gives effect to NMR as a discontinued
operation as of the balance sheet date, although not yet required to be
reflected in the historical financial statements. A description of the pro
forma adjustments made to IMS HEALTH historical financial statements is
included in Annex IV to this Proxy Statement/Prospectus under "IMS HEALTH
Unaudited Consolidated Pro Forma Statement of Financial Position."
(2) The pro forma adjustments assume that the Merger occurred on March 31, 1998.
The actual number of shares to be issued in connection with the Merger is
subject to collar adjustments based on the price of Cognizant Common Stock
(or IMS HEALTH Common Stock, if the effective date of the Merger is after
the Cognizant Distribution Record Date) during a period prior to the closing
of the Merger, which could result in a total purchase price that is higher
or lower than that used herein.
- The total purchase price of the Merger is estimated at $193,000,
including $166,900 of common stock, $11,900 of stock options to be issued
and $14,200 of accrued acquisition and integration costs (consisting of
severance of $3,100, lease terminations of Walsh facilities of $1,800,
direct acquisition costs of $5,300 and other costs related to the
integration of the Walsh business of $4,000). The basis of the common
stock value is a price per share of Cognizant Common Stock equal to
$51.792, the midpoint of the range of Cognizant Common Stock prices at
which the Cognizant Exchange Ratio will equal 0.3041 for the Merger. Such
price per share is provided for illustration purposes only, and the
actual Cognizant Common Stock Price to be used in determining such
consideration (which will not be determined until immediately prior to
the Effective Time of the Merger) may vary. Stock options to be issued
have been valued at their fair value using the Black-Scholes method.
Accrued acquisition and integration costs are based on IMS HEALTH's
current estimates of such costs.
- The accrual of the acquisition and integration costs represents estimated
direct costs incurred in connection with the Merger, as well as assumed
liabilities related to costs to exit certain activities of the acquired
company. These estimated integration costs are incremental to other costs
and will be incurred as a direct result of the plan to exit certain
activities as part of the overall integration effort (i.e., severance
costs related to Walsh employees (currently estimated to be 50 to 70
employees primarily from the administration, finance and certain
redundant operating functions)) and certain contractual cancellation
costs (i.e., Walsh leases). Although the current estimates are
preliminary, at the Effective Time of the Merger Cognizant's management
expects to have completed its assessment and to have authorized the
specific actions which are
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
expected to be completed within six months after the consummation of the
Merger. The elimination of these activities and employees is not expected
to result in a corresponding reduction in revenues.
- The estimated total purchase price has been preliminarily allocated as
follows:
<TABLE>
<S> <C>
Total Purchase Price...................................................................... $ 193,045
----------
Allocated to:
In-process Research and Development..................................................... 50,000
Tangible Assets Acquired................................................................ 33,809
Liabilities Assumed..................................................................... (29,919)
Fair Values Assigned to Intangibles Acquired, net of Deferred Taxes of $4,384 11,616
Goodwill................................................................................ 127,539
</TABLE>
Tangible assets of Walsh acquired in the Merger principally include
cash and accounts receivable. Liabilities of Walsh assumed in the
Merger principally include accounts payable and accrued and other
current liabilities.
- Although Cognizant's management's estimate of the purchase price and
the related preliminary allocation thereof have been made in good faith
based on currently available information and Cognizant's management
does not expect significant changes to such estimated purchase price
and preliminary allocation thereof, such estimated purchase price and
preliminary allocation are nonetheless subject to change due to a
number of factors, including:
- The Cognizant Common Stock Price (or, if the Effective Time of the
Merger is after the Cognizant Distribution Record Date, the IMS HEALTH
Common Stock Price) used to determine the Cognizant Exchange Ratio (or
the IMS HEALTH Exchange Ratio) and the actual purchase price.
- Actual tangible assets acquired and liabilities assumed as of the
Effective Time of the Merger.
- Finalization of integration plans, acquisition and integration costs,
and valuation of intangibles (completed technology) and in-process
research and development. The value of completed technology (ranging
from $14,000 to $18,200) was estimated using a risk-adjusted discounted
cash flow model, taking into account risks related to existing and
future markets and assessment of the remaining life expectancy of the
completed technology.
- The projects identified as in-process research and development at
Walsh include enhancement at Walsh's Windows-based sales management
information system, enhancement of its pharmaceutical marketing
database and development of a next-stage integrated and enhanced sales
management information system. These projects were identified as
underway at Walsh and would, after consummation of the Merger, require
additional effort to establish technological feasibility. If
technological feasibility is ultimately achieved, these projects are
expected to generate future income. However, with respect to these
identified projects, there are identifiable technological risk factors
which indicate that even though successful completion is expected, it
is not assured. If an identified project is not successfully completed,
there is no alternative use for the project and the expected future
income will not be realized.
A preliminary estimate of the value of this in-process research and
development at Walsh is $50,000 to $55,000, with aggregate costs of
completion of $6,000 to $10,000 that are estimated to be incurred
ratably over the twenty-four months following consummation of the
Merger. It is expected that IMS HEALTH will begin realizing the
benefits from these various identified projects through product
introductions at launch dates ranging from January 1999 through June
2000.
An income approach was utilized to estimate the approximate value of
the Walsh in-process research and development. This method uses a
projection of product line revenues and expenses, which are based upon
experience with similar products. The projected revenue growth rate on
a compounded annualized basis for these product enhancements and new
products range from approximately 10% to 20% for product enhancements
and approximately 25% for new product introductions. The growth rates
reflect the anticipated product life cycles. It is estimated that the
benefits will be realized by IMS HEALTH as a result of increased
revenue and cash flows through the year 2005 for product enhancements
and through the year 2008 for new products. The estimated incremental
future cash flows that are expected to be realized as a result of
successful completion of the projects under development were reduced by
amounts that represent the necessary investment in fixed and working
capital and other collateral assets and a fair return on those assets,
including income from existing product lines, and the estimated cost of
completion effort. These net incremental future cash flows for these
projects were discounted at rates of 20%, reflecting the risks of
possible failure to complete the individual projects and for potential
changes in the target markets.
The estimated amount of the in-process research and development charge
represents a preliminary estimate which could materially differ from
the actual results that will be experienced by IMS HEALTH, as final
values will not be established until after the closing of the Merger,
when integration plans are finalized and the status of these, and other
projects are determined. To the extent that it is determined that there
is no allocable in-process research and development, these amounts
would be allocated to other intangible assets and amortized over the
expected life of such assets (currently estimated at 15 years). If it
is determined that there is no allowable research and development,
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
amortization costs of such intangible assets would increase by $3,300
per year and reduce the IMS HEALTH/Walsh 1997 pro forma earnings per
share ("EPS") by $.01.
- The estimated amortization periods are based on current estimates of
the intangible assets to be acquired in connection with the Merger,
which will be finalized as part of the final purchase price allocation
upon consummation of the Merger.
(3) The adjustment to "Goodwill" reflects the elimination of goodwill on the
Walsh Reported Balance Sheet ($5,087) and the inclusion of the goodwill
arising from the Merger ($127,539).
(4) The adjustment to "Other Assets--Net" reflects the elimination of
intangibles on the Walsh Reported Balance Sheet ($3,953) and the inclusion
of the intangible assets arising from the Merger ($16,000).
(5) The adjustment to "Accrued and Other Liabilities" reflects the accrual of
acquisition and integration costs arising from the Merger ($14,200).
(6) The adjustment to "Other Long-Term Liabilities" reflects the inclusion of
deferred taxes on other intangible assets ($4,384).
(7) The adjustment to "Shareholders' Equity" reflects the elimination of Walsh
Reported Shareholders' Equity ($12,930) and the impact of the issuance of
Cognizant Common Stock (or IMS HEALTH Common Stock, if the Effective Time of
the Merger is after the Cognizant Distribution Record Date)($166,926) and
stock options ($11,919), less the one-time write-off of in-process research
and development ($50,000).
20
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
IMS
HEALTH WALSH IMS HEALTH/
PRO FORMA(1) WALSH PRO FORMA WALSH PRO
HISTORICAL HISTORICAL(2) ADJUSTMENTS(3) FORMA
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenues............................................................ $ 1,059,559 $ 57,251 $ 0 $ 1,116,810
Operating Costs..................................................... 432,654 21,275 0 453,929
Selling and Administrative Expenses................................. 310,644 24,885 0 335,529
Depreciation and Amortization....................................... 88,651 190 10,424(4) 99,265
Other............................................................... 0 3,493 0 3,493
Operating Income.................................................... 227,610 7,408 (10,424) 224,594
Gartner Equity Income............................................... 65,120 0 0 65,120
Other Income........................................................ 29,744 238 0 29,982
------------ ------------ -------------- --------------
Non-Operating Income--Net........................................... 94,864 238 0 95,102
Income from Continuing Operations Before Taxes...................... 322,474 7,646 (10,424) 319,696
Provision for Income Taxes.......................................... (88,358) (1,960) 4,274 (86,044)
------------ ------------ -------------- --------------
Income from Continuing Operations................................... 234,116 5,686 (6,150) 233,652
Income from Discontinued Operations................................. 78,234 0 0 78,234
------------ ------------ -------------- --------------
Net Income.......................................................... $ 312,350 $ 5,686 $ (6,150) $ 311,886
------------ ------------ -------------- --------------
------------ ------------ -------------- --------------
EARNINGS PER SHARE, ASSUMING THE MERGER OCCURS PRE-DISTRIBUTION
Basic Earnings Per Share, Continuing Operations..................... $ 1.42 $ 1.39
Earnings Per Share Discontinued Operations.......................... $ 0.47 $ .46
Basic Earnings Per Share of Common Stock............................ $ 1.89 $ 1.85
Diluted Earnings Per Share Continuing Operations.................... $ 1.40 $ 1.37
Diluted Earnings Per Share Discontinued Operations.................. $ .46 $ .46
Diluted Earnings Per Share of Common Stock.......................... $ 1.86 $ 1.83
IMS HEALTH Average Number of Shares Outstanding--Basic before the
Merger............................................................ 165,163,000 165,163,000
Pro Forma Merger Impact on Average Shares Outstanding............... 0 3,223,000
------------ --------------
Pro Forma IMS HEALTH Average Number of Shares
Outstanding--Basic(5)............................................. 165,163,000 168,386,000
Dilutive Effect of Shares Issuable as of Year-End Under Stock Option
Plans............................................................. 1,667,000 1,667,000
Merger Option Conversion = 178,043 * .3041.......................... 0 54,143
Adjustment of shares applicable to exercised stock options and
restricted stock.................................................. 660,000 660,000
Pro Forma IMS HEALTH Average Number of Shares
Outstanding--Diluted(6)........................................... 167,490,000 170,767,143
EARNINGS PER SHARE, ASSUMING THE MERGER OCCURS POST-DISTRIBUTION
Basic Earnings Per Share Continuing Operations...................... $ 1.42 $ 1.38
Basic Earnings Per Share Discontinued Operations.................... $ 0.47 $ 0.46
Basic Earnings Per Share of Common Stock............................ $ 1.89 $ 1.84
Diluted Earnings Per Share Continuing Operations.................... $ 1.40 $ 1.36
Diluted Earnings Per Share Discontinued Operations.................. $ .46 $ 0.46
Diluted Earnings Per Share of Common Stock.......................... $ 1.86 $ 1.82
IMS HEALTH Average Number of Shares Outstanding--Basic before the
Merger............................................................ 165,163,000 165,163,000
Pro Forma Merger Impact on Average Shares Outstanding............... 0 3,581,000
------------ --------------
Pro Forma IMS HEALTH
Average Number of Shares Outstanding--Basic(7) 165,163,000 168,744,000
Dilutive Effect of Shares Issuable as of Year-End Under Stock Option
Plans............................................................. 1,667,000 1,667,000
Merger Option Conversion = 178,043 * .3041 * 1.111.................. 0 60,153
Adjustment of shares applicable to exercised stock options and
restricted stock.................................................. 660,000 660,000
Pro Forma IMS HEALTH Average Number of Shares
Outstanding--Diluted(7)........................................... 167,490,000 171,131,153
</TABLE>
SEE NOTES ON PAGE 22.
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(1) IMS HEALTH Pro Forma Historical gives effect to NMR as a discontinued
operation as of the beginning of the period presented, although not yet
required to be reflected in the historical financial statements. A
description of the pro forma adjustments made to IMS HEALTH historical
financial statements is included in Annex IV to this Proxy
Statement/Prospectus under "IMS HEALTH Unaudited Consolidated Pro Forma
Statement of Income."
(2) The information presented as "Walsh Historical" reflects results for the
twelve months ended December 31, 1997. Walsh's current fiscal year end is
June 30. To reflect Walsh results on a calendar year basis consistent with
Cognizant's fiscal year, the following restatement was made:
<TABLE>
<CAPTION>
WALSH LESS, SIX PLUS, SIX MONTHS WALSH
FISCAL YEAR MONTHS ENDED HISTORICAL
ENDED 6/30/97(A) ENDED 12/31/96(B) 12/31/97(B) 12/31/97
---------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... $ 54,088 $ (26,111) $ 29,274 $ 57,251
Operating Expenses:
Production costs............................. 20,049 (9,774) 11,000 21,275
Selling, general and administrative
expenses................................... 24,433 (12,195) 12,647 24,885
Research and development costs............... 3,683 (1,919) 1,729 3,493
Amortization of intangible assets............ 144 (72) 118 190
---------------- -------- ---------------- ---------
Operating Income............................... 5,779 (2,151) 3,780(c) 7,408
Other Income/(Expense)......................... 551 (398) 85 238
---------------- -------- ---------------- ---------
Income/(Loss) from Continuing Operations Before
Taxes........................................ 6,330 (2,549) 3,865(c) 7,646
Provision for Income Taxes..................... (1,540) 624 (1,044) (1,960)
---------------- -------- ---------------- ---------
Net Income/(Loss).............................. $ 4,790 $ (1,925) $ 2,821 $ 5,686
---------------- -------- ---------------- ---------
---------------- -------- ---------------- ---------
Basic Earnings Per Share Common Stock.......... $ 0.45 $ .54
Diluted Earnings Per Share Common Stock........ $ 0.45 $ .53
Average Number of Shares Outstanding--Basic.... 10,657,920 10,525,359
Dilutive effect of options..................... 0 178,043
---------------- ---------
Average Number of Shares
Outstanding--Diluted......................... 10,657,920 10,703,402
</TABLE>
- ------------------------
(a) As disclosed in the Annual Report on Form 10-K of Walsh for the fiscal
year ended June 30, 1997 (except for share and per share information).
(b) As disclosed in the Quarterly Report on Form 10-Q of Walsh for the
fiscal quarter ended December 31, 1997.
(c) Excludes a non-recurring and not tax deductible charge of $2,000 for the
write-off of in-process research and development associated with an
acquisition.
(3) The "Walsh Pro Forma Adjustments" exclude a non-recurring charge for the
write-off of in-process research and development currently estimated in the
range of $50,000 to $55,000, which for purposes of the preliminary purchase
price allocation has been estimated at $50,000.
(4) This pro forma adjustment to "Depreciation and Amortization" reflects the
amortization of goodwill and other intangibles associated with the Merger.
Goodwill is amortized on a straight-line basis over its estimated useful
life of fifteen years, and other intangibles are amortized over an estimated
useful life of six years.
(5) The pro forma basic weighted average shares outstanding for IMS HEALTH/Walsh
consists of:
(i) The weighted average shares outstanding reported by Cognizant in its
1997 Annual Report on Form 10-K (the "Cognizant 1997 Form 10-K"); and
(ii) 3,223,000 common shares representing the estimated number of shares to
be issued by Cognizant to the stockholders of Walsh.
(6) The pro forma diluted weighted average shares outstanding for IMS
HEALTH/Walsh consists of:
(i) The diluted weighted average shares outstanding reported by Cognizant in
the Cognizant 1997 Form 10-K, in conformity with SFAS No. 128; and
(ii) adjustments for Walsh equal to the dilutive impact of stock options and
other common stock equivalents, as reported by Walsh in the Quarterly
Reports on Form 10-Q for the second and third fiscal quarters, in
conformity with SFAS No. 128, multiplied by a conversion factor of
.3041, representing the expected conversion factor of Cognizant Common
Stock for Walsh Common Stock.
(7) The pro forma basic and diluted weighted average shares outstanding for IMS
HEALTH/Walsh are as above, adjusted for the conversion ratio for the
issuance of IMS HEALTH Common Stock if the Effective Time of the Merger is
after the Cognizant Distribution Record Date.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
THREE-MONTH PERIOD ENDED MARCH 31, 1998
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
IMS HEALTH WALSH IMS HEALTH/
PRO FORMA WALSH PRO FORMA WALSH
CONDENSED INCOME STATEMENT HISTORICAL(1) REPORTED(2) ADJUSTMENTS(3) PRO FORMA
- --------------------------------------------------------------------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues............................................................. $ 240,968 $ 16,358 $ $ 257,326
Operating Costs...................................................... 119,592 6,453 126,045
Selling & Administrative Expenses.................................... 80,954 6,518 87,472
Depreciation & Amortization.......................................... 21,694 96 2,534(4) 24,324
Other................................................................ 0 1,028 1,028
------------ ----------- -------------- --------------
Operating Income..................................................... 18,728 2,263 (2,534) 18,457
Gartner Equity Income................................................ 15,574 0 15,574
Gains from Dispositions-Net.......................................... 13,600 0 13,600
Other Income/(Expenses).............................................. 9,115 459 9,574
------------ ----------- -------------- --------------
Non-Operating Income-Net............................................. 38,289 459 0 38,748
Income/(Loss) from Continuing Operations Before Taxes................ 57,017 2,722 (2,534) 57,205
Provision for Income Taxes........................................... (15,622) (611) 1,039 (15,194)
------------ ----------- -------------- --------------
Income from Continuing Operations.................................... 41,395 2,111 (1,495) 42,011
Income from Discontinued Operations.................................. 18,692 0 18,692
------------ ----------- -------------- --------------
Net Income........................................................... $ 60,087 $ 2,111 $ (1,495) $ 60,703
------------ ----------- -------------- --------------
------------ ----------- -------------- --------------
EARNINGS PER SHARE ASSUMING MERGER OCCURS PRE-DISTRIBUTION
Basic Earnings Per Share Continuing Operations....................... $ .26 $ .25
Basic Earnings Per Share Discontinued Operations..................... $ 0.11 $ 0.11
Basic Earnings Per Share of Common Stock............................. $ 0.37 $ 0.36
Diluted Earnings Per Share Continuing Operations..................... $ 0.25 $ 0.25
Diluted Earnings Per Share Discontinued Operations................... $ 0.11 $ 0.11
Diluted Earnings Per Share of Common Stock........................... $ 0.36 $ 0.36
IMS HEALTH Average Number of Shares Outstanding Basic before the
Merger.............................................................. 162,406,000 162,406,000
Pro Forma Merger Impact on Average Shares Outstanding................ 0 3,223,000
------------ --------------
Pro Forma IMS HEALTH Average Number of Shares
Outstanding--Basic(5)............................................... 162,406,000 165,629,000
Dilutive Effect of Shares Issuable as of March 31, 1998 Under Stock
Option Plans........................................................ 4,276,000 4,276,000
Merger Options Conversion = 234,248 * .3041.......................... 0 71,235
Adjustment of shares applicable to exercised stock options and
restricted stock.................................................... 600,000 600,000
Pro Forma IMS HEALTH Average Number of Shares Outstanding-Diluted
(6)................................................................. 167,282,000 170,576,235
</TABLE>
SEE NOTES ON PAGE 24.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT (CONTINUED)
THREE-MONTH PERIOD ENDED MARCH 31, 1998
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
IMS HEALTH WALSH IMS HEALTH/
PRO FORMA WALSH PRO FORMA WALSH
CONDENSED INCOME STATEMENT HISTORICAL(1) REPORTED(2) ADJUSTMENTS(3) PRO FORMA
- --------------------------------------------------------------------- ------------ ----------- --------------- --------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE ASSUMING MERGER OCCURS POST-DISTRIBUTION
Basic Earnings Per Share Continuing Operations....................... $ 0.26 $ 0.25
Basic Earnings Per Share Discontinued Operations..................... $ 0.11 $ 0.11
Basic Earnings Per Share of Common Stock............................. $ 0.37 $ 0.36
Diluted Earnings Per Share Continuing Operations..................... $ 0.25 $ 0.25
Diluted Earnings Per Share Discontinued Operations................... $ 0.11 $ 0.11
Diluted Earnings Per Share of Common Stock........................... $ 0.36 $ 0.36
IMS HEALTH Average Number of Shares Outstanding--Basic Before the
Merger.............................................................. 162,406,000 162,406,000
Pro Forma Merger Impact on Average Shares Outstanding................ 0 3,581,000
Pro Forma IMS HEALTH Average Number of Shares Outstanding-Basic(7)... 162,406,000 165,987,000
Dilutive Effect of Shares Issuable as of March 31, 1998 Under Stock
Option Plans........................................................ 4,276,000 4,276,000
Merger Options Conversion=234,248 * .3041* 1.111..................... 0 79,142
Adjustment of shares applicable to exercised stock options and
restricted stock.................................................... 600,000 600,000
Pro Forma IMS HEALTH Average Number of Shares
Outstanding--Diluted(7)............................................. 167,282,000 170,942,142
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(1) IMS HEALTH Pro Forma historical gives effect to NMR as a discontinued
operation as of the beginning of the period presented, although not yet
required to be reflected in the historical financial statements. A
description of the pro forma adjustments made to IMS HEALTH financial
statements is included in Annex IV to this Proxy Statement/Prospectus under
"IMS HEALTH Unaudited Consolidated Pro Forma Financial Statements."
(2) The information presented as "Walsh Reported" reflects operating results for
the three months ended March 31, 1998.
(3) The "Walsh Pro Forma Adjustments" exclude an in-process research and
development write-off currently estimated in the range of $50,000 to
$55,000, which for purposes of the preliminary purchase price allocation has
been estimated at $50,000.
(4) The pro forma adjustment to "Depreciation and Amortization" reflects the
amortization of goodwill and other intangibles associated with the Merger.
Goodwill is amortized on a straight-line basis over its estimated useful
life of fifteen years and other intangibles over an estimated useful life of
six years.
(5) The pro forma basic weighted average shares outstanding for IMS HEALTH/Walsh
consists of:
(i) The weighted average shares outstanding reported by Cognizant in the
Cognizant 1997 Form 10-K; and
(ii) 3,223,000 common shares representing the estimated number of shares to
be issued by Cognizant to the stockholders of Walsh.
(6) The pro forma diluted weighted average shares outstanding for IMS
HEALTH/Walsh consists of:
(i) The diluted weighted average shares outstanding reported by Cognizant in
the Cognizant 1997 Form 10-K, in conformity with SFAS No. 128; and
(ii) adjustments for Walsh equal to the dilutive impact of stock options and
other common stock equivalents, as reported by Walsh in its Quarterly
Reports on Form 10-Q for the second and third fiscal quarters, in
conformity with SFAS No. 128, multiplied by a conversion factor of
.3041, representing the expected conversion factor of Cognizant Common
Stock for Walsh Common Stock.
(7) The pro forma basic and diluted weighted average shares outstanding for IMS
HEALTH/Walsh are as above, adjusted for the conversion ratio for the
issuance of IMS HEALTH Common Stock if the Effective Time of the Merger is
after the Cognizant Distribution Record Date.
24
<PAGE>
COMPARATIVE PRICES OF COGNIZANT AND WALSH
COMMON STOCK AND DIVIDEND INFORMATION
Cognizant Common Stock is listed on the NYSE (symbol: "CZT") and the Walsh
Common Stock is quoted on Nasdaq (symbol: "WSHI"). See "The Merger--Stock
Exchange Listings." The following table sets forth, for the calendar quarters
indicated, the high and low prices per share of Cognizant Common Stock as
reported on the Composite Tape (Cognizant commenced "regular way" trading on the
NYSE in the fourth quarter of 1996) and of Walsh Common Stock on Nasdaq (Walsh
commenced trading on Nasdaq on April 17, 1996), in each case based on published
financial sources, and the dividends declared on such stock. Walsh has never
declared a cash dividend on the Walsh Common Stock.
<TABLE>
<CAPTION>
COGNIZANT COMMON STOCK WALSH COMMON STOCK
---------------------------------- ------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
CALENDAR QUARTER HIGH LOW DECLARED HIGH LOW DECLARED
- -------------------------------------------- ----------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996
Second Quarter............................ N/A N/A N/A $15 3/8 $9 --
Third Quarter............................. N/A N/A N/A 10 7/8 6 3/4 --
Fourth Quarter............................ $36 7/8 $31 3/8 -- 10 7 --
1997
First Quarter............................. 34 7/8 29 1/8 $.03 10 7 --
Second Quarter............................ 40 28 1/2 .03 9 1/4 7 3/8 --
Third Quarter............................. 44 5/8 38 3/8 .03 12 1/2 8 1/4 --
Fourth Quarter............................ 44 13/16 35 1/16 .03 12 3/4 8 3/4 --
1998
First Quarter............................. 57 15/16 44 3/8 .03 15 3/4 9 1/4 --
Second Quarter (through May 27, 1998)..... 58 3/4 49 .03 16 1/4 14 1/4 --
</TABLE>
On March 23, 1998, the last trading day before the public announcement of
the Merger Agreement, the closing prices of Cognizant Common Stock and Walsh
Common Stock as reported on the Composite Tape and Nasdaq, respectively, were
$52 5/16 per share and $14 5/8 per share, respectively. Assuming such price per
share of Cognizant Common Stock was the Cognizant Common Stock Price, the pro
forma equivalent per share value of the Walsh Common Stock on such date would be
$15.87 per share.
On May 27, 1998, the closing prices of Cognizant Common Stock and Walsh
Common Stock as reported on the Composite Tape and Nasdaq, respectively, were
$50 1/2 per share and $14 3/4 per share, respectively. Assuming such price per
share of Cognizant Common Stock was the Cognizant Common Stock Price, the pro
forma equivalent per share value of the Walsh Common Stock on such date would be
$15.28 per share.
Stockholders are urged to obtain current quotations for the market prices of
the Cognizant Common Stock, the Walsh Common Stock and (when available) the IMS
HEALTH Common Stock and the common stock, par value $.01 of NMR (the "NMR Common
Stock") (the adjustment factor to be used if the Effective Time of the Merger is
on or after the Cognizant Distribution Record Date is based on the relative
market prices of the IMS HEALTH Common Stock and the NMR Common Stock; see "The
Merger--Merger Consideration"). Walsh stockholders may call toll-free
1-877-530-8879 at any time until June 24, 1998 to hear a tape-recorded message
stating what the relevant exchange ratio would be if that date were the closing
date of the Merger. No assurance can be given as to the market price of the
Cognizant Common Stock, the Walsh Common Stock, the NMR Common Stock or the IMS
HEALTH Common Stock at the Effective Time of the Merger.
See "The Merger--Merger Consideration."
25
<PAGE>
DIVIDENDS
The payment and level of cash dividends by Cognizant are subject to the
discretion of the board of directors of Cognizant. Although Cognizant has
declared and anticipates that it will declare quarterly dividends in the range
of 5% to 8% of earnings, dividend decisions will be based on, and affected by, a
number of factors, including the operating results and financial requirements of
Cognizant.
See "Dividend Policies--IMS HEALTH" in Annex IV attached hereto for a
description of the expected dividend policies of IMS HEALTH.
Walsh has never paid dividends to holders of its Common Stock. If the Merger
is not consummated, Walsh intends to retain all earnings to finance the
operation and growth of its business and does not anticipate paying cash
dividends in the foreseeable future.
ABSENCE OF PRIOR TRADING MARKET FOR IMS HEALTH COMMON STOCK
As of the date hereof, there is no established trading market for the IMS
HEALTH Common Stock, although it is a condition to the Cognizant Distribution
that the IMS HEALTH Common Stock be accepted for listing on the NYSE. There can
be no assurance as to the prices at which the IMS HEALTH Common Stock will trade
either before or after the Cognizant Distribution. See "Risk Factors--Risks
Relating to IMS HEALTH--Absence of Prior Trading Market for the IMS HEALTH
Common Stock."
26
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
The following table presents the earnings per share of common stock, book
value per share of common stock and cash dividends per share of common stock on
a pro forma basis for IMS HEALTH, giving effect to the Merger, assuming that the
Merger was effective for the entire period presented.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
IMS
HEALTH WALSH IMS HEALTH/
PRO FORMA(1) WALSH EQUIVALENT WALSH
HISTORICAL HISTORICAL(2) PRO FORMA(3) PRO FORMA(4)
------------- ------------- ------------- -------------
Assuming the Merger occurs prior to
Cognizant Distribution:
Earnings per share from continuing
operations--basic....................... $ 1.42 $ .54 $ .42 $ 1.39
Earnings per share from continuing
operations--diluted..................... 1.40 .53 .41 1.37
Book value per share--end of period....... 4.95 1.05 1.71 5.63
Cash dividends declared per share......... .12 -- -- .12
Assuming the Merger occurs after
Cognizant Distribution:
Earnings per share from continuing
operations--basic....................... $ 1.42 $ .54 $ .46 $ 1.38
Earnings per share from continuing
operations--diluted..................... 1.40 .53 .46 1.36
Book value per share--end of period....... 4.95 1.05 1.90 5.62
Cash dividends declared per share......... .12 -- -- .12
</TABLE>
NOTES TO COMPARATIVE PER SHARE DATE:
(1) IMS HEALTH Pro Forma Historical gives effect to NMR as a discontinued
operation as of the beginning of the period presented, although not yet
required to be reflected in the historical financial statements. A
description of the pro forma adjustments made to IMS HEALTH historical
financial statements is included in Annex IV to this Proxy
Statement/Prospectus under "IMS HEALTH Unaudited Consolidated Pro Forma
Statement of Income." The average shares outstanding of Cognizant Common
Stock assumed for the basic EPS calculation are 167,490,000 and for the
diluted EPS calculation are 165,163,000.
(2) The information presented as "Walsh Historical" reflects results for the
twelve months ended December 31, 1997. Walsh's current fiscal year end is
June 30.
(3) The "Walsh Equivalent Pro Forma" adjusts the IMS HEALTH/Walsh pro forma
information to an equivalent Walsh per share basis. The basic and diluted
per share amounts were computed as follows:
i. Assuming the Merger occurs prior to the Cognizant Distribution Record
Date, the pro forma per share amounts outstanding of Cognizant Common
Stock are multiplied by a conversion factor of .3041 to convert them into
an equivalent number of shares of Walsh Common Stock.
ii. Assuming the Merger occurs after the Cognizant Distribution Record
Date, pro forma per share amounts outstanding of IMS HEALTH Common Stock
are multiplied by a conversion factor of .3379 to convert them into an
equivalent number of shares of Walsh Common Stock.
27
<PAGE>
NOTES TO COMPARATIVE PER SHARE DATA (CONTINUED)
(4) The per share amounts give effect to the Merger as if it had occurred at the
beginning of the period presented and assume the following:
i. The Merger occurs prior to the Cognizant Distribution Record Date and
the per share amounts assume a $51.792 per share price of Cognizant
Common Stock. The average shares outstanding of Cognizant Common Stock
for the basic EPS calculation are 168,386,000 and for the diluted EPS
calculation are 170,767,143. The actual number of shares of Cognizant
Common Stock to be issued in the Merger may be more or less than
3,223,000, depending upon the average closing price of Cognizant Common
Stock during a period prior to the Effective Time of the Merger. The pro
forma earnings per share calculation excludes anticipated cost savings to
be realized
subsequent to the Merger as well as expected growth in the operating
income of Walsh; such cost savings and operating income growth are
expected to offset the earnings per share dilution.
ii. The Merger occurs after the Cognizant Distribution Record Date, and the
per share amounts assume a $46.613 per share price of IMS HEALTH Common
Stock. The average shares outstanding of IMS HEALTH Common Stock assumed
for the basic EPS calculation are 168,744,000 and for the diluted EPS
calculation are 171,131,153. The actual number of shares of IMS HEALTH
Common Stock to be issued in the Merger may be more or less than
3,581,000, depending upon the average closing price of IMS HEALTH Common
Stock during a period prior to the Effective Time of the Merger. The pro
forma earnings per share calculation excludes anticipated cost savings to
be realized subsequent to the Merger as well as expected growth in the
operating income of Walsh; such cost savings and operating income growth
are expected to offset the earnings per share dilution.
28
<PAGE>
COMPARATIVE PER SHARE DATA SENSITIVITY
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
The following table presents the impact on (i) basic earnings per share on a
continuing operations basis and (ii) book value per share, in each case
resulting from increases or decreases in the fair market value of the Cognizant
Common Stock above and below $51.792 per share, and the IMS HEALTH Common Stock
above and below $46.613 per share.
<TABLE>
<CAPTION>
BASIC EPS IMPACT
- ------------------------------------------------------------------------------------------
ASSUMING THE MERGER OCCURS PRIOR TO THE ASSUMING THE MERGER OCCURS AFTER THE
COGNIZANT DISTRIBUTION RECORD DATE COGNIZANT DISTRIBUTION RECORD DATE
- -------------------------------------------- --------------------------------------------
IMS HEALTH/ IMS HEALTH/
COGNIZANT WALSH IMS HEALTH WALSH
SHARE PRICE PRO FORMA SHARE PRICE PRO FORMA
- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
$ 15.000 $ .01 $ 13.500 $ .01
30.000 .00 27.000 .01
45.000 .00 40.500 .01
50.000 .00 45.000 .01
51.792 .00 46.613 .00
60.000 (.01) 54.000 .00
70.000 (.01) 63.000 .00
85.000 (.01) 76.500 .00
</TABLE>
<TABLE>
<CAPTION>
BOOK VALUE PER SHARE IMPACT
- ------------------------------------------------------------------------------------------
ASSUMING THE MERGER OCCURS PRIOR TO THE ASSUMING THE MERGER OCCURS AFTER THE
COGNIZANT DISTRIBUTION RECORD DATE COGNIZANT DISTRIBUTION RECORD DATE
- -------------------------------------------- --------------------------------------------
COGNIZANT/ IMS HEALTH/
COGNIZANT WALSH IMS HEALTH WALSH
SHARE PRICE PRO FORMA SHARE PRICE PRO FORMA
- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
$ 15.000 $ (.64) $ 13.500 $ (.65)
30.000 (.29) 27.000 (.31)
45.000 (.11) 40.500 (.11)
50.000 (.04) 45.000 (.04)
51.792 .00 46.613 .00
60.000 .11 54.000 .09
70.000 .17 63.000 .18
85.000 .27 76.500 .30
</TABLE>
29
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,1998
The following table presents the earnings per share of common stock, book
value per share of common stock and cash dividends per share of common stock on
a pro forma basis for IMS HEALTH, giving effect to the Merger, assuming that the
Merger was effective for the entire period presented.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
IMS
HEALTH WALSH IMS HEALTH/
PRO FORMA WALSH EQUIVALENT WALSH
HISTORICAL(1) HISTORICAL(2) PRO FORMA(3) PRO FORMA(4)
------------- ------------- --------------- ---------------
Assuming the Merger occurs prior to
Cognizant Distribution:
Earnings per share from continuing
operations--basic............................. $ .26 $ .20 $ .08 $ .25
Earnings per share from continuing operations--
diluted....................................... .25 .20 .08 .25
Book value per share--end of period............. 5.36 1.22 1.83 6.03
Cash dividends declared per share............... .03 -- -- .03
Assuming the Merger occurs after
Cognizant Distribution:
Earnings per share from continuing
operations--basic............................. $ .26 $ .20 $ .08 $ .25
Earnings per share from continuing operations--
diluted....................................... .25 .20 .08 .25
Book value per share--end of period............. 5.36 1.22 2.03 6.02
Cash dividends declared per share............... .03 -- -- .03
</TABLE>
NOTES TO COMPARATIVE PER SHARE DATA:
(1) IMS HEALTH Pro Forma Historical presents NMR as a discontinued operation as
of the beginning of the period presented, although not yet required to be
reflected in the historical financial statements. A description of the pro
forma adjustments made to IMS HEALTH historical financial statements is
included in Annex IV to this Proxy Statement/Prospectus under "IMS HEALTH
Unaudited Consolidated Pro Forma Statement of Income." The average shares
outstanding of Cognizant Common Stock assumed for the basic EPS calculation
are 162,406,000 and for the diluted EPS calculation are 167,282,000.
(2) The information presented as "Walsh Historical" reflects results for the
three months ended March 31, 1998.
(3) The "Walsh Equivalent Pro Forma" adjusts the IMS HEALTH/Walsh pro forma
information to an equivalent Walsh per share basis. The basic and diluted
per share amounts were computed as follows:
i. Assuming the Merger occurs prior to the Cognizant Distribution Record
Date, pro forma per share amounts outstanding of Cognizant Common Stock
are multiplied by a conversion factor of .3041 to convert them into an
equivalent number of shares of Walsh Common Stock.
ii. Assuming the Merger occurs after the Cognizant Distribution Record
Date, pro forma per share amounts outstanding of IMS HEALTH Common Stock
are multiplied by a conversion factor of .3379 to convert them into an
equivalent number of shares of Walsh Common Stock.
(4) The per share amounts give effect to the Merger as if it had occurred at the
beginning of the period presented and assume the following:
i. The Merger occurs prior to the Cognizant Distribution Record Date, and
the per share amounts assume a $51.792 per share price of Cognizant
Common Stock. The average shares outstanding of Cognizant Common Stock
assumed for the basic EPS calculation are 165,629,000 and for the
30
<PAGE>
NOTES TO COMPARATIVE PER SHARE DATA (CONTINUED)
diluted EPS calculation are 170,576,235. The actual number of shares of
Cognizant Common Stock to be issued in the Merger may be more or less
than 3,223,000, depending upon the average closing price of Cognizant
Common Stock during a period prior to the closing of the Merger. See "The
Merger--Merger Consideration." The pro forma earnings per share
calculation excludes anticipated cost savings to be realized subsequent
to the Merger as well as expected growth in the operating income of
Walsh; such cost savings and operating income growth are expected to
offset the earnings per share dilution.
ii. The Merger occurs after the Cognizant Distribution Record Date, and the
per share amounts assume a $46.613 per share price of IMS HEALTH Common
Stock. The average shares outstanding of IMS HEALTH Common Stock assumed
for the basic EPS calculation are 165,987,000 and for the diluted EPS
calculation are 170,942,142. The actual number of shares of IMS HEALTH
Common Stock to be issued in the Merger may be more or less than
3,581,000, depending upon the average closing price of IMS HEALTH Common
Stock during a period prior to the closing of the Merger. See "The
Merger--Merger Consideration." The pro forma earnings per share
calculation excludes anticipated cost savings to be realized subsequent
to the Merger as well as expected growth in the operating income of
Walsh; such cost savings and operating income growth are expected to
offset the earnings per share dilution.
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RISK FACTORS
WALSH STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS
(INCLUDING ANNEX IV HERETO), WHEN EVALUATING COGNIZANT AND IMS HEALTH AND THEIR
RESPECTIVE BUSINESSES (INCLUDING THE BUSINESS OF WALSH FOLLOWING THE MERGER) IN
CONNECTION WITH THEIR VOTE ON APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RISKS RELATING TO COGNIZANT DISTRIBUTION AND MERGER
POTENTIAL TAXATION OF COGNIZANT DISTRIBUTION
Cognizant has received a ruling from the IRS to the effect that, among other
things, the Cognizant Distribution will qualify as a tax-free spin-off under
Section 355 of the Code.
The IRS ruling is based on certain factual representations made by
Cognizant. If such factual representations were incorrect in a material respect,
such ruling could become invalid. Cognizant is not aware of any facts or
circumstances which would cause such representations to be incorrect in any
material respect. Each of Cognizant and IMS HEALTH will agree in a distribution
agreement to be entered into in connection with the Cognizant Distribution to
certain restrictions on its future actions to provide further assurances that
Section 355 of the Code will apply to the Cognizant Distribution.
If the Cognizant Distribution were not to qualify under Section 355 of the
Code, then, in general, a corporate tax (which would be very substantial) would
be payable by the consolidated group, of which Cognizant is the common parent
and which would include IMS HEALTH and its subsidiaries following the Cognizant
Distribution. In addition, under the consolidated return rules, each member of
the consolidated group would be jointly and severally liable for such tax
liability. If the Cognizant Distribution occurred and it were not to qualify
under Section 355 of the Code, the resulting tax liability would have a material
adverse effect on the financial position, results of operations and cash flows
of each of IMS HEALTH and NMR. Cognizant estimates that the aggregate shared tax
liability in this regard of IMS HEALTH and NMR would be in the range of
approximately $2.5 to $3.0 billion.
Moreover, if the Cognizant Distribution were not to qualify under Section
355 of the Code, each Cognizant stockholder receiving shares of IMS HEALTH
Common Stock in the Cognizant Distribution (including Walsh stockholders if the
Merger is consummated prior to the Cognizant Distribution Record Date) would be
treated as if such stockholder had received a taxable distribution in an amount
equal to the fair market value of the IMS HEALTH Common Stock received. It is
anticipated that the fair market value of the IMS HEALTH Common Stock will be a
substantial portion of the fair market value of the Cognizant Common Stock
immediately prior to the Cognizant Distribution.
POTENTIAL TAXATION OF MERGER
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization under Section 368(a) of the Code. However, if the
Merger occurs prior to the Cognizant Distribution Record Date, the Internal
Revenue Service may take the position that the Merger does not qualify as a
reorganization under Section 368(a) of the Code. If the Merger does not qualify
as a reorganization under Section 368(a) of the Code, a stockholder of Walsh
will recognize gain or loss equal to the difference between the fair market
value of the Cognizant Common Stock received by the stockholder and the
stockholder's adjusted tax basis in the shares of Walsh Common Stock surrendered
pursuant to the Merger (I.E., a stockholder of Walsh may have a tax liability
without receiving any cash in the Merger to pay such liability). See "The
Merger--United States Federal Income Tax Consequences."
CERTAIN ANTITAKEOVER PROVISIONS
At the time of the Cognizant Distribution, the Restated Certificate of
Incorporation and Amended and Restated By-Laws of each of Cognizant, IMS HEALTH
and NMR will contain provisions that may
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have the effect of discouraging an acquisition of control of Cognizant, IMS
HEALTH or NMR, respectively, not approved by their respective Board of
Directors. Such provisions may also have the effect of discouraging third
parties from making proposals involving an acquisition or change of control of
Cognizant, IMS HEALTH or NMR, although such proposals, if made, might be
considered desirable by a majority of the stockholders of Cognizant, IMS HEALTH
or NMR, as the case may be. Such provisions could further have the effect of
making it more difficult for third parties to cause the replacement of the Board
of Directors of Cognizant, IMS HEALTH or NMR. These provisions have been
designed to enable each of Cognizant, IMS HEALTH and NMR to develop its
businesses and foster its long-term growth without disruptions caused by the
threat of a takeover not deemed by its Board of Directors to be in the best
interests of Cognizant, IMS HEALTH or NMR, as the case may be, and their
stockholders. Certain provisions of the Cognizant Distribution Agreement may
also have the effect of discouraging third parties from making proposals
involving an acquisition or change of control of IMS HEALTH or NMR. See
"Relationship between NMR and IMS HEALTH after the Distribution--Distribution
Agreement" in Annex IV hereto.
Moreover, at the time of the Cognizant Distribution, each of Cognizant, IMS
HEALTH and NMR will have a stockholder rights plan. These stockholder rights
plans are designed to protect stockholders in the event of an unsolicited offer
and other takeover tactics which, in the opinion of the relevant Board of
Directors, could impair its ability to represent stockholder interests. The
provisions of these stockholder rights plans may render an unsolicited takeover
of Cognizant, IMS HEALTH or NMR, as the case may be, more difficult or less
likely to occur or might prevent such a takeover. See "Description of IMS HEALTH
Capital Stock--IMS HEALTH Rights Plan" and "--Certain Effects of the IMS HEALTH
Rights Agreement" and "Description of Cognizant Capital Stock--Cognizant Rights
Plan" and "--Certain Effects of the Cognizant Rights Agreement."
Each of Cognizant, IMS HEALTH and NMR will be subject to the provisions of
Delaware corporate law which may restrict certain business combination
transactions. See "Description of Cognizant Capital Stock--Delaware General
Corporation Law" and "Description of IMS HEALTH Capital Stock--Delaware General
Corporation Law."
See "Comparison of Stockholder Rights" for additional information regarding
statutory, charter, by-law and agreement provisions that may have the effect of
discouraging an acquisition of control of Cognizant or IMS HEALTH not approved
by their respective Boards of Directors.
See "Description of Cognizant Capital Stock--Authorized But Unissued Capital
Stock" for additional information regarding the ability of Cognizant to issue
additional shares of capital stock without stockholder approval and certain
possible effects of such issuances.
YEAR 2000
Many existing computer systems and software applications use two digits,
rather than four, to record years. Unless modified, such systems will not
properly record or interpret years after 1999, which could lead to business
disruptions (the "Year 2000 issue"). Cognizant and its subsidiaries depend, and,
after the Cognizant Distribution, IMS HEALTH and NMR and their respective
subsidiaries will depend, on systems and software both for their internal
operations as well as for the receipt of data used in their information products
and the transmission of those products to its customers. Cognizant and its
subsidiaries began to address the Year 2000 issue in 1996. Cognizant expects to
complete upgrading or replacing substantially all affected programs during 1998,
with testing to be done during 1999.
In addition, Cognizant is communicating with its customers and data
suppliers to assess their ability to address the Year 2000 issue. Failures by
customers to be Year 2000 compliant could hinder their ability to make use of
Cognizant's products. Failures by data suppliers could disrupt the flow of data
used in Cognizant's products. While Cognizant believes most companies it deals
with are addressing the issue, it is
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unable to determine the effect, if any, such failures might have on Cognizant's
businesses or future results of operations.
The costs of addressing the Year 2000 issue and the date on which Cognizant
expects to achieve Year 2000 compliance are based on the best estimates of
Cognizant management, which were derived utilizing various assumptions regarding
future events. There can be no guarantee that these estimates will be achieved,
and actual results may differ materially. Specific factors that may cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area of expertise, the ability to locate and
correct all relevant computer codes, and the success of customers and suppliers
in addressing the Year 2000 issue. See also "IMS HEALTH (Accounting Successor to
Cognizant) Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" and "Nielsen Media Research Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000" in Annex IV hereto.
NONPARTICIPATION IN NMR FUTURE PERFORMANCE
If the Merger is consummated subsequent to the Cognizant Distribution Record
Date, stockholders of Walsh will not receive an equity interest in NMR and will
not benefit from the future performance of NMR's businesses or any future
increase in the value of such businesses.
RELATIVE MARKET VALUES OF IMS HEALTH AND NMR
The adjustment factor to be used to determine the number of shares of IMS
Health Common Stock which a Walsh stockholder shall receive if the Effective
Time of the Merger is on or after the Cognizant Distribution Record Date is
based on the relative market prices of the IMS Common Stock and the NMR Common
Stock. There can be no assurance as to the prices at which IMS HEALTH Common
Stock and NMR Common Stock will trade after the Cognizant Distribution.
THE EFFECT OF STOCK PRICE FLUCTUATIONS ON THE CONSIDERATION TO BE RECEIVED
BY HOLDERS OF WALSH COMMON STOCK IN THE MERGER
The price of shares of Cognizant Common Stock at the Effective Time of the
Merger may vary significantly from the price as of the date of execution of the
Merger Agreement, the date hereof or the date of the Special Meeting. These
variances may be due to changes in the business, operations, results and
prospects of Cognizant, matters relating to the Cognizant Distribution, general
market conditions and economic conditions and other factors. For example,
between February 1, 1998 and May 15, 1998, the closing prices of Cognizant
Common Stock ranged from a high of $58 1/2 to a low of $46 15/16. In addition,
the stock market has generally experienced significant price and volume
fluctuations from time to time. These market fluctuations could have a material
adverse effect on the market price or liquidity of Cognizant Common Stock and
IMS HEALTH Common Stock. The Cognizant Exchange Ratio (or, if the Effective Time
of the Merger is after the Cognizant Distribution Record Date, the IMS HEALTH
Exchange Ratio), which will determine the actual number of shares of Cognizant
Common Stock (or IMS HEALTH Common Stock, as applicable) to be issued to holders
of Walsh Common Stock, will be based on the average of the closing sale prices
of Cognizant Common Stock (or of IMS HEALTH Common Stock, as applicable) on the
Composite Table on each of the 15 consecutive trading days immediately preceding
the second trading day prior to the Effective Time of the Merger. See "The
Merger--Merger Consideration." The terms of the Merger Agreement do not provide
for (i) any minimum or maximum Cognizant Exchange Ratio (or IMS HEALTH Exchange
Ratio) or (ii) any right of Walsh to terminate based on any minimum or maximum
value of Cognizant Common Stock (or IMS HEALTH Common Stock).
Holders of Walsh Common Stock may call toll-free 1-877-530-8879 at any time
until June 24, 1998 to hear a tape-recorded message stating what the Cognizant
Exchange Ratio (or, after the Cognizant Distribution Record Date, the IMS HEALTH
Exchange Ratio) would be if that date were the Closing
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Date. However, the actual Cognizant Exchange Ratio will not be determined until
shortly before the Merger is completed.
RISKS RELATING TO IMS HEALTH
ABSENCE OF PRIOR TRADING MARKET FOR THE IMS HEALTH COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for IMS HEALTH Common Stock. Application will be made to list the shares of IMS
HEALTH Common Stock on the NYSE under the symbol "RX," and trading is expected
to commence on a "when issued" basis prior to the Cognizant Distribution.
In the event that the Effective Time of the Merger does not occur prior to
the Cognizant Distribution Record Date, the Effective Time of the Merger will be
deferred until at least the date that is 18 NYSE trading days following the
commencement of "regular way" trading in the IMS HEALTH Common Stock. Such
deferral is estimated by Cognizant and Walsh to be sufficient to permit the full
distribution of the IMS HEALTH Common Stock and provide a period of 10 trading
days during which the IMS HEALTH Exchange Ratio will be determined. There can be
no assurance, however, that such estimate will prove correct.
CHANGES IN TRADING PRICES OF IMS HEALTH COMMON STOCK
There can be no assurance as to the prices at which the IMS HEALTH Common
Stock will trade before, on or after the Cognizant Distribution. Until the IMS
HEALTH Common Stock is fully distributed and an orderly market develops in the
IMS HEALTH Common Stock, the price at which such stock trades may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for the IMS HEALTH Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for IMS HEALTH Common Stock, (ii)
developments affecting the businesses of IMS HEALTH generally and the impact of
those factors referred to below in particular, (iii) investor perception of IMS
HEALTH and (iv) general economic and market conditions. Management expects that
the market will characterize IMS HEALTH Common Stock as a healthcare information
systems and services stock, which category of stock has historically experienced
relatively greater price volatility than broader market indices.
NON-UNITED STATES OPERATIONS
IMS HEALTH operates globally, deriving 61% of its revenue and 79% of its
operating income in 1997 from non-U.S. operations. As a result, fluctuations in
the value of foreign currencies relative to the U.S. dollar may increase the
volatility of U.S. dollar-denominated operating results. IMS HEALTH's geographic
expansion in emerging markets such as Eastern Europe, Africa and Asia Pacific is
expected to continue. Emerging markets tend to be considerably less stable than
established markets which may further contribute to volatility in operating
results. In addition, IMS HEALTH is subject to the usual risks inherent in
carrying on business in certain countries outside the U.S., including possible
nationalization, expropriation, price controls or other restrictive government
actions. Management believes that the risk of nationalization or expropriation
is reduced because IMS HEALTH's basic service is the delivery of information,
rather than the production of products which require manufacturing facilities or
use of natural resources.
ACQUISITIONS
Although an important aspect of IMS HEALTH's business strategy is growth
through acquisitions (such as the Merger and the proposed acquisition of PMSI),
there can be no assurance that management of IMS HEALTH will be able to identify
and consummate acquisitions on satisfactory terms. Furthermore,
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every acquisition entails some degree of uncertainty and risk, and even if
consummated, may not produce the operating results or increases in value over
time which were expected at the time of acquisition.
On March 23, 1998, Cognizant announced the signing of definitive agreements
for IMS HEALTH to acquire PMSI. After the Cognizant Distribution, PMSI will
become a subsidiary of IMS HEALTH. Although this acquisition has been approved
by the Boards of Directors of Cognizant and PMSI, it is still subject to the
approval of the PMSI stockholders, the receipt of regulatory and other required
approvals and consents and customary closing conditions. In addition, while
management of IMS HEALTH believes that the PMSI and Walsh acquisitions will
enhance IMS HEALTH's ability to compete globally in the healthcare sales and
marketing services industry and increase revenue growth rates, there can be no
assurance that such expectations will materialize.
TECHNOLOGY
IMS HEALTH competes in businesses which demand or sell sophisticated
information systems, software and other technology. The types of systems which
IMS HEALTH's businesses require or sell can be expected to be subject to
refinements as such systems and underlying technologies are upgraded and
advanced, and there can be no guarantee that as various systems and technologies
become outdated, IMS HEALTH will be able to replace them, to replace them as
quickly as IMS HEALTH's competition or to develop and market new and better
products and services in the future on a cost-effective basis.
GARTNER GROUP, INC.
The IMS HEALTH businesses include IMS HEALTH's ownership of a significant
block of the outstanding shares of Gartner Group, a publicly traded provider of
research and analysis of the computer hardware, software, communications and
related technology industries. In the third quarter of 1997, IMS HEALTH's voting
interest in Gartner Group fell below 50% based upon the exercise of Gartner
Group employee stock options and employee stock purchases. Accordingly, as of
September 30, 1997, Cognizant deconsolidated Gartner Group and is accounting for
its ownership interest on the equity basis, and such accounting treatment will
be continued by IMS HEALTH after the Cognizant Distribution. Gartner Group's
common stock has historically traded at higher multiples than market averages
and has generally experienced greater price volatility than the market as a
whole. It can be expected that variations in the market value of the Gartner
Group shares held by IMS HEALTH will have an impact on the trading prices of IMS
HEALTH Common Stock. Gartner Group's results of operations may also be subject
to the various factors described in Gartner Group's reports filed with the
Commission from time to time.
PRICE CONTROLS
A number of countries in which IMS HEALTH operates have enacted regulations
limiting the prices pharmaceutical companies may charge for drugs. IMS HEALTH
believes that such cost containment measures will cause pharmaceutical companies
to seek more effective means of marketing their products (which will benefit IMS
HEALTH in the medium and long term). However, such governmental regulation may
cause pharmaceutical companies to revise or reduce their marketing programs in
the near term.
PRIVACY LEGISLATION
Certain of the data services provided by IMS HEALTH relate to the diagnosis
and treatment of disease. The use of patient-specific information is anticipated
to be an increasingly important tool in the design, development and marketing of
pharmaceuticals. To protect privacy, no individual patient is identified in any
IMS HEALTH database. Recently, there have been a number of regulatory and
legislative initiatives in the area of medical privacy at the federal, state and
foreign government levels. Most of these initiatives seek to place restrictions
on the use and disclosure of patient-identifiable information without consent
and consequently would not apply to IMS HEALTH's business. However, there can be
no
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assurance that future initiatives would not adversely affect IMS HEALTH's
ability to generate or assemble data or to develop or market current or future
products and services.
LITIGATION
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and I.M.S. International, Inc., which
will be a wholly owned subsidiary of IMS HEALTH following the Cognizant
Distribution (the "IRI Action"). The complaint alleges, among other things,
various violations of the antitrust laws and damages in excess of $350 million,
which amount IRI has asked to be trebled under the antitrust laws. IRI also
seeks punitive damages in an unspecified amount. In connection with such action,
D&B, ACNielsen Corporation ("ACNielsen") and Cognizant entered into an Indemnity
and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement")
pursuant to which ACNielsen agreed to be responsible for any potential
liabilities which may ultimately be incurred by D&B or Cognizant as a result of
such action, up to a maximum amount to be determined by an independent
investment bank if and when any such liabilities are incurred. The determination
of such maximum amount will be based on ACNielsen's ability to satisfy such
liabilities and remain financially viable, subject to certain assumptions and
limitations. However, Cognizant and D&B agreed that to the extent that ACNielsen
is unable to satisfy any such liabilities in full and remain financially viable,
Cognizant and D&B will each be responsible for 50% of the difference between the
amount, if any, which may be payable as a result of such litigation and the
maximum amount which ACNielsen is then able to pay as determined by such
investment bank. Under the terms of the Distribution Agreement, dated as of
October 28, 1996, among Cognizant, D&B and ACNielsen (the "1996 Distribution
Agreement"), pursuant to which shares of Cognizant and ACNielsen were
distributed to the stockholders of D&B (the "1996 Distribution"), as a condition
to the Cognizant Distribution, IMS HEALTH and NMR are required to undertake to
be jointly and severally liable to D&B and ACNielsen for Cognizant's obligations
under the 1996 Distribution Agreement. However, pursuant to the Cognizant
Distribution Agreement, IMS HEALTH and NMR have agreed that, as between
themselves, IMS HEALTH will assume 75%, and NMR will assume 25%, of any payments
to be made in respect of the IRI Action under the Indemnity and Joint Defense
Agreement or otherwise, including any legal fees and expenses related thereto
incurred in 1999 or thereafter. IMS HEALTH has agreed to be fully responsible
for any legal fees and expenses incurred during 1998. NMR's aggregate liability
to IMS HEALTH for payments in respect of the IRI Action and certain other
contingent liabilities shall not exceed $125 million. Management of Cognizant,
IMS HEALTH and NMR are unable to predict at this time the final outcome of the
IRI Action or whether the resolution of such matter could materially affect
Cognizant's, IMS HEALTH's or NMR's results of operations, cash flows or
financial position.
RISKS RELATING TO NMR
COMPETITION
In the past, NMR's ratings systems have been criticized by various
participants in the television industry. Such criticism, in part, has increased
the likelihood of additional competition in its business. In particular, a
television ratings project funded by the Committee on Nationwide Television
Audience Measurement ("CONTAM") and designed and operated by Statistical
Research, Inc. ("SRI"), is operating a 500 household sample in Philadelphia as a
national television ratings laboratory. SRI's Philadelphia sample has provided
limited program level data, although SRI has recently announced plans to provide
more complete program level data from a subset of the sample in 1998. Funding
has been contributed primarily by the three major broadcast networks, ABC, CBS,
and NBC. During 1996, ABC, CBS, and NBC, through CONTAM, contributed $10 million
(in addition to the $30 million in 1994) in funding for the completion of the
Philadelphia test. In addition to the other three major networks, Fox
Broadcasting as well as four cable networks, fifteen major advertising agencies
and buying services, one program syndicator
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and five of the nation's largest advertisers have agreed to support and
participate in the testing phase. Some of these companies have contributed to
the funding of SRI and SRI is actively seeking financial support from major
media companies for a national ratings service. The Philadelphia sample is
viewed by some as a test market for a national ratings service. In addition, NBC
and CBS broadcast television networks have asked SRI for a business plan for the
creation of a national measurement system that could provide an alternative to
the Nielsen Television Index service.
On the local level, ADCOM offers individual cable system measurement. It is
currently collecting and issuing local cable measurement data in Jacksonville,
Florida.
In Canada, BBM, an established media research organization, has joined with
Taylor Nelson/AGB, a U.K.-based media research company, and announced plans to
provide a competing metered service in Vancouver. BBM, alone or with Taylor
Nelson/AGB, could offer other competitive services in Canada.
NMR's Monitor-Plus Service has significant competition from Competitive
Media Reports, a subsidiary of VNU, a Netherlands-based media company which has
long been the major participant in this market.
TECHNOLOGY
NMR operates in businesses which require sophisticated information systems,
software and other technology. The technology underlying the media industry
continues to undergo rapid change and NMR will need to develop and refine
techniques for data collection to accommodate such changes, including digital
television, interactive television transmission and Internet usage. There can be
no guarantee that NMR will be able to develop and refine new techniques for data
collection or that it will be able to do so as quickly or cost-effectively as
its competition.
INDEBTEDNESS
In connection with the Cognizant Distribution, Cognizant will borrow $300
million, the proceeds of which will be used to repay intercompany indebtedness
to certain entities included in IMS HEALTH. Such intercompany indebtedness
represents primarily demand notes that are payable on two days' notice. The
proceeds of these demand loans have been used by Cognizant for general corporate
purposes, including its share repurchase program. This debt will be an
obligation of NMR after the Cognizant Distribution. After the Cognizant
Distribution, NMR will be more leveraged than Cognizant was prior to such
transaction and will have indebtedness that is significant in relation to its
stockholders' equity.
While management believes NMR's cash flow will be sufficient to service its
debt and to reinvest in its business, a substantial portion of NMR's cash flow
will be dedicated to payments of interest on debt, thereby reducing funds
available for other purposes such as investment in new technologies necessary to
perform in the emerging television environment. Covenants in the credit facility
or other financing agreements relating to such debt may restrict NMR's ability
to dispose of assets, incur additional indebtedness, repay other indebtedness,
pay dividends, create liens on assets, make investments or acquisitions, engage
in mergers or consolidations, make capital expenditures or engage in other
corporate activities. In addition, NMR's ability to obtain additional financing
on favorable terms may be impaired in the future by reason of such indebtedness.
CAPITAL EXPENDITURES; ACCESS TO CAPITAL AS AN INDEPENDENT COMPANY
NMR maintains an active investment program to enhance existing services and
develop new services in response to technological and marketplace changes. NMR
will need to make significant capital expenditures over the next several years,
particularly in light of the rapid technological changes affecting its business.
Prior to the Cognizant Distribution, NMR has relied on Cognizant for various
financial and administrative services. After the Cognizant Distribution, NMR
will be an independent entity responsible
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for financing its own operations. To the extent that NMR needs additional
funding to finance its operations and capital expenditures, no assurance can be
given that NMR will be able to access the capital markets or otherwise obtain
necessary financing in the future, or that any such financing can be obtained in
a timely manner or on commercially favorable terms.
EFFECT OF COGNIZANT DISTRIBUTION ON TRADING MARKET OF NMR COMMON STOCK
The Common Stock of NMR (i.e., the "old" Cognizant Common Stock) will
continue to trade on the NYSE after the Cognizant Distribution, but the symbol
under which it trades will change from "CZT" to "NMR." However, because of the
significant changes that will take place at Cognizant as a result of the
Cognizant Distribution, the trading market for Common Stock of NMR after the
Cognizant Distribution may be significantly different from that for Cognizant
Common Stock prior to the Cognizant Distribution. The market may view NMR as a
"new" company after the Cognizant Distribution and, due to its smaller size, it
may not be the subject of significant research analyst coverage. There can be no
assurance as to the prices at which the Common Stock of NMR will trade before,
on or after the Cognizant Distribution Record Date. Unless and until an orderly
market develops in the NMR Common Stock, the price at which it trades may
fluctuate significantly. Prices for NMR Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for NMR Common Stock, (ii) developments affecting the
business of NMR, including the impact of the factors referred to above, (iii)
investor perception of NMR and (iv) general economic and market conditions.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held at 10:00 a.m., local time, on June 24,
1998, at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45
Rockefeller Plaza, 11th floor, New York, New York.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Walsh Common Stock will be asked to
consider and vote upon the approval and adoption of the Merger Agreement and
such other matters as may properly be brought before the Special Meeting.
THE WALSH BOARD, BY UNANIMOUS VOTE OF ALL DIRECTORS, HAS APPROVED THE MERGER
AGREEMENT, THE STOCK OPTION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
VOTE REQUIRED
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of record of a majority of the shares of Walsh
Common Stock outstanding on the Record Date.
Holders of record of Walsh Common Stock as of the Record Date are each
entitled to one vote per share on each matter to be considered at the Special
Meeting. Holders of other outstanding securities of Walsh are not entitled to
vote on the approval and adoption of the Merger Agreement.
As of the Record Date, directors and executive officers of Walsh and their
affiliates beneficially owned and were entitled to vote 450,955 shares of Walsh
Common Stock, which represented approximately 4.23% of the shares of Walsh
Common Stock outstanding on the Record Date. Each Walsh director and executive
officer has indicated his present intention to vote the Walsh Common Stock so
owned by him for approval and adoption of the Merger Agreement. See "The
Merger--Interests of Certain Persons in the Merger."
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Special Meeting will be voted at the Special Meeting in the manner specified by
the holders thereof. Properly executed proxies which do not contain voting
instructions will be voted in favor of the Merger Agreement.
Walsh intends to count shares of Walsh Common Stock present in person at the
Special Meeting but not voting, and shares of Walsh Common Stock for which they
have received proxies but with respect to which holders of shares have abstained
on any matter, as present at the Special Meeting for purposes of determining the
presence or absence of a quorum for the transaction of business.
For voting purposes at the Special Meeting, only shares affirmatively voted
in favor of approval and adoption of the Merger Agreement will be counted as
favorable votes for such approval and adoption. The failure to submit a proxy
(or to vote in person) or the abstention from voting with respect to such
approval and adoption will have the same effect as a vote against approval and
adoption of the Merger Agreement. Broker nonvotes will also have the same effect
as a vote against the Merger.
It is not expected that any matter other than the matter referred to herein
will be brought before the Special Meeting. If, however, other matters are
properly presented for a vote, the persons named as proxies will vote in
accordance with their judgment with respect to such matters.
The persons named as proxies by a Walsh stockholder may propose and vote for
one or more adjournments of the Special Meeting to permit further solicitations
of proxies in favor of approval and adoption of the Merger Agreement; provided,
however, that no proxy which is voted against the approval and adoption of the
Merger Agreement will be voted in favor of any such adjournment.
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REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form does not preclude a stockholder
from voting in person. A stockholder may revoke a proxy at any time prior to its
exercise by filing with the Secretary of Walsh a duly executed revocation of
proxy, by submitting a duly executed proxy bearing a later date or by appearing
and voting in person at the Special Meeting. Attendance at the Special Meeting
will not, in and of itself, constitute revocation of a proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Walsh Common Stock on the Record Date will be
entitled to notice of, and to vote at, the Special Meeting. On the Record Date,
10,616,167 shares of Walsh Common Stock were issued and outstanding and held by
approximately 76 holders of record.
A majority of the shares of Walsh Common Stock outstanding on the Record
Date must be represented in person or by proxy at the Special Meeting in order
for a quorum to be present for purposes of voting on approval and adoption of
the Merger Agreement.
SOLICITATION OF PROXIES
Walsh will bear the cost of the solicitation of proxies from its
stockholders, except that Cognizant and Walsh will share equally the cost of
filing, printing and distributing the Registration Statements and this Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of Walsh may solicit proxies from stockholders of Walsh
by telephone or telegram or by other means of communication. Such directors,
officers and employees will not be additionally compensated but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Walsh will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
W.F. Doring & Co. Inc. will assist in the solicitation of proxies by Walsh
for a fee not to exceed $5,000, plus reasonable out-of-pocket costs and
expenses.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF
THE MERGER AGREEMENT IS APPROVED AND ADOPTED BY WALSH'S STOCKHOLDERS AND THE
MERGER IS CONSUMMATED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT FOR THE
EXCHANGE OF SHARES OF WALSH COMMON STOCK.
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THE PARTIES
COGNIZANT CORPORATION AND IMS HEALTH INCORPORATED
Cognizant is a Delaware corporation that began operating as an independent
publicly held company on November 1, 1996 as a result of its spin-off from D&B.
Prior to that spin-off, Cognizant was wholly owned by D&B. Cognizant primarily
is engaged in the integration of information and technology to create business
insight. IMS HEALTH is a newly formed Delaware corporation. Following the
Cognizant Distribution, the businesses of IMS HEALTH will focus on information
solutions to the pharmaceutical and healthcare industries. Providing services in
over 90 countries with over 7,200 employees worldwide, IMS HEALTH's businesses
will include those of IMS, the leading global supplier of market information and
decision-support services to the pharmaceutical and healthcare industries;
Erisco, a leading supplier of software-based administrative and analytical
solutions to the managed care industry; Enterprises, a venture capital unit
focused on investments in emerging healthcare businesses; CTS, a provider of
software application development and maintenance services and Year 2000 and
Eurocurrency compliance services; and a substantial equity interest (48.02% at
December 31, 1997) in Gartner Group, the leading supplier of research and
analysis to the information technology industry. In the event the acquisition of
Walsh is consummated, Walsh will become a subsidiary of IMS HEALTH following the
Cognizant Distribution. See "The Merger--Structure of the Merger."
As a result of the Cognizant Distribution, the electronic audience
measurement services business of NMR will remain with Cognizant, and
concurrently with the Cognizant Distribution, Cognizant will change its name to
Nielsen Media Research, Inc.
The principal executive offices of each of Cognizant, IMS HEALTH and NMR
currently are located at 200 Nyala Farms, Westport, Connecticut 06880 and their
telephone number is (203) 222-4200.
ANNEX IV TO THIS PROXY STATEMENT/PROSPECTUS CONTAINS DETAILED INFORMATION
WITH RESPECT TO IMS HEALTH AND NMR, AS WELL AS THE TERMS OF THE COGNIZANT
DISTRIBUTION. HOLDERS OF WALSH COMMON STOCK ARE URGED TO CAREFULLY READ ANNEX IV
IN ITS ENTIRETY.
WALSH INTERNATIONAL INC.
Walsh develops, markets, provides and supports comprehensive sales and
marketing information systems for pharmaceutical companies to assist them in
more efficient management of their sales organizations. Walsh is a market leader
in providing ETMS and SMIS to the pharmaceutical industry worldwide. Walsh also
provides data services and marketing support services based on proprietary
databases of medical professionals and others who influence prescribing
decisions.
Walsh was incorporated in Delaware in 1988. In December 1991 the business of
PMSI was spun off from Walsh and taken public. Following the spin-off of PMSI,
Walsh operated in two business segments, the current Walsh business described
above and the Source business, which develops and provides proprietary databases
of prescriptions dispensed by retail outlets internationally.
On April 16, 1996, all of the issued and outstanding capital stock of a
newly-formed holding company for the Source business, Source Informatics Inc.
("Source"), was spun-off to Walsh's stockholders (the "Source Spin-Off"). The
results of the Source business are presented as "discontinued operations" in the
consolidated financial statements of Walsh for the fiscal year ended June 30,
1996.
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Walsh provides three types of services that are designed to work either
independently or together to provide a comprehensive sales and marketing
information solution:
- - Technology Services, consisting of Premiere-SM-, the Company's SMIS, which
was launched in fiscal 1996, and Precise-SM-, the Company's established
advanced ETMS;
- - Data Services, consisting of the Pharbase-SM- customer database service; and
- - Marketing Support Services, consisting of Pharbase-SM--driven selection
direct marketing services, which support the sales organization, research
and consulting services.
Walsh's principal executive offices are located at 105 Terry Drive, Suite
118, Newtown, Pennsylvania 18940, and its telephone number is (215) 860-4949.
WAC INC.
Merger Sub is a Delaware corporation organized in 1998 as a wholly owned
subsidiary of Cognizant solely for the purpose of entering into the Merger
Agreement and effecting the Merger. If the Merger is not consummated prior to
the Cognizant Distribution Record Date, ownership of Merger Sub will be
transferred to IMS HEALTH.
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THE MERGER
GENERAL
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER, INCLUDING THE PRINCIPAL TERMS OF THE MERGER AGREEMENT AND
THE STOCK OPTION AGREEMENT. COPIES OF THE MERGER AGREEMENT AND THE STOCK OPTION
AGREEMENT ARE ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX I AND ANNEX
II, RESPECTIVELY, AND ARE INCORPORATED HEREIN BY REFERENCE. ALTHOUGH THE
DESCRIPTIONS SET FORTH BELOW OF THE TERMS OF THE MERGER AGREEMENT AND THE STOCK
OPTION AGREEMENT ARE ACCURATE IN ALL MATERIAL RESPECTS, SUCH DESCRIPTIONS ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO ANNEX I AND ANNEX II, RESPECTIVELY.
ALL STOCKHOLDERS OF WALSH ARE URGED TO READ THE MERGER AGREEMENT AND THE STOCK
AGREEMENT IN THEIR ENTIRETY.
BACKGROUND OF THE MERGER
At a regular meeting held on April 9, 1997, the Walsh Board discussed
various strategies to increase stockholder value and to expand Walsh's business
either through an acquisition of, or a joint venture with, a complementary
business. At that meeting, the Walsh Board authorized management to begin
discussions with Cognizant regarding the possibility of a combination with
Cognizant's Sales Technologies, Inc. subsidiary ("STI") which would result in
Walsh continuing as a publicly held company. At various meetings from the end of
April through August 1997, management of Walsh and Cognizant met to discuss the
general terms and possible business models of both a merger and a joint venture
between Walsh and STI. In connection with those discussions, Walsh and Cognizant
executed a mutual Confidentiality Agreement on April 22, 1997.
After the announcement in August 1997 of the transactions among PMSI, Source
and National Data Corporation, discussions of a business combination were
deferred until the end of 1997.
In September 1997, Walsh management was approached by another company
interested in pursuing a business combination with Walsh. At its regular meeting
on October 21, 1997, the Walsh Board authorized management to engage NMS to
assist Walsh in connection with potential strategic combinations. From September
1997 through January 1998, Walsh management had a series of meetings with the
potential merger partner, during which the parties discussed the form of a
possible transaction (which was envisaged as a stock for stock merger), the
valuation of Walsh and related matters. In mid-December 1997, NMS contacted
three companies to inquire as to their interest in a strategic combination with
Walsh. Of the three companies contacted, two expressed very preliminary interest
and NMS provided them with public information about Walsh. None of these
companies requested additional information about Walsh.
In January 1998, after deciding to reopen discussions with Cognizant,
members of Walsh management again met with members of Cognizant management to
update the information that had been shared in the course of earlier meetings.
While these discussions also encompassed various forms of a possible
transaction, including a merger of Walsh into Cognizant, Cognizant expressed a
preference for a joint venture with Walsh in which Cognizant would own a
majority interest.
On January 15, 1998, Cognizant announced the Cognizant Distribution.
Cognizant announced that IMS HEALTH would focus its efforts on healthcare
information services and that a key element of IMS HEALTH's strategy would be
targeted acquisitions in the healthcare information industry. Also on that date,
Cognizant and Walsh commenced their respective preliminary financial and
business due diligence reviews.
Concurrent with discussions with Walsh management, Cognizant was meeting
with PMSI and in mid-February advised Walsh that Cognizant was interested in
acquiring both Walsh and PMSI in separate merger transactions. Management of
each of Walsh and Cognizant continued to meet through February during which
period they discussed the integration of the two companies and negotiated the
per share consideration to be paid to Walsh stockholders and the timing of the
transaction.
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On February 17, management of Cognizant briefed the Cognizant Board on the
status of discussions with Walsh. This included a presentation of potential
transaction structures, consideration and financial effects. On February 18,
Cognizant proposed to Walsh a merger transaction that would proceed
independently of any transaction with PMSI and in which, assuming satisfactory
completion of Cognizant's due diligence review of Walsh, stockholders of Walsh
would receive stock of Cognizant valued at $15.75 per share of Walsh Common
Stock. The Walsh Board authorized management to continue negotiations with
Cognizant toward an agreement that would adequately compensate Walsh
stockholders in the event the merger with Cognizant could not be consummated
prior to the Cognizant Distribution and Walsh stockholders were to then receive
only stock of IMS HEALTH.
On February 25, the Walsh Board met to review the status of negotiations.
NMS presented a preliminary fairness analysis of the proposed transaction, as
well as an analysis of the prospects for Walsh as an independent enterprise.
Walsh's legal advisors also presented a summary of the proposed terms of the
transaction and the status of the issues remaining open in the negotiations.
After considering the information presented, the Walsh Board instructed
management to continue discussions with Cognizant regarding the terms of the
transaction with a view to reaching a definitive agreement.
The due diligence process continued from the end of February through
mid-March. Discussions between the two companies included proposed exchange
ratios given possible fluctuations in the prices of Cognizant Common Stock, the
form and amount of consideration to be received by Walsh stockholders in the
event a merger was not completed prior to the Cognizant Distribution Record
Date, the scope of the representations and warranties to be made by the parties,
the conditions to consummation of a merger, the treatment of outstanding stock
options to purchase Walsh Common Stock and other matters related to the impact
of the transaction on Walsh employees, and the grant of an option to purchase
Walsh Common Stock that Cognizant had demanded in connection with any
transaction.
On March 23, members of Walsh's senior management, along with its legal and
financial advisors, met with the Walsh Board and reviewed such matters as the
terms of the Merger Agreement, including the timing of completion of the Merger,
and the potential benefits and risks of the transaction. NMS made a presentation
to the Walsh Board and rendered its oral opinion that, as of such date, the
Cognizant Exchange Ratio and the IMS HEALTH Adjustment Factor are fair to the
stockholders of Walsh from a financial point of view. The Walsh Board voted
unanimously to authorize management to enter into the Merger Agreement and the
Stock Option Agreement. Also on March 23, members of Cognizant senior management
met with Cognizant's Board to review the terms of the Walsh acquisition. The
terms of the Walsh acquisition were unanimously approved by all Cognizant
directors participating at the meeting.
On March 23, 1998, following the meetings of the Walsh Board and Cognizant's
Board, the Merger Agreement and the Stock Option Agreement were executed and a
joint press release was issued announcing the execution and delivery of the
agreements.
REASONS FOR THE MERGER
COGNIZANT. The principal strategy of the IMS HEALTH business is to
capitalize on significant new growth opportunities in the healthcare information
services business through internal investment and carefully targeted
acquisitions. IMS HEALTH has identified expansion in ETMS and SMIS as an element
of that strategy. In evaluating the proposed Merger, the Cognizant Board
recognized that Walsh's ETMS and SMIS businesses were complementary to those
provided by IMS HEALTH's Sales Technologies unit and could therefore help
further IMS HEALTH's overall strategy.
In particular, the Board expects that the addition of Walsh will provide the
critical mass necessary to enable IMS HEALTH to address customers' desires for a
global solution provider in the ETMS and SMIS businesses. The Board specifically
noted that Sales Technologies strengths are largely focused on the North
American market, while Walsh has developed a significant presence and
infrastructure in Europe and the Asia-Pacific region. The Board believed that
the Merger will enable IMS HEALTH to benefit from the
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combined strengths of the two entities and become a more effective global
competitor in the ETMS and SMIS markets.
In evaluating the proposed Merger, the Cognizant Board reviewed
presentations from its management and advisors. In reaching its determination to
approve the Merger Agreement, the Stock Option Agreement and the transactions
contemplated thereby, the Cognizant Board considered a number of factors,
including the factors described above.
None of the foregoing factors or groups of factors had particular prominence
in the decision of the Cognizant Board to approve the Merger Agreement, the
Stock Option Agreement and the other transactions contemplated thereby, and none
was assigned any specific or relative weight.
WALSH. The Walsh Board unanimously approved the terms and provisions of the
Merger Agreement, the Stock Option Agreement and the transactions contemplated
thereby, including the Merger, at a special meeting held on March 23, 1998. In
evaluating the Merger Agreement, the Stock Option Agreement and the transactions
contemplated thereby and arriving at its approval, the Walsh Board considered a
number of factors, including the factors listed below:
1. the Walsh Board's belief that the financial and operational achievements
of Walsh since the initial public offering of Walsh Common Stock have not
been fully reflected in the market price of Walsh Common Stock (Walsh
Common Stock consistently has traded below its initial public offering
price) and that, in contrast, the Exchange Ratios offered by Cognizant
place an immediate premium valuation on Walsh Common Stock;
2. the fact that the Merger would provide Walsh stockholders with the
opportunity to have continued equity participation in a larger, more
diversified enterprise with an equity value that is considerably larger
than Walsh's current equity value and that offers significantly greater
liquidity;
3. the Walsh Board's belief that the post-Merger combined business would be
an industry leader in electronic territory management and sales force
automation products and services and would provide greater opportunity
for the development and commercial exploitation of Walsh's products by
utilizing Cognizant's broader geographic scope and client base, thus
allowing Walsh to both attract Cognizant's clients as new customers for
Walsh products and to offer Cognizant's products to Walsh's current
clients;
4. the Walsh Board's belief that synergies between the two companies will
create potential for significant operational savings;
5. the fact that a combination with Cognizant will provide Walsh with
access to significantly greater financial and operations resources,
thereby enabling Walsh to better fund its technology development programs
and potential acquisitions;
6. the Walsh Board's belief that the joining of the Cognizant business with
that of Walsh would complement and expand Walsh's operations both
domestically and internationally;
7. the results of the due diligence review with respect to Cognizant's
operations and financial results; and
8. the oral opinion of NMS, delivered March 23, 1998, confirmed in writing
as of March 23, 1998, that, as of the date of the Merger Agreement, the
Cognizant Exchange Ratio and IMS HEALTH Adjustment Factor provided for by
the Merger Agreement are fair, from a financial point of view, to the
stockholders of Walsh, as well as the underlying financial analyses of
NMS presented in connection therewith.
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Stockholders of Walsh should be aware that certain officers and directors of
Walsh have interests in the Merger that are in addition to those of stockholders
of Walsh generally. See "The Merger--Interests of Certain Persons in the
Merger."
None of the foregoing factors or group of factors had particular prominence
in the decision of the Walsh Board to approve the Merger Agreement, the Merger,
the Stock Option Agreement and the other transactions contemplated thereby and
none was assigned any specific or relative weight.
RECOMMENDATION OF THE WALSH BOARD
FOR THE REASONS STATED ABOVE, THE WALSH BOARD HAS DETERMINED THAT THE TERMS
OF THE MERGER AGREEMENT AND THE STOCK OPTION AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF WALSH'S STOCKHOLDERS. THE WALSH BOARD, BY UNANIMOUS VOTE OF ALL
DIRECTORS, HAS APPROVED THE MERGER AGREEMENT AND THE STOCK OPTION AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT WALSH'S STOCKHOLDERS
APPROVE AND ADOPT THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO WALSH
THE FULL TEXT OF THE OPINION OF NMS, DATED MARCH 23, 1998, WHICH SETS FORTH
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX III TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF WALSH
COMMON STOCK ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY.
ALTHOUGH THE SUMMARY OF THE NMS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE IN ALL MATERIAL RESPECTS, SUCH SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Pursuant to an engagement letter dated October 15, 1997 (the "NMS Engagement
Letter"), the Walsh Board retained NationsBanc Montgomery Securities LLC ("NMS")
to act as Walsh's financial advisor in connection with its consideration of a
possible business combination transaction involving Walsh. NMS is an
internationally recognized firm and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Pursuant to the NMS Engagement Letter, the Walsh Board engaged NMS to
act as its financial advisor in connection with a possible sale of Walsh. Walsh
has also agreed to pay NMS up to 1.3% of the equity value of Walsh upon the sale
of Walsh that involves the rendering of a fairness opinion to the Walsh Board.
Fifty percent of such fees are contingent upon consummation of the transaction.
Based on the price for Cognizant Common Stock on the date of the Merger
Agreement, the aggregate fee payable to NMS would be approximately $2.3 million.
Walsh also has agreed to reimburse NMS for NMS' reasonable out-of-pocket
expenses. Pursuant to a separate letter agreement, Walsh has agreed to indemnify
NMS, its affiliates and their directors, officers, agents, consultants,
employees and controlling persons against certain liabilities, including
liabilities under federal securities laws.
In the ordinary course of business, NMS actively trades equity securities of
Walsh for its own account and for the account of customers and holds a long
position in such securities. NMS also has performed investment banking services
for Walsh. In April 1993, NMS acted as a lead manager of a private placement of
Walsh preferred stock. In April 1996, NMS acted as co-manager of the
underwritten initial public offering of Walsh Common Stock, for which it
received compensation of approximately $950,000.
Walsh selected NMS as its financial advisor on the basis of its experience
and expertise in transactions similar to the Merger, its reputation in the
healthcare information services sector, healthcare services sector and
investment communities and its knowledge of and familiarity with Walsh resulting
from the investment banking services it has previously provided to Walsh. NMS
was not retained to, nor did it, advise the Walsh Board with respect to
alternatives to the Merger (other than a possible business
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combination transaction with another company referred to in "--Background of the
Merger") or Walsh's underlying decision to proceed with or effect the Merger.
On March 23, 1998, NMS rendered its opinion to the Walsh Board that pursuant
to the terms of the Merger Agreement, the Cognizant Exchange Ratio and the IMS
HEALTH Adjustment Factor are fair to the stockholders of Walsh from a financial
point of view, as of the date thereof. No limitations were imposed by the Walsh
Board on the scope of NMS's investigation or the procedures to be followed by
NMS in rendering its opinion. NMS did not determine the form of consideration to
be received by Walsh in connection with the Merger, which was agreed to as a
result of arms-length negotiations between Walsh and Cognizant.
THE FULL TEXT OF NMS' WRITTEN OPINION TO THE WALSH BOARD IS ATTACHED HERETO
AS ANNEX III AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
NMS' OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. NMS' OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, TO THE STOCKHOLDERS OF WALSH OF THE COGNIZANT EXCHANGE RATIO AND THE
IMS HEALTH ADJUSTMENT FACTOR, AS SET FORTH IN THE MERGER AGREEMENT. NMS' OPINION
HAS BEEN PROVIDED FOR THE USE OF THE WALSH BOARD IN ITS EVALUATION OF THE
MERGER, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER. NMS' OPINION IS
ADDRESSED TO THE WALSH BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF WALSH AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE
MERGER.
In connection with its opinion, NMS, among other things: (i) reviewed
certain publicly available financial and other data with respect to Walsh and
Cognizant, including the consolidated financial statements for recent years and
interim period to December 31, 1997 and certain other relevant financial and
operating data relating to Walsh and Cognizant made available to NMS from
published sources and from the internal records of Walsh and Cognizant, (iii)
reviewed the financial terms and conditions of the Merger Agreement; (iv)
reviewed certain publicly available information concerning the trading of, and
the trading market for, Walsh Common Stock and Cognizant Common Stock; (v)
compared Walsh and Cognizant from a financial point of view with certain other
companies in the healthcare information services and marketing information
systems industries which NMS deemed to be relevant; (vi) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the healthcare services and software industries
which NMS deemed to be comparable, in whole or in part, to the Merger; (vii)
reviewed and discussed with representatives of the management of Walsh and
Cognizant certain information of a business and financial nature regarding Walsh
and Cognizant, including financial forecasts and related assumptions of Walsh
furnished to NMS by Walsh and financial forecasts and related assumptions for
Cognizant prepared by NMS in consultation with management of Cognizant; (viii)
made inquiries regarding and discussed the Merger and the Merger Agreement and
other matters related thereto with Walsh's management and legal counsel; and
(ix) performed such other analyses and examinations as NMS deemed appropriate.
In connection with NMS' review, NMS did not assume any obligation to verify
independently the foregoing information and relied on such information being
accurate and complete in all material respects. With respect to the financial
forecast for Walsh provided to NMS by Walsh's management and the financial
forecast for Walsh prepared by NMS in consultation with management of Walsh,
upon the advice of management of Walsh and Cognizant and with Walsh's consent,
NMS assumed for purposes of its opinion that the forecasts (including the
assumptions regarding expected revenue enhancements and cost savings, the amount
of goodwill that can be attributed to the write-down of research and development
costs and other Merger related costs) have been reasonably prepared on bases
reflecting the best available estimates and judgments of the respective
managements of Walsh and Cognizant at the time of preparation as to the future
financial performance of Walsh and Cognizant and that they provide a reasonable
basis upon which NMS can form its opinion. NMS also assumed that there have been
no material changes in Walsh's or Cognizant's assets, financial condition,
results of operations, business or prospects since the respective dates of their
last financial statements made available to NMS. In its review of the proposed
Merger and its financial terms and conditions, NMS was not asked to, nor did it
make any assessment of the proposed
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structure or likelihood of the Cognizant Distribution, nor did NMS make any
evaluation of the likely trading prices for the IMS HEALTH Common Stock
following the completion of the Cognizant Distribution. NMS relied on advice of
legal counsel and independent accountants to Walsh as to all legal, tax and
financial reporting matters with respect to Walsh, the Merger and the Merger
Agreement. NMS assumed that the Merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act,
the Exchange Act and all other applicable federal and state statutes, rules and
regulations. In addition, NMS did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of Walsh or Cognizant, nor was NMS
furnished with any such appraisals. NMS assumed that the Merger will be recorded
as a purchase under generally accepted accounting principles. Finally, NMS'
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to NMS as of, March 23, 1998.
Accordingly, although subsequent developments may effect NMS' opinion, NMS has
not assumed any obligation to update, revise or reaffirm its opinion.
The following is a brief summary of the report presented to the Walsh Board
by NMS on March 23, 1998, in connection with NMS' opinion.
COMPARABLE PUBLIC COMPANY ANALYSIS: NMS compared the historical financial,
operating and stock market performances of certain publicly traded companies
that it considered relevant in evaluating the historical financial and operating
performance of Walsh. In particular, these companies were analyzed with respect
to their price/earnings ("P/E") multiples (defined as most recent stock price
divided by the 1998 expected earnings per share) and secular growth rates.
NMS examined the P/E multiples of healthcare database companies,
pharmaceutical specific healthcare information management companies and other
marketing information services companies. The healthcare database companies that
NMS used for its analysis included APACHE Medical Systems, Inc., Mecon, Inc.,
MedQuist Inc., Summit Medical Systems, HCIA, Inc., HBO & Company and Cerner
Corp. As of March 20, 1998, the average and median P/E multiples were 38.8x and
40.5x, respectively, with a range of from 33.0x to 44.2x. The pharmaceutical
specific healthcare information companies included Dendrite International, Inc.,
Walsh and Cognizant. As of March 20, 1998, the average and median P/E multiples
of these companies were 27.0x and 24.8x, respectively, with a range of from
20.0x to 36.2x. The other marketing information services companies included
Abacus Direct Corporation, Axciom Corp., American Business Information Inc., May
& Speh, Inc., LCS Industries Inc., Information Resources, Inc. and Snyder
Communications, Inc. As of March 20, 1998, the average and median P/E multiples
of these companies were 29.5x and 25.4x, respectively, with a range of from 9.2x
to 49.4x. Based on the businesses and growth rates of the companies used in NMS'
analysis, NMS deemed certain companies to be more relevant for this analysis.
The relevant companies included HBO & Company, Cerner Corp., Cognizant, Dendrite
International, Inc., May & Speh, Inc. and Information Resources, Inc. As of
March 20, 1998, the average and median P/E multiples of the relevant companies
were 30.8x and 29.6x, respectively, with a range of from 20.0x to 44.2x. As of
March 20, 1998, the average and median P/E multiples of all the companies used
in this analysis were 31.6x and 33.0x, respectively, with a range of from 9.2x
to 49.4x.
NMS also examined the implied P/E multiples based on the P/E to secular
growth ratio of the comparable companies. As of March 20, 1998, the implied P/E
multiples based on the P/E to secular growth ratio of the relevant companies
were 31.1x and 31.4x, respectively, and the average and median implied P/E
multiples based on the P/E to secular growth ratio of all the companies used in
this analysis were 30.2x and 31.0x, respectively.
Based on the low liquidity and trading volume of Walsh Common Stock, NMS
deemed the comparable public companies based valuation methodology to have
limited relevance to Walsh's stand-alone valuation.
COMPARABLE TRANSACTION ANALYSIS: NMS examined 75 pending and completed
business combinations in the healthcare information services sector, with a
special emphasis on 14 healthcare database and software
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business combinations that were deemed more relevant, with regards to the last
twelve months ("LTM") revenue, LTM EBIT and LTM net income multiples paid in
these transactions. The relevant transactions include (target / acquiror)
Medicus Systems Corp. / QuadraMed Corp., National Health Enhancement Systems,
Inc. / HBO & Company, HPR Inc. / HBO & Company, Enterprise Systems, Inc. / HBO &
Company, GMIS Inc. / HBO & Company, Management Software Inc. / HBO & Company,
CyCare Systems, Inc. / HBO & Company, Versy Incorporated / Physician Computer
Network, Inc., Clinicom Incorporated / HBO & Company, GTE Health Systems
Incorporated / Shared Medical Systems Corporation, Serving Software, Inc. / HBO
& Company, Health Economics Corp. / Equifax Inc., Allcare Medication Services
Inc. / Synetic, Inc., IMS International / The Dun & Bradstreet Corporation. The
average and median LTM revenue multiples paid in the relevant business
combinations were 3.5x and 3.6x, respectively, with a range of from 0.6x to 9.4x
and a range of implied stock prices of from $4.31 to $47.56. The average and
median LTM EBIT multiples paid in the relevant business combinations were 33.5x
and 34.3x, respectively, with a range of from 13.2x to 57.4x and a range of
implied stock prices of from $9.77 to $37.88. The average and median LTM net
income multiples paid in the relevant business combinations were 41.0x and
39.9x, respectively, with a range of from 13.0x to 61.6x and a range of implied
stock prices of from $6.03 to $25.83. The average and median LTM revenue
multiples paid in all transactions were 3.2x and 2.6x, respectively, with a
range of from 0.3x to 16.0x and a range of implied stock prices of from $2.94 to
$80.06. The average and median LTM EBIT multiples paid in all transactions were
22.6x and 18.8x, respectively, with a range of from 4.1x to 57.4x and a range of
implied stock prices of from $3.98 to $37.88. The average and median LTM net
income multiples paid in all transactions were 31.7x and 29.1x, respectively,
with a range of from 5.6x to 61.6x and a range of implied stock prices of from
$3.03 to $25.83.
Based on the transaction structures and the financial condition of the
targets and acquirors at the time of these transactions, NMS deemed the
comparable transactions based valuation methodology to be moderately relevant.
PREMIUM PAID ANALYSIS: NMS reviewed the premiums paid in 16 transactions in
the healthcare services industry and 25 transactions in the technology and
software industries that were deemed to be comparable to the Merger with
transaction values between $100 million and $250 million since 1993. In each of
the transactions analyzed, NMS calculated the premiums of the price paid by
acquirors over the target company's stock price one day, one week and one month
prior to public announcement of the transaction. These calculations yielded
median premiums based on the target company's stock price one day, one week and
one month prior to public announcement of the transaction of 21.2%, 34.0% and
35.4%, respectively. NMS then applied these premiums to Walsh's stock price one
day, one week and one month prior to March 23, 1998. These calculations yielded
implied value per share based on premiums paid one day, one week and one month
prior to the announcement of the Merger of $16.51, $15.41 and $13.88,
respectively. NMS deemed the historical premiums based valuation methodology to
be most relevant.
DISCOUNTED CASH FLOW ANALYSIS: NMS performed a discounted cash flow analysis
on certain projected financial statements that were provided to NMS by the
management of Walsh. In performing this analysis, NMS calculated the projected
stand-alone unleveraged after-tax cash flow of Walsh for the calendar years 1998
through 2007. NMS calculated Walsh's terminal values in calendar year 2007 based
on the aggregate value/EBIT multiples ranging from 16.0x to 20.0x. The
unleveraged after-tax cash flows and the terminal values were discounted to the
present using discount rates ranging from 13.0% to 17.0%. This analysis yielded
an equity value range for Walsh of $11.83 and $17.53 per fully diluted share.
NMS deemed the discounted cash flow based valuation methodology to be relevant.
CONTRIBUTION ANALYSIS: NMS analyzed and compared the respective
contributions of Walsh and Cognizant to the pro forma combined company's net
income for calendar years 1997 and 1998 and to the pro forma ownership of the
respective stockholders in the combined company upon consummation of the Merger.
Based on the historical financial statements for 1997 for Walsh and Cognizant,
Walsh contributed 1.8% of the net income in 1997. Based on management
projections for Walsh and NMS projections for Cognizant for 1998, Walsh would
contribute 2.2% of the net income in 1998 of the pro forma combined
50
<PAGE>
company. Based on the Exchange Ratios, Walsh's existing stockholders would own
approximately 2.0% of the pro forma combined company, on a fully diluted basis,
upon consummation of the Merger. NMS deemed the contributions valuation
methodology to be relevant.
PRO FORMA MERGER ANALYSIS. NMS analyzed the impact of the Merger on
Cognizant stockholders on a pro forma fully diluted EPS basis for calendar years
1998 and 1999. NMS used management estimates for calendar year 1998 for Walsh
and used NMS estimates for 1999 for Walsh and for 1998 and 1999 for Cognizant.
NMS performed the analysis without giving effect to the synergies anticipated by
the managements of Walsh and Cognizant to result from the Merger (excluding
nonrecurring costs resulting from the Merger) in each year. The analysis
indicated that, for Cognizant stockholders, the Merger would be EPS neutral in
1998 and EPS accretive in 1999. The actual results achieved by the pro forma
combined company may vary from projected results and the variations may be
material.
The summary set forth above does not purport to be a complete description of
the presentation by NMS to the Walsh Board or the analyses performed by NMS. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. NMS believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses and of the factors considered, without considering all the analyses and
factors, would create an incomplete view of the process underlying the analyses
set forth in its presentation to the Walsh Board. In addition, NMS may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions so that
the valuation figures resulting from any particular analysis described above
should not be taken to be NMS' view of the actual value of Walsh. In arriving at
its opinion, NMS did not ascribe a specific range of values to Walsh, but rather
made its determination as to the fairness, from a financial point of view, to
the stockholders of Walsh of the Cognizant Exchange Ratio and the IMS HEALTH
Adjustment Factor as set forth in the Merger Agreement on the basis of the
financial and comparative analyses described above.
In performing its analyses, NMS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. The analyses performed by NMS are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of NMS' analysis of the fairness, from a financial point of view, to the
stockholders of Walsh, of the Cognizant Exchange Ratio and the IMS HEALTH
Adjustment Factor, as set forth in the Merger Agreement and were provided to the
Walsh Board in connection with the delivery of NMS' opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. NMS used in its analyses various projections
of future performance prepared by the management of both Walsh and Cognizant.
The projections are based on numerous variables and assumptions which are
inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those set
forth in such projections.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the DGCL, at the Effective Time of the Merger, Merger Sub will
merge with and into Walsh. Walsh will be the Surviving Corporation in the
Merger, and will continue its corporate existence under Delaware law as a wholly
owned subsidiary of either Cognizant or IMS HEALTH, depending upon whether the
Effective Time of the Merger occurs prior or subsequent to the Cognizant
Distribution Record Date. If the Effective Time of the Merger occurs prior to
the Cognizant Distribution Date, the Surviving Corporation will become a
subsidiary of IMS HEALTH following the Cognizant Distribution.
At the Effective Time of the Merger, the separate corporate existence of
Merger Sub will terminate. The Walsh Charter, as in effect immediately prior to
the Effective Time of the Merger, will be the
51
<PAGE>
certificate of incorporation of the Surviving Corporation, and the by-laws of
Merger Sub, as in effect immediately prior to the Effective Time of the Merger,
will be the by-laws of the Surviving Corporation.
MERGER CONSIDERATION
Upon consummation of the Merger, except as described below, each outstanding
share of Walsh Common Stock, other than shares held in Walsh's treasury or held
by Cognizant (or IMS HEALTH following the Cognizant Distribution), Merger Sub or
any subsidiary of Cognizant (or IMS HEALTH following the Cognizant
Distribution), will be automatically converted into a fraction of a share of
either Cognizant Common Stock or IMS HEALTH Common Stock, depending upon whether
the Effective Time of the Merger occurs prior or subsequent to the Cognizant
Distribution Record Date. Assuming the Merger is approved at the Special Meeting
as currently scheduled, it is probable that the Effective Time of the Merger
will occur prior to the Cognizant Distribution Record Date.
If the Effective Time of the Merger occurs before the Cognizant Distribution
Record Date, each share of Walsh Common Stock will be converted into a fraction
of a share of Cognizant Common Stock (rounded to the nearest 1/1,000th) equal
to: (1) 0.3041, if the Cognizant Common Stock Price is at least equal to $46.792
but not more than $56.792; (2) $17.27 divided by the Cognizant Common Stock
Price (rounded to the nearest 1/10,000th), if the Cognizant Common Stock Price
is more than $56.792 but not more than $62.792; (3) $14.23 divided by the
Cognizant Common Stock Price (rounded to the nearest 1/10,000th), if the
Cognizant Common Stock Price is less than $46.792 but not less than $40.792; (4)
the fraction of a share of Cognizant Common Stock indicated in the table
immediately below if the Cognizant Common Stock Price is either more than
$62.792 but not more than $82.792 or less than $40.792 but not less than $20.792
(with the Cognizant Exchange Ratio to be calculated on the basis of straight
line interpolation if the Cognizant Common Stock Price is between any two
amounts set forth in such table); and (5) a fraction of a share of Cognizant
Common Stock determined on the same basis as the fractions set forth in the
table below if the Cognizant Common Stock Price is more than $82.792 or less
than $20.792. As previously indicated in this Proxy Statement/Prospectus, the
"Cognizant Common Stock Price" means the average of the closing sales prices of
Cognizant Common Stock on the Composite Tape on each of the 15 consecutive
trading days immediately preceding the second trading day prior to the Effective
Time of the Merger.
<TABLE>
<CAPTION>
COGNIZANT COGNIZANT
COMMON STOCK PRICE EXCHANGE RATIO
- ------------------- ---------------
<S> <C>
$ 20.792 0.4362
22.792 0.4272
23.792 0.4228
24.792 0.4183
25.792 0.4139
26.792 0.4094
27.792 0.4050
28.792 0.4006
29.792 0.3962
30.792 0.3918
31.792 0.3874
32.792 0.3830
33.792 0.3786
34.792 0.3743
35.792 0.3699
36.792 0.3656
37.792 0.3613
38.792 0.3571
39.792 0.3529
40.792 0.3488
<CAPTION>
COGNIZANT COGNIZANT
COMMON STOCK PRICE EXCHANGE RATIO
- ------------------- ---------------
<S> <C>
$ 41.792 0.3405
42.792 0.3325
43.792 0.3249
44.792 0.3177
45.792 0.3107
46.792 0.3041
47.792 0.3041
48.792 0.3041
49.792 0.3041
50.792 0.3041
51.792 0.3041
52.792 0.3041
53.792 0.3041
54.792 0.3041
55.792 0.3041
56.792 0.3041
57.792 0.2988
58.792 0.2938
59.792 0.2888
60.792 0.2841
61.792 0.2795
<CAPTION>
COGNIZANT COGNIZANT
COMMON STOCK PRICE EXCHANGE RATIO
- ------------------- ---------------
<S> <C>
$ 62.792 0.2750
63.792 0.2727
64.792 0.2704
65.792 0.2682
66.792 0.2661
67.792 0.2639
68.792 0.2618
69.792 0.2596
70.792 0.2575
71.792 0.2554
72.792 0.2533
73.792 0.2512
74.792 0.2491
75.792 0.2471
76.792 0.2450
77.792 0.2429
78.792 0.2409
79.792 0.2388
80.792 0.2368
81.792 0.2347
82.792 0.2327
</TABLE>
52
<PAGE>
The chart below indicates the operation of the Cognizant Exchange Ratio at
various Cognizant Common Stock Prices.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COGNIZANT EXCHANGE RATIO
<S> <C> <C>
Per Share Equivilent Price of Walsh Common Stock Under Exchange
Ratio
ctz price shi price exchange
20.792 $09.07 0.4362
22.792 $09.74 0.4272
23.792 $10.06 0.4228
24.792 $10.37 0.4183
25.792 $10.67 0.4139
26.792 $10.97 0.4094
27.792 $11.28 0.4050
28.792 $11.53 0.4008
29.792 $11.80 0.3982
30.792 $12.08 0.3918
31.792 $12.32 0.3874
32.792 $12.66 0.3830
33.792 $12.79 0.3786
34.792 $13.02 0.3743
35.792 $13.24 0.3699
36.792 $13.45 0.3656
37.792 $13.68 0.3613
38.792 $13.85 0.3571
39.792 $14.04 0.3529
40.792 $14.23 0.3488
41.792 $14.23 0.3406
42.792 $14.23 0.3326
43.792 $14.23 0.3249
44.792 $14.23 0.3177
45.792 $14.23 0.3107
46.792 $14.23 0.3041
47.792 $14.53 0.3041
48.792 $14.84 0.3041
49.792 $15.14 0.3041
50.792 $15.45 0.3041
51.792 $15.75 0.3041
52.792 $16.05 0.3041
53.792 $16.36 0.3041
54.792 $16.66 0.3041
55.792 $16.97 0.3041
56.792 $17.27 0.3041
57.792 $17.27 0.2988
58.792 $17.27 0.2938
59.792 $17.27 0.2888
60.792 $17.27 0.2841
61.792 $17.27 0.2795
62.792 $17.27 0.2750
63.792 $17.40 0.2727
64.792 $17.52 0.2704
65.792 $17.65 0.2682
66.792 $17.77 0.2661
67.792 $17.88 0.2639
68.792 $18.01 0.2618
69.792 $18.12 0.2598
70.792 $18.23 0.2575
71.792 $18.34 0.2564
72.792 $18.44 0.2533
73.792 $18.54 0.2512
74.792 $18.63 0.2491
75.792 $18.73 0.2471
76.792 $18.81 0.2450
77.792 $18.90 0.2429
78.792 $18.98 0.2409
79.792 $19.06 0.2388
80.792 $19.13 0.2368
81.792 $19.20 0.2347
82.792 $19.26 0.2327
83.792 $19.33 0.2306
84.792 $19.38 0.2286
85.792 $19.44 0.2268
86.792 $19.49 0.2245
87.792 $19.54 0.2225
88.792 $19.58 0.2205
89.792 $19.62 0.2185
90.792 $19.65 0.2166
91.792 $19.68 0.2145
92.792 $19.71 0.2124
93.792 $19.74 0.2104
94.792 $19.76 0.2084
95.792 $19.77 0.2064
96.792 $19.79 0.2044
97.792 $19.80 0.2024
98.792 $19.80 0.2004
99.792 $19.80 0.1984
Cognizant Common Stock Price
</TABLE>
If the Effective Time of the Merger occurs on or after the Cognizant
Distribution Record Date, each share of Walsh Common Stock will be converted
into a fraction of a share of IMS HEALTH Common Stock (rounded to the nearest
1/1,000th) equal to: (1) the product of 0.3041 multiplied by the IMS HEALTH
Adjustment Factor (as defined below), if the IMS HEALTH Common Stock Price is at
least equal to the Base Price (as defined below) minus the First Threshold (as
defined below) but is not more than the Base Price plus the First Threshold; (2)
$17.27 divided by the IMS HEALTH Common Stock Price (rounded to the nearest
1/10,000th), if the IMS HEALTH Common Stock Price is more than the sum of the
Base Price plus the First Threshold but not more than the sum of the Base Price
plus the Second Threshold (as defined below); (3) $14.23 divided by the IMS
HEALTH Common Stock Price, if the IMS HEALTH Common Stock Price (rounded to the
nearest 1/10,000th) is less than the Base Price minus the First Threshold but
not less than the Base Price minus the Second Threshold; (4) the fraction
determined in accordance with the calculation described in the paragraph and the
first table below if the IMS HEALTH Common Stock Price is greater than the Base
Price plus the Second Threshold (or determined on the same basis as the
fractions in such table if such excess exceeds $20 per share of IMS HEALTH
Common Stock); and (5) the fraction determined in accordance with the
calculation described in the third succeeding paragraph second table below if
the IMS HEALTH Common Stock Price is less than the Base Price minus the Second
Threshold (or determined on the same basis as the fractions in such table if
such shortage exceeds $20 per share of IMS HEALTH Common Stock).
53
<PAGE>
The chart below indicates the operation of the IMS HEALTH Exchange Ratio at
various IMS HEALTH Common Stock Prices and assumes an IMS Adjustment Factor of
1.111. The per share equivalent price of Walsh Common Stock corresponding to a
particular IMS HEALTH Common Stock Price will vary depending upon whether the
actual IMS Adjustment Factor is greater or less than 1.111 (which is dependent
upon the relative prices of IMS HEALTH Common Stock and NMR Common Stock
following the Cognizant Distribution).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IMS HEALTH EXCHANGE RATIO
<S> <C> <C>
Per Share Equivilent of Walsh Common Stock Under Exchange Ratio
czt price shi price exchange
18.713 08.10 0.4848
18.713 08.86 0.4747
19.713 09.26 0.4698
20.713 09.63 0.4648
21.713 09.96 0.4599
22.713 10.33 0.4549
23.713 10.67 0.4500
24.713 11.00 0.4451
25.713 11.32 0.4402
26.713 11.63 0.4353
27.713 11.93 0.4304
28.713 12.22 0.4258
29.713 12.50 0.4207
30.713 12.77 0.4159
31.713 13.04 0.4110
32.713 13.29 0.4062
33.713 13.63 0.4015
34.713 13.77 0.3958
35.713 14.00 0.3921
36.713 14.23 0.3878
37.113 14.23 0.3834
38.113 14.23 0.3734
39.113 14.23 0.3838
40.113 14.23 0.3547
41.113 14.23 0.3461
42.113 14.23 0.3379
42.613 14.40 0.3379
43.613 14.74 0.3379
44.613 15.07 0.3379
45.613 15.41 0.3379
46.613 15.75 0.3379
47.613 16.09 0.3379
48.613 16.43 0.3379
49.613 16.76 0.3379
50.613 17.10 0.3379
51.113 17.27 0.3370
52.113 17.27 0.3314
53.113 17.27 0.3262
54.113 17.27 0.3192
55.113 17.27 0.3134
56.113 17.27 0.3078
56.513 17.27 0.3056
57.513 17.43 0.3030
58.513 17.58 0.3005
59.513 17.74 0.2980
60.513 17.89 0.2956
61.513 18.04 0.2932
62.513 18.18 0.2908
63.513 18.32 0.2885
64.513 18.46 0.2861
65.513 18.59 0.2838
66.513 18.72 0.2815
67.513 18.85 0.2791
68.513 18.97 0.2788
69.513 19.08 0.2745
70.513 19.19 0.2722
71.513 19.30 0.2699
72.513 19.41 0.2676
73.513 19.51 0.2653
74.513 19.60 0.2631
75.513 19.69 0.2608
76.513 19.78 0.2586
77.513 19.86 0.2563
78.513 19.94 0.2540
79.513 20.02 0.2517
80.513 20.09 0.2495
81.513 20.15 0.2472
82.513 20.22 0.2460
83.513 20.27 0.2428
84.513 20.33 0.2405
85.513 20.38 0.2383
86.513 20.42 0.2360
87.513 20.46 0.2338
88.513 20.50 0.2316
89.513 20.53 0.2294
90.513 20.56 0.2271
91.513 20.58 0.2249
92.513 20.60 0.2227
93.513 $20.62 0.2205
IMS Health Common Stock Price
</TABLE>
54
<PAGE>
If the IMS Common Stock Price is greater than the Base Price plus the Second
Threshold, the IMS HEALTH Exchange Ratio shall be .2750 multiplied by the IMS
HEALTH Adjustment Factor, subject to a downward adjustment (the "Excess Ratio
Adjustment") for each dollar (or portion thereof) by which the IMS HEALTH Common
Stock Price exceeds the Base Price plus the Second Threshold (the "Excess"). The
Excess Ratio Adjustment shall be as specified opposite the applicable Excess in
the table below (subject to straight line interpolation (rounded to the nearest
1/10,000th) between the nearest two indicated Excess amounts to give effect to
fractions of a dollar).
<TABLE>
<CAPTION>
EXCESS EXCESS RATIO ADJUSTMENT
- --------- -----------------------
<S> <C>
1.00 -.0024
2.00 -.0046
3.00 -.0068
4.00 -.0090
5.00 -.0111
6.00 -.0133
7.00 -.0154
8.00 -.0175
9.00 -.0196
10.00 -.0217
11.00 -.0238
12.00 -.0259
13.00 -.0280
14.00 -.0301
15.00 -.0321
16.00 -.0342
17.00 -.0362
18.00 -.0383
19.00 -.0403
20.00 -.0424
</TABLE>
By way of illustrating the foregoing, if the IMS HEALTH Adjustment Factor is
1.1111 and the Excess is $10.50, then the IMS Exchange Ratio would be .2802,
calculated as follows: (x) .2750 multiplied by 1.1111, plus (y) one half of the
product obtained by multiplying 1.1111 by -.0455 (i.e., the sum of -.0217 and
- -.0238).
55
<PAGE>
If the IMS HEALTH Common Stock Price is less than the Base Price minus the
Second Threshold, the IMS Exchange Ratio shall be .3488 multiplied by the IMS
HEALTH Adjustment Factor, subject to an upward adjustment (the "Shortfall Ratio
Adjustment") for each dollar (or portion thereof) by which the Base Price minus
the Second Threshold exceeds the IMS HEALTH Common Stock Price (the
"Shortfall"). The Shortfall Ratio Adjustment shall be as specified opposite the
applicable Shortfall in the table below (subject to straight line interpolation
(rounded to the nearest 1/10,000th) between the nearest two indicated Shortfall
amounts to give effect to fractions of a dollar).
<TABLE>
<CAPTION>
SHORTFALL RATIO
SHORTFALL ADJUSTMENT
- ----------- -------------------------
<S> <C>
1.00 .0041
2.00 .0083
3.00 .0125
4.00 .0168
5.00 .0211
6.00 .0254
7.00 .0298
8.00 .0342
9.00 .0385
10.00 .0429
11.00 .0473
12.00 .0518
13.00 .0562
14.00 .0606
15.00 .0650
16.00 .0695
17.00 .0739
18.00 .0784
19.00 .0829
20.00 .0873
</TABLE>
By way of illustrating the foregoing, if the IMS HEALTH Adjustment Factor is
1.1111 and the Shortfall is $5.50, then the IMS Exchange Ratio would be .4134,
calculated as follows: (x) .3488 multiplied by 1.1111, plus (y) one half of the
product obtained by multiplying 1.1111 by .0466 (i.e., the sum of .0211 and
.0254).
As used above, the following terms have the indicated meanings:
"BASE PRICE" means $51.792 multiplied by the IMS HEALTH Fraction.
"FIRST THRESHOLD" means $5.00 multiplied by the IMS HEALTH Fraction.
"IMS HEALTH ADJUSTMENT FACTOR" means a fraction, the numerator of which is
the sum of the IMS HEALTH Reference Price and the NMR Reference Price, and the
denominator of which is the IMS HEALTH Reference Price.
"IMS HEALTH COMMON STOCK PRICE" means the average of the closing sales
prices of IMS HEALTH Common Stock on the Composite Tape on the 10 consecutive
trading days immediately preceding the second trading day prior to the Closing
Date.
"IMS HEALTH FRACTION" means a fraction, the numerator of which is the IMS
HEALTH Reference Price and the denominator of which is the sum of the IMS HEALTH
Reference Price and the NMR Reference Price.
"IMS HEALTH REFERENCE PRICE" means the average of the closing sales prices
of the IMS HEALTH Common Stock on the Composite Tape on the 10 consecutive
trading days commencing on the sixth
56
<PAGE>
trading day following the date on which "regular way" trading in the IMS HEALTH
Common Stock begins on the NYSE.
"NMR REFERENCE PRICE" means the average of the closing sales prices of the
Cognizant Common Stock on the Composite Tape on the 10 consecutive trading days
commencing on the sixth trading day following the date on which "regular way"
trading in Cognizant Common Stock begins under the name "Nielsen Media Research,
Inc." on the NYSE.
"SECOND THRESHOLD" means $11.00 multiplied by the IMS HEALTH Fraction.
In all cases, cash will be paid in lieu of fractional shares of Merger Stock
as described under "-- Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares" below.
The Cognizant Exchange Ratio and the IMS HEALTH Exchange Ratio were
determined through arm's-length negotiations between Cognizant and Walsh.
Any shares of Walsh Common Stock owned immediately prior to the Effective
Time of the Merger by Cognizant (or IMS HEALTH, if the Effective Time of the
Merger is on or after the Cognizant Distribution Record Date), Walsh or any of
their respective subsidiaries will be cancelled.
57
<PAGE>
EFFECTIVE TIME OF THE MERGER
The Effective Time of the Merger will be the time on the Closing Date a
certificate of merger with respect to the Merger (the "Certificate of Merger")
is filed with the Secretary of State of the State of Delaware or such later time
on the Closing Date as is permissible in accordance with the DGCL and as is
specified in such Certificate of Merger. The filing of the Certificate of Merger
will occur on the first business day after satisfaction of the conditions to
consummation of the Merger set forth in the Merger Agreement, unless another
date is agreed to in writing by Cognizant and Walsh. See "--Conditions to the
Consummation of the Merger" below.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Walsh Common Stock into Merger Stock will occur
automatically at the Effective Time of the Merger.
As soon as practicable after the Effective Time of the Merger, First Chicago
Trust Company of New York, in its capacity as exchange agent (the "Exchange
Agent"), will send a transmittal form to each former Walsh stockholder. The
transmittal form will contain instructions with respect to the surrender of
certificates previously representing Walsh Common Stock (together with the
attached Walsh Rights) to be exchanged for Merger Stock.
WALSH COMMON STOCKHOLDERS SHOULD NOT FORWARD WALSH COMMON STOCK CERTIFICATES
TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. WALSH COMMON
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the Effective Time of the Merger, each certificate that previously
represented shares of Walsh Common Stock will represent only the shares of
Merger Stock into which such shares were converted in the Merger and the right
to receive cash in lieu of fractional shares of Merger Stock as described below.
Holders of certificates previously representing Walsh Common Stock will not
be paid dividends or distributions with a record date on or after the Effective
Time of the Merger on the shares of Merger Stock into which such shares have
been converted, and will not be paid cash in lieu of fractional shares of Merger
Stock, until such certificates are surrendered to the Exchange Agent for
exchange. Subject to applicable law, when such certificates are surrendered, any
unpaid dividends and any cash in lieu of fractional shares of Merger Stock
payable as described below will be paid without interest.
All shares of Merger Stock issued upon conversion of shares of Walsh Common
Stock, together with any cash issued in lieu of any fractional shares of Merger
Stock, shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Walsh Common Stock.
No fractional shares of Merger Stock will be issued to any Walsh stockholder
upon surrender of certificates previously representing Walsh Common Stock. In
lieu of such fractional shares that would otherwise be issued, former Walsh
stockholders will be paid an amount in cash equal to the product obtained by
multiplying (a) the fractional share interest to which such holder would
otherwise be entitled by (b) the average of the closing sales prices for a share
of Merger Stock on the Composite Tape for the five trading days immediately
preceding the Effective Time of the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary mutual representations and
warranties of Cognizant and Merger Sub, on the one hand, and Walsh, on the other
hand, relating to, among other things, (a) corporate organization and similar
corporate matters; (b) capitalization; (c) corporate authorization, execution,
delivery, performance and enforceability of the Merger Agreement and the Stock
Option Agreement and related matters; (d) documents filed by each of Walsh and
Cognizant with the Commission and the
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accuracy of information contained therein; (e) the accuracy of information
supplied by each of Walsh and Cognizant in connection with the Registration
Statements and this Proxy Statement/Prospectus; (f) the absence of material
adverse changes; (g) compliance with applicable laws and the absence of material
litigation; (h) votes required for the Merger; (i) ownership of stock of the
other party; and (j) brokers' and finders' fees. The Merger Agreement also
contains additional representations and warranties of Walsh relating to among
other things, (a) subsidiaries; (b) labor matters and matters relating to
retirement and other employee plans and to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (c) filing of tax returns and
payment of taxes; (d) title to properties; (e) environmental matters; (f)
certain contracts and debt instruments; (g) the delivery of an opinion of a
financial adviser; (h) intellectual property; (i) the inapplicability of Section
203 of the DGCL relating to business combinations with interested stockholders,
to the Merger Agreement and related agreements and transactions; and (j)
amendment of the Walsh Rights Agreement (as defined under "Comparison of
Stockholder Rights-- Rights Plan").
CONDUCT OF BUSINESS PENDING MERGER
Pursuant to the Merger Agreement, Walsh has agreed (except as permitted by
Cognizant or as otherwise expressly contemplated by the Merger Agreement) to
carry on its business in the ordinary course consistent with past practice and
use its and its subsidiaries' respective reasonable efforts to preserve
substantially intact its and their current business organizations, keep
available the services of its and their current officers and employees and
preserve its and their relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having significant business
dealings with it and them. Walsh has also agreed that, pending the Merger,
neither it nor any of its subsidiaries will: (a) declare dividends or make
distributions on its capital stock (excluding dividends and distributions by any
wholly owned domestic subsidiary to its parent), split, combine or reclassify
such capital stock or authorize the issuance or issue any securities in lieu of
or substitution for shares of capital stock or acquire shares of capital stock
of Walsh or any subsidiary or securities convertible into or exercisable for
such capital stock; (b) subject to certain exceptions, authorize for issuance,
issue, deliver, sell, pledge or otherwise encumber any shares of capital stock
of Walsh or any subsidiary or securities convertible into or exercisable for
such capital stock; (c) amend the Walsh Charter, the Walsh By-Laws or comparable
documents of any subsidiary or amend or terminate the Walsh Rights Agreement;
(d) acquire any business; (e) subject to certain exceptions, sell, lease,
license, mortgage or otherwise encumber or dispose of any assets having a value
in excess of $100,000 individually or $500,000 in the aggregate; (f) subject to
certain limited exceptions, (i) incur indebtedness or guarantee obligations,
issue debt securities or warrants, enter into "keep well" agreements or enter
into any arrangement having the economic effect of any of the foregoing or (ii)
make any loans, advances, capital contributions or investments; (g) acquire
assets, other than inventory in the ordinary course of business consistent with
past practice, or make capital expenditures, except capital expenditures
contemplated by Walsh's capital budget and other capital expenditures which do
not exceed $100,000 in the aggregate; (h) satisfy any claims, liabilities or
obligations, except (x) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date of the Merger Agreement and other liabilities and obligations
not exceeding $75,000 individually or $250,000 in the aggregate or (y)
litigation claims to the extent permitted in the Merger Agreement; (i) subject
to certain limited exceptions, waive, release, grant, or transfer any rights of
material value or modify or change in any material respect any existing material
license, lease, contract or other document; (j) adopt a plan of complete or
partial liquidation; (k) authorize any dissolution, merger, consolidation,
restructuring, recapitalization or reorganization; (l) enter into or amend any
collective bargaining agreement; (m) change any material accounting principle,
except as required by generally accepted accounting principles; (n) settle any
litigation, other than settlements that do not provide for injunctive relief and
where the amount paid does not exceed $75,000 individually or $250,000 for all
such settlements; (o) enter into transactions with affiliates; (p) subject to
certain exceptions, transfer intellectual property rights; (q)
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enter into or amend agreements granting exclusive rights with respect to its
products or technology; or (r) authorize, or commit or agree to take, any of the
foregoing actions.
In addition, Cognizant agreed that pending the Merger, it will not: (a)
other than the Cognizant Distribution and regular quarterly cash dividends in an
amount determined in a manner consistent with past practice, declare or pay
dividends on its capital stock; (b) split, combine or reclassify its capital
stock; (c) amend the Cognizant Charter or the Cognizant By-Laws in a manner that
would be materially adverse to holders of Cognizant Common Stock (it being
understood that an increase in the authorized number of shares of Cognizant
Common Stock or other capital stock of Cognizant would not be deemed to be
materially adverse to holders of Cognizant Common Stock); or (d) authorize, or
commit or agree to take, any or the foregoing actions.
NO SOLICITATION
The Merger Agreement provides that neither Walsh nor any of its subsidiaries
will (whether directly or indirectly through advisors, agents or other
intermediaries), nor will Walsh or any of its subsidiaries authorize or permit
any of its or their officers, directors, agents, representatives or advisors to,
(a) solicit, initiate or take any action knowingly to facilitate the submission
of inquiries, proposals or offers from any person (other than Merger Sub or
Cognizant) relating to (i) any acquisition or purchase of 15% or more of the
consolidated assets of Walsh and its subsidiaries or of over 15% of any class of
equity securities of Walsh or, other than as described in the Merger Agreement,
any of its subsidiaries, (ii) any tender offer (including a self tender offer)
or exchange offer that if consummated would result in any Person (as defined
under "--Termination Fee and Expense Reimbursement" below) beneficially owning
15% or more of any class of equity securities of Walsh or any of its significant
subsidiaries, (iii) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving Walsh or any of its subsidiaries whose assets,
individually or in the aggregate, constitute more than 15% of the consolidated
assets of Walsh other than the transactions contemplated by the Merger
Agreement, or (iv) any other transaction the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or materially
delay the Merger (collectively, "Transaction Proposals"), or agree to or endorse
any Transaction Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any other
person (other than Merger Sub or Cognizant) to do or seek any of the foregoing;
PROVIDED, HOWEVER, that Walsh is not prohibited (either directly or indirectly
through advisors, agents or other intermediaries) from (i) furnishing
information pursuant to an appropriate confidentiality letter (no less favorable
to Walsh in any material respect than the confidentiality agreement between
Walsh and Cognizant) concerning Walsh and its businesses, properties or assets
to a third party who has made an unsolicited bona fide written Transaction
Proposal, (ii) engaging in discussions or negotiations with such a third party
who has made an unsolicited bona fide written Transaction Proposal, (iii)
following receipt of an unsolicited bona fide written Transaction Proposal,
taking and disclosing to its stockholders a position contemplated by Rule 14d-9
or Rule 14e-2(a) under the Exchange Act or otherwise making disclosure to its
stockholders, (iv) following receipt of an unsolicited bona fide written
Transaction Proposal, failing to make or withdrawing or modifying its
recommendation of the Merger Agreement and the transactions contemplated thereby
and/or (v) taking any action required to be taken by Walsh pursuant to an order
(other than an order that has been reversed, withdrawn or stayed) by any court
of competent jurisdiction, but in each case referred to in the foregoing clauses
(i) through (v) only to the extent that the Walsh Board shall have concluded in
good faith on the basis of written advice from outside counsel that the failure
to take such action would be contrary to the fiduciary duties of the Walsh Board
to the stockholders of Walsh under applicable law; PROVIDED, FURTHER, that Walsh
has agreed in the Merger Agreement that, to the extent that it may do so without
acting in a manner contrary to its fiduciary duties under applicable law, the
Walsh Board will advise Cognizant promptly with respect to taking of any such
action and, in addition, if the
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Walsh Board receives a Transaction Proposal, then Walsh shall promptly inform
Cognizant of the material terms and conditions of such proposal and the identity
of the person making it.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the following
conditions:
(a) The stockholders of Walsh shall have approved and adopted the Merger
Agreement and approved the Merger.
(b) Waiting periods (and any extensions thereof) applicable to the
Merger under the HSR Act and other applicable laws shall have been
terminated or shall have expired.
(c) No order issued by any court of competent jurisdiction, whether
Federal, state or foreign, or other legal restraint which materially
restricts, prevents or prohibits the consummation of the Merger shall be in
effect.
(d) The Registration Statements shall have become effective and shall
not be the subject of any stop order or proceedings seeking a stop order,
and any material state securities laws applicable to the registration and
qualification of the Merger Stock issuable or required to be reserved
pursuant to the Merger Agreement shall have been complied with.
(e) The shares of Merger Stock issuable or required to be reserved for
issuance in connection with the Merger shall have been authorized for
listing on the NYSE upon official notice of issuance.
(f) Other than the filing of merger documents under Delaware law, all
authorizations, consents, waivers, orders or approvals required to be
obtained, and all filings, notices or declarations required to be made, by
Walsh or Cognizant prior to the consummation of the Merger and the other
transactions contemplated by the Merger Agreement shall have been obtained
from, and made with, all required governmental entities, except for such
authorizations, consents, waivers, orders, approvals, filings, notices or
declarations the failure to obtain or make would not have a material adverse
effect with respect to Cognizant.
In addition, each party's obligation to effect the Merger is subject to the
satisfaction by the other party of the following conditions:
(a) Each of the representations and warranties of the other party
contained in the Merger Agreement that is qualified as to "materiality,"
"Material Adverse Change" or "Material Adverse Effect" shall be true and
correct, and each of the other representations and warranties of the other
party contained in the Merger Agreement shall be true and correct in all
material respects, in each case as of the Closing Date as though made on and
as of the Closing Date, except for (i) changes specifically permitted by the
Merger Agreement and (ii) those representations and warranties which address
matters only as of a particular date shall have been true and correct as of
such date.
(b) The other party shall have performed in all material respects all
obligations required to be performed by it prior to the Effective Time of
the Merger.
The obligation of Cognizant and Merger Sub to effect the Merger is subject
to satisfaction of the following additional conditions:
(a) There shall not be pending or threatened by any governmental
authority, any suit, action or proceeding, (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or the Stock Option
Agreement or seeking to obtain any material amount of damages, (ii) seeking
to prohibit or limit the ownership or operation by Walsh or Cognizant or any
of their respective affiliates of any material portion of their business or
assets or to dispose of or hold separate any material portion of their
business or assets, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement or the
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Stock Option Agreement, (iii) seeking to impose limitations on the ability
of Cognizant to acquire or hold, or exercise full rights of ownership of,
any shares of the common stock of the Surviving Corporation, including,
without limitation, the right to vote such common stock or (iv) seeking to
prohibit Cognizant or any of its subsidiaries from effectively controlling
in any material respect the business or operations of Walsh and its
subsidiaries taken as a whole. No suit, action or proceeding by any other
person shall be pending that seeks any of the relief or remedies described
in clauses (i) through (iv) of the immediately preceding sentence as to
which there is a reasonable possibility of success or that otherwise could
reasonably be expected to have a material adverse effect with respect to
Cognizant.
(b) No triggering event shall have occurred with respect to the Walsh
Rights, and the Walsh Rights shall not have become nonredeemable and shall
not become nonredeemable upon consummation of the Merger.
STOCK EXCHANGE LISTINGS
It is a condition to the Merger that the shares of Merger Stock to be issued
in the Merger be authorized for listing on the NYSE upon official notice of
issuance. The Walsh Common Stock is currently quoted on Nasdaq.
REGULATORY APPROVALS REQUIRED
Consummation of the Merger is subject to the expiration of the waiting
period provided under the HSR Act. Under the HSR Act, the Merger cannot be
consummated until notifications have been given to the Federal Trade Commission
("FTC") and the Department of Justice ("DOJ") and specified waiting period
requirements have been satisfied. Cognizant and Walsh each filed with the FTC
and the DOJ a Notification and Report Form for Certain Mergers and Acquisitions
with respect to the Merger on March 31, 1998, and the applicable waiting period
under the HSR Act expired on April 30, 1998.
Consummation of the Merger in Germany is subject to the expiration of the
waiting period provided under the German Act Against Restraints of Competition
("ARC"). Under the ARC, the Merger cannot be consummated in Germany prior to the
expiration of a one-month period after the filing of the transaction with the
Bundeskartellamt ("BKartA"), unless the BKartA clears the transaction in writing
prior to the expiration of the one-month period or decides to investigate the
transaction further, in which case the consummation in Germany will be delayed
for a further three months. Cognizant filed with the BKartA a pre-merger
notification in early April, 1998 and the BKartA cleared the transaction in
writing on April 16, 1998.
Cognizant has given notice of this transaction under the Canadian Investment
Canada Act, and Cognizant has been advised by the Deputy Director of Investments
under the Canadian Investment Canada Act that the transaction is not reviewable
under such Act.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before or after approval by the stockholders of
Walsh: (a) by mutual written consent of Cognizant and Walsh; (b) by either
Cognizant or Walsh if (i) any governmental authority shall have taken any final,
nonappealable action permanently enjoining, restraining or otherwise prohibiting
the Merger, (ii) the Merger shall not have been consummated on or before
December 31, 1998 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations thereunder) or (iii)
the holders of a majority of the outstanding shares of Walsh Common Stock fail
to approve the Merger, the Merger Agreement and the consummation of the
transactions contemplated thereby at the Special Meeting; (c) by Cognizant, if
Walsh or the Walsh Board shall have (1) withdrawn, modified or amended in any
respect adverse to Cognizant its approval or recommendation of the Merger
Agreement or any of the
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transactions contemplated thereby, (2) failed as promptly as practicable after
the Registration Statements are declared effective to mail this Proxy
Statement/Prospectus to its stockholders or failed to include such
recommendation therein, (3) recommended any Transaction Proposal from a person
other than Cognizant or any of its affiliates, (4) resolved to do any of the
foregoing or (5) in response to the commencement of any tender offer or exchange
offer for more than 15% of the outstanding shares of Walsh Common Stock, not
recommended rejection of such tender offer or exchange offer; or (d) by Walsh,
if, in compliance with the requirements described under "No Solicitation" above,
the Walsh Board concludes in good faith, based on written advice from outside
counsel, that in order to avoid acting in a manner contrary to the fiduciary
duties of the Walsh Board to Walsh's stockholders under the DGCL, the Walsh
Board must not make or must withdraw or modify its recommendation of the Merger
Agreement and the Walsh Board does not make or withdraws or modifies such
recommendation.
TERMINATION FEE AND EXPENSE REIMBURSEMENT
Walsh has agreed to pay Cognizant a fee of $4,700,000 upon the occurrence of
either of the following events:
(i) the Merger Agreement is terminated in accordance with its terms
(except pursuant to subclause (b)(i) under "Termination" above) and either
of the following shall have occurred: (A) prior to such termination, any
corporation (including Walsh or any of its subsidiaries or affiliates),
partnership, person, other entity or "group" (as referred to in Section
13(d)(3) of the Exchange Act) other than Cognizant, Merger Sub or any of
their respective affiliates (collectively, "Persons"), shall have become the
beneficial owner of more than 15% of the outstanding shares of Walsh Common
Stock (no owner of Walsh Common Stock as of the date of the Merger Agreement
shall be deemed a Person unless it acquires at least 3% of the outstanding
Walsh Common Stock after such date or becomes a member of a group of which
it was not a member as of such date or which includes a person which was not
a member thereof as of such date); or (B)(x) prior to such termination, any
Person shall have made, or proposed, communicated or disclosed in a manner
which is or otherwise becomes public a bona fide intention to make a
Transaction Proposal (as defined under "No Solicitation" above), including
by making such a Transaction Proposal, and (y) on or prior to March 23,
1999, Walsh either consummates with a Person a transaction the proposal of
which would otherwise qualify as a Transaction Proposal or enters into a
definitive agreement with a Person with respect to a transaction the
proposal of which would otherwise qualify as a Transaction Proposal (whether
or not such Person is the Person referred to in clause (x) above); or
(ii) the Merger Agreement is terminated as described in clause (c) or
(d) under "Termination" above.
In addition, Walsh has agreed that, in any case in which a fee is payable as
provided above, Walsh shall promptly reimburse Cognizant and Merger Sub for
documented reasonable out-of-pocket expenses incurred by either of them in
connection with the Merger Agreement and the Stock Option Agreement, including
reasonable accounting, investment banking and legal fees and expenses; provided
that the amount of such reimbursement shall not exceed $850,000 in the
aggregate.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties in writing at any time
before or after approval thereof by Walsh's stockholders; provided that after
such approval, no amendment of the Merger Agreement may be effected that by law
requires further approval by Walsh's stockholders without the further approval
of such stockholders.
CONTEMPLATED ASSIGNMENT
Under the terms of the Merger Agreement, if the Closing Date shall not have
occurred prior to the Cognizant Distribution Record Date, then, on the Cognizant
Distribution Record Date: (i) Cognizant shall cause all of the outstanding
capital stock of Merger Sub to be transferred to IMS HEALTH; (ii) all of
Cognizant's rights and obligations under the Merger Agreement and the Stock
Option Agreement shall be assigned and delegated to IMS HEALTH; and (iii)
Cognizant shall cause IMS HEALTH to execute and deliver to Walsh a written
instrument, in form and substance reasonably satisfactory to Walsh, evidencing
such assignment and assumption. In such event, unless the context otherwise
requires, except for certain exceptions, references to "Parent" in the Merger
Agreement shall thereafter be deemed to be references to IMS HEALTH and certain
representations and warranties of IMS HEALTH (as "Parent") shall be deemed
amended as provided in the Merger Agreement.
EXPENSES
Except as described under "Termination Fee and Expense Reimbursement" above,
and except for certain expenses of the Surviving Corporation that Cognizant has
agreed to pay in the event the Merger is consummated, the parties to the Merger
Agreement have agreed that all costs and expenses incurred in connection with
the Merger Agreement and the Stock Option Agreement will be paid by the party
incurring such expenses, except that the cost of filing, printing and
distributing the Registration Statements and this Proxy Statement/Prospectus
will be borne equally by Cognizant and Walsh.
EFFECT ON EMPLOYEE BENEFITS, STOCK PLANS AND STOCK OPTIONS
BENEFIT PLANS. Cognizant has agreed to cause the Surviving Corporation to
maintain employee benefit plans (as defined in Section 3(3) of ERISA) for the
benefit of employees of Walsh or its subsidiaries that are no less favorable in
the aggregate than those that cover similarly situated employees of Cognizant.
Cognizant has also agreed to cause the Surviving Corporation to waive
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation by Walsh's employees in applicable Cognizant benefit
plans following the Effective Time of the Merger and to provide credit for
amounts paid by Walsh employees prior to the Effective Time of the Merger in
satisfying co-payments and deductibles under Cognizant's welfare plans.
STOCK OPTIONS. As of the Effective Time of the Merger, each vested and
unvested option to purchase shares of Walsh Common Stock shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Walsh option, the number of shares of Cognizant Common
Stock (or IMS HEALTH Common Stock, if the Effective Time of the Merger occurs on
or after the Cognizant Distribution Record Date) which the holder of such Walsh
option would have been entitled to receive pursuant to the Merger if such holder
had exercised such Walsh option in full immediately prior to the Effective Time
of the Merger. The exercise price per share shall be adjusted to equal (x) the
aggregate exercise price for the shares of Walsh Common Stock purchasable
pursuant to the Walsh options, divided by (y) the number of full shares of
Merger Stock deemed purchasable pursuant to such Walsh option, provided that
incentive stock options shall be further adjusted to the extent necessary to
comply with the Code.
Cognizant (or IMS HEALTH, if the Effective Time of the Merger occurs after
the Cognizant Distribution Record Date) will establish an employee stock option
plan having terms and conditions
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comparable to Cognizant's 1996 Key Employee Stock Incentive Plan pursuant to
which Cognizant will offer to grant options to purchase Cognizant Common Stock
(or IMS HEALTH Common Stock if the Effective Time of the Merger occurs after the
Cognizant Distribution Record Date) at fair market value, as of the Effective
Time of the Merger, to certain employees of Walsh.
EFFECT ON WARRANTS
At the Effective Time of the Merger, each warrant to purchase Walsh Common
Stock (a "Walsh Warrant") that is outstanding and unexercised immediately prior
thereto shall, pursuant to the terms of such Walsh Warrant, cease to represent a
right to acquire shares of Walsh Common Stock and shall be converted
automatically into a warrant to purchase such number of shares of Merger Stock
as the holder of such Walsh Warrant would have been entitled to receive pursuant
to the Merger had such holder exercised such Walsh Warrant in full immediately
prior to the Effective Time of the Merger, at a price per share equal to (y) the
aggregate exercise price for the shares of Walsh Common Stock otherwise
purchasable pursuant to such Walsh Warrant divided by (z) the number of full
shares of Merger Stock deemed purchasable pursuant to such Walsh Warrant.
Cognizant is required to reserve for issuance a sufficient number of shares
of Merger Stock for delivery upon the exercise of the Walsh Warrants.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to the Walsh stockholders under existing federal
income tax law. This discussion is based on the Code, the Treasury regulations
promulgated thereunder, and published administrative rulings and court decisions
as of the date hereof. All of the foregoing legal authorities are subject to
change, possibly with retroactive effect, and any such change could affect the
accuracy of the following discussion. This discussion assumes that stockholders
hold Walsh Common Stock as a capital asset as of the Effective Time of the
Merger. This discussion does not address all aspects of federal income taxation
which may be relevant to particular stockholders in light of their personal
circumstances, such as stockholders whose stock was acquired pursuant to the
exercise of an employee stock option or otherwise as compensation or
stockholders who are subject to special treatment under the federal income tax
laws (for example, financial institutions, insurance companies, tax-exempt
organizations, broker-dealers and foreign persons). This discussion also does
not address any aspects of state, local or foreign tax law. No ruling has been
or will be sought from the IRS with respect to any tax matters relating to the
Merger. Each stockholder is advised to consult his or her own tax advisors as to
the federal, state, local and foreign income and other tax consequences of the
Merger.
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization under Section 368(a) of the Code. Reboul,
MacMurray, Hewitt, Maynard & Kristol, counsel to Walsh, is of the opinion that,
more likely than not, the Merger should qualify as a reorganization under
Section 368(a) of the Code. Such opinion assumes that the Merger will take place
as described in the Merger Agreement and that certain factual matters with
respect to Cognizant, IMS HEALTH, Merger Sub and Walsh, described in certain
representation letters to be addressed to such counsel, will be true and correct
as of the Effective Time. Counsel is unable to render an unqualified opinion
that the Merger will qualify as a reorganization under Section 368(a) of the
Code because of the proximity of the Merger to the Cognizant Distribution. If
the Merger occurs prior to the Cognizant Distribution, the IRS may attempt to
combine these two transactions, with the result that one of the requirements for
tax-free reorganization treatment, the "control" requirement of Section
368(a)(2)(E) of the Code, may not be satisfied. Because of the unique
characteristics of these transactions, there are no judicial or administrative
interpretations of
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similar transactions that would resolve with certainty the federal income tax
treatment of the Merger. Assuming that the Merger is treated as a reorganization
under Section 368(a) of the Code:
1. No gain or loss will be recognized by the stockholders of Walsh upon
the exchange of their Walsh Common Stock solely for shares of Cognizant
Common Stock (or IMS HEALTH Common Stock, if applicable) pursuant to the
Merger, except with respect to cash, if any, received in lieu of fractional
shares;
2. The aggregate tax basis of the shares of Cognizant Common Stock (or
IMS HEALTH Common Stock, if applicable) received solely in exchange for
Walsh Common Stock pursuant to the Merger (including fractional shares for
which cash is received) will be the same as the aggregate tax basis of the
Walsh Common Stock exchanged therefor;
3. The holding period for shares of Cognizant Common Stock (or IMS
HEALTH Common Stock, if applicable) received solely in exchange for Walsh
Common Stock pursuant to the Merger will include the holding period of the
Walsh Common Stock exchanged therefor; and
4. A stockholder of Walsh who receives cash in lieu of a fractional
share of Cognizant Common Stock (or IMS HEALTH Common Stock, if applicable)
generally will recognize gain or loss equal to the difference, if any,
between the amount of cash received and the portion of such stockholder's
aggregate tax basis (as described in clause (2) above) allocated to such
fractional share.
If the Merger does not qualify as a reorganization under Section 368(a) of
the Code, a stockholder of Walsh will recognize gain or loss equal to the
difference between the fair market value (determined as of the Effective Time of
the Merger) of the Cognizant Common Stock received by the stockholder and the
stockholder's adjusted tax basis in the shares of Walsh Common Stock surrendered
pursuant to the Merger.
If a stockholder of Walsh recognizes gain or loss on the surrender of its
Walsh Common Stock pursuant to the Merger and such stock is held as a capital
asset, the gain or loss will be capital gain or loss. Capital gains of
individuals, trusts and estates derived in respect of capital assets held for
more than one year are eligible for reduced rates of taxation which may vary
depending upon the holding period of such capital assets. The deductibility of
capital losses is subject to certain limitations.
Each Walsh stockholder will be required to retain certain records and file
with such holder's federal income tax return a statement setting forth certain
facts relating to the Merger.
EACH STOCKHOLDER OF WALSH IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
MERGER (INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS).
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. Accordingly, the
assets and liabilities of Walsh will be recorded at their respective fair values
and added to those of Cognizant (or IMS HEALTH, as the case may be) as of the
Effective Time of the Merger. Financial Statements of Cognizant or (IMS HEALTH,
as the case may be) issued after the Effective Time of the Merger will reflect
such values and will not be restated retroactively to reflect the historical
financial position or results of Walsh.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
It is anticipated that after consummation of the Merger certain employees of
Walsh, including certain senior officers, will be employed by the Surviving
Corporation or IMS HEALTH. Cognizant anticipates that Michael Hauck, Chief
Executive Officer, Robert Mander, President and Chief Operating Officer, and
Martyn Williams, Chief Financial Officer of Walsh, will be employed by IMS
HEALTH. Cognizant is currently discussing the terms of such employment but no
definitive agreements have been reached.
In the event he ceases to be employed by Walsh for any reason (including if
he chooses to cease such employment for any reason), Mr. Hauck will become
entitled to receive a lump sum cash payment of approximately $1.5 million upon
the consummation of the Merger because it constitutes a "change of control"
pursuant to his existing employment agreement with Walsh. Pursuant to his
agreement with Walsh, Dennis Turner, Chairman of the Board of Walsh, is entitled
to a payment of $300,000 if for any reason he ceases to serve on the Walsh Board
following a change of control. While Messrs. Hauck and Turner were involved in
the negotiation of the Merger Agreement, the Merger Agreement was unanimously
approved by all six members of the Walsh Board after full disclosure to the
Walsh Board of the interests and potential interests described above.
Each of Robert Mander, Martyn Williams and Leonard Benjamin (none of whom
was involved in the negotiation of the Merger Agreement) will become entitled to
receive lump sum cash payments if, following the Merger (which constitutes a
"change of control" pursuant to his existing employment agreements with Walsh),
such executive officer is terminated without cause or terminates his employment
with good reason (as such terms are defined under his respective employment
agreements). The aggregate of such payments for the three executive officers is
approximately $2.3 million.
As of the Effective Time of the Merger, all vested and unvested options to
purchase Walsh Common Stock will become options to acquire, on the same terms
and conditions as were applicable under such Walsh options, the number of shares
of Cognizant Common Stock or, as the case may be, IMS HEALTH Common Stock which
the holder of such Walsh option would have been entitled to receive pursuant to
the Merger if such holder had exercised such Walsh Option in full immediately
prior to the Effective Time of the Merger. Under the terms of certain Walsh
options, the Walsh options would vest immediately upon effectiveness of the
Merger. Options to purchase 280,075 shares of Walsh Common Stock with an average
exercise price of $10.64 per share will become vested as a result of the Merger.
Assuming a price of Cognizant Common Stock to be received as Merger
Consideration of $51.792 per Cognizant share (or $15.75 per share of Walsh
Common Stock), the aggregate option spread would be approximately $1.4 million
or an average of $5.11 per option. In addition, Cognizant (or, as the case may
be, IMS HEALTH) will establish an employee stock option plan for the grant of
additional options to certain employees of Walsh, which plan will be comparable
to currently existing Cognizant stock option plans, and Cognizant (or, as the
case may be, IMS HEALTH) may issue restricted stock to certain employees of
Walsh after the effective time of the Merger. See "--Effect on Employee
Benefits, Stock Plans and Stock Options."
The Walsh options (and their aggregate spread) that will accelerate upon
consummation of the Merger and are held by executive officers are as follows:
<TABLE>
<CAPTION>
NUMBER
EXECUTIVE OFFICER OF OPTIONS AGGREGATE SPREAD
- ---------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
Michael A. Hauck................................................ 74,500 $ 382,813
Robert Mander................................................... 59,250 303,123
Martyn Williams................................................. 41,550 221,259
Leonard Benjamin................................................ 16,325 87,426
</TABLE>
Under the Merger Agreement, during the period preceding the Merger, Walsh
may enter into commitments with certain Walsh employees (other than Walsh's
executive officers) with respect to the payment of "stay bonuses" and similar
incentive compensation not exceeding $300,000 in the aggregate. Such bonuses
will be expensed as incurred. In addition, Cognizant and the Surviving
Corporation have
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agreed to indemnify, and maintain directors' and officers' insurance covering,
directors and officers of Walsh following the Merger. See "--Effect on Employee
Benefits, Stock Plans and Stock Options."
The Walsh Board, in determining the annual bonuses of certain senior
officers, conditioned part of such bonuses on the completion of the Merger.
STOCK OPTION AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement, and as
a condition and inducement thereto, Cognizant and Walsh entered into the Stock
Option Agreement pursuant to which Walsh granted Cognizant an option to purchase
up to an aggregate of 2,111,815 shares of Walsh Common Stock (subject to
adjustments under certain circumstances) at a price per share of $15.75.
The following is a summary of certain provisions of the Stock Option
Agreement which is attached as Annex II to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary is qualified in its
entirety by reference to the Stock Option Agreement.
EXERCISE OF THE OPTION. The option is exercisable only upon the occurrence
of a "Purchase Event", which is defined in the Stock Option Agreement to mean
the termination of the Merger Agreement under any circumstance which would
entitle Cognizant to receive the termination fee described above under "--
Termination Fee and Expense Reimbursement", PROVIDED, HOWEVER, that a Purchase
Event shall occur upon the occurrence of an event described in clause (i)(B)(x)
under "--Termination Fee and Expense Reimbursement" above notwithstanding the
absence of the occurrence an event described under clause (i)(B)(y) thereunder.
ADJUSTMENT OF NUMBER OF SHARES. The number and type of securities subject
to the option and the exercise price of the option will be adjusted for any
change in the Walsh Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction, such
that Cognizant will receive (upon exercise of the option) the same number and
type of securities as if the option had been exercised immediately prior to the
occurrence of such event (or the record date therefor). The number of shares of
Walsh Common Stock subject to the option will also be adjusted in the event
Walsh issues additional shares of Walsh Common Stock at a price per share less
than $15.75, such that the number of shares of Walsh Common Stock subject to the
option represents 19.9% of the Walsh Common Stock then outstanding, without
giving effect to shares subject to or issued pursuant to the option.
SUBSTITUTE OPTION. In the event Walsh enters into any agreement to (A)
merge or consolidate with any person other than Cognizant or one of its
subsidiaries such that Walsh is not the surviving corporation, (B) permit any
person other than Cognizant or one of its subsidiaries to merge into Walsh and
Walsh is the surviving corporation, but, in connection with such merger, the
Walsh Common Stock is exchanged for any other securities or other property or
the outstanding shares of Walsh Common Stock prior to such merger represent less
than 50% of the outstanding Walsh Common Stock following such merger, or (C)
sell or otherwise transfer all or substantially all of its assets to a person
other than Cognizant or one of its subsidiaries, the option will be converted
into an option (the "Substitute Option") to purchase securities of either the
acquiring person, a person that controls the acquiring person or Walsh (if Walsh
is the surviving entity), in all cases at the option of Cognizant. The
Substitute Option would be subject to immediate exercise by Cognizant and
repurchase by Walsh at the request of Cognizant, at prices, and subject to
conditions, specified in the Stock Option Agreement.
REPURCHASE OF OPTION AND OPTION SHARES. At any time commencing upon the
first occurrence of a Repurchase Event (as defined below) and ending 12 months
after the occurrence of a Purchase Event, Walsh (or any successor entity
thereof) is required (i) at the request of Cognizant, to repurchase the option
at a price equal to the excess, if any, of (x) the Applicable Price (as defined
below) for a share of Walsh Common Stock over (y) the exercise price of the
option (subject to adjustment), multiplied by the number of shares of Walsh
Common Stock with respect to which the option has not been exercised; and (ii)
at the
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request of an owner of shares of Walsh Common Stock issued upon exercise of the
option, to repurchase such number of shares of Walsh Common Stock as such owner
shall designate at a price equal to the Applicable Price multiplied by the
number of shares of Walsh Common Stock requested to be repurchased by such
owner. "Applicable Price" is defined in the Stock Option Agreement to mean the
highest of (A) the highest price per share at which a tender offer or exchange
offer has been made for shares of Walsh Common Stock, (B) the price per share to
be paid by any third party for shares of Walsh Common Stock or the consideration
per share to be received by holders of Walsh Common Stock, in each case pursuant
to an agreement for a merger or other business combination transaction with
Walsh or (C) the highest closing sale price per share of Walsh Common Stock
during the 60 business days preceding such date.
REGISTRATION RIGHTS. Cognizant has certain rights to require registration
of any shares of Walsh Common Stock purchased pursuant to the option under the
securities laws if necessary for Cognizant to be able to sell such shares.
LIMITATION OF PROFITS. The Stock Option Agreement limits Cognizant's Total
Profit (as defined below) to $5,550,000, and, if such Total Profit otherwise
would exceed such amount, requires Cognizant to either (i) reduce the number of
shares subject to the option, (ii) deliver shares of Walsh Common Stock for
cancellation, (iii) pay cash to Walsh or (iv) any combination of the foregoing,
so that Cognizant's Total Profit does not exceed $5,550,000 after taking into
account the foregoing actions. "Total Profit" is defined in the Stock Option
Agreement to mean: (i) the aggregate amount of (A) the excess of (x) the net
cash amounts received by Cognizant pursuant to a sale of shares of Walsh Common
Stock issued upon exercise of the option (or securities into which such shares
are converted or exchanged) to any unaffiliated third party within 12 months
after the exercise of the option, over (y) Cognizant's exercise price with
respect to such shares (or other securities), PLUS (B) any amounts received by
Cognizant on the transfer of the option, PLUS (C) any equivalent amounts with
respect to the Substitute Option, PLUS (D) any termination fee received by
Cognizant under the Merger Agreement (see "--Termination Fee and Expense
Reimbursement" above), minus (ii) the amount of cash or shares paid or delivered
to Walsh as a result of such limitation on Total Profit.
EFFECT OF STOCK OPTION AGREEMENT. The Stock Option Agreement is intended to
increase the likelihood that the Merger will be consummated on the terms set
forth in the Merger Agreement and could increase the cost to a third party of
acquiring Walsh. Consequently, the Stock Option Agreement may have the effect of
discouraging persons who now or prior to the Effective Time of the Merger might
be interested in acquiring all of or a significant interest in Walsh from
considering or proposing such an acquisition, even if such persons were prepared
to offer higher consideration per share for Walsh Common Stock than that
implicit in the Exchange Ratio.
ACCOUNTING TREATMENT. When and if the Stock Option Agreement vests, the
fair value of the option as of the vesting date will be measured in accordance
with the Black-Scholes option pricing model and expensed in the period in which
vesting occurs.
TERMINATION. Notwithstanding any other provision to the contrary in the
Stock Option Agreement, the Stock Option Agreement shall terminate, and
Cognizant shall have no rights thereunder, upon payment in full of any and all
amounts described in paragraph (i) and (ii) under "--Termination Fee and Expense
Reimbursement" above.
AMENDMENT TO WALSH RIGHTS AGREEMENT
Walsh has amended the Walsh Rights Agreement (as defined under "Comparison
of Stockholder Rights--Rights Plans") to provide that neither the approval,
execution or delivery of the Merger Agreement or the Stock Option Agreement nor
the consummation of the transactions contemplated by the Merger Agreement and
the Stock Option Agreement will cause the Walsh Rights issued to become
exercisable pursuant to the Walsh Rights Agreement (as defined under "Comparison
of Stockholder Rights--Stockholder Rights Plans").
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RESALE OF MERGER STOCK
Merger Stock issued pursuant to the Merger will not be subject to any
restrictions on transfer arising under the Securities Act, except for shares
issued to any Walsh stockholder who may be deemed to be an "affiliate" of Walsh
for purposes of Rule 145 under the Securities Act. This Proxy
Statement/Prospectus does not cover resales of Merger Stock received by any
person who may be deemed to be such an affiliate.
NO APPRAISAL RIGHTS
No holder of Walsh Common Stock will be entitled to appraisal rights under
the DGCL in connection with, or as a result of, the matters to be acted upon at
the Special Meeting.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
The rights of holders of Walsh Common Stock are governed by the DGCL and the
Walsh Charter and Walsh By-Laws. The rights of holders of Cognizant Common Stock
are governed by the DGCL and Cognizant Charter and Cognizant By-Laws, and the
rights of holders of IMS HEALTH Common Stock will be governed by the DGCL and
the IMS HEALTH Charter and IMS HEALTH By-Laws. Accordingly, upon consummation of
the Merger, (i) if the Walsh Common Stock is converted into Cognizant Common
Stock, the rights of Walsh will be governed by the DGCL, the Cognizant Charter
and the Cognizant By-Laws, and (ii) if the Walsh Common Stock is converted into
IMS HEALTH Common Stock, the rights of Walsh will be governed by the DGCL, the
IMS HEALTH Charter and the IMS HEALTH By-Laws.
The following is a summary of the principal differences between the current
rights of holders of Walsh Common Stock, on the one hand, and the holders of
Cognizant Common Stock and holders of IMS HEALTH Common Stock, on the other
hand. As the Cognizant Charter and Cognizant By-Laws are substantially the same
in all material respects as the IMS HEALTH Charter and the IMS HEALTH By-Laws,
holders of Walsh Common Stock will have substantially the same rights in all
material respects as of the Effective Time of the Merger regardless of whether
they receive Cognizant Common Stock or IMS HEALTH Common Stock.
The following discussions are not intended to be complete and are qualified
by reference to the DGCL, the Walsh Charter, the Walsh By-Laws, the Cognizant
Charter, the Cognizant By-Laws, the IMS HEALTH Charter and the IMS HEALTH
By-Laws. Copies of the Walsh Charter, the Walsh By-Laws, the Cognizant Charter,
the Cognizant By-Laws, the IMS HEALTH Charter and the IMS HEALTH By-Laws will be
sent to holders of shares of Walsh Common Stock upon request. See "Available
Information."
Neither the Walsh Charter nor the Walsh By-Laws are being amended in
connection with the Merger, except that the Walsh Charter is being amended to
delete references to the Series A Convertible Preferred Stock (the "Walsh Series
A Preferred Stock") (including, without limitation, to delete in its entirety
Section C of Article Fourth of the Walsh Charter), none of the shares of which
are currently outstanding.
COMPARISON OF RIGHTS OF HOLDERS OF WALSH COMMON STOCK AND RIGHTS OF HOLDERS OF
COGNIZANT
COMMON STOCK AND IMS HEALTH COMMON STOCK FOLLOWING THE MERGER
The rights of holders Walsh Common Stock under the DGCL and the Walsh
Charter and Walsh By-Laws prior to the Merger are substantially the same as (i)
the rights of holders of Cognizant Common Stock under the DGCL and the Cognizant
Charter and Cognizant By-Laws and (ii) the rights of holders of IMS HEALTH
Common Stock under the DGCL and the IMS HEALTH Charter and IMS HEALTH By-Laws,
in each case with the following principal exceptions.
AUTHORIZED CAPITAL STOCK. The authorized capital stock of Walsh consists of
25,000,000 shares of common stock, par value $.01 per share, and 20,000,000
shares of preferred stock, par value $1.00 per share, of which 1,041,677 shares
have been designated Series A Convertible Preferred Stock. As of May 14, 1998,
there were approximately 76 holders of record of Walsh Common Stock. The
authorized capital stock of Cognizant is set forth under "Description of
Cognizant Capital Stock--Authorized Capital Stock," and the authorized capital
stock of IMS HEALTH is set forth under "Description of IMS HEALTH Capital
Stock--Authorized Capital Stock."
INCREASING AUTHORIZED CAPITAL STOCK. Under Section 242(b)(2) of the DGCL,
the holders of the outstanding shares of a class of Walsh stock shall be
entitled to vote as a class on a proposed amendment to the Walsh Charter,
whether or not otherwise entitled to vote thereon, if, among other things, the
amendment would increase or decrease the aggregate number of authorized shares
of such class.
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As permitted by Section 242(b)(2) of the DGCL, each of the Cognizant Charter
and the IMS HEALTH Charter provides that the number of authorized shares of (i)
the Cognizant Common Stock, the preferred stock, par value $.01 per share, of
Cognizant ("Cognizant Preferred Stock"), or the series common stock, par value
$.01 per share, of Cognizant ("Cognizant Series Common Stock"), or (ii) the IMS
HEALTH Common Stock, the preferred stock, par value $.01 per share, of IMS
HEALTH (the "IMS HEALTH Preferred Stock"), or the series common stock, par value
$.01 per share, of IMS HEALTH (the "IMS HEALTH Series Common Stock"), as the
case may be, may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
in voting power of stock entitled to vote thereon irrespective of the provisions
of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no
vote of the holders of any of the Cognizant Preferred Stock, Cognizant Common
Stock or Cognizant Series Common Stock or any of the IMS HEALTH Preferred Stock,
IMS HEALTH Common Stock or IMS HEALTH Series Common Stock, as the case may be,
voting separately as a class shall be required thereof.
BOARD OF DIRECTORS. The board of directors of Walsh (the "Walsh Board of
Directors") currently consists of six directors, and the Walsh By-Laws provide
that the number of directors shall be not less than five nor more than ten. The
board of directors of Cognizant (the "Cognizant Board of Directors") currently
consists of eight directors, and the board of directors of IMS HEALTH (the "IMS
HEALTH Board of Directors") currently consists of three directors. Each of the
Cognizant By-Laws and the IMS HEALTH By-Laws provide that their respective
boards shall be comprised of not less than three directors and not more than
fifteen.
FILLING VACANCIES ON THE BOARD; REMOVING DIRECTORS. The Walsh By-Laws
provide that newly created directorships and director vacancies shall be filled
(i) by the affirmative vote of a majority of directors at a meeting of the Walsh
Board of Directors at which a quorum is present, (ii) if the number of directors
then in office is less than a quorum, by a majority of the directors then in
office, (iii) by a sole remaining director or (iv) by action of the holders of
record of a majority of the issued and outstanding stock of Walsh (A) present in
person or by a proxy at a meeting of stockholders and entitled to vote thereon
or (B) pursuant to a signed written consent. The Walsh By-Laws also provide that
any director may be removed at any time, with cause, by action of the holders of
record of the majority of the outstanding stock of Walsh (x) present in person
or by proxy at a meeting of the holders of such stock and entitled to vote
thereon or (y) pursuant to a signed written consent.
The requirements for filling newly created directorships and director
vacancies and for removing directors under the Cognizant Charter and Cognizant
By-Laws and the IMS HEALTH Charter and IMS HEALTH By-Laws, as the case may be,
are described under "Description of Cognizant Capital Stock-- Provisions of
Cognizant Charter and Cognizant By-Laws Affecting Change in Control--Number of
Directors; Filling of Vacancies; Removal" and "Description of IMS HEALTH Capital
Stock--Provisions of IMS HEALTH Charter and IMS HEALTH By-Laws Affecting Change
in Control--Number of Directors; Filling of Vacancies; Removal," respectively.
LIABILITY OF DIRECTORS TO STOCKHOLDERS. The Walsh Charter provides that no
person shall be personally liable to Walsh or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (a) for any
breach of the director's duty of loyalty, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 174 of the DGCL or (d) for any transaction from which the director
derived an improper benefit.
Each of the Cognizant Charter and the IMS HEALTH Charter provides that a
director of Cognizant or IMS HEALTH, as the case may be, shall not be liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL as the same may be amended.
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ADVANCE NOTICE OF MAKING NOMINATIONS AT MEETINGS OR FOR RAISING
BUSINESS. Nominations of persons for election to the Walsh Board of Directors
may be made by any stockholder entitled to vote for the election of directors in
a written notice provided not later than (a) in the case of an election to be
held at an annual meeting of stockholders, sixty days in advance of such
meeting, and (b) in the case of an election to be held at a special meeting of
stockholders, at the close of business on the tenth business day following the
date on which notice of such meeting is first given to the stockholders. Each
such notice is required to set forth: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the stockholder is the holder of record
of stock 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 such notice;
(iii) a description of all arrangements or understandings between the
stockholder and each nominee and other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder; (iv) such other information regarding each nominee proposed by such
stockholder as would have been required to be filed pursuant to the proxy rules
of the Commission had each nominee been nominated, or intended to be nominated,
by the Walsh Board of Directors; and (v) the consent of each nominee to serve as
a director if so elected. The chairman of such meeting may refuse to acknowledge
the nomination of any person that was not made in accordance with the foregoing.
Under the Walsh By-Laws, written notice of any annual or special meeting of
stockholders shall be given to each person entitled to vote thereat no less than
ten nor more than sixty days before the date of such meeting. Although any
notice of a special meeting of the stockholders of Walsh is required to state
briefly the objects and objectives of such special meeting, no provision that
limits the business of any meeting of the stockholders of Walsh to matters
contained in the notice of such meeting is included in either the Walsh Charter
or Walsh By-Laws.
The requirements under the Cognizant Charter and Cognizant By-Laws and the
IMS HEALTH Charter and IMS HEALTH By-Laws for advance notice for raising
business and making nominations at stockholder meetings are described under
"Description of Cognizant Capital Stock--Provisions of Cognizant Charter and
Cognizant By-Laws Affecting Change in Control--Advance Notice for Raising
Business or Making Nominations at Meetings" and "Description of IMS HEALTH
Capital Stock--Provisions of IMS HEALTH Charter and IMS HEALTH By-Laws Affecting
Change in Control--Advance Notice for Raising Business or Making Nominations at
Meetings," respectively.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Walsh By-Laws
provide that any action required or permitted to be taken at an annual or
special meeting of the stockholders of Walsh (including the election of
directors) may be taken without a meeting, without prior notice and without a
vote, if a consent in writing setting forth the action so taken is signed by the
holders of the outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. A special
meeting of the stockholders of Walsh may be called by Walsh's chairman of the
board or chief executive officer or the Walsh Board of Directors or upon the
written request of stockholders of Walsh holding of record a majority of the
outstanding shares of stock of Walsh entitled to vote at such meeting.
Each of the Cognizant Charter and Cognizant By-Laws and the IMS HEALTH
Charter and IMS HEALTH By-Laws provide that stockholder action can be taken only
at an annual meeting or special meeting and cannot be taken by written consent
in lieu of a meeting. The procedures for calling a special meeting of the
stockholders of Cognizant or IMS HEALTH, as the case may be, are set forth under
"Description of Cognizant Capital Stock--Provisions of Cognizant Charter and
Cognizant By-Laws Affecting Change in Control--No Stockholder Action by Written
Consent; Special Meetings" and "Description of IMS HEALTH Capital
Stock--Provisions of IMS HEALTH Charter and IMS HEALTH By-Laws Affecting Change
in Control--No Stockholder Action by Written Consent; Special Meetings,"
respectively.
AMENDMENT TO CORPORATE CHARTER AND BY-LAWS. Any amendment to the Walsh
Charter requires approval by a majority of the outstanding stock entitled to
vote. The Walsh By-Laws may be amended by a
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majority of the entire Walsh Board of Directors at any regular or special
meeting of such board of directors or by the affirmative vote of a majority the
issued and outstanding stock of Walsh (i) present in person or by proxy at a
meeting of the holders of such stock and entitled to vote thereon or (ii)
pursuant to a written consent signed by such majority of issued and outstanding
stock.
The procedures for amending the Cognizant Charter and/or Cognizant By-Laws
and the IMS HEALTH Charter and/or IMS HEALTH By-Laws are described under (i)
"Description of Cognizant Capital Stock--Provisions of Cognizant Charter and
Cognizant By-Laws Affecting Change in Control-- Amendments to the Cognizant
By-Laws" and "--Amendments to the Cognizant Charter" and (ii) "Description of
IMS HEALTH Capital Stock--Provisions of IMS HEALTH Charter and IMS HEALTH
By-Laws Affecting Change in Control--Amendments to the IMS HEALTH By-Laws" and
"--Amendments to the IMS HEALTH Charter," respectively.
STOCKHOLDER RIGHTS PLANS. On October 14, 1997, the Walsh Board of Directors
authorized and declared a dividend, payable on October 27, 1997 (the "Record
Date"), of one right (a "Walsh Right") for each outstanding share of Walsh
Common Stock. The Walsh Board of Directors also authorized the issuance of one
Walsh Right with respect to each share of Walsh Common Stock that shall become
outstanding between the Record Date and the earliest of (i) the events described
in the definitions of "Cognizant Rights Distribution Date" and "IMS HEALTH
Rights Distribution Date" below (except that, where references to certain
acquisitions of Cognizant Common Stock or IMS HEALTH Common Stock, as the case
may be, are made, references to acquisitions of Walsh Common Stock should be
substituted therefor), (ii) the date on which the Walsh Rights are redeemed by
Walsh and (iii) October 14, 2007 (the "Walsh Final Expiration Date"). When
exercisable, each Walsh Right entitles the registered holder to purchase from
Walsh one one-hundredth of a share of Series B Junior Participating Preferred
Stock, par value $1.00 per share, of Walsh (the "Walsh Series B Preferred
Stock"), at a price of $55.00, subject to adjustment. The Walsh Rights are
exercisable, if at all, on or prior to the Walsh Final Expiration Date. The
description and terms of the Walsh Rights are set forth in a rights agreement,
dated as of October 14, 1997 (the "Walsh Rights Agreement"), between Walsh and
Harris Trust Company of New York, as rights agent.
Walsh has amended the Walsh Rights Agreement to ensure that entering into
the Merger Agreement and Stock Option Agreement and consummating the
transactions contemplated thereunder did not and will not result in the grant of
rights to any person under the Walsh Rights Agreement or enable or require the
Walsh Rights to be exercised, distributed or triggered.
The Cognizant Rights Plan and the Cognizant Rights Agreement are defined and
described under "Description of Cognizant Capital Stock--Cognizant Rights Plan"
and "--Certain Effects of the Cognizant Rights Agreement", and the IMS HEALTH
Rights Plan and the IMS HEALTH Rights Agreement (the IMS HEALTH Rights Plan is
expected to be adopted, and the IMS HEALTH Rights Agreement is expected to be
entered into, prior to the Cognizant Distribution) are defined and described
under "Description of IMS HEALTH Capital Stock--IMS HEALTH Rights Plan" and
"--Certain Effects of the IMS HEALTH Rights Agreement."
The rights set forth in the Walsh Rights Agreement are substantially similar
in all material respects to those set forth in each of the Cognizant Rights
Agreement and those expected to be set forth in the IMS HEALTH Rights Agreement
described below (except that, (i) in instances in which the Cognizant Rights and
the IMS HEALTH Rights would be exercisable or exchangeable into securities or
assets of Cognizant and IMS HEALTH, as the case may be, the Walsh Rights are
exercisable or exchangeable into securities or assets of Walsh; (ii) in
instances where one one-thousandth of a share of preferred stock of Cognizant or
IMS HEALTH, as the case may be, is the relevant measure, one one-hundredth of a
share of Walsh Series B Preferred Stock should be the relevant measure; (iii)
the Walsh "Redemption Price" is $.001 per Walsh Right whereas the "Redemption
Price" for the Cognizant Rights are, and the IMS HEALTH Rights will be, $.01 per
Right; (iv) whereas the Cognizant Rights Agreement permits, and the IMS HEALTH
Rights Agreement will permit, the Cognizant Board of Directors and the IMS
HEALTH Board of
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Directors, as the case may be, to redeem the Cognizant Rights or the IMS HEALTH
Rights, as the case may be at any time prior to the time an Acquiring Person
becomes such, the Walsh Rights Agreement permits the Walsh Board of Directors to
redeem the Walsh Rights at any time prior to the close of business on the tenth
day following a public announcement that an Acquiring Person has become such an
Acquiring Person; and (v) the Walsh Rights Agreement provides that, from and
after the time that any person becomes an Acquiring Person, the decision to
redeem the Walsh Rights shall require the concurrence of a majority of the
Continuing Directors (defined as any member of the Walsh Board of Directors who
was a member of the Board prior to the time that any person became an Acquiring
Person, and any person who is subsequently elected to the Walsh Board of
Directors if such person is recommended or approved by a majority of the
Continuing Directors, provided that an Acquiring Person cannot be a Continuing
Director)).
A copy of the Walsh Rights Agreement is available free of charge from Walsh.
The summary description of the Walsh Rights set forth above does not purport to
be complete and is qualified in its entirety by reference to the Walsh Rights
Agreement, as the same may be amended from time to time.
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DESCRIPTION OF COGNIZANT CAPITAL STOCK
The summary of the terms of the capital stock of Cognizant set forth below
is qualified by reference to the Cognizant Charter and Cognizant By-Laws.
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that Cognizant has
authority to issue under the Cognizant Charter is 420,000,000 shares, of which
400,000,000 represent shares of Cognizant Common Stock, 10,000,000 represent
shares of Cognizant Preferred Stock and 10,000,000 represent shares of Cognizant
Series Common Stock.
COGNIZANT COMMON STOCK
As of March 31, 1998, 162,848,673 shares of Cognizant Common Stock were
issued and outstanding.
Subject to any preferential rights of any Cognizant Preferred Stock or
Cognizant Series Common Stock created by the Cognizant Board, each holder of
Cognizant Common Stock will be entitled to such dividends, if any, as may be
declared from time to time by the Cognizant Board. Each holder of Cognizant
Common Stock is entitled to one vote for each share of Cognizant Common Stock
held of record on the applicable record date on all matters submitted to a vote
of stockholders. In the event of liquidation, dissolution or winding up of
Cognizant, holders of Cognizant Common Stock are entitled to receive on a pro
rata basis any assets remaining after provision for payment of creditors and
after payment of any liquidation preferences to holders of Cognizant Preferred
Stock and Cognizant Series Common Stock.
There are no conversion rights, redemption rights or sinking fund provisions
with respect to Cognizant Common Stock. The outstanding shares of Cognizant
Common Stock are, and any shares of Cognizant Common Stock issued pursuant to
the Merger will be, duly authorized, validly issued, fully paid and
nonassessable.
COGNIZANT PREFERRED STOCK AND COGNIZANT SERIES COMMON STOCK
As of March 31, 1998, no shares of Cognizant Preferred Stock and no shares
of Cognizant Series Common Stock were issued or outstanding. Each of the
authorized Cognizant Preferred Stock and the authorized Cognizant Series Common
Stock is available for issuance from time to time in one or more series at the
discretion of the Cognizant Board without stockholder approval. The Cognizant
Board has the authority to prescribe for each series of Cognizant Preferred
Stock or Cognizant Series Common Stock it establishes the number of shares in
that series, the voting rights (if any) to which such shares in that series are
entitled, the consideration for such shares in that series and the designations,
powers, preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions of the shares in
that series. Depending upon the rights of such Preferred Stock or Series Common
Stock, as applicable, the issuance of Cognizant Preferred Stock or Cognizant
Series Common Stock, as applicable, could have an adverse effect on holders of
Cognizant Common Stock by delaying or preventing a change in control of
Cognizant, making removal of the present management of Cognizant more difficult
or resulting in restrictions upon the payment of dividends and other
distributions to the holders of Cognizant Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the Cognizant Common Stock remained listed on the NYSE, require
stockholder approval of certain issuances equal to or exceeding 20% of the then
outstanding voting power or then outstanding number of shares of Cognizant
Common Stock. These additional shares may be used for a variety of corporate
purposes, including future public offerings
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to raise additional capital or to facilitate corporate acquisitions. Cognizant
currently does not have any plans to issue additional shares of Cognizant Common
Stock, Cognizant Preferred Stock or Cognizant Series Common Stock other than in
connection with employee compensation plans. See "Certain
Considerations--Considerations Relevant to Cognizant--Acquisitions."
One of the effects of the existence of unissued and unreserved Cognizant
Common Stock, Cognizant Preferred Stock and Cognizant Series Common Stock may be
to enable the Cognizant Board to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt
to obtain control of Cognizant by means of a merger, tender offer, proxy contest
or otherwise, and thereby protect the continuity of Cognizant's management and
possibly deprive the stockholders of Cognizant of opportunities to sell their
shares of Cognizant Common Stock at prices higher than prevailing market prices.
Such additional shares also could be used to dilute the stock ownership of
persons seeking to obtain control of Cognizant pursuant to the operation of the
Cognizant Rights Plan, which is discussed below.
COGNIZANT RIGHTS PLAN
On October 15, 1996 the Cognizant Board declared a dividend, payable on
October 23, 1996, of one preferred share purchase right (a "Cognizant Right")
for each outstanding share of Cognizant Common Stock. Each Cognizant Right
entitles the registered holder to purchase from Cognizant one one-thousandth of
a share of Series A Junior Participating Cognizant Preferred Stock, par value
$.01 per share (the "Cognizant Participating Preferred Stock"), of Cognizant at
a price of $210 per one one-thousandth of a share of Cognizant Participating
Preferred Stock (hereinafter referred to in this description of Cognizant Rights
as the "Cognizant Purchase Price"), subject to adjustment. The description and
terms of the Cognizant Rights are set forth in a rights agreement dated as of
October 15, 1996, as the same may be amended from time to time (the "Cognizant
Rights Agreement"), between Cognizant and First Chicago Trust Company, as the
Cognizant Rights Agent (the "Cognizant Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of Cognizant Rights, an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding shares of Cognizant Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Cognizant Board prior to such
time as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding shares of
Cognizant Common Stock (the earlier of such dates hereinafter referred to in
this description of Cognizant Rights as the "Cognizant Rights Distribution
Date"), the Cognizant Rights will be evidenced by such Cognizant Common Stock
certificate together with a summary of Cognizant Rights.
The Cognizant Rights Agreement provides that, until the Cognizant Rights
Distribution Date (or earlier redemption or expiration of the Cognizant Rights),
the Cognizant Rights will be transferred with and only with the Cognizant Common
Stock. Until the Cognizant Rights Distribution Date (or earlier redemption or
expiration of the Cognizant Rights), new Cognizant Common Stock certificates
issued after the Cognizant Record Date upon transfer or new issuances of
Cognizant Common Stock will contain a notation incorporating the Cognizant
Rights Agreement by reference. Until the Cognizant Rights Distribution Date (or
earlier redemption or expiration of the Cognizant Rights), the surrender for
transfer of any certificates for shares of Cognizant Common Stock outstanding as
of the Cognizant Record Date, even without such notation or a summary of
Cognizant Rights, will also constitute the transfer of the Cognizant Rights
associated with the shares of Cognizant Common Stock represented by such
certificate. As soon as practicable following the Cognizant Rights Distribution
Date, separate certificates evidencing the Cognizant Rights ("Cognizant Right
Certificates") will be mailed to holders of record of the Cognizant Common
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Stock as of the close of business on the Cognizant Rights Distribution Date and
such separate Cognizant Right Certificates alone will evidence the Cognizant
Rights.
The Cognizant Rights are not exercisable until the Cognizant Rights
Distribution Date. The Cognizant Rights will expire on October 23, 2006
(hereinafter referred to in this description of Cognizant Rights as the "Final
Expiration Date"), unless the Final Expiration Date is advanced or extended or
unless the Cognizant Rights are earlier redeemed or exchanged by Cognizant, in
each case as described below.
The Cognizant Purchase Price payable, and the number of shares of Cognizant
Participating Preferred Stock or other securities or property issuable, upon
exercise of the Cognizant Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Cognizant Participating Preferred Stock,
(ii) upon the grant to holders of the Cognizant Participating Preferred Stock of
certain rights or warrants to subscribe for or purchase Cognizant Participating
Preferred Stock at a price, or securities convertible into Cognizant
Participating Preferred Stock with a conversion price, less than the
then-current market price of the Cognizant Participating Preferred Stock or
(iii) upon the distribution to holders of the Cognizant Participating Preferred
Stock of evidence of indebtedness or assets (excluding regular periodic cash
dividends or dividends payable in Cognizant Participating Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The Cognizant Rights are also subject to adjustment in the event of a stock
split of the Cognizant Common Stock or a stock dividend on the Cognizant Common
Stock payable in shares of Cognizant Common Stock or subdivisions,
consolidations or combinations of the Cognizant Common Stock occurring, in any
such case, prior to the Cognizant Rights Distribution Date.
Shares of Cognizant Participating Preferred Stock purchasable upon exercise
of the Cognizant Rights will not be redeemable. Each share of Cognizant
Participating Preferred Stock will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend declared per share
of Cognizant Common Stock. In the event of liquidation, dissolution or winding
up of Cognizant, the holders of the Cognizant Participating Preferred Stock will
be entitled to a minimum preferential liquidation payment of $100 per share
(plus any accrued but unpaid dividends) and will be entitled to an aggregate
payment of 1,000 times the payment made per share of Cognizant Common Stock.
Each share of Cognizant Participating Preferred Stock will have 1,000 votes,
voting together with the Cognizant Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of Cognizant Common
Stock are converted or exchanged, each share of Cognizant Participating
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of Cognizant Common Stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Cognizant Participating Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of Cognizant Participating Preferred Stock purchasable upon
exercise of each Cognizant Right should approximate the value of one share of
Cognizant Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Cognizant Right, other than
Cognizant Rights beneficially owned by the Acquiring Person (which will
thereupon become void), will thereafter have the right to receive upon exercise
of a Cognizant Right and payment of the Cognizant Purchase Price, that number of
shares of Cognizant Common Stock having a market value of two times the
Cognizant Purchase Price.
In the event that, after a person or group has become an Acquiring Person,
Cognizant is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Cognizant Right (other than
Cognizant Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter
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have the right to receive, upon the exercise thereof at the then current
exercise price of the Cognizant Right, that number of shares of common stock of
the person with whom Cognizant has engaged in the foregoing transaction (or its
parent), which number of shares at the time of such transaction will have a
market value of two times the exercise price of the Cognizant Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Cognizant Common Stock or the occurrence of an event described in the
prior paragraph, the Cognizant Board may exchange the Cognizant Rights (other
than Cognizant Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Cognizant
Common Stock, or one one-thousandth of a share of Cognizant Participating
Preferred Stock (or of a share of a class or series of Cognizant's preferred
stock having equivalent rights, preferences and privileges), per Cognizant Right
(subject to adjustment).
With certain exceptions, no adjustment in the Cognizant Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1% in
such Cognizant Purchase Price. No fractional shares of Cognizant Participating
Preferred Stock will be issued (other than fractions which are integral
multiples of one one-thousandth of a share of Cognizant Participating Preferred
Stock, which may, at the election of Cognizant, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Cognizant Participating Preferred Stock on the last trading
day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the
Cognizant Board may redeem the Cognizant Rights in whole, but not in part, at a
price of $.01 per Cognizant Right (hereinafter referred to in this description
of Cognizant Rights as the "Cognizant Redemption Price"). The redemption of the
Cognizant Rights may be made effective at such time, on such basis and with such
conditions as the Cognizant Board in its sole discretion may establish.
Immediately upon any redemption of the Cognizant Rights, the right to exercise
the Cognizant Rights will terminate and the only right of the holders of
Cognizant Rights will be to receive the Cognizant Redemption Price.
For so long as the Cognizant Rights are then redeemable, Cognizant may,
except with respect to the redemption price, amend the Cognizant Rights in any
manner. After the Cognizant Rights are no longer redeemable, Cognizant may,
except with respect to the redemption price, amend the Cognizant Rights in any
manner that does not adversely affect the interests of holders of the Cognizant
Rights.
Until a Cognizant Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Cognizant, including, without limitation, the
right to vote or to receive dividends.
A copy of the Cognizant Rights Agreement is available free of charge from
Cognizant. The summary description of the Cognizant Rights set forth above does
not purport to be complete and is qualified in its entirety by reference to the
Cognizant Rights Agreement, as the same may be amended from time to time.
CERTAIN EFFECTS OF THE COGNIZANT RIGHTS AGREEMENT
The Cognizant Rights Agreement is designed to protect stockholders of
Cognizant in the event of unsolicited offers to acquire Cognizant and other
coercive takeover tactics which, in the opinion of the Cognizant Board, could
impair its ability to represent stockholder interests. The provisions of the
Cognizant Rights Agreement may render an unsolicited takeover of Cognizant more
difficult or less likely to occur or might prevent such a takeover, even though
such takeover may offer Cognizant's stockholders the opportunity to sell their
stock at a price above the prevailing market rate and may be favored by a
majority of the stockholders of Cognizant.
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NO PREEMPTIVE RIGHTS
No holder of any class of stock of Cognizant authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
Cognizant of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the DGCL apply to Cognizant since it is a
Delaware corporation. Pursuant to Section 203, with certain exceptions, a
Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless (a) the transaction that results
in the person becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the stockholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans or
(c) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
stockholders. Under Section 203, an "interested stockholder" is defined as any
person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation or (b) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding shares at any time. Such stockholder action does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. The
Cognizant Charter does not exclude Cognizant from the restrictions imposed under
Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The provisions of Section 203 may encourage companies interested in
acquiring Cognizant to negotiate in advance with the Cognizant Board, because
the stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
Such provisions also may have the effect of preventing changes in the Cognizant
Board. It is further possible that such provisions could make it more difficult
to accomplish transactions which stockholders may otherwise deem to be in their
best interests.
PROVISIONS OF COGNIZANT CHARTER AND COGNIZANT BY-LAWS AFFECTING CHANGE IN
CONTROL
Certain provisions of the Cognizant Charter and the Cognizant By-laws may
delay or make more difficult unsolicited acquisitions or changes of control of
Cognizant. It is believed that such provisions will enable Cognizant to develop
its business in a manner that will foster its long-term growth without
disruption caused by the threat of a takeover not deemed by its Board of
Directors to be in the best interests of Cognizant and its stockholders. Such
provisions could have the effect of discouraging third parties from making
proposals involving an unsolicited acquisition or change of control of
Cognizant, although such proposals, if made, might be considered desirable by a
majority of Cognizant's stockholders. Such provisions may also have the effect
of making it more difficult for third parties to cause the replacement of the
current Cognizant Board. These provisions include (i) the availability of
capital stock
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for issuance from time to time at the discretion of the Cognizant Board (see
"--Authorized but Unissued Capital Stock"), (ii) prohibitions against
stockholders calling a special meeting of stockholders or acting by written
consent in lieu of a meeting, (iii) requirements for advance notice for raising
business or making nominations at stockholders' meetings, (iv) a classified
board of directors and (v) the ability of the board of directors to increase the
size of the board and to appoint directors to newly created directorships.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Cognizant
Charter and the Cognizant By-laws provide that stockholder action can be taken
only at an annual or special meeting and cannot be taken by written consent in
lieu of a meeting. The Cognizant Charter and Charter By-laws also provide that
special meetings of the stockholders can be called only by the Chief Executive
Officer of Cognizant or by a vote of the majority of the Cognizant Board.
Furthermore, the Cognizant By-laws provide that only such business as is
specified in the notice of any such special meeting of stockholders may come
before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS. The
Cognizant By-laws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an annual
or special meeting at which directors are to be elected. Only such business may
be conducted at an annual meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Chairman of the Cognizant Board, or by a
stockholder of Cognizant who is entitled to vote at the meeting who has given to
the Secretary of Cognizant timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The chairman
of such meeting has the authority to make such determinations. Only persons who
are nominated by, or at the direction of, the Chairman of the Cognizant Board,
or who are nominated by a stockholder who has given timely written notice, in
proper form, to the Secretary prior to a meeting at which directors are to be
elected will be eligible for election as directors of Cognizant.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of Cognizant at the principal
executive offices of Cognizant not less than 70 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Cognizant Board may be made at such a special meeting of stockholders if
the stockholder's notice shall be delivered to the Secretary of Cognizant at the
principal executive offices of Cognizant not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Cognizant Board to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of Cognizant held by,
the stockholder who intends to make the nomination and, the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of Cognizant 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; a description of all arrangements or
understandings between the stockholder 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 by the stockholder; such other
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information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC had each nominee been nominated, or intended to be nominated,
by the Cognizant Board; and the consent of each nominee to serve as a director
if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES; REMOVAL. The Cognizant Charter
and the Cognizant By-laws provide that newly created directorships resulting
from any increase in the authorized number of directors (or any vacancy) may be
filled only by a vote of a majority of directors then in office. Accordingly,
the Cognizant Board may be able to prevent any stockholder from obtaining
majority representation on the Cognizant Board by increasing the size of the
board and filling the newly created directorships with its own nominees. If any
applicable provision of the DGCL expressly confers power on stockholders to fill
such a directorship at a special meeting of stockholders, such a directorship
may be filled at such meeting only by the affirmative vote of at least 80% in
voting power of all shares of Cognizant entitled to vote generally in the
election of directors, voting as a single class. Directors may be removed only
for cause, and only by the affirmative vote of at least 80% in voting power of
all shares of Cognizant entitled to vote generally in the election of directors,
voting as a single class.
CLASSIFIED BOARD OF DIRECTORS. The Cognizant Charter provides for the
Cognizant Board to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one third of the Cognizant Board
will be elected each year.
Cognizant believes that a classified board will help to assure the
continuity and stability of the Cognizant Board, and its business strategies and
policies as determined by its Board of Directors, because a majority of the
directors at any given time will have prior experiences as directors of
Cognizant. This provision should also help to ensure that the Cognizant Board,
if confronted with an unsolicited proposal from a third party that has acquired
a block of Cognizant's voting stock, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result for
all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Cognizant Board until
the second annual stockholders meeting following the date the acquiror obtains
the controlling stock interest, could have the effect of discouraging a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of Cognizant and could thus increase the likelihood that incumbent
directors will retain their positions.
AMENDMENTS TO THE COGNIZANT BY-LAWS. The Cognizant By-Laws provide that the
affirmative vote of the holders of at least 80% in voting power of all the
shares of Cognizant entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, amend or repeal
any provision of the Cognizant By-Laws which is to the same effect as provisions
contained in the Cognizant Charter relating to (i) the amendment of the
Cognizant By-Laws, (ii) the classified board of directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
The Cognizant Charter also provides that the Cognizant Board shall be authorized
to make, amend, alter, change, add to or repeal the Cognizant By-Laws.
AMENDMENTS TO THE COGNIZANT CHARTER. The Cognizant Charter requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of Cognizant entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
Cognizant Charter relating to (i) the amendment of the Cognizant Charter and/or
the Cognizant By-Laws, (ii) the classified board of directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
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INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The Cognizant Charter provides that Cognizant shall indemnify directors and
officers to the fullest extent permitted by the laws of the State of Delaware.
The Cognizant Charter also provides that a director of Cognizant shall not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the DGCL as the same exists or may
hereafter be amended.
The indemnification rights conferred by the Cognizant Charter are not
exclusive of any other right to which a person seeking indemnification may
otherwise be entitled. Cognizant will also provide liability insurance for the
directors and officers for certain losses arising from claims or charges made
against them while acting in their capacities as directors or officers.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York is the transfer agent and registrar
for the Cognizant Common Stock.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF WALSH COMMON STOCK
It is a condition to the Merger that any shares of Cognizant Common Stock or
IMS HEALTH Common Stock, as the case may be, issuable in the Merger be approved
for listing on the NYSE on or prior to the Effective Time of the Merger, subject
to official notice of issuance. If the Merger is consummated, Walsh Common Stock
will cease to be listed on the Nasdaq.
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DESCRIPTION OF IMS HEALTH CAPITAL STOCK
The summary of the terms of the capital stock of IMS HEALTH set forth below
is qualified by reference to the IMS HEALTH Charter and IMS HEALTH By-Laws.
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that IMS HEALTH has
authority to issue under the IMS HEALTH Charter is 420,000,000 shares, of which
400,000,000 represent shares of IMS HEALTH Common Stock, 10,000,000 represent
shares of IMS HEALTH Preferred Stock and 10,000,000 represent shares of IMS
HEALTH Series Common Stock.
IMS HEALTH COMMON STOCK
As of May 26, 1998, 100 shares of IMS HEALTH Common Stock were issued and
outstanding. Subject to any preferential rights of any IMS HEALTH Preferred
Stock or IMS HEALTH Series Common Stock created by the IMS HEALTH Board of
Directors, each outstanding share of IMS HEALTH Common Stock will be entitled to
such dividends, if any, as may be declared from time to time by the IMS HEALTH
Board of Directors. Each holder of IMS HEALTH Common Stock is entitled to one
vote for each share of IMS HEALTH Common Stock held of record on the applicable
record date on all matters submitted to a vote of stockholders. In the event of
liquidation, dissolution or winding up of IMS HEALTH, holders of IMS HEALTH
Common Stock are entitled to receive on a pro rata basis any assets remaining
after provision for payment of creditors and after payment of any liquidation
preferences to holders of IMS HEALTH Preferred Stock and IMS HEALTH Series
Common Stock.
There are no conversion rights, redemption rights or sinking fund provisions
with respect to the IMS HEALTH Common Stock. The outstanding shares of IMS
HEALTH Common Stock are, and any shares of IMS HEALTH Common Stock issued
pursuant to the Merger will be, duly authorized, validly issued, fully paid and
nonassessable.
IMS HEALTH PREFERRED STOCK AND IMS HEALTH SERIES COMMON STOCK
As of May 26, 1998, no shares of IMS HEALTH Preferred Stock and no shares of
IMS HEALTH Series Common Stock were issued or outstanding. Each of the
authorized IMS HEALTH Preferred Stock and the authorized IMS HEALTH Series
Common Stock is available for issuance from time to time in one or more IMS
HEALTH series at the discretion of the IMS HEALTH Board of Directors without
stockholder approval. The IMS HEALTH Board of Directors has the authority to
prescribe for each series of IMS HEALTH Preferred Stock or IMS HEALTH Series
Common Stock it establishes the number of shares in that series, the voting
rights (if any) to which such shares in that series are entitled, the
consideration for such shares in that series and the designation, powers,
preference and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions of the shares in that series.
Depending upon the rights of such Preferred Stock or Series Common Stock, as
applicable, the issuance of IMS HEALTH Preferred Stock or IMS HEALTH Series
Common Stock, as applicable, could have an adverse effect on holders of IMS
HEALTH Common Stock by delaying or preventing a change in control of IMS HEALTH,
making removal of the present management of IMS HEALTH more difficult or
resulting in restrictions upon the payment of dividends and other distributions
to the holders of IMS HEALTH Common Stock.
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AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the IMS HEALTH Common Stock remained listed on the NYSE,
require stockholder approval of certain issuances equal to or exceeding 20% of
the then outstanding voting power or then outstanding number of shares of IMS
HEALTH Common Stock. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital or to facilitate corporate acquisitions. Other than any issuance of
shares of IMS HEALTH Common Stock in connection with (i) the Merger or (ii) the
acquisition of PMSI, IMS HEALTH currently does not have any other plans to issue
additional shares of IMS HEALTH Common Stock, IMS HEALTH Preferred Stock or IMS
HEALTH Series Common Stock other than in connection with employee compensation
plans. See, however, "Risk Factors--Risks Relating to IMS HEALTH--Acquisitions."
One of the effects of the existence of unissued and unreserved IMS HEALTH
Common Stock, IMS HEALTH Preferred Stock and IMS HEALTH Series Common Stock may
be to enable the IMS HEALTH Board of Directors to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of IMS HEALTH by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
IMS HEALTH's management and possibly deprive the stockholders of IMS HEALTH of
opportunities to sell their shares of IMS HEALTH Common Stock at prices higher
than prevailing market prices. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of IMS HEALTH
pursuant to the operation of the IMS HEALTH Rights Plan, which is discussed
below.
IMS HEALTH RIGHTS PLAN
Prior to the Cognizant Distribution, the IMS HEALTH Board of Directors will
declare a dividend of one preferred share purchase right (an "IMS HEALTH Right")
for each outstanding share of IMS HEALTH Common Stock. The dividend will be
payable to Cognizant on a date prior to the Cognizant Distribution which is set
by the IMS HEALTH Board of Directors (the "IMS HEALTH Record Date"). Cognizant
will be the sole stockholder of record on the IMS HEALTH Record Date. Each IMS
HEALTH Right will entitle the registered holder to purchase from IMS HEALTH one
one-thousandth of a share of Series A Junior Participating IMS HEALTH Preferred
Stock, par value $.01 per share (the "IMS HEALTH Participating Preferred
Stock"), of IMS HEALTH at a price per one one-thousandth of a share of IMS
HEALTH Participating Preferred Stock to be determined by the IMS HEALTH Board of
Directors (as the same may be adjusted, hereinafter referred to as the "IMS
HEALTH Purchase Price"), subject to adjustment. The description and terms of the
IMS HEALTH Rights will be set forth in a rights agreement (the "IMS HEALTH
Rights Agreement") to be entered into by IMS HEALTH and First Chicago Trust
Company of New York, as the IMS HEALTH Rights Agent (the "IMS HEALTH Rights
Agent").
It is anticipated that until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(with certain exceptions, hereinafter referred to in this description of IMS
HEALTH Rights, an "Acquiring Person") have acquired beneficial ownership of 15%
or more of the outstanding shares of IMS HEALTH Common Stock or (ii) 10 business
days (or such later date as may be determined by action of the IMS HEALTH Board
of Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of IMS HEALTH Common Stock (the earlier of such dates
hereinafter referred to in this description of IMS HEALTH Rights as the "IMS
HEALTH Rights Distribution Date"), the IMS HEALTH Rights will be evidenced by
the certificates representing IMS HEALTH Common Stock.
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The IMS HEALTH Rights Agreement is expected to provide that, until the IMS
HEALTH Rights Distribution Date (or earlier redemption or expiration of the IMS
HEALTH Rights), the IMS HEALTH Rights will be transferred with and only with the
IMS HEALTH Common Stock. Until the IMS HEALTH Rights Distribution Date (or
earlier redemption or expiration of the IMS HEALTH Rights), IMS HEALTH Common
Stock certificates will contain a notation incorporating the IMS HEALTH Rights
Agreement by reference. Until the IMS HEALTH Rights Distribution Date (or
earlier redemption or expiration of the IMS HEALTH Rights), the surrender for
transfer of any certificates for shares of IMS HEALTH Common Stock will also
constitute the transfer of the IMS HEALTH Rights associated with the shares of
IMS HEALTH Common Stock represented by such certificate. As soon as practicable
following the IMS HEALTH Rights Distribution Date, separate certificates
evidencing the IMS HEALTH Rights ("IMS HEALTH Rights Certificates") will be
mailed to holders of record of the IMS HEALTH Common Stock as of the close of
business on the IMS HEALTH Rights Distribution Date and such separate IMS HEALTH
Right Certificates alone will evidence the IMS HEALTH Rights.
The IMS HEALTH Rights will not be exercisable until the IMS HEALTH Rights
Distribution Date. The IMS HEALTH Rights are expected to expire on June 30, 2008
(hereinafter referred to in this description of IMS HEALTH Rights as the "IMS
HEALTH Final Expiration Date"), unless the IMS HEALTH Final Expiration Date is
advanced or extended or unless the IMS HEALTH Rights are earlier redeemed or
exchanged by IMS HEALTH, in each case as described below.
The IMS HEALTH Purchase Price payable, and the number of shares of IMS
HEALTH Participating Preferred Stock or other securities or property issuable,
upon exercise of the IMS HEALTH Rights will be subject to adjustment from time
to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the IMS HEALTH Participating
Preferred Stock, (ii) upon the grant to holders of the IMS HEALTH Participating
Preferred Stock of certain rights or warrants to subscribe for or purchase IMS
HEALTH Participating Preferred Stock at a price, or securities convertible into
IMS HEALTH Participating Preferred Stock with a conversion price, less than the
then-current market price of the IMS HEALTH Participating Preferred Stock or
(iii) upon the distribution to holders of the IMS HEALTH Participating Preferred
Stock of evidences of indebtedness or assets (excluding regular periodic cash
dividends or dividends payable in IMS HEALTH Participating Preferred Stock) or
of subscription rights or warrants (other than those referred to above).
The IMS HEALTH Rights will also be subject to adjustment in the event of a
stock dividend on the IMS HEALTH Common Stock payable in shares of IMS HEALTH
Common Stock or subdivisions, consolidations or combinations of the IMS HEALTH
Common Stock occurring, in any such case, prior to the IMS HEALTH Rights
Distribution Date.
Shares of IMS HEALTH Participating Preferred Stock purchasable upon exercise
of the IMS HEALTH Rights will not be redeemable. Each share of IMS HEALTH
Participating Preferred Stock will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend declared per share
of IMS HEALTH Common Stock. In the event of liquidation, dissolution or winding
up of IMS HEALTH, the holders of the IMS HEALTH Participating Preferred Stock
will be entitled to a minimum preferential liquidation payment of $100 per share
(plus any accrued but unpaid dividends) and will be entitled to an aggregate
payment of 1,000 times the payment made per share of IMS HEALTH Common Stock.
Each share of IMS HEALTH Participating Preferred Stock will have 1,000 votes,
voting together with the IMS HEALTH Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of IMS HEALTH Common
Stock are converted or exchanged, each share of IMS HEALTH Participating
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of IMS HEALTH Common Stock. These rights will be protected by customary
antidilution provisions.
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Because of the nature of the IMS HEALTH Participating Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of IMS HEALTH Participating Preferred Stock purchasable upon
exercise of each IMS HEALTH Right should approximate the value of one share of
IMS HEALTH Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of an IMS HEALTH Right, other than IMS
HEALTH Rights beneficially owned by the Acquiring Person (which will thereupon
become void), will thereafter have the right to receive upon exercise of an IMS
HEALTH Right and payment of the IMS HEALTH Purchase Price, that number of shares
of IMS HEALTH Common Stock having a market value of two times the IMS HEALTH
Purchase Price.
In the event that, after a person or group has become an Acquiring Person,
IMS HEALTH is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of an IMS HEALTH Right (other than
IMS HEALTH Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive, upon the exercise
thereof, that number of shares of common stock of the person with whom IMS
HEALTH has engaged in the foregoing transaction (or its parent), which number of
shares at the time of such transaction will have a market value of two times the
IMS HEALTH Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of IMS HEALTH Common Stock or the occurrence of an event described in the
prior paragraph, the IMS HEALTH Board of Directors will be able to exchange the
IMS HEALTH Rights (other than IMS HEALTH Rights owned by such person or group
which will have become void), in whole or in part, at an exchange ratio of one
share of IMS HEALTH Common Stock, or a fractional share of IMS HEALTH
Participating Preferred Stock of equivalent value (or of a share of a class or
series of IMS HEALTH's preferred stock having similar rights, preferences and
privileges), per IMS HEALTH Right (subject to adjustment).
With certain exceptions, no adjustment in the IMS HEALTH Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1% in
such IMS HEALTH Purchase Price. No fractional shares of IMS HEALTH Participating
Preferred Stock will be issued (other than fractions which are integral
multiples of one one-thousandth of a share of IMS HEALTH Participating Preferred
Stock, which may, at the election of IMS HEALTH, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the IMS HEALTH Participating Preferred Stock on the last trading
period to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the IMS
HEALTH Board of Directors will be able to redeem the IMS HEALTH Rights in whole,
but not in part, at a price of $.01 per IMS HEALTH Right (hereinafter referred
to in this description of IMS HEALTH Rights as the "IMS HEALTH Redemption
Price"). It is expected that the redemption of the IMS HEALTH Rights may be made
effective at such time, on such basis and with such conditions as the IMS HEALTH
Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the IMS HEALTH Rights, the right to exercise the IMS HEALTH Rights
will terminate and the only right of the holders of IMS HEALTH Rights will be to
receive the IMS HEALTH Redemption Price.
For so long as the IMS HEALTH Rights are then redeemable, IMS HEALTH may,
except with respect to the IMS HEALTH Redemption Price, amend the IMS HEALTH
Rights in any manner. After the IMS HEALTH Rights are no longer redeemable, IMS
HEALTH may, except with respect to the IMS HEALTH Redemption Price, amend the
IMS HEALTH Rights in any manner that does not adversely affect the interests of
holders of the IMS HEALTH Rights.
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Until an IMS HEALTH Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of IMS HEALTH, including, without limitation,
the right to vote or to receive dividends.
A copy of the IMS HEALTH Rights Agreement will be filed as an exhibit to the
Registration Statement on Form 10 of IMS HEALTH in connection with the
registration of the IMS HEALTH Common Stock under the Exchange Act. A copy of
the IMS HEALTH Rights Agreement is available free of charge from IMS HEALTH. The
summary description of the IMS HEALTH Rights set forth above does not purport to
be complete and is qualified in its entirety by reference to the IMS HEALTH
Rights Agreement, as the same may be amended from time to time.
CERTAIN EFFECTS OF THE IMS HEALTH RIGHTS AGREEMENT
The IMS HEALTH Rights Agreement will be designed to protect stockholders of
IMS HEALTH in the event of unsolicited offers to acquire IMS HEALTH and other
coercive takeover tactics which, in the opinion of the IMS HEALTH Board of
Directors, could impair its ability to represent stockholder interests. The
provisions of the IMS HEALTH Rights Agreement may render an unsolicited takeover
of IMS HEALTH more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer IMS HEALTH's stockholders the
opportunity to sell their stock at a price above the prevailing market rate and
may be favored by a majority of the stockholders of IMS HEALTH.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of IMS HEALTH authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
IMS HEALTH of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the DGCL apply to IMS HEALTH since it is a
Delaware corporation. Pursuant to Section 203, with certain exceptions, a
Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless (a) the transaction that results
in the person becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the stockholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans or
(c) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
stockholders. Under Section 203, an "interested stockholder" is defined as any
person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation or (b) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding shares, but such stockholder action does not become effective for 12
months following its adoption and would not apply to persons who were already
interested stockholders at the time of the amendment. The IMS HEALTH Charter
does not exclude IMS HEALTH from the restrictions imposed under Section 203.
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Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring IMS HEALTH to
negotiate in advance with IMS HEALTH's Board of Directors, because the
stockholder approval requirement would be avoided if the IMS HEALTH Board of
Directors approves either the business combination or the transaction which
results in the stockholder becoming an interested stockholder. Such provisions
also may have the effect of preventing changes in the IMS HEALTH Board of
Directors. It is further possible that such provisions could make it more
difficult to accomplish transactions which stockholders may otherwise deem to be
in their best interests.
PROVISIONS OF IMS HEALTH CHARTER AND IMS HEALTH
BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the IMS HEALTH Charter and the IMS HEALTH By-Laws may
delay or make more difficult unsolicited acquisitions or changes of control of
IMS HEALTH. It is believed that such provisions will enable IMS HEALTH to
develop its business in a manner that will foster its long-term growth without
disruption caused by the threat of a takeover not deemed by the IMS HEALTH Board
of Directors to be in the best interests of IMS HEALTH and its stockholders.
Such provisions could have the effect of discouraging third parties from making
proposals involving an unsolicited acquisition or change of control of IMS
HEALTH, although such proposals, if made, might be considered desirable by a
majority of IMS HEALTH's stockholders. Such provisions may also have the effect
of making it more difficult for third parties to cause the replacement of the
current IMS HEALTH Board of Directors. These provisions include (i) the
availability of capital stock for issuance from time to time at the discretion
of the IMS HEALTH Board of Directors (see "--Authorized but Unissued Capital
Stock"), (ii) prohibitions against stockholders calling a special meeting of
stockholders or acting by written consent in lieu of a meeting, (iii)
requirements for advance notice for raising business or making nominations at
stockholders' meetings, (iv) the ability of the IMS HEALTH Board of Directors to
increase the size of the board and to appoint directors to newly created
directorships, (v) a classified board of directors and (vi) higher than majority
requirements to make certain amendments to the IMS HEALTH By-Laws and IMS HEALTH
Charter.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The IMS HEALTH
Charter and the IMS HEALTH By-Laws provide that stockholder action can be taken
only at an annual or special meeting and cannot be taken by written consent in
lieu of a meeting. The IMS HEALTH Charter and the IMS HEALTH By-Laws also
provide that special meetings of the stockholders can be called only by the
Chief Executive Officer of IMS HEALTH or by a vote of the majority of the IMS
HEALTH Board of Directors. Furthermore, the IMS HEALTH By-Laws provide that only
such business as is specified in the notice of any such special meeting of
stockholders may come before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS. The
IMS HEALTH By-Laws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an annual
or special meeting at which directors are to be elected. Only such business may
be conducted at an annual meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Chairman of the IMS HEALTH Board of
Directors, or by a stockholder of IMS HEALTH who is entitled to vote at the
meeting who has given to the Secretary of IMS HEALTH timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the IMS HEALTH Board of Directors, or who are nominated by a
stockholder who has given timely written notice, in proper form, to the
Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of IMS HEALTH.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the
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Secretary of IMS HEALTH at the principal executive offices of IMS HEALTH not
less than 70 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 20 days, or delayed by more
than 70 days, from such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the seventieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the IMS HEALTH Board of Directors may be made at such a special meeting of
stockholders if the stockholder's notice shall be delivered to the Secretary of
IMS HEALTH at the principal executive offices of IMS HEALTH not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of the seventieth day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the IMS HEALTH Board
of Directors to be elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of IMS HEALTH held by,
the stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of IMS HEALTH 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; a description of all arrangements or
understandings between the stockholder 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 by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each nominee been nominated, or intended to be nominated, by the IMS HEALTH
Board of Directors; and the consent of each nominee to serve as a director if so
elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES; REMOVAL. The IMS HEALTH Charter
and the IMS HEALTH By-Laws provide that newly created directorships resulting
from an increase in the authorized number of directors (or any vacancy) may be
filled only by a vote of a majority of directors then in office. Accordingly,
the IMS HEALTH Board of Directors may be able to prevent any stockholder from
obtaining majority representation on the IMS HEALTH Board of Directors by
increasing the size of the board and filling the newly created directorships
with its own nominees. If any applicable provision of the DGCL expressly confers
power on stockholders to fill such a directorship at a special meeting of
stockholders, such a directorship may be filled at such meeting only by the
affirmative vote of at least 80% in voting power of all shares of IMS HEALTH
entitled to vote generally in the election of directors, voting as a single
class. Directors may be removed only for cause, and only by the affirmative vote
of at least 80% in voting power of all shares of IMS HEALTH entitled to vote
generally in the election of directors, voting as a single class.
CLASSIFIED BOARD OF DIRECTORS. The IMS HEALTH Charter provides for the IMS
HEALTH Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, approximately one third of the IMS
HEALTH Board of Directors will be elected each year. See "IMS HEALTH Management
and Executive Compensation--IMS HEALTH Board of Directors" in Annex IV hereto.
IMS HEALTH believes that a classified board will help to assure the
continuity and stability of the IMS HEALTH Board of Directors, and its business
strategies and policies as determined by its Board of Directors, because a
majority of the directors at any given time will have prior experiences as
directors of IMS HEALTH. This provision should also help to ensure that IMS
HEALTH's Board of Directors, if confronted with an unsolicited proposal from a
third party that has acquired a block of IMS HEALTH's
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voting stock, will have sufficient time to review the proposal and appropriate
alternatives and to seek the best available result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of IMS HEALTH's Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of IMS HEALTH and could thus increase the
likelihood that incumbent directors will retain their positions.
AMENDMENTS TO THE IMS HEALTH BY-LAWS. The IMS HEALTH By-Laws provide that
the affirmative vote of the holders of at least 80% in voting power of all the
shares of IMS HEALTH entitled to vote generally in the election of directors,
voting together as a single class, shall be required in order for the
stockholders to alter, amend or repeal any provision of the IMS HEALTH By-Laws
which is to the same effect as provisions contained in the IMS HEALTH Charter
relating to (i) the amendment of the IMS HEALTH By-Laws, (ii) the classified
board of directors and the filling of director vacancies and (iii) calling and
taking actions at meetings of stockholders and prohibiting stockholders from
taking action by written consent. The IMS HEALTH Charter also provides that the
IMS HEALTH Board of Directors shall be authorized to make, amend, alter, change,
add to or repeal the IMS HEALTH By-Laws.
AMENDMENTS TO THE IMS HEALTH CHARTER. The IMS HEALTH Charter requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of IMS HEALTH entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
IMS HEALTH Charter relating to (i) the amendment of the IMS HEALTH Charter
and/or the IMS HEALTH By-Laws, (ii) the classified board of directors and the
filling of director vacancies and (iii) calling and taking actions at meetings
of stockholders and prohibiting stockholders from taking action by written
consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The IMS HEALTH Charter provides that IMS HEALTH shall indemnify directors
and officers to the fullest extent permitted by the laws of the State of
Delaware. The IMS HEALTH Charter also provides that a director of IMS HEALTH
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the DGCL as the same
exists or may hereafter be amended.
The indemnification rights conferred by the IMS HEALTH Charter are not
exclusive of any other right to which a person seeking indemnification may
otherwise be entitled. IMS HEALTH will also provide liability insurance for the
directors and officers for certain losses arising from claims or charges made
against them, while acting in their capacities as directors or officers.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York will be the transfer agent and
registrant for the IMS HEALTH Common Stock.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF WALSH COMMON STOCK
If a condition to the Merger that any shares of IMS HEALTH Common Stock or
Cognizant Common Stock, as the case may be, issuable in the Merger be approved
for listing on the NYSE on or prior to the Effective Time of the Merger, subject
to official notice of issuance. If the Merger is consummated, Walsh Common Stock
will cease to be listed on the Nasdaq.
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CERTAIN MATTERS RELATING TO COGNIZANT
COGNIZANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See "IMS HEALTH (Accounting Successor to Cognizant) Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Annex IV
attached hereto for Cognizant management's discussion and analysis of financial
condition and results of operations.
COGNIZANT BUSINESS
The business of Cognizant is described under "Information Statement
Summary--Businesses of Cognizant, IMS HEALTH and Nielsen Media Research," "IMS
HEALTH Business" and "Nielsen Media Research Business" in Annex IV attached
hereto.
COGNIZANT MANAGEMENT AND EXECUTIVE COMPENSATION
Cognizant management and executive compensation information is included
under "Cognizant/IMS HEALTH Management and Executive Compensation" in Annex IV
attached hereto.
COGNIZANT SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of Cognizant Common Stock by certain
beneficial owners and management is set forth under "Cognizant/IMS HEALTH
Security Ownership by Certain Beneficial Owners and Management" in Annex IV
attached hereto.
COGNIZANT FINANCIAL STATEMENTS
See the Index to Financial Statements in Annex IV attached hereto.
CERTAIN MATTERS RELATING TO WALSH
WALSH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Since its inception in 1988, Walsh has been built principally through the
acquisition of companies providing technology and data services to the
pharmaceutical industry. Until April 16, 1996 Walsh operated in two business
segments: (i) the Walsh Business, which includes sales force management and
integrated sales and marketing information services, associated medical
professional databases and other services related to those databases such as
direct mail marketing and consulting and (ii) the Source Business, which
includes a range of products and services primarily marketed under the name
"Source," that utilize proprietary databases of prescriptions dispensed by
retail outlets in the United States.
The Walsh Board decided that the businesses needed separate management
focus, as two independent companies. Accordingly, prior to Walsh's public stock
offering in April 1996, all the issued and outstanding capital stock of Source
was spun off to Walsh's stockholders (the "Source Spin-Off"). The results of the
Source Business are presented as discontinued operations in the Walsh
Consolidated Financial Statements.
Walsh's future results will be dependent in part upon management's ability
to take advantage of the operating leverage in the Walsh Business by increasing
revenues from both existing and new services.
The following discussion should be read in conjunction with the financial
information of Walsh included elsewhere herein. See "Selected Historical
Financial Data" and Walsh Consolidated Financial Statements.
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue for the nine months ended March 31, 1998 was $45.6 million, an
increase of 22% over the corresponding period of fiscal 1997 excluding the
impact of currency, which comes primarily from the increase in Walsh's
technology products (Premiere-SM-, Precise-SM- and Pharbase-SM-) with
significant growth in
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both the Pacific and European markets. Growth in the Pacific markets comprises a
mixture of organic growth and direct mail growth as a result of the acquisition
of Pharmaceutical Marketing Solutions Pty Ltd ("PMS"), a privately held
Australian company.
Production costs for the nine months ended March 31, 1998 were $17.5 million
(38.2% of revenues), versus $15.0 million (37.8% of revenues) for the comparable
period of fiscal 1997. The increase in production costs reflects the continuing
investment in technical staff for the roll-out and support for Premiere-SM- and
increased lower margin direct mail revenues resulting from the acquisition of
PMS. The increase as a percentage of revenue reflects the sale of some low
margin third party software plus increased lower margin direct mail revenues as
a result of acquiring PMS.
Selling, general and administrative expenses were $19.2 million in the nine
months ended March 31, 1998 (42.0% of revenues), versus $18.1 million (45.4% of
revenues) for the first nine months of 1997. This reflects Walsh's continued
investment in sales resources and client service personnel to meet the growing
demand for Premiere-SM-. The reduction in selling, general and administrative
expenses as a percentage of revenue reflects Walsh's operating leverage.
Research and development costs for the nine months ended March 31, 1998 were
$2.8 million, the same level as the comparable nine months of fiscal 1997.
Research and development costs are primarily incurred in Belgian Francs and,
excluding currency movements, were 13% higher than the previous nine months. In
the earlier part of the year some research staff were reassigned to work on
support for the delivered product.
An in-process research and development write-off totalling $2.0 million has
arisen in the nine month period ended March 31, 1998 as a result of the
acquisition of PMS. The $2.0 million is the value attributable to acquired
technology products which are to be integrated within Walsh's own salesforce
management information system, Premiere-SM-.
Net interest income for the nine months to March 31, 1998 is $0.2 million,
versus $0.4 million in the nine months to March 31, 1997. The decrease in
interest income is due to the initial payment out of Walsh funds of the purchase
consideration of PMS in fiscal 1998 prior to putting in place debt financing.
Other income of $0.4 million for the nine months ended March 31, 1998
reflects a gain on the repayment of a loan of Australian dollars 4.5 million in
January 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, Walsh's cash and cash equivalents totalled $10.6 million,
an increase of $4.8 million from the $5.8 million balance at June 30, 1997.
Walsh generated $2.6 million of cash from operating activities in the nine
months ended March 31, 1998 due to improved profitability and working capital
management.
In January 1998, to take advantage of the Australian dollar exchange rates,
Walsh repaid debt and liquidated its professionally managed portfolio of
marketable securities.
Walsh believes that the anticipated cash flow from operations and existing
cash balances will satisfy Walsh's projected working capital and capital
expenditure requirements through at least the end of fiscal 1999.
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YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Walsh derives its revenues primarily from technology services, including
Precise-SM- and Premiere-SM-, along with other sales force management products,
and from data services, principally Pharbase-SM-. Technology services and data
services accounted for approximately 76% of Walsh's revenues in fiscal 1997. To
a lesser extent, revenues are also generated by marketing support services,
including direct mail marketing, market research and other data services. Walsh
sells its Precise-SM- and Premiere-SM- services under multi-year contracts,
generally with an initial term of two or three years and subject to automatic
renewal annually thereafter unless terminated. Precise-SM- revenues are
recognized proportionately over the life of the contract with the exception of
certain set-up and training charges, which are recognized on delivery. Revenues
from Premiere-SM- are recognized in the same manner. Over 95% of Precise-SM-
contracts are renewed annually. Walsh has also achieved a high degree of repeat
business with respect to other products and services that are not provided under
multi-year agreements. Because Walsh has a short lead time between contract
signing and commencing service delivery, it does not have material backlog.
Revenues increased to $54.1 million for fiscal 1997, compared to $47.3
million for fiscal 1996, an increase of 18% excluding adverse currency movements
in the year. The growth in revenues primarily reflected a growing demand for
Premiere-SM- with 22% growth in Premiere-SM- and Precise-SM- revenues (27%
excluding currency). Pharbase-SM- revenues showed strong growth of 14% for the
year. The revenue increases were spread across substantially all geographic
markets, most notably the U.S., U.K. and Spain.
Revenues increased to $47.3 million for fiscal 1996, compared to $40.3
million for fiscal 1995, representing an increase of 17%. The increase in
revenues for fiscal 1996 primarily reflected an 18% increase in Precise-SM-
revenues and start-up Premiere-SM- revenues.
Walsh's production costs include internal computer costs, the cost of data
collection, the amortization of capitalized software development costs and costs
attributable to personnel involved in both database maintenance and the
processing and delivery of Walsh's services. Walsh expenses, as incurred, the
costs associated with the creation, development and maintenance of its
databases. As a consequence, Walsh's balance sheets do not reflect a value
assigned to such databases. Certain elements of production costs for technology
services and database services, such as data collection costs and amortization
of capitalized software development costs are fixed costs that do not increase
as a result of adding new clients. Most of the remaining production costs, such
as personnel and internal computer costs, generally have increased at a lower
rate than revenues. These costs are variable in nature, but do not increase
directly in proportion to the number of new clients or end-users. Such costs
increase from time to time as new hardware or staff are required to support a
larger client base.
As a result of this operating leverage, production costs have consistently
declined as a percentage of revenues for the periods presented. The decline also
reflects, to a lesser degree, that revenues from direct mail services decreased
as a percentage of total revenues over the periods presented. Production costs
for direct mail marketing services are significantly higher as a percentage of
associated revenues than production costs for other Walsh services, reflecting
their relatively higher labor costs.
Production costs were $20.0 million (37% of revenues) for fiscal 1997,
compared to $18.4 million (39% of revenues) for fiscal 1996. The increase in
costs was due to the increased revenue; the decrease as a percentage of revenues
demonstrate the Company's operating leverage and the increased percentage of
high margin technology product sales.
Production costs were $18.4 million (39% of revenues) for fiscal 1996,
compared to $17.7 million (44% of revenues) for fiscal 1995. The increase in
dollar amount for fiscal 1996 was due to increased revenues. Production costs
have declined as a percentage of revenues reflecting the Company's operating
leverage.
Selling, general and administrative expenses increased to $24.4 million (45%
of revenues) for fiscal 1997 from $21.3 million (45% of revenues) in fiscal
1996. This increase of $3.1 million reflects the
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continued investment in senior sales and client service personnel made to meet
the growing demand for Premiere-SM-.
Selling, general and administrative expenses increased to $21.3 million (45%
of revenues) for fiscal 1996 from $19.4 million (48% of revenues) for fiscal
1995. This increase of $1.9 million is primarily due to increased selling costs,
including expansion of its worldwide management and sales capacities at both the
corporate and local levels and costs incurred with the launch of Premiere-SM-.
Walsh has made significant investments in Premiere-SM- and actively invests
in expanding its databases and enhancing its technology and services. Walsh's
accounting policy is to expense as incurred costs associated with developing
Walsh's databases and computer technology for internal use. Expenditures to
develop software for resale to clients are capitalized pursuant to SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Walsh has capitalized no more than 22% of its total research and
development costs in any period. Capitalized costs are amortized (as part of
production costs) over the life of the software. See Note 1 to the Walsh
Consolidated Financial Statements included in this Proxy Statement/Prospectus.
Research and development costs were $3.7 million (7% of revenues) for fiscal
1997, compared to $3.5 million (7% of revenues) for fiscal 1996. This reflected
the on going commitment to product development.
Research and development costs were $3.5 million (7% of revenues) for fiscal
1996, compared to $4.0 million (10% of revenues) for fiscal 1995 due to the
reduction in consultants required for developing Premiere-SM-.
Interest expense in 1997 was $0.3 million, versus $2.0 million in 1996, due
to the repayment of $14.7 million subordinated debentures from the proceeds from
the initial public offering discussed below, during the fourth quarter of 1996.
In 1995, interest expense was $2.3 million. The decrease by $0.3 million to $2.0
million in 1996 was due to the reduction in the average remaining debt
outstanding.
Federal, foreign and state income taxes in the consolidated financial
statements have been computed for each country according to the fiscal and legal
structure under which the various entities operate. Although Walsh incurred
losses on a consolidated basis for the year ended June 30, 1995, income taxes
were paid by profitable foreign subsidiaries due to the inability to offset
profitable operations against loss making operations in the differing tax
jurisdictions.
Statutory income tax rates on such profitable foreign subsidiaries ranged in
fiscal years 1997, 1996 and 1995 from approximately 33% to approximately 41%.
Walsh's provision for taxes in fiscal years ended June 30, 1995, 1996 and 1997
represented primarily accruals for foreign taxes. Walsh's 1997 effective income
tax rate benefited from the reassessment of income tax reserves established in
prior periods. United States federal and state income taxes for fiscal years
ended June 30, 1995, 1996 and 1997 were not provided as a result of current year
operating losses. At June 30, 1997, Walsh had available foreign net operating
losses ("NOLs") of approximately $12.7 million and U.S. NOLs of approximately
$24.0 million, which may provide future tax benefits.
SFAS No. 109 "Accounting for Income Taxes" ("SFAS No. 109"), requires that a
valuation allowance be recorded against tax assets which are not likely to be
realized. Walsh's carryforwards expire at various future dates. Realization is
entirely dependent upon future earnings in specific tax jurisdictions. While the
need for this valuation allowance is subject to periodic review, if the
allowance is reduced the tax benefits of the carryforwards may be recorded in
future operations as a reduction of Walsh's income tax expense. Due to the
uncertainty of their ultimate realization based upon past performance and
expiration dates, as of June 30, 1995 Walsh had established a full valuation
allowance against these carryforward benefits. Pursuant to the requirements of
SFAS No. 109, in the year ended June 30, 1996 Walsh recognized a tax benefit for
the reversal of previously established valuation allowances principally related
to the transfer of shares of PMSI stock by Walsh to Source in the Source
Spin-Off and a reassessment of the carryforwards available in Spain and Italy.
In the year ended June 30, 1997, a full valuation allowance has been recorded
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against all deferred tax assets. See Note 12 of Notes to Consolidated Financial
Statements of Walsh included in this Proxy Statement/Prospectus.
Walsh received a ruling from the IRS that the Source Spin-Off of the Source
business qualified as a tax-free distribution pursuant to Section 355 of the
Code.
Walsh had income from continuing operations of $4.8 million for the year
ended June 30, 1997, compared with income from continuing operations of $2.1
million for the comparable period of fiscal 1996. The improvement in Walsh's
results reflects a $6.8 million (14%) increase in revenues and a smaller
increase in total operating costs and expenses ($4.9 million or 11%). Walsh's
income from continuing operations was $2.1 million for fiscal 1996, compared to
a net loss of $3.0 million for fiscal 1995. For fiscal 1996, revenues increased
by 17% while total operating costs and expenses increased by 5%.
The reported net income (loss) of foreign subsidiaries will be affected by
changes in the exchange rates of foreign currencies against the U.S. dollar.
Approximately 89% of Walsh's revenues for fiscal 1997 were generated outside the
United States in local currencies. Although most of Walsh's services are priced
in the local currency of the client's operations, the effects of foreign
currency fluctuations are mitigated by the fact that expenses of the local
operating company servicing its clients are generally incurred in the same
currency as the sales to such clients. The foreign currency risk applicable to
the operations of Walsh has not been hedged.
YEAR 2000
Premiere-SM- has been developed to ensure compliance for the year 2000.
Precise-SM- V3.7 is now completely year 2000 compliant.
The internal systems within Walsh's local operations are being reviewed for
the impact of the year 2000. No significant impact on the Company's results of
operations, financial condition or liquidity, is expected.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued "Reporting Comprehensive Income", which is
effective for financial statements issued for fiscal years commencing on or
after December 15, 1997. Comprehensive income represents the change in net
assets of a company as a result of non-owner transactions. Walsh is currently
evaluating the new standard and does not believe that it will have a significant
impact.
In October 1997 the AICPA issued Statement of Position 97-2, "Software
Revenue Recognition," which is effective for transactions entered into by Walsh
commencing July 1, 1998. Walsh is currently evaluating the new standard and does
not believe that it will have a significant impact on Walsh's current revenue
recognition policy.
WALSH BUSINESS
Walsh develops, markets, provides and supports comprehensive sales and
marketing information systems for pharmaceutical companies to assist them in
more efficient management of their sales organizations. Walsh is a market leader
in providing ETMS and SMIS to the pharmaceutical industry worldwide. Walsh also
provides data services and marketing support services based on proprietary
databases of medical professionals and others who influence prescribing
decisions.
SERVICES
Walsh provides three types of services that it has designed to work either
independently or together to provide a comprehensive sales and marketing
information solution:
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- Technology Services, consisting of Premiere-SM-, Walsh's SMIS which was
launched in fiscal 1996 and Precise-SM-, Walsh's established advanced
ETMS;
- Data Services, consisting of the Pharbase-SM- customer database service;
and
- Marketing Support Services, consisting of Pharbase-SM--driven selective
direct marketing services which support the sales organization, research
and consulting services.
TECHNOLOGY SERVICES
Premiere-SM-, Walsh's SMIS introduced in fiscal 1996, is a Windows-based
system designed to support both the client's sales and marketing teams and all
other employees within the client company who interact with customers, including
general management, medical, clinical research and planning personnel.
Premiere-SM- is a true Windows-based application, rather than an upgrade of
a DOS-based system with a Windows user interface. As a result, Premiere-SM- does
not have the file size and networking limitations imposed by a DOS-based system.
Additionally, it allows multi-tasking by end-users through an icon-driven
graphical user interface. Premiere-SM- is based on a proprietary, highly
sophisticated and flexible data model which both reflects the current healthcare
environment and, importantly, also permits any changes or unforeseen
requirements to be incorporated quickly. It is due to this extensive data model
that the Premiere-SM- relational database can integrate data from many different
sources--clients' own data, third-party data or Walsh's own data. In addition,
its relational links ensure that each user has fast access to the information
which is relevant to them, without having to go through large quantities of
data. Like Precise-SM-, Premiere-SM- is designed to handle data over a wide area
network ("WAN"). Multiple file servers can operate on a local area network
("LAN"), giving Premiere-SM- the capability of supporting the largest of
pharmaceutical sales forces. Premiere-SM- supports both Oracle and SQL server
database engines under Windows NT at the server end, and Oracle and SQL Anywhere
database engines under Windows 3.11 and Windows '95 at the remote end.
Premiere-SM- is an open system and, due to the fact that it is Open Data
Base Connectivity ("ODBC") compliant, Premiere-SM- can be developed to support
other ODBC compliant database engines as the need arises. This allows any client
selecting Premiere-SM- to standardize database software enterprise-wide, if
required.
As of June 30, 1997, Walsh and its licensee had implemented Premiere-SM- for
more than 50 sales forces.
Precise-SM- is an advanced DOS-based ETMS that can be run on virtually any
PC, enabling the Company to convert clients from other systems without the
requirement for a hardware upgrade. As of June 30, 1997, the Company and its
licensee had implemented Precise-SM- for more than 440 sales forces.
Premiere-SM- and Precise-SM- systems are customized for each client to meet
the needs of the various end-users within the client organization. Premiere-SM-
and Precise-SM-systems have been developed to help clients maintain their
competitive edge by making the initial application build, the implementation and
any post-installation changes quickly in response to evolving market conditions.
These changes are made, not by reprogramming which can be costly, but by
applying the unique, Walsh-developed suite of "Application Builders" which
enables the modified system to be operational more quickly than other systems
that rely on source code reprogramming. Sales representatives are provided with
a user-friendly, comprehensive system enabling them to:
- maintain sophisticated customer databases;
- plan sales calls;
- report sales calls on medical and other health professionals;
- analyze calling activity;
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- track sales and promotional activity;
- collate and report discretionary promotional expenditure;
- communicate and coordinate across sales forces and divisions within the
client organization; and
- manage promotional meetings, samples and inventories;
Field and head office managers are able to:
- monitor and direct the activities of sales representatives;
- analyze calling and promotional activities versus sales and marketing
strategy;
- compare the performance of sales representatives or sales forces;
- analyze effort versus results;
- set and monitor individual representative training and development plans;
and
- allocate resources;
Walsh currently maintains client sales and support teams and facilities
management centers for Premiere-SM- and Precise-SM- clients in 13 countries
through its local operating companies and one licensee. These operations are
responsible for the initial implementation and ongoing support of a Premiere-SM-
or Precise-SM- system. Because installations are conducted by these local
operating companies, each of which can customize a client's system using
proprietary Application Builders, Walsh can implement multi-national contracts
for Premiere-SM- or Precise-SM- in different countries concurrently.
Walsh's clients receive only fully executable applications. Walsh retains
the source codes for Premiere-SM- and Precise-SM- at its development center,
distributing only executable program code and Application Builders to the local
operating companies for use in the installation process. The process, which
usually takes between three and five months, typically involves:
- project management designed to ensure delivery of an application to
specification on time and on budget;
- design consultancy to assist the client in creating detailed
specifications for its system;
- system customization to the client's specific requirements;
- software loading and testing with Premiere-SM- or Precise-SM-;
- data loading with Pharbase-SM-, the client's own data and/or third-party
data;
- user documentation customized to match the client's functionality;
- LAN set-up, as appropriate; and
- end-user training on the Premiere-SM- or Precise-SM- system, as
appropriate.
All Premiere-SM- and Precise-SM- systems are available in the client's
language of choice. Walsh has delivered systems that operate in over 15
languages. Where appropriate to the market (e.g., Canada and Belgium) the system
is delivered in a dual or multi-language format.
Premiere-SM- and Precise-SM- are generally offered to clients as part of an
overall service package under initial two- or three-year contracts, which then
become "evergreen" (subject to automatic annual renewal unless terminated). All
contracts require Walsh to customize its Premiere-SM- or Precise-SM- technology
with Application Builders to deliver a client-specific version of the service,
with applications appropriate for sales representatives, field managers and head
office users. In most markets, the majority of Walsh's clients also contract for
comprehensive facilities management by the Walsh facilities management center,
including location and maintenance of the file server, telecommunications server
and lines, full data back-up and
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archiving procedures, user help line support, user problem reporting, change
management, hardware swap and other client support. Continuing support is
provided to each client by Walsh's local operating company in the country where
the client operates.
In South Africa, Walsh has licensed Precise-SM- technology to a third party
and receives royalties on the revenue.
In July 1997 Walsh acquired 100% of the stock of PMS, which gives Walsh the
additional technology services of EPIC and RXPLORE. EPIC is a salesforce
automation system based on Lotus Notes. It was developed by PMS to meet the
requirements of the many pharmaceutical companies in Australia which specify
Lotus Notes as a corporate standard. RXPLORE is a sophisticated analysis report
generator which is capable of operating as an integration product between a data
warehouse and any proprietary salesforce automation system. Both these products
are complementary to, and not in competition with, the other Walsh technology
services and will form part of the Premiere-SM- range of products.
DATA SERVICES
Pharbase-SM- provides demographic information and data on physicians in most
national markets and on their professional affiliations and other prescribing
influences. In some of these markets, the database also contains information on
other medical professionals, such as pharmacists and key administrators.
Pharbase-SM- is a leading source of pharmaceutical industry customer data, with
government and healthcare agencies in certain markets using Pharbase-SM--driven
mail programs to communicate with medical professionals for critical medical
information such as drug recalls, contra-indication notices, etc.
Pharbase-SM- is available in Europe, Canada, Australia and New Zealand and
is used by over 350 sales forces. It is delivered to clients embedded in
Premiere-SM-, Precise-SM-, or can be used in a third-party ETMS for integration
with a client's head office systems, or as part of a direct marketing campaign,
often in support of the sales force's activities. See "--Marketing Support
Services." Over 75% of Premiere-SM- and Precise-SM- clients also contract for
Pharbase-SM- to provide data for their Premiere-SM- and Precise-SM-
applications. Data services are generally provided under contracts with an
initial two- or three-year term that become "evergreen."
Pharbase-SM- is available on a country-by-country basis. Through
Pharbase-SM--Link, clients can also reach healthcare professionals throughout
the world from a single point of contact. Access to data on a global scale is
supported by a full range of direct marketing, list selection, mailing and
fulfillment services, including the creation of a responder database.
Each of Walsh's local operating companies has a database maintenance team
that is responsible for the maintenance of the comprehensive national
Pharbase-SM- databases, subsets of which are delivered to clients as part of the
Pharbase-SM- service. The primary sources of information for the maintenance of
the Pharbase-SM- databases are client pharmaceutical companies, questionnaires
to physicians and hospital administrators, mailing returns and publications.
Every client that contracts to use Pharbase-SM- within Premiere-SM-, Precise-SM-
or another ETMS agrees to notify the Company of any additions, deletions or
changes within its customer database (such as changes of location, affiliation
or medical specialty of medical professionals). By these means, Pharbase-SM-
data is kept up to date and in some countries is used as the government
reference.
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ALLIANCES
In addition to developing its own databases and system technology, Walsh
works closely with a number of organizations to provide its clients with the
most effective solution for their particular needs.
These organizations include:
- Microsoft Consulting Services, which works with Walsh as a development
partner for Premiere-SM-. Microsoft has been involved in the design,
specification and programming of the source code for Premiere-SM-. It also
advises on how Microsoft technologies and products could be developed for
use in the future.
- Oracle, with which Walsh entered into a strategic partnership in fiscal
year 1997 with Premiere-SM- as the focus of this global business alliance.
The partnership enables the Premiere-SM- system to run on Oracle's
database technology at both the server and field sales level. The two
organizations also work together to optimise the integration of Oracle's
latest On-Line Analytical Processing ("OLAP") technology into Premiere-SM-
enabling powerful analysis to be carried out quickly at every level of the
client's organization.
- Zuellig Pharma S.A. ("Zuellig"), which is the Pacific Rim's leading
pharmaceutical distribution and services company. Walsh and Zuellig have
established a joint venture, Walsh Asia-Pacific, to promote the Walsh
product range in the region, including Premiere-SM-.
MARKETING SUPPORT SERVICES
In certain of its markets, Walsh provides marketing support services using
the Pharbase-SM- databases. Marketing support services generally include direct
mail and market research services, and are contracted on a project-by-project
basis.
Walsh's direct mail services provide a cost-effective means for its clients
to reinforce the impact of personal sales calls by their representatives. Walsh
is able to enhance the effectiveness of a client's direct mail promotions by
using Data Selector programs to extract from Pharbase-SM- databases specific
information regarding the targeted mailing audience. In Belgium, Spain and
Australia, Walsh provides a selective mailing label supply service. In the
United Kingdom, the Netherlands, Germany and Canada, Walsh combines this service
with mailing facilities capable of processing the range and size of mailings
required by the pharmaceutical and healthcare industries to provide full-service
direct mail marketing.
Walsh's market research services include data analysis, interviews (in
person or by telephone) and postal surveys. These services, which are available
in Canada, Australia and New Zealand, support the primary Walsh services by
focusing on the effectiveness of the sales and marketing process and general
market forces. They include both syndicated and client-specific services.
SALES AND MARKETING
Walsh has organized its business in substantially all its current national
markets through local operating companies. Walsh believes that the local
expertise developed by these companies permits Walsh to develop integrated,
customized solutions specific to each national selling environment. Each local
operating company has a team of sales and client support staff responsible for
sales and support of Walsh's services in its market, providing services in local
languages, and take into account local market conditions.
Walsh's locally based sales executives are supported by a corporate sales
and marketing group responsible for initiating, coordinating and managing
multi-national sales opportunities and creating strategic relationships with
Walsh's multi-national clients. Increasingly, international pharmaceutical
companies are making decisions regarding sales and marketing information systems
centrally. Together with the local operating companies, the corporate sales and
marketing group has developed strategies specific to each client and potential
client in order to address more effectively all key influencers and decision-
100
<PAGE>
makers wherever they may be in the client's organisation. Walsh also presents a
consistent service and company image internationally to its clients and
potential clients through international marketing campaigns, industry
exhibitions, client meetings and regular user group forums.
COMPETITION
The market for sales and marketing information systems is highly
competitive. Many companies offer ETMS and other sales force automation
products, although few focus on the pharmaceutical industry. Walsh believes that
there are approximately 10 other companies that supply products automating
sales, marketing and customer service functions and specifically target the
pharmaceutical industry. Certain of these companies have a significantly greater
market share than Walsh in certain of the markets in which Premiere-SM- and
Precise-SM- are offered, including Dendrite International, Sales Technologies
and CorNET in the United States and Cegedim in France.
Sales and marketing information systems differ greatly in terms of
functionality, flexibility and the type of hardware platform supported. Walsh's
products and services compete with others principally on the basis of market and
data expertise, product functionality, flexibility and speed of customization,
name recognition, global coverage, service standards, breadth of customer base,
technical support and cost. Management believes Walsh's systems compete
favorably with respect to these factors. In particular, Walsh believes that its
development strategy, which permits system customization and modification
without changing the underlying source code, allows Walsh to deliver a fully
customized or updated system more rapidly and more cost effectively than
competing systems.
Some of Walsh's existing competitors, as well as a number of potential
market entrants, have larger technical staffs, larger marketing and sales
organizations and greater financial resources than Walsh. Walsh believes that
its unique Application Builder technology, which allows Premiere-SM- and
Precise-SM- to be customised and modified without re-programming the source
code, removes the need for large numbers of technical staff. Additionally, the
corporate parent of one of Walsh's competitors, Sales Technologies, controls
certain of the proprietary data collection systems that provide prescription
sales data in some countries (including the United States) to pharmaceutical
companies. It may be possible for Sales Technologies to gain a competitive
advantage in the pricing of its ETMS for customers who are interested in
purchasing the data collected by its corporate affiliate. However, Walsh
believes that its Preferred Technology Partnership with Source, which offers
similar prescription sales data, will enable Walsh to compete effectively.
Competition will increase in the future if new competitors enter the market
to supply sales management systems to the pharmaceutical industry and as
existing competitors expand and enhance their product lines. Walsh may encounter
additional competition in the future from firms offering outsourcing of
information technology services, from vendors of software products providing
specialized applications not offered by Walsh and from the development and/or
operation of in-house systems by pharmaceutical companies.
GOVERNMENT REGULATION
Walsh's pharmaceutical industry clients are subject to constraints put in
place by government payers in certain countries that restrict prescriber choices
among various drugs, and may also be subject to changes in the healthcare
delivery systems in Europe, the United States and other countries in which Walsh
operates. These factors may affect the sales and marketing budget of
pharmaceutical companies and, in turn, reduce the demand for Walsh's products
and services. There can be no assurance that Walsh will respond effectively to
all of these or other changes in the marketplace.
In addition to regulations affecting its pharmaceutical industry clients,
Walsh is directly subject to certain restrictions on the collection of data.
There have been legislative efforts in many markets to limit the dissemination
and sale of certain information about individuals who may be considered
patients. Walsh believes that its data collection and dissemination practices
comply with the requirements of applicable
101
<PAGE>
national data privacy legislation, as well as industry-promulgated and
nationally recognized codes of conduct. However, there can be no assurance that
future legislation or regulations will not directly or indirectly restrict the
collection or dissemination of information regarding physicians, the prescribing
history of physicians or other data currently collected or disseminated by
Walsh. Any such restrictions could have a material adverse effect on the
operations of Walsh.
EMPLOYEES
As of June 30, 1997, Walsh employed approximately 537 employees in 13
countries. Local operating companies in the United States, Australia, Belgium,
Canada, France, Germany, Italy, the Netherlands, Spain and the United Kingdom
employ at least 20 people dedicated to client sales and support, facilities
management and database maintenance. Walsh has completed an extensive personal
development program for its senior country management, as well as skills
training for its client sales, support and technical specialists at both a local
and regional level.
Walsh believes that relations with employees are good. There are no
collective bargaining agreements in place. In the Netherlands, France and
Germany, Walsh has Workers Councils, which is a legal requirement in those
countries.
PROPERTIES
Walsh's principal executive offices in the United States are located in
Newtown, Pennsylvania. Walsh owns office space consisting of 10,000 square feet
in the United Kingdom. Walsh leases 150,000 square feet of office and warehouse
space in various locations in the United States, Canada, Europe, Australia, New
Zealand and Singapore. Management believes that its current facilities, and
other space which is readily available, are adequate to meet its needs for the
foreseeable future.
Online, batch processing and file server operations, which are performed at
Walsh's database maintenance and facilities management centers, are backed up
each night in fireproof surroundings and stored off-site weekly. Copies of
Walsh's operating systems, key applications and critical client data are
maintained off-site. Walsh does not rely on unique hardware systems, and its
purchase and maintenance agreements with third parties provide for backup
support in the event of a computer failure. Each center has a documented
disaster recovery plan, which is subject to regular test.
All clients require that Walsh hold their confidential databases separate
from those of other clients. Facilities management centers are maintained as
secure areas.
LEGAL PROCEEDINGS
Walsh is not currently engaged in any legal proceedings that are expected,
individually or in the aggregate, to have a material adverse effect on the
business, results of operations, liquidity or financial condition of Walsh.
102
<PAGE>
WALSH SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
To Walsh's knowledge, the only persons or groups that may be deemed to own
beneficially 5% or more of Walsh Common Stock as of the Record Date are as
follows:
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED SHARES
- ---------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe V, L.P.................................................. 1,259,239(1) 11.86%
Welsh, Carson, Anderson & Stowe IV, L.P................................................. 964,505(1) 9.08
320 Park Avenue, Suite 2500
New York, New York 10022
The Kaufman Fund, Inc................................................................... 1,273,400 11.99
140 East 45th Street, 43rd Floor
New York, New York 10017
State of Wisconsin Investment Board..................................................... 650,000 6.12
P.O. Box 7842
Madison, Wisconsin 53707
</TABLE>
- ------------------------
1. Does not include an additional 320,403 shares of Walsh Common Stock owned by
other investment partnerships affiliated with Welsh, Carson, Anderson &
Stowe.
103
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding beneficial
ownership of Walsh Common Stock as of the Record Date by (i) each Walsh
director, (ii) each executive officer of Walsh named in Walsh's most recent
proxy statement and (iii) Walsh's directors and named executive officers as a
group. Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to the shares shown as being owned by
him.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME OWNED SHARES
- --------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Michael A. Hauck....................................................................... 94,386(1) *
Dennis M. J. Turner.................................................................... 371,540(2) 3.4%
Robert Mander.......................................................................... 234,078(3) 2.1
Martyn D. Williams..................................................................... 32,451(4) *
Leonard R. Benjamin.................................................................... 8,125(5) *
James W. Stevens....................................................................... 14,000(6) *
Harry C. Groome........................................................................ 9,000(6) *
Leonard M. Lodish...................................................................... 17,000(7) *
All executive officers and directors as a group (8 persons)............................ 780,580(8) 7.1
</TABLE>
- ------------------------
* Less than 1%
1. Includes options to purchase 73,000 shares granted pursuant to Walsh's
Restated Stock Option and Restricted Stock Plan (the "Stock Plan") that are
exercisable within 60 days of the date hereof.
2. Includes options to purchase 136,750 shares granted pursuant to the Stock
Plan that are exercisable within 60 days of the date hereof. Does not
include 6,883 shares owned by immediate family members of Mr. Turner as to
which Mr. Turner may be deemed to be the beneficial owner. His share total
includes 172,858 shares owned by a trust administered for the benefit of his
family. Mr. Turner disclaims beneficial ownership of all such shares except
to the extent of his pecuniary interest therein.
3. Includes (i) 146,622 shares held by Silicon Dream Inc., a company controlled
by Mr. Mander, (ii) 34,206 shares held by Reredos Corporation, as nominee
for the trustee of a trust for the benefit of Mr. Mander's children, and
(iii) options to purchase 53,250 shares granted pursuant to the Stock Plan
that are exercisable within 60 days of the date hereof.
4. Includes options to purchase 29,700 shares granted pursuant to the Stock
Plan that are exercisable within 60 days of the date hereof.
5. Includes options to purchase 7,925 shares granted pursuant to the Stock Plan
that are exercisable within 60 days of the date hereof.
6. Includes options to purchase 8,000 shares granted prusuant to the Stock Plan
that are exercisable within 60 days of the date hereof.
7. Includes options to purchase 13,000 shares granted pursuant to the Stock
Plan that are exercisable within 60 days of the date hereof.
8. Includes options to purchase 329,625 shares granted pursuant to the Stock
Plan that are exercisable within 60 days of the date hereof.
104
<PAGE>
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997 of Cognizant
Corporation attached hereto in Annex IV of this Proxy Statement/Prospectus, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets as of June 30, 1997 and 1996 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997 and the financial
statement schedule of Walsh International Inc. and its subsidiaries included in
this Proxy Statement/Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated balance sheets as of September 30, 1997 and 1996 and the
consolidated statements of operations, changes in stockholder's equity and cash
flows for each of the two years in the period ended September 30, 1997 of
Gartner Group and its subsidiaries included in this Proxy Statement/Prospectus
have been included herein in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statements of operations and cash flows for the year ended
September 30, 1995 of Gartner Group and its subsidiaries in this Proxy
Statement/Prospectus have been included herein on the report of Price Waterhouse
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Representatives of Coopers & Lybrand L.L.P., Walsh's independent
accountants, are expected to be present at the Special Meeting, will have the
opportunity to make a statement at the Special Meeting if they desire to do so
and are expected to be available to respond to appropriate questions.
LEGAL OPINIONS
The legality of the shares of Merger Stock to be issued to holders of Walsh
Common Stock pursuant to the Merger will be passed upon for Cognizant or IMS
HEALTH, as the case may be, by Simpson Thacher & Bartlett, New York, New York.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders of Walsh must be received no later than the close of
business on July 1, 1998 at Walsh's principal executive offices in order to be
included in Walsh's proxy statement for that meeting. Any such proposal must
comply with the rules and regulations of the Commission.
105
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements
Report of Independent Accountants.......................................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1997................................................. F-3
Consolidated Statements of Operations for the years ended June 30, 1995, 1996 and 1997................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended June 30, 1995, 1996 and
1997................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
Report of Independent Accountants on Financial Statement Schedule.......................................... F-23
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts for the years ended June 30, 1997, 1996 and 1995........ F-24
</TABLE>
All financial statement schedules not mentioned above are omitted for the reason
that they are not required or are not applicable, or the information is included
in the Consolidated Financial Statements or the Notes thereto.
<TABLE>
<S> <C>
Interim Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations for the Nine Months Ended March 31, 1998 and
1997............................................................................. F-26
Consolidated Balance Sheet as of March 31, 1998.................................... F-27
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1998 and
1997............................................................................. F-28
Notes to Consolidated Financial Statements......................................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Walsh International Inc.
We have audited the accompanying consolidated balance sheets of Walsh
International Inc. and Subsidiaries as of June 30, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Walsh
International Inc. and Subsidiaries as of June 30, 1996 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
August 20, 1997
F-2
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 8,629 $ 5,784
Marketable securities................................................................... 9,992 6,803
Accounts receivable, principally trade (less allowance for doubtful accounts of $336 and
$454, respectively)................................................................... 13,050 14,227
Prepaid expenses and other current assets............................................... 923 702
---------- ----------
Total current assets...................................................................... 32,594 27,516
Property and equipment, net............................................................... 4,663 4,169
Goodwill, net............................................................................. 3,551 3,439
Marketable securities..................................................................... -- 1,437
Other assets, net......................................................................... 3,209 3,727
---------- ----------
Total assets.............................................................................. $ 44,017 $ 40,288
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.................................................... $ 12 $ 17
Current portion of capital lease obligations............................................ 443 509
Accounts payable........................................................................ 7,808 6,896
Accrued liabilities..................................................................... 17,467 11,166
Unearned income......................................................................... 4,541 4,103
---------- ----------
Total current liabilities................................................................. 30,271 22,691
---------- ----------
Long-term debt............................................................................ 1,105 1,260
Capital lease obligations................................................................. 1,652 1,407
Other liabilities......................................................................... 6,295 5,145
Minority interest......................................................................... 148 128
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized and 10,484,835 and
10,533,960 shares issued, respectively................................................ 105 105
Paid-in capital......................................................................... 119,175 119,475
Accumulated deficit..................................................................... (114,948) (110,158)
Cumulative translation adjustment....................................................... 675 657
Unrealized (loss) gain on available for sale securities, net of tax..................... (4) 35
Treasury stock, at cost, 20,750 shares.................................................. (457) (457)
---------- ----------
Total stockholders' equity................................................................ 4,546 9,657
---------- ----------
Total liabilities and stockholders' equity................................................ $ 44,017 $ 40,288
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ------------
Revenue................................................................... $ 40,269 $ 47,262 $ 54,088
---------- ---------- ------------
Costs and expenses:
Production costs........................................................ 17,733 18,442 20,049
Selling, general and administrative expenses............................ 19,423 21,348 24,433
Research and development costs.......................................... 3,953 3,510 3,683
Amortization of intangible assets....................................... 112 130 144
---------- ---------- ------------
Total costs and expenses.................................................. 41,221 43,430 48,309
---------- ---------- ------------
Operating profit (loss)................................................... (952) 3,832 5,779
Interest income........................................................... 950 843 796
Interest expense.......................................................... (2,325) (2,045) (265)
Gain on sale of shares in PMSI............................................ 402 -- --
Equity income of PMSI..................................................... 1,180 -- --
Minority Interest......................................................... -- 113 20
---------- ---------- ------------
Income (loss) from continuing operations before income taxes.............. (745) 2,743 6,330
Income tax provision...................................................... (2,212) (658) (1,540)
---------- ---------- ------------
Income (loss) from continuing operations.................................. (2,957) 2,085 4,790
Discontinued operations:
Loss from discontinued operations, net.................................... (1,554) (1,755) --
---------- ---------- ------------
Net income (loss)......................................................... $ (4,511) $ 330 $ 4,790
---------- ---------- ------------
---------- ---------- ------------
Income (loss) per share from continuing operations........................ $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net.......................... (0.21) (0.21) --
---------- ---------- ------------
Net income (loss) per share............................................... $ (0.61) $ 0.04 $ 0.45
---------- ---------- ------------
---------- ---------- ------------
Shares used in computing income (loss) per share.......................... 7,346,274 8,197,796 10,657,920
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK CUMULATIVE NET UNREALIZED STOCK
-------------------------- PAID-IN ACCUMULATED TRANSLATION GAIN/(LOSS) -----------
SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT NET OF TAX SHARES
----------- ------------- --------- ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994......... 5,803 $ 58 $ 74,076 $ (110,755) $ 1,103 -- (20)
Net loss for 1995................ -- -- -- (4,511) -- -- --
Exercise of stock options........ 6 -- 29 -- -- -- --
Accretion of preferred stock..... -- -- (420) -- -- --
Cumulative translation
adjustment..................... -- -- -- -- (171) -- --
Unrealized gain of available for
sale securities, net of tax.... -- -- -- -- -- $ 2,107 --
----------- ----- --------- ------------ ------ ------ -----------
Balance June 30, 1995............ 5,809 58 73,685 (115,266) 932 2,107 (20)
Net income for 1996.............. -- -- -- 330 -- -- --
Initial public offering, net..... 3,187 32 33,329 -- -- -- --
Conversion of preferred stock.... 1,486 15 12,094 -- -- -- --
Cumulative translation
adjustment..................... -- -- -- -- (257) -- --
Net unrealized gain on available
for sale securities, net of
tax............................ -- -- -- -- -- 2,046 --
Purchase of treasury stock....... -- -- -- -- -- -- (1)
Spin-off of Source business...... -- -- -- (12) -- (4,157) --
Shares issued.................... 3 -- 67 -- -- -- --
----------- ----- --------- ------------ ------ ------ -----------
Balance June 30, 1996............ 10,485 105 119,175 (114,948) 675 (4) (21)
Exercise of stock options........ 49 -- 300 -- -- -- --
Net income for 1997.............. -- -- -- 4,790 -- -- --
Cumulative translation
adjustment..................... -- -- -- -- (18) -- --
Net unrealized gain on available
for sale securities, net of
tax............................ -- -- -- -- -- 39 --
----------- ----- --------- ------------ ------ ------ -----------
Balance June 30, 1997............ 10,534 $ 105 $ 119,475 $ (110,158) $ 657 $ 35 (21)
----------- ----- --------- ------------ ------ ------ -----------
----------- ----- --------- ------------ ------ ------ -----------
<CAPTION>
AMOUNT
-----------
<S> <C>
Balance at June 30, 1994......... $ (360)
Net loss for 1995................ --
Exercise of stock options........ --
Accretion of preferred stock.....
Cumulative translation
adjustment..................... --
Unrealized gain of available for
sale securities, net of tax.... --
-----------
Balance June 30, 1995............ (360)
Net income for 1996.............. --
Initial public offering, net..... --
Conversion of preferred stock.... --
Cumulative translation
adjustment..................... --
Net unrealized gain on available
for sale securities, net of
tax............................ --
Purchase of treasury stock....... (97)
Spin-off of Source business...... --
Shares issued.................... --
-----------
Balance June 30, 1996............ (457)
Exercise of stock options........ --
Net income for 1997.............. --
Cumulative translation
adjustment..................... --
Net unrealized gain on available
for sale securities, net of
tax............................ --
-----------
Balance June 30, 1997............ $ (457)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- ---------- ---------
Cash flows from operating activities:
Net income (loss).............................................................. $ (4,511) $ 330 $ 4,790
Loss from discontinued operations.............................................. 1,554 1,755 --
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 1,485 1,241 1,688
Gain on sale of shares in PMSI................................................. (402) -- --
Equity income of PMSI.......................................................... (1,180) -- --
Deferred taxes................................................................. (286) (2,739) 371
Minority interest.............................................................. -- (113) (20)
Gain on sale of marketable securities.......................................... -- -- (162)
Change in assets and liabilities:
(Increase) decrease in accounts receivable..................................... 2,922 500 (471)
(Increase) decrease in prepaid expenses and other current assets............... 228 (588) (87)
(Decrease) increase in accounts payable and accrued liabilities................ 8,628 1,153 (6,818)
(Decrease) increase in unearned income......................................... 381 (2,459) (622)
Other.......................................................................... 25 753 (572)
--------- ---------- ---------
Net cash (used in) provided by operating activities............................ 8,844 (167) (1,903)
--------- ---------- ---------
Cash flows (used in) provided by investing activities:
Sales (purchases) of marketable securities..................................... -- (9,936) 1,953
Proceeds from sale of shares in PMSI........................................... 7,811 -- --
Capital expenditures........................................................... (697) (780) (826)
Capitalized software........................................................... (1,092) (896) (1,010)
--------- ---------- ---------
Net cash (used in) provided by investing activities............................ $ 6,022 $ (11,612) $ 117
--------- ---------- ---------
</TABLE>
(continued on next page)
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ---------
Cash provided by (used in) financing activities:
Collateral receipts........................................................... $ -- $ 1,088 $ --
Issuance of common stock...................................................... 28 34,519 300
Common stock issuance costs................................................... -- -- (1,174)
Treasury stock purchases...................................................... -- (97) --
Dividend to Source business................................................... -- (5,182) --
Repayments of long-term debt.................................................. (8) (15,737) --
Repayments of capital leases.................................................. (335) (358) (360)
Cash provided by minority interest.............................................. -- 261 111
---------- ---------- ---------
Net cash (used in) provided by financing activities............................. (315) 14,494 (1,123)
---------- ---------- ---------
Effect of exchange rate movements............................................. 278 (856) 64
---------- ---------- ---------
Effect of discontinued operations............................................. (11,600) (8,340) --
---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents............................ 3,229 (6,481) (2,845)
Cash and cash equivalents at beginning of year.................................. 11,881 15,110 8,629
---------- ---------- ---------
Cash and cash equivalents at end of year........................................ $ 15,110 $ 8,629 $ 5,784
---------- ---------- ---------
---------- ---------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................................... $ 2,213 $ 1,989 $ 201
---------- ---------- ---------
---------- ---------- ---------
Income taxes.................................................................. $ 3,339 $ 1,995 $ 964
---------- ---------- ---------
---------- ---------- ---------
Supplemental disclosures of non-cash investing and financing activities:
Capital lease obligations....................................................... $ 89 $ 444 $ 509
Spin-off of the Source Business:
PMSI shares..................................................................... $ 13,663
Unrealized gain on PMSI shares.................................................. $ (4,157)
Net liabilities of Source business.............................................. $ (4,124)
Preferred stock................................................................. $ (11,802)
Other corporate assets.......................................................... $ 1,250
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Walsh International Inc. ("Walsh" or the "Company") provides electronic
territory management systems and sales management information solutions, as well
as data services and associated support services, to the pharmaceutical and
healthcare industries. The Company's principal markets are located in Australia,
Austria, Belgium, Canada, France, Germany, Italy, the Netherlands, New Zealand,
Singapore, Spain, the United Kingdom and the United States.
INITIAL PUBLIC OFFERING
On April 16, 1996 the Company consummated an Initial Public Offering ("IPO"
or "Offering"). The Offering resulted in the issuance of approximately 3,187,000
shares of the Company's common stock and generated net proceeds of $33.3
million.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Walsh and all
of its majority-owned subsidiaries. The consolidated financial statements have
been restated for discontinued operations (see Note 2). The accompanying notes
present amounts related only to continuing operations. All inter-company
balances and transactions have been eliminated on consolidation. On February 21,
1996 the Company's Board of Directors approved a one-for-four reverse stock
split of the Company's Common and Series A Convertible Preferred Stock
("Preferred Stock"). All references in the accompanying consolidated financial
statements to the number of shares and per share amounts have been retroactively
adjusted to reflect the reverse stock split.
GOODWILL
Under the purchase method of accounting, the excess of the purchase price of
businesses acquired over the fair value of tangible and identifiable intangible
assets at the dates of acquisition has been assigned to goodwill. The net assets
and results of operations of the acquisitions have been included in the
consolidated financial statements of the Company from their respective dates of
purchase. The goodwill reflected in the Company's balance sheets principally
relates to the Company's direct mail marketing business and is amortized on a
straight-line basis over periods not exceeding 40 years.
The Company assesses the recoverability of its goodwill, on a subsidiary by
subsidiary basis, by determining whether amortization of goodwill can be
recovered through undiscounted projected net income, excluding goodwill
amortization, of the respective subsidiary. Impairment, if any, is measured
based on projected discounted net income, excluding goodwill amortization, using
a discount rate reflecting the Company's cost of funds.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. All maintenance and repairs are
expensed as incurred.
Depreciation and amortization are provided on the straight-line basis.
Furniture, office equipment and computer equipment are depreciated over five
years. Leasehold improvements are amortized over the estimated useful lives of
the assets or the lease terms (maximum of 10 years), whichever are shorter.
Buildings are being depreciated over 50 years.
F-8
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On disposal, costs and accumulated depreciation are removed from the balance
sheet and gains (losses) are recognized in the statement of operations.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain costs related to the development of new
software products or the enhancement of existing software products for sale or
license. These costs are capitalized from the point in time that technological
feasibility has been established, as evidenced by a working model or a detailed
working program design, to the point in time that the product is available for
general release to customers.
Capitalized software development costs are amortized on a product-by-product
basis over the ratio of current revenues to total anticipated revenues or on a
straight-line basis over the estimated economic lives of the products (no longer
than five years), using whichever method yields the greater amortization,
beginning with the release to the customer. Research and development costs
incurred prior to establishing technological feasibility and costs incurred
subsequent to general product release to customers are charged to expense as
incurred. The Company continually evaluates whether events or circumstances have
occurred that indicate that the remaining useful life of the capitalized
software development costs should be revised or that the remaining balance of
such assets may not be recoverable. As of June 30, 1997 management believes that
no revisions to the remaining useful life or write-down of capitalized
development costs are required.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position No
91-1, "Software Revenue Recognition." The Company recognizes revenue from the
usage of its electronic territory management systems ratably over the term of
the customer agreements. The contract bundles the fees for the use of the
software together with post contract support revenues of maintenance, support
and related data server/network management fees ("on-going fees"). As part of
providing these services, certain fees ("one-time fees") relating to project
scope and design, application building and testing, loading and installation of
user equipment and training are recognized as revenues when the service has been
completed and accepted by the customer. Other special projects are recognized as
revenue upon completion of the project.
Revenue from market research and direct mail marketing is recognized on
delivery of the product. Revenue from medical professional database services is
recognized ratably over the term of the contract.
Prebillings for products that have not been delivered or for services not
rendered are classified as unearned income until the earnings process is
complete.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash balances, marketable
securities and trade receivables. The Company invests its excess cash with major
banks and cash equivalent and marketable securities in a professionally managed
fund. The Company's customer base principally comprises companies within the
pharmaceutical industry. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations given the
generally strong credit ratings of the customers. The Company does not require
collateral from its customers.
F-9
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
The balance sheet and results of operations of the Company's foreign
subsidiaries that operate outside the United States are measured using local
currency as the functional currency.
Assets and liabilities have been translated into United States dollars at
the rates of exchange at the balance sheet date. Revenues and expenses are
translated into United States dollars at the average rate during the period.
Translation gains and losses arising from the use of differing exchange rates
from year to year are included in the cumulative translation adjustment on the
balance sheet.
Transaction gains and losses are recognized in the statement of operations
as incurred. For the years presented, these amounts were not material.
INCOME TAXES
Federal, foreign and state income taxes in the consolidated financial
statements have been computed on a stand-alone return basis according to the
fiscal and legal structure under which the various tax-paying entities operate.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and
financial reporting amounts at each year-end.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity dates of
three months or less from the date of acquisition by the Company to be cash
equivalents.
INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and re-evaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with any investments in equity securities. Securities
available for sale are carried at fair value, as determined by the quoted market
value at the balance sheet date, with the unrealized gains and losses, net of
tax, reported in a separate component of stockholders' equity. At June 30, 1997,
the Company had no investments that qualified as trading or held to maturity.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin, all stock options and warrants issued by
the Company at an exercise price below the public offering price during the
twelve-month period, prior to the offering, have been included in the
calculations as if they were outstanding for all periods presented prior to the
offering using the treasury stock method and the IPO price of $12.00. Common
equivalent shares from the Preferred Stock (using the if-converted method) have
been included for all periods in which the Preferred shares were outstanding.
F-10
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximates fair value due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its capital lease obligations approximates
fair value.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Generally, compensation expense would be recorded over the vesting period if the
current market price of the underlying stock exceeded the exercise price on the
date of grant. On July 1, 1996, the Company adopted the disclosure requirements
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation." Under SFAS No. 123, the Company must disclose
proforma net income and proforma earnings per share for employee stock option
grants and employee stock purchases made in 1995 and future years as if the fair
value based method defined in SFAS No 123 had been employed.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board recently adopted SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of." This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company adopted SFAS No
121 on July 1, 1996. The adoption of SFAS No 121 did not have a material impact
on the Company's consolidated results of operations.
2. DISCONTINUED OPERATIONS--SOURCE BUSINESS
In conjunction with the IPO, the Company spun off the Source Business to its
stockholders (the "Spin-Off") as of April 16, 1996. The Source Business provides
a range of data services for pharmaceutical companies primarily based on a
proprietary database of prescriptions dispensed in the United States. The
Spin-Off was accomplished by the distribution of all the issued and outstanding
capital stock of Source International Inc., a holding company formed for
purposes of the Spin-Off.
Pursuant to the amendments to the Preferred Stock, at the time of the
Spin-Off, one-half of the shares of the Company's Preferred Stock were exchanged
for shares of Preferred Stock of Source having substantially similar terms.
Based on the relative fair value of Walsh and Source, $11,802,000 of obligations
of the Preferred Stock were transferred to the newly issued Source Preferred
Stock. The Company also
F-11
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISCONTINUED OPERATIONS--SOURCE BUSINESS (CONTINUED)
contributed the Pharmaceutical Marketing Services Inc. ("PMSI") shares; certain
other corporate assets of the Company with a carrying value of $1,250,000; the
identifiable net liabilities of the Source business in the amount of $4,124,000
and $5,182,000 of cash to consummate the Spin-Off.
The remaining issued and outstanding Preferred Stock after the Spin-Off was
converted into 1,486,252 shares of Common Stock concurrently with the
consummation of the offering.
The results of operations of Source have been reclassified to identify them
as discontinued operations. The summarized data for Source, through the date of
the Spin-Off, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
RESULTS OF DISCONTINUED OPERATIONS: 1995 1996
- -------------------------------------------------------------------------------------------- --------- ---------
DOLLARS IN THOUSANDS
<S> <C> <C>
Revenues.................................................................................... $ 48,710 $ 40,181
Loss from operations:
Loss before taxes........................................................................... (2,653) (1,570)
Income tax provision........................................................................ -- --
--------- ---------
Loss from operations........................................................................ (2,653) (1,570)
--------- ---------
(Loss) gain on disposal of operations:
(Loss) gain on disposal..................................................................... 1,322 (185)
Income taxes on disposal.................................................................... (223) --
--------- ---------
(Loss) gain on disposal, net................................................................ 1,099 (185)
--------- ---------
Loss from discontinued operations, net...................................................... $ (1,554) $ (1,755)
--------- ---------
--------- ---------
</TABLE>
3. TRANSACTIONS WITH SOURCE
In connection with the Spin-off, Walsh and Source have entered into several
agreements:
PREFERRED TECHNOLOGY PARTNER AGREEMENT. Walsh and Source have created a
preferred technology partnership whereby the companies collaborate to build,
maintain and promote a seamless data interface between their respective
technologies to facilitate delivery by means of Premiere of prescription data at
the sales representative level. No compensation is payable under this agreement.
PHARBASE LICENSE. Walsh has granted to Source a non-exclusive license to
its Pharbase medical professional databases in certain European countries.
Source is allowed to use the Pharbase databases only for internal purposes and
in connection with the development, delivery and marketing of its prescriber-
linked prescription databases. The initial term of the license runs for ten
years and the license is renewable for two additional five-year terms. Source
has agreed to provide Walsh with all updating information which it receives with
regard to medical professionals, their specialties, affiliations and locations
generated as a result of the use of PHARBASE by Source. Source has agreed to pay
$1.00 per prescriber in the database universe in the first year of prescription
data collection in a particular market. In consideration of Source's obligation
to provide updating information to Walsh, such fee will be reduced to $0.75 in
the second year, $0.50 in the third year and $0.25 per prescriber thereafter. In
addition, Source has agreed to pay Walsh 75% of the list price of the PHARBASE
service for each Source client to which it delivers prescriber-level data and
which does not have a current PHARBASE license.
F-12
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH SOURCE (CONTINUED)
TRANSITIONAL SERVICES ARRANGEMENTS. All transitional service agreements
were completed during fiscal year 1997. The Chief Executive Officer of Source,
who serves as the Chairman of Walsh continues to be made available as a
consultant to Walsh.
4. INVESTMENTS
On January 25, 1996, the Company entered into a Joint Venture Agreement with
an affiliate of Zuellig Pharma S.A., pursuant to which the parties have
established a joint venture for the commercialization of the Company's PRECISE,
PREMIERE and PHARBASE services in 12 countries in Asia-Pacific. The joint
venture company has been formed in Singapore. Walsh owns 51% of the equity and
has operational control of the joint venture. As such, the Company has included
the results of operations of the joint venture in its consolidated statement of
operations since January 25, 1996.
5. MARKETABLE SECURITIES
Marketable securities consist of the following as of June 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED
COST OF EACH
NAME OF ISSUER AND TITLE OF EACH ISSUE ISSUE FAIR VALUE UNREALIZED GAINS
- --------------------------------------------------- ------------- --------------------- -----------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Corporate debt securities.......................... $ 4,985 $ 5,000 $ 15
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies......................................... 1,047 1,056 9
Debt securities issued by foreign governments...... 741 747 6
------ ------ ------
$ 6,773 $ 6,803 $ 30
------ ------ ------
------ ------ ------
NON-CURRENT ASSETS:
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies......................................... $ 348 $ 348 $ -
Debt securities issued by foreign governments...... 1,084 1,089 5
------ ------ ------
$ 1,432 $ 1,437 $ 5
------ ------ ------
------ ------ ------
Maturities:
Due after one year through five years.............. $ 805 $ 808 $ 3
Due after five years............................... 627 629 2
------ ------ ------
$ 1,432 $ 1,437 $ 5
------ ------ ------
------ ------ ------
</TABLE>
F-13
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. MARKETABLE SECURITIES (CONTINUED)
Marketable securities consist of the following as of June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED COST OF
NAME OF ISSUER AND TITLE OF EACH ISSUER EACH ISSUE FAIR VALUE UNREALIZED LOSSES
- ----------------------------------------------------------------- ----------------- ----------- ---------------------
<S> <C> <C> <C>
Corporate debt securities........................................ $ 6,608 $ 6,606 $ (2)
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies........................... 2,613 2,613 --
Debt securities issued by foreign governments.................... 775 773 (2)
--
------ -----------
$ 9,996 $ 9,992 $ (4)
--
--
------ -----------
------ -----------
Maturities:
Short-term investments........................................... $ 6,794 $ 6,790 $ (4)
Due after one year through five years............................ 2,260 2,260 --
Due after five years............................................. 942 942 --
--
------ -----------
$ 9,996 $ 9,992 $ (4)
--
--
------ -----------
------ -----------
</TABLE>
The fair value of the marketable securities has been reflected entirely
within current assets in the balance sheet at June 30, 1996 as it was the
Company's intention to utilize the marketable securities within the next
operating cycle.
During 1997 the following sales of securities took place (there were no
sales of securities in 1996)
(in thousands):
<TABLE>
<S> <C>
Net Proceeds of Sale............................................................... $ 43,612
Cost............................................................................... (43,450)
---------
Realized Gain...................................................................... $ 162
---------
---------
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Property including leasehold improvements..................................................... $ 2,702 $ 2,514
Furniture, computer & office equipment........................................................ 12,716 11,058
--------- ---------
15,418 13,572
Less accumulated depreciation and amortization................................................ (10,755) (9,403)
--------- ---------
$ 4,663 $ 4,169
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization charged to operations for the years ended June
30, 1995, 1996 and 1997 were $839,000, $1,106,000 and $1,297,000 respectively.
F-14
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER ASSETS
Other assets at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Capitalized software........................................................................... $ 2,035 $ 3,045
Deferred Taxes................................................................................. 250 0
Collateral and other deposits.................................................................. 924 924
--------- ---------
3,209 3,969
Less accumulated amortization.................................................................. -- (242)
--------- ---------
$ 3,209 $ 3,727
--------- ---------
--------- ---------
</TABLE>
The Company capitalized software development costs of $896,000 and
$1,010,000 for the years ended June 30, 1996 and 1997, respectively.
Amortization expense and adjustments to net realizable value charged to
production costs amounted to $520,000, $0 and $242,000 for the years ended June
30, 1995, 1996 and 1997, respectively.
8. LONG-TERM DEBT
Long-term debt at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Long-term debt (1)............................................................................. $ 1,117 $ 1,277
Less current portion........................................................................... (12) (17)
--------- ---------
$ 1,105 $ 1,260
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Long-term debt is principally comprised of the carrying value of a note
payable to PMSI to cover taxes payable by Walsh on gains on the sale of the
Source segment targeting business. This note which is due in fiscal year
2000, is non-interest bearing with a face value of $1.2 million.
Aggregate maturities of long-term debt at June 30, 1997 for the next five
fiscal years are as follows: 1998-$17,000; 1999-$14,000; 2000-$1,131,000; and
2002-$115,000.
9. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Employee compensation and benefits.......................................................... $ 4,374 4,101
Sales taxes................................................................................. 978 1,057
Other liabilities........................................................................... 12,115 6,008
--------- ---------
$ 17,467 $ 11,166
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EQUITY PLANS
A Stock Option and Restricted Stock Purchase Plan (the "Plan") has been
established by the Company for selected employees, officers and directors of the
Company or any of its subsidiaries. There are 1,500,000 shares of Common Stock
reserved for issuance under the Plan and a registration statement for such stock
was filed on August 22, 1996. At June 30, 1997 the Company had available 381,299
shares of Common Stock outstanding for issuance under the Plan.
Under the Plan, the exercise price for incentive options is at least 100% of
the fair market value on the date of the grant and options generally expire in
10 years. Vesting periods are determined by the Board of Directors and generally
provide for shares to vest ratably over 5 years.
During 1993, the Company established a Non-Employee Director's Stock Option
Plan (the "Director's Plan"). There are 120,000 shares reserved for issuance
under the Director's Plan. The options granted under the Director's Plan have a
vesting term of 3 years and expire after 10 years.
Information relating to the Company's Fixed Option Plan is as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ------------- -----------
Options outstanding at beginning of year................................ 584,543 626,951 992,576
Options granted......................................................... 93,189 401,250 172,200
Options exercised....................................................... (6,825) (50) (49,125)
Options lapsed.......................................................... (43,956) (35,575) (51,700)
----------- ------------- -----------
Options outstanding at end of year...................................... 626,951 992,576 1,063,951
----------- ------------- -----------
----------- ------------- -----------
Options exercisable at end of year...................................... 344,863 392,950 507,880
Option prices per share:
Granted................................................................. $ 6.36 $ 6.36-12.00 $ 8.87
Exercised............................................................... $ 2.12-6.36 $ 6.36 $ 2.12-8.48
</TABLE>
Under agreements dated May 31, 1994 and December 8, 1995, the Company issued
warrants to purchase 25,789 shares of Common Stock to a supplier. These warrants
are exercisable at $12.72 per share at any time for a period of three years from
April 16, 1996.
The exercise price of outstanding options and warrants to purchase Walsh
Common Stock was allocated, as of the date of the Spin-Off, between such options
and warrants and the options and warrants to be granted by Source in proportion
to the relative fair market values of the Walsh Common Stock and the Source
common stock as of such date. As such, the ratio of the exercise price per
option to the market value per share has not been reduced. The vesting
provisions and the option period of the original grant have not been affected by
the amendments to the exercise price.
11. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to continue to use the intrinsic value based method
to account for all of its employee stock-based compensation plans. Under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," the Company has
recorded no compensation costs related to its stock option plans for the years
ended June 30, 1995, 1996 and 1997.
F-16
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company is required to disclose the pro-forma effects on net income and net
income per share data as if the Company had elected to use the fair value
approach to account for all its employee stock-based compensation plans.
Had compensation cost for the Company's plans been determined consistent
with the fair value approach enumerated in SFAS No. 123 the Company's net income
and net income per share for the year ended June 30, 1997 and 1996 would have
been decreased as indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Net Income as reported.......................................................................... $ 330 $ 4,790
pro forma................................................................................... $ 230 $ 4,355
Net Income Per Share as reported................................................................ $ 0.04 $ 0.45
pro forma................................................................................... $ 0.02 $ 0.41
</TABLE>
The weighted average fair value of options granted during the period at
exercise price equal to market price at grant date is $6.32 and $5.51 for the
fiscal years ended June 30, 1996 and 1997 respectively.
The fair value of options granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997; risk-free interest rate of 6.4%;
weighted average expected life of 5 years; 60% expected volatility and no
dividends.
A summary of the status of the Company's fixed option plans as of June 30,
1996 and 1997 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1996 JUNE 30, 1997
---------------------------- -------------------------------
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE WEIGHTED AVERAGE
SHARES ($) SHARES EXERCISE PRICE ($)
--------- ----------------- ---------- -------------------
<S> <C> <C> <C> <C>
Fixed Options:
Outstanding at beginning of year...................... 626,951 6.49 992,576 8.13
Granted............................................... 401,250 10.56 172,200 8.87
Exercised............................................. (50) 6.36 (49,125) 6.02
Cancelled............................................. (35,575) 6.65 (51,700) 9.04
--------- ----- ---------- ---
Outstanding at end of year............................ 992,576 8.13 1,063,951 8.23
--------- ----- ---------- ---
--------- ----- ---------- ---
Options vested at year end............................ 392,950 6.49 507,880 7.10
--------- ----- ---------- ---
--------- ----- ---------- ---
</TABLE>
F-17
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
A summary of information regarding the options outstanding and those
exerciseable at the year end is provided in the two tables below:
OPTIONS OUTSTANDING AT JUNE 30, 1997
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING CONTRACTUAL
EXERCISE PRICE ($) NUMBER OF OPTIONS LIFE (YRS)
- ------------------- ------------------ -------------------------
<S> <C> <C>
2.12 8,094 1.73
6.36 503,045 5.63
7.42 93,800 8.38
8.48 30,737 5.74
8.87 170,200 9.26
10.60 13,325 5.37
12.00 244,750 8.81
---------- ---
1,063,951 7.15
---------- ---
---------- ---
</TABLE>
OPTIONS EXERCISABLE AT JUNE 30, 1997
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
EXERCISE PRICE ($) EXERCISABLE
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
2.12.......................................................................................... 8,094
6.36.......................................................................................... 390,269
7.42.......................................................................................... 18,650
8.48.......................................................................................... 28,837
8.87.......................................................................................... --
10.60......................................................................................... 13,080
12.00......................................................................................... 48,950
-------
507,880
-------
-------
</TABLE>
A Directors' Deferred Fee Program was approved by the Board of Directors on
June 27, 1996. This provides non-employee directors to defer income until
termination of status as a director. Amounts deferred in a calendar year will be
deemed to have been invested in shares of Walsh International Inc. Common Stock.
F-18
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAX
The components of the income tax provision for the years ended June 30,
1995, 1996 and 1997 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
U.S. state taxes currently payable................................................ $ -- $ -- $ (45)
Foreign taxes currently payable................................................... (2,498) (3,397) (1,124)
Deferred income taxes............................................................. 286 2,739 (371)
--------- --------- ---------
$ (2,212) $ (658) $ (1,540)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The domestic and foreign components of income (loss) from continuing
operations before income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
<S> <C> <C> <C>
Domestic.......................................................................... $ (4,728) $ (3,729) $ (2,732)
Foreign........................................................................... 3,983 6,472 9,062
--------- --------- ---------
$ (745) $ 2,743 $ 6,330
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax (assets) liabilities comprised the following at June 30, 1996
and 1997 (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Deferred tax liabilities:
Other........................................................................................ $ -- $ 121
--------- ---------
Gross deferred tax liabilities............................................................... -- 121
--------- ---------
Deferred tax assets:
Loss carryforwards........................................................................... (13,625) (13,629)
Capitalized software......................................................................... (3,335) (1,561)
Other accrued liabilities.................................................................... (1,215) (694)
Other........................................................................................ (513) (47)
--------- ---------
Gross deferred tax assets.................................................................... (18,688) (15,931)
Valuation allowance.......................................................................... 18,438 15,931
--------- ---------
Net deferred tax assets...................................................................... (250) 0
--------- ---------
Deferred taxes, net.......................................................................... $ (250) $ 121
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAX (CONTINUED)
A reconciliation of federal statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
---------------------
<S> <C> <C> <C>
1995 1996 1997
----- ----- -----
U.S. federal rate......................................................................... (34)% 34% 34%
Effect of:
Net operating losses...................................................................... 321 (54) 5
Foreign income taxes...................................................................... 9 44 (1)
Reduction of taxes provided in prior years................................................ -- -- (15)
State taxes............................................................................... 1 -- 1
----- ----- -----
Effective income tax rate................................................................. 297% 24% 24%
----- ----- -----
----- ----- -----
</TABLE>
At June 30, 1997 there were available for U.S. federal income tax purposes
operating loss carryforwards of approximately $24,015,000 expiring in the years
2008, 2009, 2010 and 2011 which may provide future tax benefits for U.S. federal
income tax purposes.
At June 30, 1997 there were available for foreign income tax purposes
operating loss carryforwards of approximately $12,719,000. These operating loss
carryforwards may provide future tax benefits totaling $5,465,000, expiring as
follows: 1999, $227,000; 2000, $302,000; 2001, $267,000; 2002, $588,000 and
thereafter, $4,081,000.
U.S. income taxes have not been provided at June 30, 1997, on unremitted
earnings aggregating $13,176,000 of entities located outside of the United
States, as such earnings are considered to be permanently invested. If such
earnings were to be remitted without offsetting tax credits in the United
States, withholding taxes would be approximately $562,000.
Included within accounts payable is $2,948,000 and $3,008,000 of current
income taxes payable for the years ended June 30, 1996 and 1997, respectively.
13. EMPLOYEE BENEFIT PLANS
In the U.S., the Company maintains a defined contribution profit-sharing
plan. The Company's contribution is a discretionary amount to match employee
contributions.
In the United Kingdom, a money purchase plan is maintained with the Company
contributing an average of approximately 5% of salaries.
In the Netherlands, a defined contribution plan was established in 1990. The
contributions (which vary, depending on age and salary) are between 8% and 13%
of each employee's basic salary less a fixed deduction. The Company pays 60% of
the premiums and the employee pays the remaining 40%.
In Belgium the Company maintains a defined contribution plan. The Company's
contribution is 5% of basic salary.
F-20
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The total costs associated with these plans were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -----------
United States.......................................................................... $ 16 $ 6 $ 24
United Kingdom......................................................................... 185 214 251
The Netherlands........................................................................ 89 79 62
Belgium................................................................................ 48 59 60
----- ----- -----
$ 338 $ 358 $ 397
----- ----- -----
----- ----- -----
</TABLE>
14. LEASING ARRANGEMENTS
The Company leases certain property and equipment.
Obligations under long-term and non-cancelable lease agreements expiring at
various dates have the following aggregate approximate annual minimum rentals
(in thousands):
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS CAPITAL LEASING OPERATING LEASES
- ------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
June 30, 1998.................................................................. $ 568 $ 3,011
June 30, 1999.................................................................. 541 2,168
June 30, 2000.................................................................. 160 1,228
June 30, 2001.................................................................. 160 720
June 30, 2002.................................................................. 160 433
After June 30, 2002............................................................ 501 1,508
------ ------
Total minimum lease payments................................................... 2,090 $ 9,068
------
------
Less amount representing interest.............................................. (174)
------
Present value of minimum lease payments........................................ 1,916
Less current portion........................................................... (509)
------
$ 1,407
------
------
</TABLE>
Rental Expense for the years ended June 30, 1995, 1996 and 1997 was
$2,901,000, $2,633,000 and $3,474,000, respectively.
Included in property and equipment at June 30, 1996 and 1997 are assets
subject to capitalized leases with a cost of $3,206,000 and $3,459,000,
respectively, and accumulated amortization of $874,000 and $1,346,000 for the
years ended June 30, 1996 and 1997, respectively.
F-21
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. GEOGRAPHIC DATA
The following table presents information about the Company by geographic
area (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
------------------------------------
<S> <C> <C> <C>
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- ------------
United States................................................................ $ 3,010 $ (1,480) $ 2,073
Canada....................................................................... 4,384 465 2,193
Europe....................................................................... 30,179 3,957 23,464
Pacific...................................................................... 2,696 26 695
General corporate............................................................ -- (3,920) 20,966
--------- ----------- ------------
$ 40,269 $ (952) $ 49,391
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-----------------------------------
<S> <C> <C> <C>
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- -----------
United States.................................................................. $ 3,351 $ 373 $ 861
Canada......................................................................... 4,163 190 2,065
Europe......................................................................... 36,256 6,714 25,280
Pacific........................................................................ 3,432 (68) (667)
Other.......................................................................... 60 60 --
General Corporate.............................................................. -- (3,437) 16,478
--------- ----------- -----------
$ 47,262 $ 3,832 $ 44,017
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
-----------------------------------
<S> <C> <C> <C>
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- -----------
United States.................................................................. $ 6,041 $ 124 $ 2,048
Canada......................................................................... 3,955 2 1,833
Europe......................................................................... 39,241 9,253 20,863
Pacific........................................................................ 4,790 (254) 1,779
Other.......................................................................... 61 61 --
General corporate.............................................................. -- (3,407) 14,015
--------- ----------- -----------
$ 54,088 $ 5,779 $ 40,538
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
16. SUBSEQUENT EVENTS
On July 24, 1997, the Company acquired 100% of the equity of Pharmaceutical
Marketing Solutions Pty Ltd (PMS), a privately held Australian company for $3.8
million in cash. PMS uses a salesforce automation system based on Lotus Notes
and an analysis system which operates as an integration product between a data
warehouse and proprietary salesforce automation system.
The Company is in the process of completing its valuation of the acquired
assets and cannot therefore estimate the allocation of the purchase price.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders of
Walsh International Inc.
Our report on the consolidated financial statements of Walsh International
Inc. is included on Page F-2 of this Proxy Statement/Prospectus. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on Page F-1 of this Proxy
Statement/Prospectus.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
August 20, 1997
F-23
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS
BALANCE AT ------------------------------------- COLUMN E
BEGINNING CHARGED BALANCE
COLUMN A OF TO COSTS CHARGED TO COLUMN D AT END
DESCRIPTION PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- --------------------------- ------------- ---------------- ------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
June 30, 1997.............. $ 336,000 147,000 -- (29,000) $ 454,000
June 30, 1996.............. $ 214,000 181,000 (9,000) (50,000) $ 336,000
June 30, 1995.............. $ 261,000 15,000 20,000 (82,000) $ 214,000
Valuation allowance for
deferred tax assets
June 30, 1997.............. $18,438,000 (2,507,000) -- -- $ 15,931,000
June 30, 1996.............. $13,015,000 5,423,000 -- -- $ 18,438,000
June 30, 1995.............. $12,695,000 320,000 -- -- $ 13,015,000
</TABLE>
F-24
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
F-25
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1998 1997
------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Revenue............................................................................... $ 45,632 $ 39,815
------------ ------------
Costs and expenses:
Production costs.................................................................... 17,453 15,043
Selling, general and administrative expenses........................................ 19,165 18,087
Research and development costs...................................................... 2,757 2,812
In process research and development write-off....................................... 2,000 --
Amortization of intangible assets................................................... 214 108
------------ ------------
Total costs and expenses.............................................................. 41,589 36,050
------------ ------------
Operating profit...................................................................... 4,043 3,765
Interest income....................................................................... 436 578
Interest expense...................................................................... (194) (191)
Minority Interest..................................................................... (122) 78
Other Income.......................................................................... 424 --
------------ ------------
Income before income taxes............................................................ 4,587 4,230
Income tax provision.................................................................. (1,655) (1,004)
------------ ------------
Net income............................................................................ $ 2,932 $ 3,226
------------ ------------
------------ ------------
Basic earnings per share.............................................................. $ 0.28 $ 0.31
------------ ------------
------------ ------------
Diluted earnings per share............................................................ $ 0.27 $ 0.30
------------ ------------
------------ ------------
Shares used in computing basic earnings per share..................................... 10,556,579 10,498,369
------------ ------------
------------ ------------
Shares used in computing diluted earnings per share................................... 10,784,409 10,595,987
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 10,553
Marketable securities............................................................................. --
Accounts receivable, principally trade............................................................ 17,569
Prepaid expenses and other current assets......................................................... 1,010
-----------
Total current assets................................................................................ 29,132
Property and equipment, net......................................................................... 4,147
Goodwill, net....................................................................................... 5,087
Marketable securities............................................................................... --
Other assets, net................................................................................... 4,483
-----------
Total assets........................................................................................ $ 42,849
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................................. $ 112
Current portion of capital lease obligations...................................................... 531
Accounts payable.................................................................................. 6,692
Accrued liabilities............................................................................... 10,927
Unearned income................................................................................... 4,532
-----------
Total current liabilities........................................................................... 22,794
-----------
Long-term debt...................................................................................... 1,151
Capital lease obligations........................................................................... 1,548
Other liabilities................................................................................... 4,176
Minority interest................................................................................... 250
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized and 10,630,937 shares issued.......... 106
Paid-in capital................................................................................... 120,097
Accumulated deficit............................................................................... (107,226)
Cumulative translation adjustment................................................................. 410
Unrealized gain on available for sale securities, net of tax...................................... --
Treasury stock, at cost, 20,750 shares............................................................ (457)
-----------
Total stockholders' equity.......................................................................... 12,930
-----------
Total liabilities and stockholders' equity.......................................................... $ 42,849
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
(UNAUDITED)
Net cash flows provided by (used in) operating activities.................................... $ 2,582 $ (1,221)
--------- ---------
Cash flows provided by (used in) investing activities:
Sale of marketable securities.............................................................. 8,399 1,489
Acquisition of PMS Pty Ltd................................................................. (4,027) --
Capital expenditures....................................................................... (634) (618)
Capitalized software....................................................................... (787) (665)
--------- ---------
Net cash provided by investing activities.................................................... 2,951 206
--------- ---------
Cash flows provided by (used in) financing activities:
Common stock issuance costs................................................................ -- (1,086)
Proceeds from issuance of bank loan........................................................ 3,337 --
Options exercised.......................................................................... 623 274
Repayment of long-term debt/capital leases................................................. (3,275) (269)
Loan proceeds received from minority interest.............................................. -- 111
Other...................................................................................... 95 --
--------- ---------
Net cash provided by (used in) financing activities.......................................... 780 (970)
--------- ---------
Effect of exchange rate movements............................................................ (1,544) 189
--------- ---------
Net increase/(decrease) in cash and cash equivalents......................................... 4,769 (1,796)
Cash and cash equivalents at beginning of period............................................. 5,784 8,629
--------- ---------
Cash and cash equivalents at end of period................................................... $ 10,553 $ 6,833
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The consolidated financial statements include the accounts of Walsh
International Inc. (the "Company") and all of its majority-owned subsidiaries.
The accompanying consolidated statements of operations and cash flows for
the nine months ended March 31, 1998 and 1997, and the consolidated balance
sheet as of March 31, 1998 and the related information of Walsh International
Inc. included in these notes to the consolidated financial statements are
unaudited. In the opinion of management, the interim financial information
reflects all adjustments (consisting only of items of a normal recurring nature)
necessary for the fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results of operations for
the nine months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year.
These interim financial statements should be read in conjunction with the
audited consolidated financial statements and related notes thereto included
elsewhere in this Proxy Statement/Prospectus.
2. EARNINGS PER SHARE
The Company has adopted the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per
Share." Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding. Diluted earnings per share includes
common equivalent shares, where dilutive, from stock options and warrants (using
the treasury stock method). All historical periods presented have been restated
applying SFAS 128.
For all periods presented, income used in both basic earnings per share and
the diluted earnings per share calculations is net income as stated in the
consolidated statement of operations. The only common equivalent shares in the
diluted calculations are stock options calculated using the treasury stock
method. These calculations are summarized below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1998 1997
------------ ------------
DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding (basic).................................... 10,556,579 10,498,369
Assumed exercise of in the money stock options........................................ 758,521 417,113
Less assumed buy-back under the treasury stock method................................. (530,691) (319,495)
------------ ------------
Shares used in diluted earnings per share............................................. 10,784,409 10,595,987
------------ ------------
------------ ------------
</TABLE>
Options to purchase 318,250 and 331,025 shares of common stock at prices
ranging from $10.60 to $12.00 were outstanding at March 31, 1998 but were not
included in the computation of diluted earnings per share for the nine months
ended March 31, 1998, because the options' exercise price was greater than the
average market price of the common shares.
3. INCOME TAXES
For the nine months ended March 31, 1998, the effective tax rate was 36%,
compared to 24% for the equivalent period of fiscal 1997. The effective income
tax rate was negatively impacted by the non-
F-29
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
deductible charge for the write-off of in-process research and development costs
offset, in part, by a reduction of taxes provided in prior years. For 1997, the
effective income tax rate was impacted by a reduction of taxes provided for in
prior years.
4. ACQUISITION OF PHARMACEUTICAL MARKETING SOLUTIONS PTY LTD
In July 1997 the Company acquired 100% of the equity of Pharmaceutical
Marketing Solutions Pty Ltd (PMS), a privately held Australian company, for $3.8
million in cash and $0.6 million of associated acquisition costs. PMS uses a
salesforce automation system based on Lotus Notes and an analysis system which
operates as an integration product between a data warehouse and proprietary
salesforce automation system. The acquisition has been accounted for by the
purchase method and the results of operations of PMS have been included in the
income statement from the acquisition date. The total purchase price of $4.4
million has been allocated as:
<TABLE>
<S> <C>
In-Process Research and Development................................... $ 2.0
Completed Technology.................................................. 0.6
Goodwill.............................................................. 1.8
---
$ 4.4
---
---
</TABLE>
The goodwill is expected to have an economic life of 20 years and the
completed technology a life of between 3 and 5 years. Goodwill and completed
technologies are being amortized on a straight-line basis over their economic
lives. The in-process research and development costs have been written off
immediately.
Pro-forma results from operations of the Company as if the acquisition of
PMS had occurred on July 1, 1996 for the nine months ended March 31, 1997 are:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1997
------------------
<S> <C>
Revenue................................................................... $ 42,238
Net Income................................................................ $ 3,281
Basic Earnings per Share.................................................. $ 0.31
</TABLE>
The difference between the pro forma operating results of the acquisition of
PMS on the Company's actual operating results, had the acquisition occurred on
July 1, 1997, was not material.
On October 14, 1997, the Company obtained an Australian dollar variable rate
commercial loan facility of $3.3 million (Australian $4.5 million). The term of
this facility was 5 years with annual principal repayments of approximately
$660,000 commencing in year 2. Interest accrued at a variable rate (5.25% during
the quarter). $3.2 million of the total marketable securities were pledged as
collateral for this loan. In January 1998, the Company repaid the loan in full
for US $2.9 million.
5. STOCKHOLDER RIGHTS PLAN.
On October 14, 1997, the Board of Directors adopted a stockholder rights
plan and declared a dividend of one right (a "Right") for each share of common
stock of the Company. The Rights were payable to holders of record of the common
stock of the Company at the close of business on October 27, 1997. The Rights
will automatically trade with the Company's common stock. Additional rights are
issuable upon subsequent issuances of common stock by the Company so long as the
Rights Plan is in effect.
F-30
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Rights are not currently exercisable but become exercisable upon the
earlier of (i) ten days after the first public announcement that a person or
group, which did not beneficially own 5% of the common stock as of September 22,
1997, has acquired beneficial ownership of 15 percent or more of the Company's
common stock or (ii) ten business days after a person or group announces an
offer the consummation of which would result in such person or group
beneficially owning 15 percent or more of the Company's common stock. The
Stockholder Rights Plan was amended as of March 23, 1998 to exclude Cognizant
Corporation and its subsidiaries from being considered such person or group.
Once exercisable, the holder will be entitled to buy from the Company one
one-hundredth of a share of new series B of junior participating preferred
stock, of which 250,000 shares have been authorised, for $55.00 per Right or in
certain circumstances to buy at the Rights exercise price a number of shares of
the Company's common stock having a market value of twice the exercise price of
each Right or, if the Company is acquired in a merger or a business combination,
to buy at the Rights exercise price a number of shares of common stock of an
acquiring Company having a market value of twice the exercise price of each
Right. At the Company's option, the Rights are redeemable prior to becoming
exercisable for $0.001 per Right. The Rights expire on October 14, 2007.
Preferred shares purchasable upon exercise of the Rights will not be subject
to redemption by the Company. Each preferred share will be entitled to a minimum
preferential quarterly dividend payment of $0.01 per share but will be entitled
to an aggregate dividend of 100 multiplied by the dividend declared per common
share. Each holder of preferred stock will be entitled to 100 votes per share on
each matter on which holders of the common stock are entitled to vote.
6. EMPLOYEE STOCK PURCHASE PLAN
An Employee Stock Purchase Plan (the "ESPP") has been adopted by the Company
and the ESPP was approved on October 23, 1997 at the Company's Annual Meeting of
Stockholders.
Under the ESPP, which is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code, options to purchase shares
of Common Stock will be granted to eligible employees of the Company and its
subsidiaries at an exercise price of 85% of the fair market value of the shares
of Common Stock subject to such option on the date of grant, based upon the
closing price of the Common Stock on the NASDAQ National Market.
An aggregate of 100,000 shares of Common Stock have been reserved for
issuance pursuant to the ESPP. To date there have been no grants under the ESPP.
7. ACQUISITION OF WALSH INTERNATIONAL INC.
On March 23, 1998 the Company, Cognizant Corporation and WAC Inc. signed a
definitive agreement for the acquisition of the Company. Under the terms of the
agreement, Walsh shareholders will receive 0.3041 shares of Cognizant common
stock per Walsh share or a consideration of approximately $167 million. The
number of Cognizant shares received is subject to a collar adjustment based on
the price of Cognizant shares during a period prior to the closing of the
transaction. If the acquisition is consummated after the spin off by Cognizant
Corporation of its subsidiary IMS Health Incorporated, the acquisition
consideration will be paid in shares of IMS Health. On completion of the
transaction, investment banker fees will be payable amounting to 1.3% of the
total consideration, an amount of approximately $2.2 million.
F-31
<PAGE>
COGNIZANT CORPORATION
AND
WALSH INTERNATIONAL INC.
ANNEXES TO THE PROXY
STATEMENT/PROSPECTUS
<TABLE>
<C> <S>
I. Agreement and Plan of Merger
II. Stock Option Agreement
III. Opinion of NationsBanc Montgomery Securities
IV. Additional Information Relating to the Cognizant Distribution
</TABLE>
<PAGE>
ANNEX I
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 23, 1998
AMONG
COGNIZANT CORPORATION,
WAC INC.
AND
WALSH INTERNATIONAL INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE I
THE MERGER................................................................................................. 1
SECTION 1.01. THE MERGER................................................................................... 1
SECTION 1.02. CLOSING...................................................................................... 2
SECTION 1.03. EFFECTIVE TIME OF THE MERGER................................................................. 2
SECTION 1.04. EFFECTS OF THE MERGER........................................................................ 2
SECTION 1.05. CERTIFICATE OF INCORPORATION; BY-LAWS........................................................ 2
SECTION 1.06. DIRECTORS.................................................................................... 2
SECTION 1.07. OFFICERS..................................................................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS................................................................................... 2
SECTION 2.01. EFFECT ON CAPITAL STOCK...................................................................... 2
SECTION 2.02. EXCHANGE OF CERTIFICATES..................................................................... 3
SECTION 2.03. TREATMENT OF OPTIONS......................................................................... 5
SECTION 2.04. TREATMENT OF DEBT SECURITIES AND WARRANTS.................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................................................................. 6
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 6
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............................................. 18
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER.................................................. 22
SECTION 4.01. CONDUCT OF BUSINESS.......................................................................... 22
ARTICLE V
ADDITIONAL AGREEMENTS...................................................................................... 25
SECTION 5.01. PREPARATION OF FORM S-4 AND PROXY STATEMENT; STOCKHOLDER MEETING............................. 25
SECTION 5.02. ACCESS TO INFORMATION; CONFIDENTIALITY....................................................... 26
SECTION 5.03. REASONABLE EFFORTS........................................................................... 26
SECTION 5.04. INDEMNIFICATION.............................................................................. 27
SECTION 5.05. PUBLIC ANNOUNCEMENTS......................................................................... 28
SECTION 5.06. NO SOLICITATION.............................................................................. 28
SECTION 5.07. BENEFIT MATTERS.............................................................................. 29
SECTION 5.08. STOCK EXCHANGE LISTING....................................................................... 29
SECTION 5.09. LETTERS OF THE COMPANY'S ACCOUNTANTS......................................................... 29
SECTION 5.10. LETTERS OF PARENT'S ACCOUNTANTS.............................................................. 29
SECTION 5.11. TAKEOVER STATUTE............................................................................. 29
ARTICLE VI
CONDITIONS PRECEDENT....................................................................................... 30
SECTION 6.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER................................. 30
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND SUB....................................... 30
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.......................................... 31
</TABLE>
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<TABLE>
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.......................................................................... 32
SECTION 7.01. TERMINATION.................................................................................. 32
SECTION 7.02. EFFECT OF TERMINATION........................................................................ 32
SECTION 7.03. AMENDMENT.................................................................................... 32
SECTION 7.04. EXTENSION; WAIVER............................................................................ 33
SECTION 7.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER.................................... 33
ARTICLE VIII
GENERAL PROVISIONS......................................................................................... 33
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES................................................ 33
SECTION 8.02. FEES AND EXPENSES............................................................................ 33
SECTION 8.03. NOTICES...................................................................................... 34
SECTION 8.04. DEFINITIONS.................................................................................. 35
SECTION 8.05. INTERPRETATION............................................................................... 38
SECTION 8.06. COUNTERPARTS................................................................................. 38
SECTION 8.07. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES............................................... 38
SECTION 8.08. GOVERNING LAW................................................................................ 38
SECTION 8.09. ASSIGNMENT................................................................................... 38
SECTION 8.10. ENFORCEMENT.................................................................................. 39
</TABLE>
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
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EXHIBITS
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Exhibit A Form of Amended and Restated Certificate of Incorporation of the
Company
Exhibit B Form of Stock Option Agreement
Exhibit C Parent Exchange Ratios
Exhibit D IMS Representations
Exhibit E IMS Exchange Ratio
Exhibit F IMS Exchange Ratio
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of March 23, 1998, among Cognizant
Corporation, a Delaware corporation ("PARENT"), WAC Inc., a Delaware corporation
and a direct wholly owned subsidiary of Parent ("SUB"), and Walsh International
Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of Parent, Sub and the 31 upon
the terms and subject to the conditions set forth in this Agreement, would be
fair and in the best interests of their respective stockholders;
WHEREAS, such Boards of Directors have approved the Merger, pursuant to
which each share of common stock, par value $.01 per share, of the Company (the
"COMPANY COMMON STOCK", which term also refers to and includes, unless the
context otherwise requires, the associated Rights, as defined in Section 8.04)
issued and outstanding immediately prior to the Effective Time of the Merger (as
defined in Section 1.03), other than shares owned, directly or indirectly, by
the Company or any subsidiary (as defined in Section 8.04) of the Company or by
Parent, Sub or any subsidiary of Parent, will be converted into the right to
receive the Merger Consideration (as defined in Section 2.01(c));
WHEREAS, the Merger and this Agreement require the vote of the holders of a
majority of the outstanding shares of the Company Common Stock for the approval
thereof (the "COMPANY STOCKHOLDER APPROVAL");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition of Parent's willingness to enter into this Agreement, Parent and
the Company are entering into a stock option agreement, dated as of the date
hereof, in the Form of Exhibit A hereto (the "STOCK OPTION AGREEMENT"), pursuant
to which the Company is granting Parent an option to purchase shares of Company
Common Stock;
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement and the Stock Option
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into the Company at the Effective
Time of the Merger. At the Effective Time of the Merger, the separate existence
of Sub shall cease, and the Company shall continue as the surviving corporation.
SECTION 1.02. CLOSING. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01, and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "CLOSING") will take place
at 10:00 a.m. on the first business day after satisfaction of the conditions set
forth in Section 6.01 (or as soon as practicable thereafter following
satisfaction or waiver of the conditions set forth in Sections 6.02 and 6.03)
(the "CLOSING DATE"), at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017, unless another date, time or place
is agreed to in writing by the parties hereto. Notwithstanding the foregoing, in
the event that the Closing Date otherwise would occur during the period
beginning on the record date (the "DISTRIBUTION RECORD DATE") for the
determination of holders of common stock, par value $0.01 per share, of Parent
("PARENT COMMON STOCK") entitled to receive shares of common stock, par value
$0.01 per share ("IMS COMMON STOCK" and, together with the Parent Common Stock,
the "MERGER STOCK"), of IMS Health Incorporated, a Delaware corporation ("IMS"),
in the proposed dividend
<PAGE>
of IMS Common Stock to Parent's stockholders (the "PARENT TRANSACTION") and
ending on the date that is 17 trading days following the date of commencement of
"regular way" trading in the IMS Common Stock on the New York Stock Exchange
("NYSE"), the Closing Date shall be deferred to the date that is 18 trading days
following the date of commencement of "regular way" trading in the IMS Common
Stock on the NYSE.
SECTION 1.03. EFFECTIVE TIME OF THE MERGER. Upon the Closing, the parties
shall file with the Secretary of State of the State of Delaware a certificate of
merger (the "CERTIFICATE OF MERGER") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time on the Closing
Date as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such other time on the Closing Date as is
permissible in accordance with the DGCL and as Sub and the Company shall agree
should be specified in the Certificate of Merger (the time the Merger becomes
effective being the "EFFECTIVE TIME OF THE MERGER").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. As used herein, "SURVIVING
CORPORATION" shall mean and refer to the Company, at and after the Effective
Time of the Merger, as the surviving corporation in the Merger.
SECTION 1.05. CERTIFICATE OF INCORPORATION; BY-LAWS. (a) At the Effective
Time of the Merger, and without any further action on the part of the Company or
Sub, the certificate of incorporation of the Company shall be amended and
restated in the form attached hereto as Exhibit A (the "AMENDED AND RESTATED
COMPANY CHARTER"), which Amended and Restated Company Charter shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended as provided therein or by applicable law.
(b) At the Effective Time of the Merger, and without any further action on
the part of the Company or Sub, the by-laws of Sub as in effect immediately
prior to the Effective Time of the Merger shall be the by-laws of the Surviving
Corporation at the Effective Time of the Merger until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06. DIRECTORS. The directors of Sub immediately prior to the
Effective Time of the Merger shall be the directors of the Surviving Corporation
at the Effective Time of the Merger, until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
SECTION 1.07. OFFICERS. The officers of Sub immediately prior to the
Effective Time of the Merger shall be the officers of the Surviving Corporation
at the Effective Time of the Merger, until the earlier of their resignation or
removal or until their respective successors are duly elected or appointed and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.01. EFFECT ON CAPITAL STOCK. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the
Company, Sub or any holder of any shares of Company Common Stock or any shares
of capital stock of Sub:
(a) COMMON STOCK OF SUB. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time of the Merger shall be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED COMPANY COMMON
STOCK. Each share of Company Common Stock that is owned by the Company and each
share of Company Common Stock that
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<PAGE>
is owned by Parent, Sub or any other subsidiary of Parent shall automatically be
cancelled and retired and shall cease to exist, and no cash, Merger Stock or
other consideration shall be delivered or deliverable in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 2.02(e), each
issued and outstanding share of Company Common Stock (other than shares
cancelled pursuant to Section 2.01(b)) shall be converted into: (i) if the
Effective Time of the Merger occurs prior to the Distribution Record Date, a
fraction of a share of Parent Common Stock equal to the Parent Exchange Ratio
(as defined in Section 8.04); and (ii) if the Effective Time of the Merger
occurs after the Distribution Record Date, a fraction of a share of IMS Common
Stock equal to the IMS Exchange Ratio (as defined in Section 8.04). The amount
of Merger Stock into which each such share of Company Common Stock is converted
is referred to herein as the "MERGER CONSIDERATION".
(d) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. As of the
Effective Time of the Merger, all shares of Company Common Stock and the
associated Rights issued and outstanding immediately prior to the Effective Time
of the Merger shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock (collectively, the
"CERTIFICATES") shall, to the extent such Certificate represents such shares,
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration (and cash in lieu of fractional shares) to be issued or
paid in consideration therefor upon surrender of such certificate in accordance
with Section 2.02.
SECTION 2.02. EXCHANGE OF CERTIFICATES. (a) Exchange Agent. As of the
Effective Time of the Merger, Parent shall enter into an agreement with such
bank or trust company as may be designated by Parent (the "EXCHANGE AGENT")
which shall provide that Parent shall deposit, or cause to be deposited, with
the Exchange Agent, for the benefit of holders of the Certificates, for exchange
in accordance with this Article II, certificates representing the shares of
Merger Stock (such shares of Merger Stock, together with any dividends or
distributions with respect thereto with a record date on or after the Effective
Time of the Merger and any cash payable in lieu of any fractional shares of
Parent Common Stock, being hereinafter referred to as the "EXCHANGE FUND"),
issuable pursuant to Section 2.01 in exchange for outstanding shares of Company
Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder of
record of Certificates immediately prior to the Effective Time of the Merger
whose shares were converted into shares of Merger Stock pursuant to Section
2.01, (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, and which shall be in such
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Merger Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Merger Stock which such holder has the right to receive in respect of
the Certificate surrendered pursuant to the provisions of this Article II (after
taking into account all shares of Company Common Stock then held by such holder)
and cash in lieu of any fractional shares of Merger Stock as contemplated by
Section 2.02(e), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of shares of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Merger Stock may be
issued to a transferee if the Certificate is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time of the Merger to represent only the
Merger Stock into which the shares of Company Common Stock represented by such
3
<PAGE>
Certificate have been converted as provided in this Article II and the right to
receive upon such surrender cash in lieu of any fractional shares of Merger
Stock as contemplated by this Section 2.02.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Merger Stock with a record date on or after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Merger Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.02(e), in each case until the surrender of
such Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate there also shall be
paid to the holder of the Certificate representing whole shares of Merger Stock
issued in exchange therefor without interest (i) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share of Merger Stock to
which such holder is entitled pursuant to Section 2.02(e) and the amount of any
dividends or other distributions with a record date on or after the Effective
Time of the Merger theretofore paid (but withheld pursuant to the immediately
preceding sentence) with respect to such whole shares of Merger Stock, and (ii)
at the appropriate payment date, the amount of any dividends or other
distributions with a record date on or after the Effective Time of the Merger
but prior to such surrender and a payment date subsequent to such surrender
payable with respect to such whole shares of Merger Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Merger Stock issued upon conversion of shares of Company Common Stock in
accordance with the terms hereof, and all cash paid pursuant to Sections 2.02(c)
and 2.02(e), shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock (including with respect
to the Rights), and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding prior to the Effective Time of the Merger.
If, after the Effective Time of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article II.
(e) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of Merger Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Parent. In lieu
of such issuance of fractional shares, Parent shall pay each holder of
Certificates an amount in cash equal to the product obtained by multiplying (a)
the fractional share interest to which such holder (after taking into account
all shares of Company Common Stock held immediately prior to the Effective Time
of the Merger by such holder) would otherwise be entitled by (b) the average of
the closing sale prices for a share of Merger Stock on the NYSE Composite
Transaction Tape for the five trading days immediately preceding the Effective
Time of the Merger.
(ii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates with respect to any
fractional share interests, the Exchange Agent shall make available such amounts
to such holders of Certificates, subject to and in accordance with the terms of
Section 2.02(c).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
deposited with the Exchange Agent pursuant to this Section 2.02 which remains
undistributed to the holders of the Certificates for six months after the
Effective Time of the Merger shall be delivered to Parent, upon demand, and any
holders of Certificates prior to the Merger who have not theretofore complied
with this Article II shall thereafter look only to Parent and only as general
creditors thereof for payment of their claim for Merger Stock, cash in lieu of
fractional shares of Merger Stock and any dividends or distributions with
respect to Merger Stock to which such holders may be entitled.
(g) NO LIABILITY. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Merger Stock (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
4
<PAGE>
escheat or similar law. If any Certificates shall not have been surrendered
prior to three years after the Effective Time of the Merger, or immediately
prior to such earlier date on which any Merger Consideration, any cash in lieu
of fractional shares of Merger Stock or any dividends or distributions with
respect to Merger Stock would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.01(d)), any such Merger
Consideration or cash shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by Parent on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
SECTION 2.03. TREATMENT OF OPTIONS. (a) At the Effective Time of the
Merger, each outstanding option to purchase Company Common Stock (a "COMPANY
STOCK OPTION") issued pursuant to the Company's Non-Employee Directors' Stock
Option Plan (the "DIRECTORS' PLAN") or the Company's Restated Stock Option and
Restricted Stock Purchase Plan (the "OPTION PLAN" and, collectively with the
Directors' Plan, the "COMPANY STOCK PLANS"), whether vested or unvested, shall
be deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option, those shares which the
holder of such Company Stock Option would have been entitled to receive pursuant
to the Merger if such holder had exercised such option in full immediately prior
to the Effective Time of the Merger, at a price per share equal to (y) the
aggregate exercise price for the shares of Company Common Stock purchasable
pursuant to such Company Stock Option divided by (z) the number of full shares
of Merger Stock deemed purchasable pursuant to such Company Stock Option (a
"Converted Option"); PROVIDED, HOWEVER, that in the case of any option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code ("INCENTIVE STOCK OPTIONS"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code, PROVIDED FURTHER that if the Closing Date occurs prior to the Distribution
Record Date each Converted Option shall be adjusted or substituted, as the case
may be, pursuant to the Parent Transaction.
(b) As soon as practicable after the Effective Time of the Merger, Parent
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the Company Stock Plans and the
agreements evidencing the grants of such Company Stock Options shall continue in
effect on the same terms and conditions (subject to adjustments required by this
Section 2.03 after giving effect to the Merger and the provisions set forth
above and until otherwise determined). If necessary, Parent shall comply with
the terms of the Company Stock Plans and ensure, to the extent required by, and
subject to the provisions of, the Company Stock Plans, that Company Stock
Options that qualified as incentive stock options prior to the Effective Time of
the Merger continue to qualify as incentive stock options after the Effective
Time of the Merger.
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Merger Stock for delivery upon exercise of
Company Stock Options. As soon as practicable after the Effective Time of the
Merger, Parent shall file a registration statement on Form S-3 or Form S-8, as
the case may be (or any successor or other appropriate forms), or another
appropriate form, with respect to the shares of Merger Stock subject to such
options and shall use its reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding. With respect to those individuals who subsequent to
the Merger will be subject to the reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), where
applicable, Parent shall administer the Company Stock Plans in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act to the extent the
Company Stock Plans complied with such rule prior to the Merger.
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<PAGE>
SECTION 2.04. TREATMENT OF DEBT SECURITIES AND WARRANTS. (a) All debt
securities of the Company that are outstanding as of the Effective Time of the
Merger shall remain outstanding after the Effective Time of the Merger in
accordance with their respective terms and provisions.
(b) At the Effective Time of the Merger, each Warrant (as defined in Section
3.01(c)) that is outstanding and unexercised immediately prior thereto shall,
pursuant to the terms of such Warrant, cease to represent a right to acquire
shares of Company Common Stock and shall be converted automatically into a
warrant to purchase such number of shares of Merger Stock as the holder of such
Warrant would have been entitled to receive pursuant to the Merger had such
holder exercised such Warrant in full immediately prior to the Effective Time of
the Merger, at a price per share equal to (y) the aggregate exercise price for
the shares of Company Common Stock otherwise purchasable pursuant to such
Warrant divided by (z) the number of full shares of Merger Stock deemed
purchasable pursuant to such Warrant.
(c) As soon as practicable after the Effective Time of the Merger, Parent
shall deliver to the holders of Warrants appropriate notices setting forth such
holders' rights pursuant to the applicable warrant agreements with respect
thereto to the extent required by the terms of the warrant agreements with
respect thereto.
(d) Parent shall take (or cause to be taken) all corporate action necessary
to reserve for issuance a sufficient number of shares of Merger Stock for
delivery upon conversion of the exercise of the Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and each
of its Subsidiaries (as defined in Section 3.01(b)) is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and each of its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction (domestic or foreign) in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) could not reasonably
be expected to have a Material Adverse Effect (as defined in Section 8.04) with
respect to the Company. Attached as Section 3.01(a) of the disclosure schedule
delivered by the Company to Parent and Sub at the time of execution of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE") are complete and correct copies of
the Company's Restated Certificate of Incorporation, as amended (the
"CERTIFICATE OF INCORPORATION"), and the Company's Amended and Restated By-laws,
as amended (the "BY-LAWS"), as currently in effect. The Company has made
available to Parent and Sub complete and correct copies of the certificates of
incorporation and by-laws (or other organizational documents) of each of the
Company's Subsidiaries, in each case as amended to the date of this Agreement.
(b) SUBSIDIARIES. The only direct or indirect subsidiaries (as defined in
Section 8.04) of the Company are those listed in Section 3.01(b) of the Company
Disclosure Schedule (collectively, the "SUBSIDIARIES"). All of the outstanding
shares of capital stock of each subsidiary of the Company have been validly
issued and are fully paid and nonassessable and, except as disclosed in Section
3.01(b) of the Company Disclosure Schedule, are owned (of record and
beneficially) by the Company, by another wholly owned subsidiary of the Company
or by the Company and another such wholly owned subsidiary, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever (collectively, "LIENS"). Except for the ownership
interests set forth in Section 3.01(b) of the Company Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, limited liability company,
business association, joint venture or other entity.
6
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(c) CAPITAL STRUCTURE. The authorized capital stock of the Company consists
of (x) 20,000,000 shares of Company Common Stock, par value $.01 per share, and
(y) 5,000,000 shares of preferred stock, par value $1.00 per share ("COMPANY
PREFERRED STOCK"), of which 1,667,000 shares have been designated as Series A
Convertible Preferred Stock. As of the close of business on March 20, 1998,
there were: (i) 10,612,137 shares of Company Common Stock issued and
outstanding; (ii) 20,750 shares of Company Common Stock held in the treasury of
the Company; (iii) 261,398 shares of Company Common Stock reserved for issuance
upon exercise of Company Stock Options available for grant pursuant to the
Company Stock Plans; (iv) 1,086,425 shares of Company Common Stock issuable upon
exercise of awarded but unexercised Company Stock Options, with an exercise
price per each awarded but unexercised Company Stock Option as is set forth in
Section 3.01(c)(iv) of the Company Disclosure Schedule; (v) 250,000 shares of
Company Preferred Stock issuable pursuant to the Rights; (vi) 100,000 shares of
Company Common Stock reserved for issuance pursuant to the Company's Employee
Stock Purchase Plan (as defined below); (vii) 55,781 shares of Company Common
Stock issuable upon exercise of currently outstanding warrants to purchase
Company Common Stock, all as more particularly described in Section 3.01(c)(vii)
of the Company Disclosure Schedule (collectively, the "WARRANTS"), and with an
exercise price for each such Warrant equal to $12.72 per share of Company Common
Stock; (viii) no shares of Company Preferred Stock issued and outstanding; and
(ix) no shares of Company Preferred Stock in the treasury of the Company. Except
as set forth above, as of the close of business on March 20, 1998, there were no
shares of capital stock or other equity securities of the Company issued,
reserved for issuance or outstanding. All outstanding shares of capital stock of
the Company are, and all shares which may be issued pursuant to the Company
Stock Plans, the Rights and the Warrants will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. All securities issued by the Company were issued in compliance in all
material respects with all applicable federal and state securities laws and all
applicable rules and regulations promulgated thereunder. There are no
outstanding bonds, debentures, notes or other indebtedness or debt securities of
the Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of the
Company may vote. Except as set forth above and except pursuant to the Stock
Option Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which the Company or any of its Subsidiaries is a party or by which any of them
is bound obligating the Company or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other equity or voting securities of the Company or of any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Other than the Stock Option
Agreement and except as disclosed in Section 3.01(c) of the Company Disclosure
Schedule, (i) there are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire or make any payment in respect of any
shares of capital stock of the Company or any of its Subsidiaries and (ii) to
the knowledge of the Company, there are no irrevocable proxies with respect to
shares of capital stock of the Company or any of its Subsidiaries. Except as set
forth in Section 3.01(c) of the Company Disclosure Schedule, there are no
agreements or arrangements pursuant to which the Company is or could be required
to register shares of Company Common Stock or other securities of the Company or
any of its Subsidiaries under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or other agreements or arrangements with or, to the knowledge
of the Company, among any securityholders of the Company or any of its
Subsidiaries with respect to securities of the Company or any of its
Subsidiaries.
Since June 30, 1997, except as disclosed in Section 3.01(c) of the Company
Disclosure Schedule, the Company has not (A) issued or permitted to be issued
any shares of capital stock, or securities exercisable for or convertible into
shares of capital stock, of the Company or any of its Subsidiaries, other than
(1) pursuant to the Stock Option Agreement, (2) the grant of any employee stock
options prior to the date of this Agreement pursuant to the Company Stock Plans,
(3) the issuance of Company Common Stock upon exercise of the options granted
pursuant to the Company Stock Plans prior to the date of this
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Agreement and (4) upon exercise of Warrants outstanding on such date; (B)
repurchased, redeemed or otherwise acquired, directly or indirectly through one
or more Subsidiaries, any shares of capital stock of the Company or any of its
Subsidiaries; or (C) declared, set aside, made or paid to the stockholders of
the Company or any of its Subsidiaries dividends or other distributions on the
outstanding shares of capital stock of the Company or any of its Subsidiaries
(excluding dividends declared, set aside, made or paid by wholly owned
Subsidiaries to the Company or any wholly owned Subsidiaries).
(d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite corporate
power and authority to enter into each of this Agreement and the Stock Option
Agreement and, subject to the Company Stockholder Approval in the case of this
Agreement, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of each of this Agreement and the Stock Option Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of this
Agreement, to the Company Stockholder Approval. This Agreement and the Stock
Option Agreement have been duly executed and delivered by the Company and
(assuming due authorization, execution and delivery by Parent and Sub)
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing. No holder of capital stock of
the Company will be entitled to appraisal rights under the DGCL or otherwise as
a result of the execution and delivery of this Agreement or the consummation of
any of the transactions contemplated hereby. Except as set forth in Section
3.01(d) of the Company Disclosure Schedule, the execution and delivery of each
of this Agreement and the Stock Option Agreement does not, and the consummation
by the Company of the transactions contemplated by each of this Agreement and
the Stock Option Agreement and compliance by the Company with the provisions
hereof and thereof will not, conflict with, or result in any breach or violation
of, or any default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of, or a "put"
right with respect to any obligation under, or to a loss of a material benefit
under, or result in the creation of any Lien under, (i) the Certificate of
Incorporation or By-laws or the comparable charter or organizational documents
of any of the Company's Subsidiaries, (ii) any loan or credit agreement, note,
note purchase agreement, bond, mortgage, indenture, lease or any other contract,
agreement, instrument, permit, concession, franchise or license to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective properties or assets are bound or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule,
regulation or arbitration award applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect with respect to the
Company. No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any international organization, the
government of the United States of America, any other nation or any political
subdivision thereof, whether state, provincial, local or otherwise, or any
court, administrative agency or commission or other governmental authority,
regulatory body or agency, domestic or foreign (a "GOVERNMENTAL ENTITY"), or any
other third party, is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement and
the Stock Option Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby and thereby or the performance by the
Company of its obligations hereunder or thereunder, except for (i) the filing of
a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the filing of such applications or notices by the Company as may be
required pursuant to merger control, antitrust, foreign investment or similar
laws or regulations in effect in Canada, Germany or any political subdivision
thereof, (ii) the filing with the Securities and Exchange Commission (the "SEC")
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and the National Association of Securities Dealers (the "NASD") of (A) a proxy
statement relating to the Company Stockholder Approval (such proxy statement as
amended or supplemented from time to time, the "PROXY STATEMENT,") and (B) such
reports under the Exchange Act as may be required in connection with this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, could not reasonably be expected to
(x) prevent or materially delay consummation of the Merger or the transactions
contemplated hereby or performance of the Company's obligations hereunder or
under the Stock Option Agreement or (y) have a Material Adverse Effect with
respect to the Company.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. The Company has filed with the
SEC all reports, schedules, forms, statements and other documents required
pursuant to the Securities Act and the Exchange Act since January 1, 1996
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "SEC DOCUMENTS"). As of their
respective dates, the SEC Documents complied as to form in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such SEC Documents. As of their respective dates, (i) none of the SEC
Documents (including any and all financial statements included therein) filed
pursuant to the Securities Act or any rule or regulation thereunder contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading and (ii) none of the SEC Documents (including any and all
financial statements included therein) filed pursuant to the Exchange Act or any
rule or regulation thereunder contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later filed
SEC Document, none of the SEC Documents (including any and all financial
statements included therein) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
the Company included in all SEC Documents filed since January 1, 1996 (the "SEC
FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly financial statements, as permitted by Form 10-Q of the SEC), applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto). The SEC Financial Statements fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal recurring audit adjustments). Except as disclosed in
Section 3.01(e) of the Company Disclosure Schedule, as of the date hereof,
neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be recognized or
disclosed on a consolidated balance sheet of the Company and its Subsidiaries or
in the notes thereto, except (i) liabilities reflected in the audited
consolidated balance sheet of the Company as of June 30, 1997 or the notes
thereto (the "1997 BALANCE SHEET") included in the SEC Documents, (ii)
liabilities disclosed in any Recent SEC Document and (iii) liabilities incurred
since June 30, 1997 in the ordinary course of business consistent with past
practice.
(f) INFORMATION SUPPLIED. None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC in connection with
the issuance of Merger Stock in the Merger (the "FORM S-4") will, at the time
the
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Form S-4 is filed with the SEC, at any time it is amended or supplemented or at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting (as defined in Section
5.01(c)), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied in writing by Parent or Sub specifically for inclusion or
incorporation by reference therein.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Section
3.01(g) of the Company Disclosure Schedule or in the Recent SEC Documents (as
defined in Section 8.04), during the period from June 30, 1997 through and
including the date hereof, each of the Company and each of its Subsidiaries has
conducted its business only in the ordinary course consistent with past
practice, and there is not and has not been since June 30, 1997: (i) any
Material Adverse Change (as defined in Section 8.04) with respect to the
Company; (ii) any condition, event or occurrence which, as of the date of this
Agreement, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect with respect to the Company or give rise to a
Material Adverse Change with respect to the Company; (iii) any action or failure
to act which, if it had been taken or not taken after the execution of this
Agreement, would have required the consent of Parent pursuant to this Agreement;
or (iv) any condition, event or occurrence which, individually or in the
aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement or perform its obligations hereunder or
thereunder.
(h) LITIGATION; LABOR MATTERS; COMPLIANCE WITH LAWS. (i) Except as disclosed
in Section 3.01(h)(i) of the Company Disclosure Schedule or in the Recent SEC
Documents, as of the date hereof, there is (1) no suit, action, arbitration or
proceeding pending, and (2) to the knowledge of the Company, no suit, action,
arbitration or proceeding threatened against or investigation pending, in each
case with respect to the Company or any of its Subsidiaries that, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect with respect to the Company or prevent or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement or the
Stock Option Agreement or to perform its obligations hereunder or thereunder,
nor is there any judgment, decree, citation, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
Subsidiaries which, individually or in the aggregate, has or could reasonably be
expected to have a Material Adverse Effect with respect to the Company or
prevent or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement or to
perform its obligations hereunder or thereunder. To the knowledge of the
Company, except as disclosed in Section 3.01(h)(i) of the Company Disclosure
Schedule or in the Recent SEC Documents, as of the date hereof there is no
reasonable basis for any action, suit, arbitration or proceeding that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect with respect to the Company or prevent or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement or the Stock Option Agreement or to perform its obligations
hereunder or thereunder.
(ii) Except as disclosed in Section 3.01(h)(ii) of the Company
Disclosure Schedule or in the Recent SEC Documents, (1) neither the Company nor
any of its Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization; (2) as of the date hereof, to the knowledge of the Company,
neither the Company nor any of its Subsidiaries is the subject of any proceeding
asserting that it or any of its Subsidiaries has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or
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conditions of employment; (3) as of the date hereof, there is no strike, work
stoppage or other similar labor dispute involving it or any of its Subsidiaries
pending or, to its knowledge, threatened; (4) as of the date hereof, no
grievance is pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect with respect to
the Company; (5) to the knowledge of the Company, the Company and each of its
Subsidiaries is in compliance with all applicable laws (domestic and foreign),
agreements, contracts and policies relating to employment, employment practices,
wages, hours and terms and conditions of employment except for failures so to
comply, if any, that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect with respect to the Company; (6) the
Company and each of its Subsidiaries has complied in all material respects with
its payment obligations to all employees of the Company and its Subsidiaries in
respect of all wages, salaries, commissions, bonuses, benefits and other
compensation due and payable to such employees under any policy, practice,
agreement, plan, program of the Company or any of its Subsidiaries or any
statute or other law; (7) neither the Company nor any of its Subsidiaries is
liable for any severance pay or other payments to any employee or former
employee arising from the termination of employment under any benefit or
severance policy, practice, agreement, plan, or program of the Company or any of
its Subsidiaries, nor to the knowledge of the Company will the Company or any of
its Subsidiaries have any liability which exists or arises, or may be deemed to
exist or arise, under any applicable law or otherwise, as a result of or in
connection with the transactions contemplated hereunder or as a result of the
termination by the Company or any of its Subsidiaries of any persons employed by
the Company or any of its Subsidiaries on or prior to the Effective Time of the
Merger, excluding any such payment or liability which does not exceed $50,000
individually or $500,000 in the aggregate with all such other payments and
liabilities not disclosed in Section 3.01(h)(ii) of the Company Disclosure
Schedule; and (8) the Company and each of its Subsidiaries is in compliance with
its obligations pursuant to the Worker Adjustment and Retraining Notification
Act of 1988 ("WARN"), to the extent applicable, and all other employee
notification and bargaining obligations arising under any collective bargaining
agreement or statute.
(iii) Each of the Company and each of its Subsidiaries holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses of
the Company and its Subsidiaries, taken as a whole (the "COMPANY PERMITS"). The
Company and its Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply, individually or in the
aggregate, would not have a Material Adverse Effect with respect to the Company.
Except as disclosed in Section 3.01(h)(iii) of the Company Disclosure Schedule,
the businesses of the Company and its Subsidiaries are not being conducted in
violation of any law (domestic or foreign), ordinance or regulation of any
Governmental Entity, except for possible violations which, individually or in
the aggregate, do not and could not reasonably be expected to have a Material
Adverse Effect with respect to the Company.
(iv) Each of the Company and each of its Subsidiaries have in the past
duly complied, and are presently duly complying, with all applicable laws
(whether statutory or otherwise), rules, regulations, orders, judgments or
decrees (the "LAWS") of all Governmental Entities, including, without
limitation, privacy and data protection Laws of any Governmental Entity, except
where the failure to have so complied or to be presently complying would neither
have a Material Adverse Effect with respect to the Company nor constitute
violations of criminal laws that could subject the Company or any Subsidiary to
criminal liability. Neither the Company nor any Subsidiary has received any
notification of or has any knowledge of any asserted material failure by it to
comply with any of such Laws.
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(i) EMPLOYEE BENEFIT PLANS. (i) Section 3.01(i) of the Company Disclosure
Schedule contains a true and complete list of each "employee benefit plan"
(within the meaning of section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), governmental plan or government-mandated
plan or arrangement providing for retirement or health or other employee
benefits for which contributions are required under any applicable Law
("GOVERNMENTAL PLANS"), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements relating to employment, benefits or
entitlements, whether or not subject to ERISA (including any funding mechanism
therefor now in effect or required in the future as a result of the transactions
contemplated by this Agreement or otherwise), whether formal or informal, oral
or written, legally binding or not under which any employee or former employee
of the Company or any of its Subsidiaries has any present or future right to
benefits or under which the Company or any of its Subsidiaries has any present
or future liability (all such plans, agreements, programs, policies and
arrangements are herein collectively referred to as the "COMPANY PLANS");
PROVIDED that such list does not include any employment agreement which (i)
provides for the payment of annual cash compensation in an amount less than
$50,000 and (ii) does not impose any material obligation upon any of the Company
and its Subsidiaries (the "EXCLUDED EMPLOYMENT AGREEMENTS").
(ii) With respect to each Company Plan (other than the Excluded
Employment Agreements), the Company has delivered to Parent a current, accurate
and complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable, (A) any related trust
agreement, annuity contract or other funding instrument; (B) the most recent
determination letter; (C) the current summary plan description and other written
communications by the Company to its employees concerning the extent of the
benefits provided under a Company Plan; and (D) for the most recent year (I) the
Form 5500 and attached schedules; (II) audited financial statements; (III)
actuarial valuation reports; and (IV) attorney's response to an auditor's
request for information.
(iii) (A) Each Company Plan has been established and administered in
material compliance with its terms and with the applicable provisions of ERISA,
the Code and other applicable laws, rules and regulations (including the
applicable laws, rules and regulations of any foreign jurisdiction); (B) each
Company Plan which is intended to be qualified within the meaning of Section
401(a) of the Code is so qualified and, except for the Walsh America 401(k)
Retirement Plan, has received a favorable determination letter as to its
qualification and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification; (C) with respect to any
Company Plan, no actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the knowledge of the
Company, threatened, no facts or circumstances exist which could give rise to
any such actions, suits or claims and the Company will promptly notify Parent in
writing of any pending claims or, to the knowledge of the Company, any
threatened claims arising between the date hereof and the Effective Time of the
Merger; (D) neither the Company nor, to the knowledge of the Company, any other
party has engaged in a prohibited transaction, as such term is defined under
Section 4975 of the Code or ERISA Section 406, which would subject the Company
or Parent or its Subsidiaries to any material taxes, penalties or other
liabilities under the Code or ERISA; (E) no event has occurred and no condition
exists that would subject the Company, either directly or by reason of its
affiliation with any member of its "CONTROLLED GROUP" (defined as any
organization which is a member of a controlled group of organizations within the
meaning of Sections 414(b), (c), (m) or (o) of the Code), to any material tax,
fine or penalty imposed by ERISA, the Code or other applicable laws, rules and
regulations (including the applicable laws, rules and regulations of any foreign
jurisdiction); (F) all insurance premiums required to be paid and all
contributions required to be made under the terms of any Company Plan, the Code,
ERISA or other applicable laws, rules and regulations (including the applicable
laws, rules and regulations of any foreign jurisdiction) as of the Effective
Time of the Merger have been or will be timely paid or made prior thereto and
adequate reserves have been provided for on the Company's balance sheet for any
premiums (or portions thereof) and for all benefits attributable to service on
or prior to the Effective Time of the Merger; (G) except for the Source
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Information America, PMSI Scott-Levin and Walsh America 401(k) Retirement Plan,
each Company Plan with respect to which a Form 5500 has been filed, no material
change has occurred with respect to the matters covered by the most recent Form
since the date thereof; and (H) no Company Plan provides for an increase in
benefits on or after the Effective Time of the Merger.
(iv) No Company Plan is subject to Title IV of ERISA, and no Company
Plan is a multiemployer plan as defined in Section 4001(A)(3) of ERISA. The
Company has never been required to contribute to or sponsored any multiemployer
plan or any plan subject to Title IV of ERISA.
(v) Except as set forth in Section 3.01(i)(v) of the Company Disclosure
Schedule, no Company Plan exists which could result in the payment to any
Company employee of any money or other property or rights or accelerate or
provide any other rights or benefits to any Company employee as a result of the
transactions contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Section 280G of the Code.
(vi) (i) Each Company Plan which is intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the
Code meets such requirements; and (ii) the Company has received a favorable
determination from the Internal Revenue Service with respect to any trust
intended to be qualified within the meaning of Section 501(c)(9) of the Code.
(vii) Except as provided in Section 3.01(i)(vii) of the Company
Disclosure Schedule, no independent contractor or other contract employee has
participated or is entitled to participate in any Company Plan.
(viii) The Employee Stock Purchase Plan approved by the Board of
Directors of the Company as of December 30, 1997 (the "Employee Stock Purchase
Plan") has not been put into effect and no person, including any employee of the
Company or any of its Subsidiaries, has purchased or has any right to purchase
any shares of capital stock of the Company thereunder.
(j) TAXES. Except as disclosed in Section 3.01(j) of the Company Disclosure
Schedule: (i) the Company and each of its Subsidiaries, and any consolidated,
combined, unitary or aggregate group of which the Company or any of its
Subsidiaries is or has been a member has timely filed all Tax Returns required
to be filed by it, or requests for extensions to file such Tax Returns have been
timely filed, granted and have not expired; (ii) all such Tax Returns are
complete and correct in all material respects; (iii) the Company and each of its
Subsidiaries, and any consolidated, combined, unitary or aggregate group of
which the Company or any of it Subsidiaries is or has been a member, has paid
all Taxes due or has provided adequate reserves in its financial statements
(other than in respect of deferred taxes) for any Taxes that have not been paid;
(iv) no material claim for unpaid Taxes has been asserted by a Tax authority or
has become a lien against the property of the Company or any of its Subsidiaries
(other than with respect to Taxes not yet due and payable) or is being asserted
against the Company or any of its Subsidiaries; (v) no audit or other proceeding
with respect to any Taxes due from or with respect to the Company or any of its
Subsidiaries or any Tax Return filed by the Company or any of its Subsidiaries
is being conducted by any governmental or Tax authority and the Company and its
Subsidiaries have not received notification in writing that any such audit or
other proceeding with respect to Taxes or any Tax Return is pending; (vi) no
extension of the statute of limitations on the assessment of any Taxes has been
granted by the Company or any of its Subsidiaries; and (vii) neither the Company
nor any of its Subsidiaries is subject to liability for Taxes of any Person
(other than the Company or its Subsidiaries), including, without limitation,
liability arising from the application of Treasury Regulation section 1.1502-6
or any analogous provision of state, local or foreign law, or as a transferee or
successor, by contract, or otherwise. As used herein, "TAXES" shall mean all
taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, social security, transfer,
net worth, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental
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authority, domestic or foreign. As used herein, "TAX RETURN" shall mean any
return, report or statement required to be filed with any governmental authority
with respect to Taxes.
(k) PROPERTIES. Except as disclosed in Section 3.01(k) of the Company
Disclosure Schedule, the Company or one of its Subsidiaries (i) has good and
marketable title to all the properties and assets (A) reflected in the 1997
Balance Sheet as being owned by the Company or one of its Subsidiaries (other
than any such properties or assets sold or disposed of since June 30, 1997 in
the ordinary course of business consistent with past practice) and (B) acquired
after June 30, 1997 which are material to the Company's business on a
consolidated basis, in each case free and clear of all Liens, except statutory
Liens securing payments not yet due and such Liens as do not materially affect
the use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations at such properties and (ii) is
the lessee of all leasehold estates (x) reflected in the 1997 Balance Sheet and
(y) acquired after June 30, 1997 which are material to its business on a
consolidated basis (except for leases that have expired by their terms since the
date thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto (except as affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing), and there is no default
thereunder by the lessee or, to the Company's knowledge, as of the date hereof,
the lessor that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect with respect to the Company. As of the date
hereof, the Company has not received written notice and does not otherwise have
knowledge of any pending, threatened or contemplated condemnation proceeding
affecting any premises owned or leased by the Company or any of its Subsidiaries
or any part thereof or of any sale or other disposition of any such owned or
leased premises or any part thereof in lieu of condemnation.
(l) ENVIRONMENTAL MATTERS. Except as could not reasonably be expected to
result in any liability under or relating to Environmental Laws (as defined in
Section 8.04) to the Company or any of its Subsidiaries which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse Effect
with respect to the Company:
(i) each of the Company and each of its Subsidiaries holds and is, and
has been, in compliance with all Environmental Permits (as defined in
Section 8.04), and each of the Company and each of its Subsidiaries is, and
has been, otherwise in compliance with all Environmental Laws and, to the
knowledge of the Company, there are no conditions that might prevent or
interfere with such compliance in the future;
(ii) neither the Company nor any of its Subsidiaries has received any
written Environmental Claim or has knowledge of any other Environmental
Claim or threatened Environmental Claim;
(iii) neither the Company nor any of its Subsidiaries has entered into
any consent decree, order or agreement under or relating to any
Environmental Law;
(iv) there are no past (including, without limitation, with respect to
assets or businesses formerly owned, leased or operated by the Company or
any of its Subsidiaries) or present actions, activities, events, conditions
or circumstances, including without limitation the release, threatened
release, emission, discharge, generation, treatment, storage or disposal of
Hazardous Materials, that could reasonably be expected to give rise to
liability of the Company or any of its Subsidiaries under any Environmental
Laws; and
(v) no modification, revocation, reissuance, alteration, transfer, or
amendment of the Environmental Permits, or any review by, or approval of,
any third party of the Environmental Permits is required in connection with
the execution or delivery of this Agreement or the consummation of the
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transactions contemplated hereby or the continuation of the business of the
Company or any of its Subsidiaries following such consummation.
(m) CONTRACTS; DEBT INSTRUMENTS. (i) Neither the Company nor any of its
Subsidiaries is, or has received any notice or has any knowledge that any other
party, as of the date hereof, is, or by virtue of the transactions contemplated
hereby, will be, in default in any respect under any contract, agreement,
commitment, arrangement, lease, policy or other instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any such
subsidiary is bound, except for those defaults which could not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect with respect to the Company; and, to the knowledge of the Company, there
has not occurred any event, nor will this transaction by its terms cause the
occurrence of any event, that with the lapse of time or the giving of notice or
both would constitute such a default.
(ii) The Company has made available to Parent (x) true and correct
copies (or accurate English translations) of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness (as defined in section 8.04) of the Company
or any of its Subsidiaries in an aggregate principal amount in excess of
$500,000 is outstanding or may be incurred and (y) accurate information
regarding the respective principal amounts currently outstanding thereunder.
(iii) Except as set forth in Section 3.01(m)(iii) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to or bound by any agreement nor is there any judgment, decree, injunction, rule
or order of any Governmental Authority or arbitrator outstanding against the
Company or any of its Subsidiaries, that, following the Effective Time of the
Merger, would impose any
material restriction on the ability of Parent or any of its Subsidiaries
(including the Surviving Corporation and its Subsidiaries) to conduct any of the
businesses currently conducted by any of them.
(iv) Except as set forth in Section 3.01(m)(iv) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to or bound by any agreement which, pursuant to the requirements of Form 10-K
under the Exchange Act, would be required to be filed as an exhibit to an Annual
Report on Form 10-K of the Company, except agreements included or incorporated
by reference as exhibits to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 or any Recent SEC Document.
(v) Set forth in Section 3.01(m)(v) of the Company Disclosure Schedule
are all (a) (i) data supply contracts and (ii) customer contracts between the
Company or any of its Subsidiaries and third parties involving the provision of
products or services in more than one country; (b) contracts between the Company
or any of its Subsidiaries, on the one hand, and any of their respective
directors, officers, employees or affiliates, or any former directors, officers,
employees or affiliates of the Company, on the other hand (other than the
Excluded Employment Agreements); (c) joint venture and/or agreements and
development agreements to which the Company or any of its Subsidiaries is a
party; and (d) contracts between the Company or any of its Subsidiaries, on the
one hand, either National Data Corporation, Source Informatics Inc. and/or
Pharmaceutical Marketing Services Inc. or any of their respective subsidiaries,
on the other hand.
(vi) Except as disclosed in Section 3.01(m)(vi) of the Company
Disclosure Schedule, (i) as of the date of this Agreement, with respect to each
of its current customers, neither the Company nor any of its Subsidiaries has
received notice to the effect that (or has knowledge that) any such customer
intends to terminate or otherwise modify its relationship with the Company or
any of its Subsidiaries or decrease or limit the services rendered or products
sold by the Company or its Subsidiaries, which termination, modification,
decrease or limit would in the aggregate result in a decrease in revenues of the
Company and its Subsidiaries in an amount in excess of $500,000 on an annualized
basis and (ii) during the fiscal year ended June 30, 1997, no customer of the
Company or its Subsidiaries terminated or otherwise modified its relationship
with the Company or any of its Subsidiaries or decreased or limited the services
rendered or products sold by the Company or its Subsidiaries, which termination,
modification, decrease or limit
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resulted in an aggregate decrease in revenues of the Company and its
Subsidiaries in an amount in excess of $500,000 for the fiscal year ended June
30, 1997 as compared to the fiscal year ended June 30, 1996.
(vii) The Company has not entered into any material purchase commitment,
customer contract or other arrangement with any third party that was not entered
into in the ordinary course of business of the Company and consistent with its
past practice or which contains any material term that is not customary with
respect to commitments, contracts or arrangements of such type.
(n) BROKERS. Except as disclosed in Section 3.01(n) of the Company
Disclosure Schedule, no broker, investment banker, financial advisor or other
person, other than NationsBanc Montgomery Securities ("NMS"), the fees and
expenses of which will be paid by the Company (pursuant to fee agreements,
copies of which have been provided to Parent), is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement or the Stock Option
Agreement based upon arrangements made by or on behalf of the Company. The
Company agrees to indemnify Parent and Sub and to hold Parent and Sub harmless
from and against any and all claims, liabilities or obligations with respect to
any other fee, commission or expense asserted by any person on the basis of any
act or statement alleged to have been made by the Company or any of its
affiliates.
(o) OPINION OF FINANCIAL ADVISOR. The Company has received as of the date of
this Agreement the opinion of NMS to the effect that, as of such date, the
Merger Consideration is fair, from a financial point of view, to the holders of
Company Common Stock (other than Parent and its affiliates).
(p) BOARD RECOMMENDATION; STATE ANTITAKEOVER LAW. The Board of Directors of
the Company, at a meeting duly called and held, has by unanimous vote of those
directors present (i) determined that this Agreement and the Stock Option
Agreement and the transactions contemplated hereby and thereby, including the
Merger, taken together, are fair to and in the best interests of the
stockholders of the Company and has taken all actions necessary on the part of
the Company to render the restrictions on business combinations contained in
Section 203 of the DGCL inapplicable to this Agreement, the Merger and the Stock
Option Agreement and (ii) resolved to recommend that the holders of the shares
of Company Common Stock approve this Agreement and the transactions contemplated
herein, including the Merger.
(q) REQUIRED COMPANY VOTE. The Company Stockholder Approval, being the
affirmative vote of a majority of the outstanding shares of the Company Common
Stock, is the only vote of the holders of any class or series of the Company's
securities necessary to approve this Agreement, the Merger and the other
transactions contemplated hereby. There is no vote of the holders of any class
or series of the Company's securities necessary to approve the Stock Option
Agreement.
(r) INTELLECTUAL PROPERTY. (i) Except as otherwise noted in Section
3.01(r)(i) of the Company Disclosure Schedule, the Company or one of its
Subsidiaries owns or has the right to use all Intellectual Property material to
the operation of the business of the Company and its Subsidiaries as currently
conducted or to products or services currently under development by the Company
or any of its Subsidiaries (collectively, "MATERIAL INTELLECTUAL PROPERTY"), and
has the right to use, license, sublicense or assign the same without liability
to, or any requirement of consent from, any other person or party; in this
regard, to the knowledge of the Company as of the date hereof, no facts or
circumstances exist which would affect the validity, subsistence or existence of
any Material Intellectual Property. Except as set forth in Section 3.01(r)(i) of
the Company Disclosure Schedule, all Material Intellectual Property is either
owned by the Company or its Subsidiaries free and clear of all Liens or is used
pursuant to an agreement or license and each such agreement or license is valid
and enforceable and in full force and effect and neither the Company nor any of
its Subsidiaries is in default under or in breach of any such license or
agreement and, to the knowledge of the Company as of the date hereof, none of
the licensors is in default under or in breach of any such license or agreement.
Unless otherwise noted in Section 3.01(r)(i) of the Company Disclosure Schedule,
(i) none of the Material Intellectual Property infringes or otherwise conflicts
with any proprietary or other
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right of any person or party; (ii) as of the date hereof, there is no pending or
threatened litigation, adversarial proceeding, administrative action or other
challenge or claim relating to any of the Material Intellectual Property; (iii)
there is no outstanding judgment, order, writ, injunction or decree relating to
any of the Material Intellectual Property; (iv) as of the date hereof, there is
currently no infringement by any third party of any of the Material Intellectual
Property; and (v) the Material Intellectual Property owned, used or possessed by
the Company or its Subsidiaries is sufficient and adequate to conduct the
business of the Company and its Subsidiaries to the full extent as such business
is currently conducted.
(ii) Each of the Company and each of its Subsidiaries has taken
reasonable steps to protect, maintain and safeguard their Material Intellectual
Property, including any Material Intellectual Property for which improper or
unauthorized disclosure would impair its value or validity, and has executed
appropriate nondisclosure agreements and made appropriate filings and
registrations in connection with the foregoing.
(iii) The Company or one of its Subsidiaries is the sole and exclusive
owner of all Software (which term includes, without limitation, all computer
programs, whether in source code or object code form, algorithms, edit controls,
methodologies, applications, flow charts and any and all systems documentation
(including, but not limited to, data entry and data processing procedures,
report generation and quality control procedures), logic and designs for all
programs, and file layouts and written narratives of all procedures used in the
coding or maintenance of the foregoing) that is required to conduct the
businesses of the Company and its Subsidiaries to the full extent such
businesses are currently conducted. Except as set forth in Section
3.01(r)(iii)(b) of the Company Disclosure Schedule, all of the Software owned by
the Company or any of its Subsidiaries, including, without limitation, Premiere
and Precise, is Year 2000 Compliant (as defined in Section 8.04).
Notwithstanding anything to the contrary set forth in this Section 3.01(r)(iii),
the term "Software" does not include any software used or held for use by the
Company or its Subsidiaries and not owned by the Company or its Subsidiaries,
including but not limited to any software licensed or leased by third parties to
the Company or its Subsidiaries and commonly available "shrink wrap" software
copyrighted by third parties (collectively, the "THIRD PARTY SOFTWARE"). All of
the Third Party Software required to conduct the businesses of the Company and
its Subsidiaries to the full extent such businesses are currently conducted is
used pursuant to an agreement or license and each such agreement or license is
valid and enforceable and in full force and effect and neither the Company nor
any of its Subsidiaries is in default under or in breach of any such license or
agreement and, to the knowledge of the Company as of the date hereof, none of
the licensors is in default under or in breach of any such license or agreement.
To the Company's knowledge as of the date hereof, except as set forth in Section
3.01(r)(iii)(c) of the Company Disclosure Schedule, all of the Third Party
Software is Year 2000 Compliant.
(iv) The Company or one of its Subsidiaries is the sole and exclusive
owner of all Databases (which term includes, without limitation, all databases,
documentation and written narratives of all procedures used in connection with
the collection, processing and distribution of data contained in the databases)
that are required to conduct the businesses of the Company and its Subsidiaries
to the full extent such businesses are currently conducted. The Databases,
together with the Third Party Databases (as defined below), contain that data
heretofore used by the Company and its Subsidiaries in the operation of their
respective businesses. Except as set forth in Section 3.01(r)(iv)(b) of the
Company Disclosure Schedule, the Databases are Year 2000 Compliant.
Notwithstanding anything to the contrary set forth in this Section 3.1(r)(iv),
the term "Databases" does not include any databases used or held for use by the
Company and its Subsidiaries and not owned by the Company and its Subsidiaries,
including, but not limited to, any databases licensed or leased by third parties
to the Company and databases generally available to the public (collectively,
the "THIRD PARTY DATABASES"). All of the Third Party Databases required to
conduct the businesses of the Company and its Subsidiaries to the full extent
such businesses are currently conducted are used pursuant to an agreement or
license and each such agreement or license is valid and enforceable and in full
force and effect and neither the Company nor any of its Subsidiaries is in
default under or in breach of any such license or agreement and, to the
knowledge of the Company as of
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the date hereof, none of the licensors is in default under or in breach of any
such license or agreement. To the Company's knowledge as of the date hereof,
except as set forth in Section 3.01(r)(iv)(c) of the Company Disclosure
Schedule, all of the Third Party Databases are Year 2000 Compliant.
(v) Except as set forth in Section 3.01(r)(v) of the Company Disclosure
Schedule, to the knowledge of the Company, no confidential or trade secret
information of the Company or any of its Subsidiaries has been provided to any
party except subject to written confidentiality agreements.
(s) OWNERSHIP OF PARENT COMMON STOCK. Neither the Company nor, to its
knowledge, any of its affiliates or associates (as such terms are defined under
the Exchange Act), (i) beneficially owns, directly or indirectly, or (ii) is a
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of Parent which in the aggregate represent 5% or more of the outstanding
shares of such capital stock.
(t) RIGHTS AGREEMENT. (i) The Company has taken all actions necessary so as
to provide that neither Parent nor Sub will become an "Acquiring Person" and
that no "Flip-In Event", "Flip-In Trigger Date", "Flip-Over Event", "Shares
Acquisition Date", "Redemption Date" or "Distribution Date" (as such terms are
defined in the Rights Agreement) will occur as a result of the approval,
execution or delivery of this Agreement or the Stock Option Agreement or the
consummation of the Merger or the acquisition of shares of Company Common Stock
by Parent pursuant to the Stock Option Agreement.
(ii) The Company has taken all actions necessary with respect to all of
the outstanding Rights so that, immediately prior to the Effective Time of the
Merger, (A) neither Company nor Parent will have any obligations under the
Rights or the Rights Agreement and (B) the holders of the Rights will have no
rights under the Rights or the Rights Agreement.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and
Sub represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of Parent, Sub and each
of Parent's "significant subsidiaries" (within the meaning of Rule 1-02 of
Regulation S-X of the SEC) (collectively, the "PARENT SUBSIDIARIES") is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of Parent, Sub
and each of the Parent Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction (domestic or foreign) in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the aggregate) could
not reasonably be expected to have a Material Adverse Effect with respect to
Parent. Parent has made available to the Company complete and correct copies of
its articles of incorporation and by-laws and the certificate of incorporation
and by-laws of Sub.
(b) CAPITAL STRUCTURE. (i) As of the date of this Agreement, the authorized
capital stock of Parent consists of 400,000,000 shares of Parent Common Stock,
10,000,000 shares of Series Common Stock, $.01 per share, of Parent ("SERIES
STOCK") and 10,000,000 shares of preferred stock, par value $.01 per share, of
Parent ("PARENT PREFERRED STOCK"). As of the close of business on March 10,
1998, there were: (i) 171,120,069 shares of Parent Common Stock issued and
outstanding; (ii) 7,702,009 shares of Parent Common Stock held in the treasury
of Parent; (iii) 12,189,852 shares of Parent Common Stock reserved for issuance
pursuant to Parent's stock option and stock purchase plans (such plans,
collectively, the "PARENT STOCK PLANS"); (iv) 15,002,581 shares of Parent Common
Stock issuable upon exercise of awarded but unexercised stock options; and (v)
no shares of Series Stock or Parent Preferred Stock outstanding. Except as set
forth above and except for shares of junior participating preferred stock
issuable pursuant to the Rights Agreement, dated as of October 15, 1996, between
Parent and First Chicago Trust Company of New York, as of the close of business
on March 10, 1998 there were no shares of capital stock or other equity
securities of Parent issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of
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Parent are, and all shares which may be issued as described above will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no outstanding bonds, debentures, notes
or other indebtedness or debt securities of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Parent may vote. Except as set forth
above or in Section 3.02(b) of the disclosure schedule delivered by Parent and
Sub to the Company at the time of execution of this Agreement (the "Parent
Disclosure Schedule"), there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent is a party or by which it is bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of Parent or obligating
Parent to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. There are no
outstanding contractual obligations, commitments, understandings or arrangements
of Parent to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of Parent.
(ii) During the period from March 10, 1998 through the date of this
Agreement, except as set forth in Section 3.02(b) of the Parent Disclosure
Schedule, Parent did not (A) issue or permit to be issued any shares of capital
stock, or securities exercisable for or convertible into shares of capital
stock, of Parent, other than pursuant to or as permitted by the terms of the
Parent Stock Plans; (B) repurchase, redeem or otherwise acquire, directly or
indirectly through one or more subsidiaries, any shares of capital stock of
Parent; or (C) declare, set aside, make or pay to the stockholders of Parent
dividends or other distributions on the outstanding shares of capital stock of
Parent (other than regular quarterly cash dividends on the Parent Common Stock).
(iii) As of the date hereof, the authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of which
have been validly issued, are fully paid and nonassessable and are owned by
Parent, free and clear of any Lien.
(iv) As of the Closing Date, all the issued and outstanding shares of
the common stock of Sub will be owned by Parent free and clear of any Lien.
(c) AUTHORITY; NONCONTRAVENTION. Parent and Sub have all requisite corporate
power and authority to enter into each of this Agreement and the Stock Option
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of each of this Agreement and the Stock Option
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub. This Agreement and the
Stock Option Agreement have been duly executed and delivered by each of Parent
and Sub and (assuming due authorization, execution and delivery by the Company)
constitute valid and binding obligations of Parent and Sub, enforceable against
them in accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing. The execution and delivery of each of this
Agreement and the Stock Option Agreement does not, and the consummation by
Parent and Sub of the transactions contemplated by this Agreement and compliance
by Parent and Sub with the provisions of this Agreement and the Stock Option
Agreement will not, conflict with, or result in any breach or violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of, or a "put" right
with respect to any obligation under, or to a loss of a material benefit under,
or result in the creation of any Lien under, (i) the certificate of
incorporation or by-laws of Parent, Sub or any other subsidiary of Parent, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or any
other contract, agreement, instrument, permit, concession, franchise or license
to which Parent, Sub or any other subsidiary of Parent is a party or by which
any of their respective properties or assets are bound or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree,
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statute, law, ordinance, rule, regulation or arbitration award applicable to
Parent, Sub or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or in
the aggregate could not reasonably be expected to have a Material Adverse Effect
with respect to Parent. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental Entity
or any other third party is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement or the Stock Option
Agreement by Parent and Sub or the consummation by Parent and Sub of any of the
transactions contemplated hereby or thereby, except for (i) the filing of a
premerger notification and report form under the HSR Act and the filing of such
applications or notices by Parent and Sub as may be required pursuant to merger
control, antitrust, foreign investment or similar laws or regulations in effect
in Canada, Germany or any political subdivision thereof, (ii) the filing with
the SEC and the NYSE of (A) the Form S-4 and (B) such reports under the Exchange
Act as may be required in connection with this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby, (iii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iv) such other consents,
approvals, orders, authorizations, registrations, declarations, filings or
notices as may be required under the "takeover" or "blue sky" laws of various
states and (v) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, could not reasonably be expected to
(x) prevent or materially delay consummation of the Merger or the other
transactions contemplated hereby or performance of Parent's and Sub's
obligations hereunder and under the Stock Option Agreement or (y) have a
Material Adverse Effect with respect to Parent.
(d) PARENT SEC DOCUMENTS; UNDISCLOSED LIABILITIES. Parent has filed with the
SEC all reports, schedules, forms, statements and other documents required to be
filed by it pursuant to the Securities Act and the Exchange Act since November
1, 1996 (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, the "PARENT SEC
DOCUMENTS"). Except as set forth in Section 3.02(d) of the Parent Disclosure
Schedule, as of their respective dates, the Parent SEC Documents complied as to
form in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents (including any and all financial statements included
therein) as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as set forth in Section 3.02(d) of
the Parent Disclosure Schedule, except to the extent that information contained
in any Parent SEC Document has been revised or superseded by a later filed
Parent SEC Document, none of the Parent SEC Documents (including any and all
financial statements included therein) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Except as disclosed in
Section 3.02(d) of the Parent Disclosure Schedule, the consolidated financial
statements of Parent included in all Parent SEC Documents filed since November
1, 1996 (the "PARENT SEC FINANCIAL STATEMENTS") comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly financial statements, as permitted by Form 10-Q
of the SEC), applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal recurring year-end audit adjustments). Except as disclosed in Section
3.02(d) of the Parent Disclosure Schedule, as of the date hereof, neither Parent
nor any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent
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or otherwise) required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of Parent and its
consolidated subsidiaries or in the notes thereto, except (i) liabilities
reflected in the audited consolidated balance sheet of Parent as of December 31,
1997, (ii) liabilities disclosed in any SEC Document filed by Parent prior to
the date of this Agreement with respect to any period ending, or date occurring,
after December 31, 1997 and (iii) liabilities incurred since December 31, 1997
in the ordinary course of business consistent with past practice.
(e) INFORMATION SUPPLIED. None of the information supplied or to be supplied
by Parent or Sub for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder, except that no representation is made by Parent or Sub with respect
to statements made or incorporated by reference therein based on information
supplied in writing by the Company specifically for inclusion or incorporation
by reference therein.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Section
3.02(f) of the Parent Disclosure Schedule, during the period from December 31,
1997 through and including the date hereof, there is not and has not been: (i)
any Material Adverse Change with respect to Parent; (ii) any condition, event or
occurrence which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect or give rise to a Material Adverse Change with
respect to Parent; (iii) any action or failure to act which, if it had been
taken or not taken after the execution of this Agreement, would have required
the consent of the Company pursuant to this Agreement; or (iv) any condition,
event or occurrence which, individually or in the aggregate, could reasonably be
expected to prevent or materially delay the ability of Parent and Sub to
consummate the transactions contemplated by this Agreement or perform its
obligations hereunder or under the Stock Option Agreement.
(g) LITIGATION; COMPLIANCE WITH LAWS. (i) Except as disclosed in Section
3.02(g)(i) of the Parent Disclosure Schedule or in the Parent SEC Documents, as
of the date hereof, there is (1) no suit, action, arbitration or proceeding
pending, and (2) to the knowledge of Parent, no suit, action, arbitration or
proceeding threatened against or investigation pending, in each case with
respect to Parent or any of its subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect with
respect to Parent or prevent or materially delay the ability of Parent and Sub
to consummate the transactions contemplated by this Agreement or to perform
their obligations hereunder and under the Stock Option Agreement nor is there
any judgment, decree, citation, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Parent or any of its subsidiaries
which, individually or in the aggregate, has or could reasonably be expected to
have a Material Adverse Effect with respect to the Company or prevent or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement or to perform its
obligations hereunder or thereunder. To the knowledge of Parent, except as
disclosed in Section 3.02(g)(i) of the Parent Disclosure Schedule or in any SEC
Document filed by Parent prior to the date of this Agreement with respect to any
period ending, or date occurring, after December 31, 1997, as of the date hereof
there is no reasonable basis for any action, suit, arbitration or proceeding
that, individually or in the aggregate, could reasonable be expected to have a
Material Adverse Effect with respect to Parent or prevent or materially delay
the ability of Parent or Sub to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement or to perform their obligations
hereunder or thereunder.
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(ii) Except as disclosed in Section 3.02(g)(ii) of the Parent Disclosure
Schedule, the businesses of Parent and its subsidiaries are not being conducted
in violation of any law (domestic or foreign), ordinance or regulation of any
Governmental Entity, except for possible violations which, individually or in
the aggregate, do not and could not reasonably be expected to have a Material
Adverse Effect with respect to Parent.
(h) BROKERS. No broker, investment banker, financial advisor or other
person, other than Goldman, Sachs & Co., the fees and expenses of which will be
paid by Parent, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent or Sub.
Parent agrees to indemnify the Company and to hold the Company harmless from and
against any and all claims, liabilities or obligations with respect to any other
fee, commission or expense asserted by any person on the basis of any act or
statement alleged to have been made by Parent or its affiliates.
(i) INTERIM OPERATIONS OF SUB. Sub was formed on March 11, 1998 solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
(j) REQUIRED VOTE. This Agreement has been approved by Parent, as the sole
stockholder of Sub. No other vote of holders of any class or series of
securities of Parent or Sub is necessary to approve this Agreement, the Merger,
the Stock Option Agreement and the transactions contemplated hereby and thereby.
(k) OWNERSHIP OF COMPANY COMMON STOCK. Neither Parent nor, to its knowledge,
any of its affiliates or associates (as such terms are defined under the
Exchange Act), (i) beneficially owns, directly or indirectly, or (ii) is a party
to any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of capital stock of the
Company, which in the aggregate represent 5% or more of the outstanding shares
of such capital stock.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 4.01. CONDUCT OF BUSINESS. (A) CONDUCT OF BUSINESS BY THE COMPANY.
During the period from the date of this Agreement to the Effective Time of the
Merger (except as otherwise expressly contemplated by the terms of this
Agreement), and except as approved by Parent, the Company shall, and shall cause
each of its Subsidiaries to, act and carry on its and their respective
businesses in the ordinary course of business consistent with past practice and
use its and their respective reasonable efforts to preserve substantially intact
its and their current business organizations, keep available the services of its
and their current officers and employees and preserve its and their
relationships with customers, suppliers, licensors, licensees, advertisers,
distributors and others having significant business dealings with it and them.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time of the Merger, the Company shall
not, and shall not permit any of its Subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned domestic Subsidiary
to its parent, (y) split, combine or reclassify any capital stock of the
Company or any of its Subsidiaries or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
capital stock of the Company or any of its Subsidiaries, or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or
any of its Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities or any other
securities or equity equivalents (including without limitation stock
appreciation rights), other than the issuance of
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Company Common Stock upon (i) the exercise of Warrants outstanding on the
date of this Agreement in accordance with their present terms and (ii) the
exercise of Company Stock Options awarded prior to the date of this
Agreement but unexercised on the date of this Agreement in accordance with
their present terms;
(iii) (A) amend the Certificate of Incorporation or By-Laws or
comparable charter or organizational documents of any Subsidiary, or (B)
amend or terminate the Rights Agreement;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof;
(v) other than as set forth in Section 4.01(a)(v) of the Company
Disclosure Schedule with respect to the sale of certain assets at not less
than the fair market value thereof, sell, lease, license, mortgage or
otherwise encumber or subject to any Lien or otherwise dispose of any of its
properties or assets other than any such properties or assets the value of
which do not exceed $100,000 individually and $500,000 in the aggregate,
except sales of inventory in the ordinary course of business consistent with
past practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice and intercompany indebtedness between the Company and its
wholly-owned Subsidiaries or between such wholly owned Subsidiaries, or (B)
make any loans, advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect wholly
owned Subsidiary;
(vii) acquire or agree to acquire any assets, other than inventory in
the ordinary course of business consistent with past practice, or make or
agree to make any capital expenditures, except capital expenditures that
either are contemplated (with respect to both nature and amount) by the
Company's capital budget for the fiscal year ending June 30, 1998 (a true
and correct copy of which is included Schedule 4.01(a)(vii) of the Company
Disclosure Schedule) or do not exceed $100,000 in the aggregate;
(viii) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of (x) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof and other liabilities and obligations not
exceeding $75,000 individually or $250,000 in the aggregate, or (y) claims
settled or compromised to the extent permitted by Section 4.01(a)(xii), or
waive, release, grant, or transfer any rights of material value or modify or
change in any material respect any existing material license, lease,
contract or other document, other than in the ordinary course of business
consistent with past practice;
(ix) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(x) enter into or amend any collective bargaining agreement;
(xi) change any material accounting principle used by it, except as
required by generally accepted accounting principles;
(xii) settle or compromise any litigation or claim (whether or not
commenced prior to the date of this Agreement), other than settlements or
compromises of litigation or claims that neither provide
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for injunctive or similar relief that could be material to the business or
operations of the Company or any of its Subsidiaries nor require payments
(after giving effect to insurance proceeds actually received or reasonably
believed by management of the Company to be receivable) in settlement or
compromise exceeding $75,000, provided that the aggregate amount paid in
connection with the settlement or compromise of all such litigation matters
shall not exceed $250,000;
(xiii) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Company's affiliates, including, without limitation, any transactions,
agreements, arrangements or understandings with any affiliate or other
Person covered under Item 404 of SEC Regulation S-K that would be required
to be disclosed under such Item 404, other than such transactions of the
same general nature, scope and magnitude as are disclosed in the Company SEC
Documents;
(xiv) transfer to any person or entity any rights to its Intellectual
Property, other than the provision of data or the granting of end-user
licenses in the ordinary course of business consistent with past practice to
customers of the Company or its Subsidiaries;
(xv) enter into or amend any agreement pursuant to which any other party
is granted exclusive marketing or other exclusive rights of any type or
scope with respect to any of its products or technology; or
(xvi) authorize, or commit or agree to take, any of the foregoing
actions.
(b) CONDUCT OF BUSINESS BY PARENT. During the period from the date of this
Agreement to the Effective Time of the Merger, Parent shall not:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (1) in
connection with the Parent Transaction and (2) regular quarterly cash
dividends (in an amount determined in a manner consistent with Parent's past
practice) with customary record and payment dates, or (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in lieu of or in substitution for shares of its capital
stock;
(ii) amend Parent's articles of incorporation or by-laws in a manner
that would be materially adverse to the holders of Merger Stock (it being
understood that an amendment to the articles of incorporation of Parent
increasing the number of authorized shares of Parent Common Stock or other
capital stock of Parent shall not be deemed to be materially adverse to the
holders of Merger Stock); or
(iii) authorize, or commit or agree to take, any of the foregoing
actions.
(c) CHANGES IN EMPLOYMENT ARRANGEMENTS. Neither the Company nor any of its
Subsidiaries shall (i) adopt or amend (except as may be required by law) any
Company Plan for the benefit or welfare of any employee, officer, director or
former director, officer or employee, (ii) other than increases for individuals
(other than executive officers and directors) in the ordinary course of business
consistent with past practice, increase the compensation or fringe benefits of
any director, officer, employee or former director, officer or employee or pay
any benefit not required by any existing plan, arrangement or agreement or (iii)
take any action to implement the Employee Stock Purchase Plan; provided that the
foregoing shall not prohibit the Company from entering into commitments with
respect to the payment of "stay bonuses" and similar incentive compensation not
exceeding $300,000 in the aggregate.
(d) SEVERANCE. Except as contemplated by the proviso to the immediately
preceding paragraph (c), neither the Company nor any of its Subsidiaries shall
grant any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
(e) WARN. Neither the Company nor any of its Subsidiaries shall effectuate a
"plant closing" or "mass layoff," as those terms are defined in WARN, or a
similar restructuring affecting in whole or in part
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any site of employment, facility, operating unit or employee of the Company or
any of its Subsidiaries, without notifying Parent or its affiliates in advance
and without complying with the notice requirements and other provisions of WARN
or any applicable foreign laws or regulations.
(f) TAX ELECTIONS. Except as consistent with past practice, neither the
Company nor any of its Subsidiaries shall make any tax election or settle or
compromise any federal, state, local or foreign tax liability.
(g) TAX-FREE REORGANIZATION TREATMENT. No party shall, and none shall permit
any of its subsidiaries to, intentionally take or cause to be taken any action
which would disqualify the Merger as a "reorganization" within the meaning of
Section 368(a) of the Code; provided that the foregoing shall not be construed
to restrict Parent from completing the Parent Transaction.
(h) NOMINEE SHARES. The Company shall cause any person who owns any shares
of capital stock of any of the Company's Subsidiaries, whether in trust or
pursuant to any nominee arrangement with the Company or any of its Subsidiaries,
to transfer, effective not later than the Effective Time of the Merger, all
right, title and interest in and to such shares to Parent or any person
designated by Parent.
(i) OTHER ACTIONS. Neither the Company nor Parent shall, or shall permit any
of their respective subsidiaries to, (i) intentionally take any action or fail
to take any action that, if taken or not taken on or prior to the date of this
Agreement, would have resulted in any of its representations and warranties set
forth in this Agreement being untrue in any material respect, or (ii)
intentionally take any action that would or reasonably might be expected to
result in any of the conditions to the Merger set forth in Article VI not being
satisfied or in a violation of any provision of the Stock Option Agreement. The
Company and Parent shall promptly advise the other party orally and in writing
of (x) any action or failure to act of the type set forth in clause (i) above,
(y) the failure by such party to comply with any covenant, condition or
agreement hereunder or under the Stock Option Agreement and (z) any event which
could reasonably be expected to cause the conditions set forth in Article VI not
being satisfied; PROVIDED, HOWEVER, that no such notice shall affect the
representations, warranties, covenants and agreement of the parties or the
conditions to their obligations hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PREPARATION OF FORM S-4 AND PROXY STATEMENT; STOCKHOLDER
MEETING. (a) Promptly following the date of this Agreement, the Company shall
prepare the Proxy Statement, and Parent shall prepare and file (or cause to be
prepared and filed) with the SEC the Form S-4 in which the Proxy Statement will
be included. Parent and the Company shall each use its reasonable efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its reasonable efforts to
cause the Proxy Statement to be mailed to the Company's stockholders as promptly
as practicable after the Form S-4 is declared effective under the Securities
Act. Parent shall also take any action (other than qualifying to do business in
any state in which it is not now so qualified or filing a general consent to
service of process) required to be taken under any applicable state securities
laws in connection with the registration and qualification of the Merger Stock
to be issued in the Merger, and the Company shall furnish all information
relating to the Company and its stockholders as may be reasonably requested in
connection with any such action. The information provided and to be provided by
Parent, Sub and the Company, respectively, (i) for use in the Form S-4, at the
time the Form S-4 becomes effective, shall be true and accurate in all material
respects and shall not omit to state a material fact required to be stated
therein or necessary to make such information not misleading and (ii) for use in
the Proxy Statement, on the date the Proxy Statement is mailed to the Company's
stockholders and on the date of the Stockholders Meeting referred to below,
shall be true and correct in all material respects and shall not omit to state
any material fact required to be stated therein or necessary in order to make
such information, in the light of the circumstances under which the statements
therein were made, not misleading, and the Company and Parent each agree to
correct any information provided by it for use in the Form S-4 and/or the Proxy
Statement which shall have become false or misleading.
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(b) All mailings to the Company's stockholders in connection with the
Merger, including the Proxy Statement, shall be subject to the prior review,
comment and approval of Parent (such approval not to be unreasonably withheld or
delayed).
(c) The Company will, as promptly as practicable following the date of this
Agreement and in consultation with Parent, duly call, give notice of, convene
and hold a meeting of its stockholders (the "STOCKHOLDERS MEETING") for the
purpose of approving this Agreement and the transactions contemplated by this
Agreement to the extent required by the DGCL. The Company will, through its
Board of Directors, recommend to its stockholders approval of the foregoing
matters, as set forth in Section 3.01(p); PROVIDED, HOWEVER, that the Board of
Directors of the Company may fail to make or withdraw or modify such
recommendation, but only to the extent that the Board of Directors of the
Company shall have concluded in good faith on the basis of written advice from
outside counsel that the failure to take such action would be contrary to the
fiduciary duties of the Board of Directors of the Company to the stockholders of
the Company under applicable law. Any such recommendation, together with a copy
of the opinion referred to in Section 3.01(o), shall be included in the Proxy
Statement. The Company will use its best efforts to hold such meeting as soon as
practicable after the Form S-4 shall have been declared effective.
SECTION 5.02. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Each of the
Company and Parent shall, and shall cause its respective subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford to
the other party and its representatives reasonable access during normal business
hours, during the period prior to the Effective Time of the Merger, to its
properties, books, contracts, commitments, personnel and records, and, during
such period, each of the Company and Parent shall, and shall cause its
respective subsidiaries, officers, employees and representatives to, furnish
promptly to the other party (i) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Federal or state securities laws and (ii) all other information
concerning its business, properties, financial condition, operations and
personnel as such other party may from time to time reasonably request. Each of
the Company and Parent will hold, and will cause its respective directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in confidence
to the extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated April 22, 1997, between Parent and the Company
(the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall
continue in full force and effect following the execution and delivery of this
Agreement.
(b) No investigation pursuant to this Section 5.02 or otherwise shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.03. REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by this Agreement, including
(i) obtaining all consents, approvals, waivers, licenses, permits or
authorizations as are required to be obtained (or, which if not obtained, would
result in an event of default, termination or acceleration of any agreement or
any put right under any agreement) under any applicable law or regulation or
from any Governmental Entities or third parties in connection with the
transactions contemplated by this Agreement, (ii) defending any lawsuits or
other proceedings challenging this Agreement and (iii) accepting and delivering
additional instruments necessary to consummate the transactions contemplated by
this Agreement. The parties agree that each of Parent and Sub, on the one hand,
and the Company, on the other hand, shall have the opportunity to negotiate and
consult directly with all applicable Governmental Entities and third parties in
connection with their consideration of the transactions contemplated by this
Agreement. Notwithstanding anything in this Section 5.03 to the contrary,
neither party shall be required to: (i) expend material sums of money or grant
material financial or other
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accommodations to any party, (ii) divest any material operations or (iii) set
aside any material assets in order to satisfy the terms of this Section 5.03.
SECTION 5.04. INDEMNIFICATION. (a) From and after the Effective Time of
the Merger, Parent and the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time of the Merger, eligible for
indemnification pursuant to the Certificate of Incorporation and By-Laws or the
constituent organizational documents of any Subsidiary (the "INDEMNIFIED
PARTIES') against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of the Company or any of its Subsidiaries,
pertaining to any matter existing or occurring at or prior to the Effective Time
of the Merger, whether asserted or claimed prior to, or at or after, the
Effective Time of the Merger (the "INDEMNIFIED LIABILITIES") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the extent the Company or such Subsidiary would have
been permitted under the Certificate of Incorporation and By-laws, or such other
constituent organizational documents, as the case may be, to indemnify such
person. Nothing contained herein shall limit any rights to indemnification which
any Indemnified Party may have under any indemnification agreement or the
Certificate of Incorporation or By-Laws or the constituent organizational
documents of any Subsidiary. In the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Parties (whether
arising before or after the Effective Time of the Merger), (i) any counsel
retained by the Indemnified Parties for any period after the Effective Time of
the Merger shall be reasonably satisfactory to Parent and the Surviving
Corporation (it being understood that Reboul, MacMurray, Hewitt, Maynard &
Kristol is acceptable to Parent and the Surviving Corporation); (ii) after the
Effective Time of the Merger, Parent or the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (iii) after the Effective Time
of the Merger, the Surviving Corporation will cooperate in the defense of any
such matter, provided that the Surviving Corporation shall not be liable for any
settlement of any claim effected without its written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under this Section 5.04, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify Parent and the Surviving
Corporation (but the failure so to notify Parent or the Surviving Corporation
shall not relieve them from any liability which they may have under this Section
5.04 except to the extent such failure materially prejudices Parent and the
Surviving Corporation), and shall deliver to Parent and the Surviving
Corporation the undertaking, if any, required by Section 145(e) of the DGCL.
Parent and the Surviving Corporation shall be liable for the fees and expenses
hereunder with respect to only one law firm to represent the Indemnified Parties
as a group with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict between the positions of any two
or more Indemnified Parties that would preclude or render inadvisable joint or
multiple representation of such parties.
(b) Parent shall cause to be maintained in effect for six years from the
Effective Time of the Merger directors' and officers' liability insurance
coverage covering persons who are directors and officers of the Company on the
date of this Agreement, with respect to matters occurring prior to the Effective
Time of the Merger, and containing terms and conditions which are not less
advantageous to such persons than the policies of the Company in effect on the
date hereof (the "COMPANY INSURANCE"); PROVIDED that Parent shall not be
required to spend annually in excess of 150% of the annual premium for the
Company Insurance paid by the Company as of the date of this Agreement (the
"CURRENT PREMIUM"), which Current Premium the Company represents is $175,000 per
annum; PROVIDED, FURTHER, that if Parent would be required to spend annually in
excess of 150% of the Current Premium to obtain insurance having terms not less
advantageous than the Company Insurance, the Surviving Corporation will be
required to spend up to such amount to maintain or procure as much insurance
coverage as can be procured for such premium.
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SECTION 5.05. PUBLIC ANNOUNCEMENTS. Neither Parent and Sub, on the one
hand, nor the Company, on the other hand, will issue any press release or public
statement with respect to the transactions contemplated by this Agreement and
the Stock Option Agreement, including the Merger, without the other party's
prior consent (such consent not to be unreasonably withheld or delayed), except
as may be required by applicable law, court process or by obligations pursuant
to any agreement with any securities exchange or quotation system on which
securities of the disclosing party are listed or quoted. In addition to the
foregoing, Parent, Sub and the Company will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
such press release or other public statements with respect to such transactions.
The parties agree that the initial press release or releases to be issued with
respect to the transactions contemplated by this Agreement shall be mutually
agreed upon prior to the issuance thereof.
SECTION 5.06. NO SOLICITATION. Neither the Company nor any of its
Subsidiaries shall (whether directly or indirectly through advisors, agents or
other intermediaries), nor shall the Company or any of its Subsidiaries
authorize or permit any of its or their officers, directors, agents,
representatives or advisors to, (a) solicit, initiate or take any action
knowingly to encourage or facilitate the submission of inquiries, proposals or
offers from any person (other than Sub or Parent) relating to (i) any
acquisition or purchase of 15% or more of the consolidated assets of the Company
and its Subsidiaries or of over 15% of any class of equity securities of the
Company or any of its Subsidiaries, (ii) any tender offer (including a self
tender offer) or exchange offer that if consummated would result in any Person
(as defined in Section 8.02) beneficially owning 15% or more of any class of
equity securities of the Company or any of its significant Subsidiaries, (iii)
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries whose assets, individually or
in the aggregate, constitute more than 15% of the consolidated assets of the
Company other than the transactions contemplated by this Agreement, or (iv) any
other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or delay the Merger (collectively,
"TRANSACTION PROPOSALS"), or agree to or endorse any Transaction Proposal, or
(b) enter into or participate in any discussions or negotiations regarding any
of the foregoing, or furnish to any other person any information with respect to
its business, properties or assets or any of the foregoing, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person (other than Sub or Parent) to do or
seek any of the foregoing; PROVIDED, HOWEVER, that the foregoing shall not
prohibit the Company (either directly or indirectly through advisors, agents or
other intermediaries) from (i) furnishing information pursuant to an appropriate
confidentiality letter (which letter shall not be less favorable to the Company
in any material respect than the Confidentiality Agreement) concerning the
Company and its businesses, properties or assets to a third party who has made
an unsolicited bona fide written Transaction Proposal, (ii) engaging in
discussions or negotiations with such a third party who has made an unsolicited
bona fide written Transaction Proposal, (iii) following receipt of an
unsolicited bona fide written Transaction Proposal, taking and disclosing to its
stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) under the
Exchange Act or otherwise making disclosure to its stockholders, (iv) following
receipt of an unsolicited bona fide written Transaction Proposal, failing to
make or withdrawing, modifying or amending its recommendation referred to in
Section 3.01(p), and/or (v) taking any action required to be taken by the
Company pursuant to an order by any court of competent jurisdiction (other than
an order that has been reversed, withdrawn or stayed), but in each case referred
to in the foregoing clauses (i) through (v) only to the extent that the Board of
Directors of the Company shall have concluded in good faith on the basis of
written advice from outside counsel that the failure to take such action would
be contrary to the fiduciary duties of the Board of Directors of the Company to
the stockholders of the Company under applicable law; PROVIDED, FURTHER, that,
to the extent that it may do so without acting in a manner contrary to its
fiduciary duties under applicable law, the Board of Directors of the Company
shall advise Parent promptly with respect to the taking of any such action and,
in addition, if the Board of Directors of the Company receives a Transaction
Proposal, then the Company shall promptly inform Parent of the material terms
and conditions of such proposal and
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the identity of the person making it. The Company will immediately cease and
cause its advisors, agents and other intermediaries to cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and shall use its reasonable
efforts to cause any such parties in possession of confidential information
about the Company that was furnished by or on behalf of the Company to return or
destroy all such information in the possession of any such party or in the
possession of any agent or advisor of any such party.
SECTION 5.07. BENEFIT MATTERS. (a) Parent shall cause the Surviving
Corporation to maintain employee benefit plans (as defined in Section 3(3) of
ERISA) for the benefit of employees of the Company or its Subsidiaries, which
are, in the aggregate, no less favorable than those that cover similarly
situated employees of Parent.
(b) Parent will cause the Surviving Corporation to (i) waive all limitations
as to preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the employees of the
Company and its Subsidiaries under any Parent welfare plan that such employees
may be eligible to participate in after the Effective Time of the Merger and
(ii) provide each employee of the Company and its Subsidiaries with credit for
any co-payments and deductibles paid prior to the Effective Time of the Merger
in satisfying any applicable deductible or out-of-pocket requirements under any
Parent welfare plans that such employees are eligible to participate in after
the Effective Time of the Merger.
(c) Prior to the Closing Date, Parent (or IMS if the Closing Date occurs
after the Distribution Record Date) shall establish an employee stock option
plan, having terms and conditions comparable to Parent's 1996 Key Employees
Stock Incentive Plan, pursuant to which it will offer to grant, as of the
Effective Time of the Merger, options to purchase an aggregate of 250,000 shares
of Parent Common Stock (or the appropriate corollary number of shares of IMS
Common Stock in light of the Parent and IMS Exchange Ratios if the Closing Date
occurs after the Distribution Record Date) at fair market value, as of the
Closing Date, to certain employees of the Company and its Subsidiaries who are
expected to be Continuing Employees; the names of such employees and the number
of options to be offered to each shall be set forth in a letter to be delivered
by Parent (or IMS if the Closing Date occurs after the Distribution Record Date)
to the Company prior to the Closing Date.
SECTION 5.08. STOCK EXCHANGE LISTING. Parent shall use all reasonable
efforts to cause the shares of Merger Stock to be issued in the Merger and the
shares of Merger Stock to be reserved for issuance upon exercise of Company
Stock Options and/or Warrants to be approved for listing on the NYSE, subject to
official notice of issuance.
SECTION 5.09. LETTERS OF THE COMPANY'S ACCOUNTANTS. The Company shall use
its reasonable efforts to cause to be delivered to Parent a letter of Coopers &
Lybrand L.L.P., the Company's independent public accountants, dated a date
within two business days before the Form S-4 shall become effective and a letter
of Coopers & Lybrand L.L.P., dated a date within two business days before the
Closing Date, each addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
SECTION 5.10. LETTERS OF PARENT'S ACCOUNTANTS. Parent shall use its
reasonable efforts to cause to be delivered to the Company a letter of Coopers &
Lybrand L.L.P., Parent's independent public accountants, dated a date within two
business days before the Form S-4 shall become effective and a letter of Coopers
& Lybrand L.L.P. dated a date within two business days before the Closing Date,
each addressed to the Company, in form and substance reasonably satisfactory to
the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 5.11. TAKEOVER STATUTE. If any "fair price", "moratorium",
"control share acquisition", "interested shareholder" or other similar
anti-takeover statute or regulation is or may become applicable
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to the Merger or the other transactions contemplated by this Agreement or the
Stock Option Agreement, each of Parent and the Company and their respective
boards of directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or the Stock Option
Agreement, as the case may be, or the Merger and otherwise act to eliminate or
minimize the effects of such statute or regulation on such transactions.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction on or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part, to the extent permitted by applicable law:
(a) EFFECTIVENESS OF FORM S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or Parent, threatened by the SEC. Any material "blue sky" and other
state securities laws applicable to the registration and qualification of the
Merger Stock issuable or required to be reserved for issuance pursuant to this
Agreement shall have been complied with.
(b) STOCKHOLDER APPROVAL. The Company Stockholder Approval shall have
been obtained.
(c) NO ORDER. No Governmental Entity or federal, state or foreign court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation of the Merger or
any transaction contemplated by this Agreement; PROVIDED, HOWEVER, that the
parties shall use all reasonable efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted.
(d) HSR ACT AND OTHER WAITING PERIODS. The applicable waiting period under
the HSR Act shall have expired or been terminated and all other waiting periods
specified under applicable laws, and all extensions thereof, the passing of
which is legally required prior to the consummation of the Merger, shall have
expired or been terminated.
(e) NYSE LISTING. The shares of Merger Stock issuable to stockholders of
the Company in accordance with this Agreement shall have been authorized for
listing on the NYSE upon official notice of issuance.
(f) OTHER APPROVALS. Other than the filing of merger documents in
accordance with Delaware Law, all authorizations, consents, waivers, orders or
approvals required to be obtained, and all filings, notices or declarations
required to be made, by the Company and Parent prior to the consummation of the
Merger and the other transactions contemplated hereunder shall have been
obtained from, and made with, all required Governmental Entities and all waiting
periods specified under applicable laws and all extensions thereof, the passing
of which is necessary for such consummation shall have passed, except for such
authorizations, consents, waivers, orders, approvals, filings, notices or
declarations the failure to obtain or make which would not have a Material
Adverse Effect with respect to Parent.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger and the transactions
contemplated in this Agreement are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Agreement that is qualified as to
"materiality," "Material Adverse Change" or "Material
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Adverse Effect" shall be true and correct, and each of the other representations
and warranties of the Company contained in this Agreement shall be true and
correct in all material respects, in each case as of the Closing Date as though
made on and as of the Closing Date, except (i) for changes specifically
permitted by this Agreement and (ii) that those representations and warranties
which address matters only as of a particular date shall have been true and
correct as of such date. Parent shall have received a certificate of the chief
executive officer and chief financial officer of the Company to such effect.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Parent shall have received a certificate of the chief executive officer
and chief financial officer of the Company to that effect.
(c) NO LITIGATION. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any other transaction
contemplated by this Agreement or the Stock Option Agreement or seeking to
obtain from the Company, Sub or Parent or any of their respective affiliates any
material amount of damages, (ii) seeking to prohibit or limit the ownership or
operation by Parent or the Company or any of their respective affiliates of any
material portion of their business or assets or to dispose of or hold separate
any material portion of their business or assets, as a result of the Merger or
any other transaction contemplated by this Agreement or the Stock Option
Agreement, (iii) seeking to impose limitations on the ability of Parent to
acquire or hold, or exercise full rights of ownership of, any shares of the
common stock of the Surviving Corporation, including, without limitation, the
right to vote such common stock on all matters properly presented to the
stockholders of the Surviving Corporation or (iv) seeking to prohibit Parent or
any of its Subsidiaries from effectively controlling in any material respect the
business or operations of the Company and its Subsidiaries taken as a whole. No
suit, action or proceeding by any other person shall be pending that seeks any
of the relief or remedies described in clauses (i) through (iv) of the
immediately preceding sentence as to which there is a reasonable possibility of
success or that otherwise could reasonably be expected to have a Material
Adverse Effect with respect to Parent or the Company.
(d) RIGHTS AGREEMENT. None of the events described in Section 3, 7, 11,
13, 23 or 24 of the Rights Agreement shall have occurred, and the Rights shall
not have become nonredeemable and shall not become nonredeemable upon
consummation of the Merger.
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Parent and Sub contained in this Agreement that is qualified as to
"materiality," "Material Adverse Change" or "Material Adverse Effect" shall be
true and correct, and each of the other representations and warranties of Parent
and Sub contained in this Agreement shall be true and correct in all material
respects, in each case as of the Closing Date as though made on and as of the
Closing Date, except (i) for changes specifically permitted by this Agreement
and (ii) that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date. The Company
shall have received a certificate of a duly authorized officer of Parent and Sub
to such effect.
(b) AGREEMENTS AND COVENANTS. Parent and Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date. The Company shall have received a certificate of a duly authorized
officer of Parent and Sub to that effect.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time of the Merger, whether before or after the
Company Stockholder Approval:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before December 31, 1998 (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time of the
Merger); or
(d) by either Parent or the Company if at the duly held meeting of the
stockholders of the Company (including any adjournment thereof) held for the
purpose of voting on the Merger, this Agreement and the consummation of the
transactions contemplated hereby, the holders of a majority of the outstanding
shares of Company Common Stock shall not have approved the Merger, this
Agreement and the consummation of the transactions contemplated hereby; or
(e) by Parent, if the Company or its Board of Directors shall have (1)
withdrawn, modified or amended in any respect adverse to Parent its approval or
recommendation of this Agreement or any of the transactions contemplated herein
(it being understood that a communication by the Company that contains only the
information described in Rule 14d-9(e) under the Exchange Act shall not be
deemed to be such a modification or amendment or an action described in clause
(5) below), (2) failed as promptly as practicable after the Form S-4 is declared
effective to mail the Proxy Statement to its stockholders or failed to include
in such statement such recommendation, (3) recommended any Transaction Proposal
from a person other than Parent or any of its affiliates, (4) resolved to do any
of the foregoing or (5) in response to the commencement of any tender offer or
exchange offer for more than 15% of the outstanding shares of Company Common
Stock, not recommended rejection of such tender offer or exchange offer; or
(f) by the Company, if, pursuant to and in compliance with Section 5.06
hereof, the Board of Directors of the Company concludes in good faith, based on
written advice from outside counsel, that in order to avoid acting in a manner
contrary to the fiduciary duties of the Board of Directors of the Company to the
stockholders of the Company under the DGCL, the Board of Directors must not make
or must withdraw or modify its recommendation referred to in Section 3.01(p) and
the Board of Directors does not make or withdraws or modifies such
recommendation.
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
provisions of Section 3.01(n), Section 3.02(h), the last sentence of Section
5.02(a) (and the provisions of the Confidentiality Agreement referred to
therein), this Section 7.02, Section 8.02, Section 8.07 and Section 8.08.
Nothing contained in this Section shall relieve any party for any breach of the
representations, warranties, covenants or agreements set forth in this Agreement
(including, without limitation, liability for damages as a result of any such
breach that gives rise to an inability to satisfy any of the conditions to
Closing set forth in Article VI).
SECTION 7.03. AMENDMENT. This Agreement may be amended by the parties
hereto at any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; PROVIDED,
HOWEVER, that after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of
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such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 7.04. EXTENSION; WAIVER. At any time prior to the Effective Time
of the Merger, the parties hereto may (a) extend the time for the performance of
any of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights. No single or partial exercise of any
right, remedy, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
Any waiver shall be effective only in the specific instance and for the specific
purpose for which given and shall not constitute a waiver to any subsequent or
other exercise of any right, remedy, power or privilege hereunder.
SECTION 7.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time of the Merger and
all such representations and warranties will be extinguished on consummation of
the Merger and neither the Company, Parent, Sub, nor any officer, director or
employee or stockholder of any of them shall be under any liability whatsoever
with respect to any such representation or warranty after such time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time of the Merger.
SECTION 8.02. FEES AND EXPENSES. (a) (i) If this Agreement shall have been
terminated in accordance with its terms (except pursuant to Section 7.01(b)) AND
either of the following shall have occurred: (A) prior to such termination, any
corporation (including the Company or any of its Subsidiaries or affiliates),
partnership, person, other entity or "group" (as referred to in Section 13(d)(3)
of the Exchange Act) other than Parent, Sub or any of their respective
affiliates (collectively, "PERSONS"), shall have become the beneficial owner of
more than 15% of the outstanding shares of Company Common Stock (it being
understood that no beneficial owner of Company Common Stock as of the date
hereof shall be deemed such a "Person" unless it acquires beneficial ownership
of at least 3% of the outstanding Common Stock after the date hereof or becomes
a member of a group of which it was not a member as of the date hereof or which
includes a person which was not a member thereof as of the date hereof); or (B)
(x) prior to such termination, any Person shall have made, or proposed,
communicated or disclosed in a manner which is or otherwise becomes public a
bona fide intention to make a Transaction Proposal (including by making such a
Transaction Proposal) and (y) on or prior to March 23, 1999, the Company either
consummates with a Person a transaction the proposal of which would otherwise
qualify as a Transaction Proposal under Section 5.06 or enters into a definitive
agreement with a Person with respect to a transaction the proposal of which
would otherwise qualify as a Transaction Proposal under Section 5.06 (whether or
not such Person is the Person referred to in clause (x) above); or
(ii) if this Agreement is terminated pursuant to Section 7.01(e) or
Section 7.01(f);
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then the Company shall, (1) in the case of clauses (a)(i)(A) and (a)(ii) above,
promptly, but in no event later than one business day after the termination of
this Agreement and (2) in the case of clause (a)(i)(B) above, promptly, but in
no event later than one business day after an event specified in subclause (y)
thereof shall have occurred, pay Parent a fee of $4,700,000 in cash which fee
shall be payable in same day funds. No termination of this Agreement at a time
when a fee is reasonably expected to be payable pursuant to this Section 8.02(a)
following termination of this Agreement shall be effective until such fee is
paid.
(b) In addition, in any case in which a fee is payable pursuant to paragraph
(a) above, the Company shall promptly reimburse Parent and Sub for documented
reasonable out-of-pocket expenses incurred by either of them in connection with
this Agreement and the Stock Option Agreement, including reasonable accounting,
investment banking and legal fees and expenses; provided that the amount of such
reimbursement shall not exceed $850,000 in the aggregate.
(c) Except as provided otherwise in paragraphs (a) and (b) above, all costs
and expenses incurred in connection with this Agreement and the Stock Option
Agreement and the transactions contemplated hereby and thereby shall be paid by
the party incurring such expenses, except that the cost of filing, printing and
distributing the Proxy Statement and the Form S-4 shall be borne equally by
Parent and the Company.
SECTION 8.03. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) or transmitted by confirmed facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
Fax Number: (203) 222-4313
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Peter J. Gordon, Esq.
Fax Number: (212) 455-2502
(b) if to the Company, to
Walsh International Inc.
105 Terry Drive, Suite 118
Newtown, PA 18940
Attention: General Counsel
Fax Number: (215) 860-3277
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with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: Robert A. Schwed, Esq.
Fax Number: (212) 841-5725
SECTION 8.04. DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "BASE PRICE" means $51.792 multiplied by the IMS Fraction;
(c) "CONTINUING EMPLOYEES" means all persons who are actively employed on a
full-time basis by the Company or its Subsidiaries immediately following the
Effective Time of the Merger, other than such persons, if any, as may be
identified in writing by Parent to the Company not less then five business days
prior to the Closing Date;
(d) "ENVIRONMENTAL CLAIM" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage, personal
injury, fines or penalties) arising out of, relating to, based on or resulting
from (A) the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or operated by
the Company or any of its Subsidiaries, (B) circumstances forming the basis of
any violation or alleged violation of any Environmental Law or Environmental
Permit or (C) otherwise relating to obligations or liabilities under any
Environmental Laws;
(e) "ENVIRONMENTAL LAWS" means all applicable foreign, federal, state,
provincial and local statutes, rules, regulations, ordinances, orders, decrees
and common or civil law relating in any manner to contamination, pollution or
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, the Solid
Waste Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Occupational Safety and Health Act, the Emergency Planning and
Community-Right-to-Know Act, the Safe Drinking Water Act, all as amended, and
similar state and foreign laws;
(f) "ENVIRONMENTAL PERMITS" means all permits, licenses, registrations and
other governmental authorizations required under Environmental Laws for the
Company and its Subsidiaries to conduct their operations and businesses;
(g) "FIRST THRESHOLD" means $5.00 multiplied by the IMS Fraction;
(h) "HAZARDOUS MATERIALS" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction thereof)
and petroleum products, friable asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials, and substances regulated
pursuant to, or that could reasonably be expected to provide the basis of
liability under, any Environmental Law;
(i) "IMS ADJUSTMENT FACTOR" means a fraction, the numerator of which is the
sum of the IMS Reference Price and the NMR Reference Price, and the denominator
of which is the IMS Reference Price;
(j) "IMS COMMON STOCK PRICE" means the average of the closing sales prices
of IMS Common Stock on the NYSE Composite Transactions Tape on the 10
consecutive trading days immediately preceding the second trading day prior to
the Closing Date;
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(k) "IMS EXCHANGE RATIO" means a fraction of a share of IMS Common Stock
(rounded to the nearest 1/1,000th) equal to: (1) the product of 0.3041
multiplied by the IMS Adjustment Factor if the IMS Common Stock Price is at
least equal to the Base Price minus the First Threshold but is not more than the
Base Price plus the First Threshold; (2) $17.27 divided by the IMS Common Stock
Price (rounded to the nearest 1/10,000th) if the IMS Common Stock Price is more
than the sum of the Base Price plus the First Threshold but not more than the
sum of the Base Price plus the Second Threshold; (3) $14.23 divided by the IMS
Common Stock Price if the IMS Common Stock Price (rounded to the nearest
1/10,000th) is less than the Base Price minus the First Threshold but not less
than the Base Price minus the Second Threshold; (4) the fraction determined in
accordance with Exhibit E hereto if the IMS Common Stock Price is more than the
Base Price plus the Second Threshold (or determined on the same basis as the
fractions indicated in Exhibit E if such excess exceeds $20 per share of IMS
Common Stock); and (5) the fraction determined in accordance with Exhibit F
hereto if the IMS Common Stock Price is less than the Base Price minus the
Second Threshold (or determined on the same basis as the fractions indicated in
Exhibit F if such shortage exceeds $20 per share of IMS Common Stock);
(l) "IMS FRACTION" means a fraction, the numerator of which is the IMS
Reference Price and the denominator of which is the sum of the IMS Reference
Price and the NMR Reference Price;
(m) "IMS REFERENCE PRICE" means the average of the closing sales prices of
IMS Common Stock on the NYSE Composite Transactions Tape on the 10 consecutive
trading days commencing on the sixth trading day following the date on which
"regular way" trading in the IMS Common Stock begins on the NYSE;
(n) "INDEBTEDNESS" means, with respect to any person, without duplication,
(A) all obligations of such person for borrowed money, or with respect to
deposits or advances of any kind to such person, (B) all obligations of such
person evidenced by bonds, debentures, notes or similar instruments, (C) all
obligations of such person under conditional sale or other title retention
agreements relating to property purchased by such person, (D) all obligations of
such person issued or assumed as the deferred purchase price of property or
services (excluding obligations of such person to creditors for raw materials,
inventory, services and supplies incurred in the ordinary course of such
person's business), (E) all capitalized lease obligations of such person, (F)
all obligations of others secured by any Lien on property or assets owned or
acquired by such person, whether or not the obligations secured thereby have
been assumed, (G) all obligations of such person under interest rate or currency
hedging transactions (valued at the termination value thereof), (H) all letters
of credit issued for the account of such person and (I) all guarantees and
arrangements having the economic effect of a guarantee of such person of any
indebtedness of any other person;
(o) "INTELLECTUAL PROPERTY" means all rights, privileges and priorities
provided under federal, state, foreign and multinational law relating to
intellectual property, whether registered or unregistered, including, without
limitation, all (i) (a) inventions, discoveries, processes, formulae, designs,
methods, techniques, procedures, concepts, developments, technology, and
confidential information, new and useful improvements thereof and know-how
relating thereto, whether or not patented or eligible for patent protection; (b)
copyrights and copyrightable works, including computer applications, programs,
Software, Databases and related items; (c) trademarks, service marks, trade
names, brand names, product names, corporate names, logos and trade dress, the
goodwill of any business symbolized thereby, and all common-law rights relating
thereto; and (d) trade secrets, data and other confidential information; and
(ii) all registrations, applications, recordings, and licenses or other similar
agreements related to the foregoing;
(p) "KNOWLEDGE" means, with respect to any matter, (i) in the case of
Parent, the knowledge of any director, executive officer or the General Counsel
of Parent after due inquiry into such matter and (ii) in the case of the
Company, the knowledge of Messrs. Turner, Hauck, Mander, Williams, Benjamin and
Waugh after due inquiry into such matter;
(q) "MATERIAL ADVERSE CHANGE" means, when used with respect to the Company
or Parent, any change that, either individually or in the aggregate with all
other such changes, is materially adverse to the Company or Parent, as the case
may be, and their respective subsidiaries taken as a whole;
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(r) "MATERIAL ADVERSE EFFECT" means, when used with respect to the Company
or Parent, any change, effect, event or occurrence that, either individually or
in the aggregate with all other such changes, effects, events and occurrences,
either (a) is materially adverse to the business, properties, financial
condition or results of operations of the Company or Parent, as the case may be,
and their respective subsidiaries taken as a whole, or (b) will be materially
adverse to the business, properties, financial condition or results of
operations of Parent and its subsidiaries (including the Surviving Corporation)
taken as a whole following the Effective Time of the Merger;
(s) "NMR REFERENCE PRICE" means the average of the closing sales prices of
Parent Common Stock on the NYSE Composite Transactions Tape on the 10
consecutive trading days commencing on the sixth trading day following the date
on which "regular way" trading in Parent Common Stock begins under the name
"Nielsen Media Research, Inc." on the NYSE;
(t) "PARENT" shall have the meaning specified in the first paragraph of this
Agreement; provided that in the event of an assignment of this Agreement as
provided in Section 8.09(b), the term "Parent" thereafter shall have the meaning
specified in such Section;
(u) "PARENT COMMON STOCK PRICE" means the average of the closing sales
prices of Parent Common Stock on the New York Stock Exchange Composite
Transactions Tape on each of the 15 consecutive trading days immediately
preceding the second trading day prior to the Effective Time of the Merger;
(v) "PARENT EXCHANGE RATIO" means a fraction of a share of Parent Common
Stock (rounded to the nearest 1/1000th) equal to: (1) 0.3041, if the Parent
Common Stock Price is equal to at least $46.792 but not more than $56.792; (2)
$17.27 divided by the Parent Common Stock Price (rounded to the nearest
1/10,000th) if the Parent Common Stock Price is more than $56.792 but not more
than $62.792; (3) $14.23 divided by the Parent Common Stock Price (rounded to
the nearest 1/10,000th) if the Parent Common Stock Price is less than $46.792
but not less than $40.792; (4) the indicated fraction of a share of Parent
Common Stock set forth opposite the applicable Parent Common Stock Price in
Exhibit C hereto if the Parent Common Stock Price is either more than $62.792
but not more than $82.792 or less than $40.792 but not less than $20.792; or (5)
a fraction of a share of Parent Common Stock determined on the same basis as the
fractions set forth in Exhibit C hereto if the Parent Common Stock Price is more
than $82.792 or less than $20.792;
(w) "PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(x) "RECENT SEC DOCUMENTS" means any SEC Documents filed by the Company
prior to the date of this Agreement with respect to any period ending, or any
date occurring, on or after June 30, 1997;
(y) "RIGHTS" means the rights to acquire one-third of a share of Company
Common Stock pursuant to the Rights Agreement;
(z) "RIGHTS AGREEMENT" means the Rights Agreement, dated as of January 28,
1998 between the Company and Harris Trust Company of New York;
(aa) "SECOND THRESHOLD" means $11.00 multiplied by the IMS Fraction;
(bb) a "SUBSIDIARY" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person; and
(cc) "YEAR 2000 COMPLIANT" means, when used with respect to any Software or
Database, that such Software or Database will operate accurately and, without
interruption, accept, possess and in all manner retain full functionality when
referring to, or involving, any year or date in the twentieth or twenty-first
centuries.
37
<PAGE>
SECTION 8.05. INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.07. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
and the other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This
Agreement, other than Section 5.04, is not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 8.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND ANY RELATED DOCUMENTS TO WHICH IT
IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS, AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT
AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE PARTY
AT ITS ADDRESS SET FORTH IN SECTION 8.03 OR AT SUCH OTHER ADDRESS OR TO THE
ATTENTION OF SUCH OTHER PERSON, AS ANY PARTY SHALL HAVE SPECIFIED BY NOTICE
IN WRITING TO THE OTHER PARTIES;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO
SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO
IN PARAGRAPH (i) ABOVE.
SECTION 8.09. ASSIGNMENT. (a) Except as provided in paragraph (b) below,
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties hereto without the prior written consent of the
other parties hereto. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
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(b) If the Closing Date shall not have occurred prior to the Distribution
Record Date, then, on the Distribution Record Date: (i) Parent shall cause all
of the outstanding capital stock of Sub to be transferred to IMS; (ii) all of
Parent's rights and obligations hereunder and under the Stock Option Agreement
shall be assigned and delegated to IMS; and (iii) Parent shall cause IMS to
execute and deliver to the Company a written instrument, in form and substance
reasonably satisfactory to the Company, evidencing such assignment and
assumption. In the event of such assignment and assumption, all references
herein to "Parent" (other than in Sections 3.02(b)(ii) and (iii) and Sections
3.02(f) through (k)) shall thereafter be deemed to be references to IMS
(including, without limitation, paragraph (a) of Section 6.03), the provisions
of Section 3.02 (other than Sections 3.02(b)(ii) and (iii) and Sections 3.02(f)
through (k)) shall be deemed amended in their entirety to read as set forth in
Exhibit D.
SECTION 8.10. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C> <C>
COGNIZANT CORPORATION
By: /s/ KENNETH S. SIEGEL
------------------------------------------
Name: Kenneth S. Siegel
Title: Senior Vice President, General
Counsel and Secretary
WAC INC.
By: /s/ KENNETH S. SIEGEL
------------------------------------------
Name: Kenneth S. Siegel
Title: President
WALSH INTERNATIONAL INC.
By: /s/ MICHAEL HAUCK
------------------------------------------
Name: Michael Hauck
Title: Chief Executive Officer
</TABLE>
39
<PAGE>
EXHIBIT A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WALSH INTERNATIONAL INC.
------------------------
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
------------------------
WALSH INTERNATIONAL INC. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is WALSH INTERNATIONAL INC. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on April 27, 1988.
2. The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby restated and further amended to read in its
entirety as follows:
"FIRST: The name of the Corporation is
WALSH INTERNATIONAL INC.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of the Corporation's registered agent at such address is
The Corporation Trust Company.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 25,000,000 shares, consisting of
5,000,000 shares of Preferred Stock, $1.00 par value (the "Preferred Stock"),
and 20,000,000 shares of Common Stock, $.01 par value (the "Common Stock"). All
cross-references in each subdivision of this Article FOURTH refer to other
paragraphs in such subdivision unless otherwise indicated.
The following is a statement of the designations, and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of each class of stock of the Corporation:
I.
PREFERRED STOCK
A. The Preferred Stock may be issued from time to time in one or more
series of any number of shares, provided that the aggregate number of shares
issued and not cancelled of any and all such series shall not exceed the total
number of shares of Preferred Stock hereinabove authorized.
<PAGE>
B. Authority is hereby vested in the Board of Directors from time to time
to authorize the issuance of one or more series of Preferred Stock and, in
connection with the creation of such series, to fix by resolution or resolutions
providing for the issue of shares thereof the designations, powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of such series, including,
without limitation, the following:
1. The maximum number of shares to constitute such series and the
distinctive designation thereof and the stated value thereof if different
than the par value thereof;
2. Whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
3. The dividend rate, if any, on the shares of such series, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series of capital
stock, and whether such dividend shall be cumulative or non-cumulative;
4. Whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to redemption, the times, prices and
other terms and conditions of such redemption;
5. The rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the Corporation;
6. Whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to
other corporate purposes and the terms and provisions relative to the
operation thereof;
7. Whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or classes, or of
any other series of the same class, and if so convertible or exchangeable,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
8. The limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or any other class or
classes of stock of the Corporation ranking junior to the shares of such
series either as to dividends or upon liquidation;
9. The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock
(including additional shares of such series or of any other series or of any
other class) ranking on a parity with or prior to the shares of such series
as to dividends or distribution of assets on liquidation, dissolution or
winding up; and
10. Any other preference and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof,
as shall not be inconsistent with this Article FOURTH.
II.
COMMON STOCK
All shares of Common Stock shall be identical and shall entitle the holders
thereof to the same rights and privileges.
(a) DIVIDENDS. When and as dividends are declared upon the Common Stock,
whether payable in cash, in property or in shares of stock of the Corporation,
the holders of Common Stock shall be entitled to share equally, share for share,
in such dividends.
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<PAGE>
(b) VOTING RIGHTS. Except as otherwise provided by law, each holder of
Common Stock shall be entitled to one vote per share.
(c) LIQUIDATION. In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, after payment shall
have been made to holders of Preferred Stock of the full amounts to which they
may respectively be entitled as provided for herein, the holders of Common Stock
shall be entitled, to the exclusion of the holders of Preferred Stock, to share
ratably according to the number of shares of Common Stock held by them in all
remaining assets of the Corporation available for distribution to its
stockholders. Neither the merger or consolidation of another corporation into or
with the Corporation, nor the sale, transfer or lease of all or substantially
all the assets of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
FIFTH: Election of directors of the Corporation need not be by written
ballot, unless and to the extent provided in the By-laws of the Corporation.
SIXTH: No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware or (d) for
any transaction from which the director derived an improper personal benefit.
For the purposes of this Article SIXTH, "fiduciary duty as directors" shall
include any fiduciary duty arising out of serving at the Corporation's request
as a director of another corporation, partnership, joint venture, trust or other
enterprise, and any liability to the Corporation in its capacity as a security
holder, partner, beneficiary, creditor or investor of or in any such other
corporation, partnership, joint venture, trust or other enterprise.
Each of the rights conferred by this Article SIXTH shall be a contract right
and any repeal or amendment of the provisions of this Article SIXTH shall not
adversely affect any right hereunder of any person existing at the time of such
repeal or amendment with respect to any act or omission occurring prior to the
time of such repeal or amendment, and, further, such repeal or amendment shall
not apply to any proceeding, irrespective of when the proceeding is initiated,
arising from the service of such person prior to such repeal or amendment.
SEVENTH: The Corporation shall be subject to the following provisions
regarding indemnification:
I.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permissible under Delaware law, as the same
exists or may hereafter exist in the future, each person who was or is made a
party or is threatened to be made a party or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether formal or
informal, whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including, without
limitation, attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct unlawful and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his heirs, executors, administrators and legal
representatives. The Corporation shall be required to indemnify a
3
<PAGE>
director or officer, in accordance with this Section I of this Article SEVENTH
in connection with a proceeding initiated by such person only if such proceeding
was authorized by the Board of Directors of the Corporation.
B. PREPAYMENT OF EXPENSES. The Corporation shall pay expenses actually
incurred by a director or officer in connection with any proceeding in advance
of its final disposition; PROVIDED, HOWEVER, that if Delaware law then requires,
the payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article SEVENTH
or otherwise.
C. CLAIMS. If a claim under paragraph A of this Section I of this Article
SEVENTH is not paid in full by the Corporation within 30 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. Neither the failure of
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of the
claimant is permissible in the circumstances because the claimant has met the
applicable standard of conduct, if any, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met the standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
standard of conduct. In any such action, the Corporation shall have the burden
of proving that the director or officer was not entitled to the requested
indemnification or payment of expenses under applicable law.
II.
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The Corporation may, in the discretion of the Board of Directors of the
Corporation, provide indemnification to employees and agents of the Corporation
to the fullest extent permissible under Delaware law.
III.
GENERAL PROVISIONS
A. EXPENSES AS A WITNESS. To the extent that any director, officer,
employee or agent of the Corporation, is by reasons of such position, or
position with another entity at the request of the Corporation, a witness in any
action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
B. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under this Article SEVENTH.
C. INDEMNITY AGREEMENTS. The Corporation may enter into agreements with
any director, officer, employees or agent of the Corporation providing for
indemnification to the fullest extent permissible under Delaware law.
D. SEPARABILITY. Each and every paragraph, sentence, term and provision
of this Article SEVENTH is separate and distinct, so that if any paragraph,
sentence, term or provision hereof shall be held to be invalid or unenforceable
for any reason, such invalidity or unenforceability shall not affect the
validity or
4
<PAGE>
unenforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this Article
SEVENTH may be modified by a court of competent jurisdiction to preserve its
validity and to provide the claimant with, subject to the limitations set forth
in this Article SEVENTH and any agreement between the Corporation and claimant,
the broadest possible indemnification permitted under applicable law.
E. CONTRACT RIGHT. Each of the rights conferred on directors and officers
of the Corporation by Section I of this Article SEVENTH and on directors,
officers, employees or agents of the Corporation by Section III-A of this
Article SEVENTH shall be a contract right and any repeal or amendment of the
provisions of this Article SEVENTH shall not adversely affect any right
hereunder of any person existing at the time of such repeal or amendment with
respect to any act or omission occurring prior to the time of such repeal or
amendment, and, further, such repeal or amendment shall not apply to any
proceeding, irrespective of when the proceeding is initiated, arising from the
service of such person prior to such repeal or amendment.
F. NONEXCLUSIVITY. The rights conferred on any person by this Article
SEVENTH shall not be exclusive of any other rights that any person may have or
hereafter acquire under any statute, agreement, vote of stockholders or
disinterested directors or the Certificate of Incorporation or the By-laws of
the Corporation or otherwise.
G. OTHER INDEMNIFICATION. Corporation's obligation, if any, to indemnify
any person who was or is serving at its request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, or other
enterprise shall be reduced by any amount such person has collected as
indemnification from such other corporation, partnership, joint venture, trust
or other enterprise.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized and empowered to make, alter or repeal the By-laws of the
Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any By-laws made by the Board of Directors.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law, and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article NINTH.
5
<PAGE>
IN WITNESS WHEREOF, WALSH INTERNATIONAL INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Michael A. Hauck,
its Chief Executive Officer, who hereby acknowledges under penalties of perjury
that the facts herein stated are true and that this certificate is his act and
deed, this day of , 1998.
WALSH INTERNATIONAL INC.
By:___________________________________
Name:
Title:
6
<PAGE>
EXHIBIT B
AN EXECUTED COPY OF STOCK OPTION AGREEMENT IS CONTAINED IN ANNEX II
TO THIS PROXY STATEMENT/PROSPECTUS.
<PAGE>
EXHIBIT C
EXHIBIT C IS REPRODUCED IN THE TABLE ON
PAGE 52 OF THIS
PROXY STATEMENT/PROSPECTUS.
<PAGE>
EXHIBIT D
IMS REPRESENTATIONS
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF IMS. IMS represents and
warrants to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of IMS and each of
IMS's "significant subsidiaries" (within the meaning of Rule 1-02 of Regulation
S-X of the SEC) (collectively, the "IMS Subsidiaries") is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of IMS and each of the IMS
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction (domestic or foreign) in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) could not reasonably
be expected to have a Material Adviser Effect with respect to IMS. IMS has made
available to the Company complete and correct copies of its articles of
incorporation and by-laws.
(b) CAPITAL STRUCTURE. As of the Distribution Record Date, [relevant number
of shares of IMS capital stock as of such date to be inserted below the
authorized capital stock of IMS consists of shares of IMS Common Stock,
shares of Series Common Stock, $.01 per share, of IMS ("IMS Series
Stock") and shares of preferred stock, par value $.01 per share, of IMS
("IMS Preferred Stock"). As of the close of business on the Distribution Record
Date, [relevant number of shares of IMS capital stock as of such date to be
inserted below] there were: (i) shares of IMS Common Stock issued and
outstanding; (ii) shares of IMS Common Stock held in the treasury of
IMS; (iii) shares of IMS Common Stock reserved for issuance pursuant to
IMS's stock option and stock purchase plans (such plans, collectively, the "IMS
Stock Plans"); (iv) shares of IMS Common Stock issuable upon exercise of
awarded but unexercised stock options; and (v) shares of IMS Series
Stock or IMS Preferred Stock outstanding. Except as set forth above and except
for shares of junior participating preferred stock issuable pursuant to the
Rights Agreement, dated as of , 1998, between IMS and First Chicago
Trust Company of New York, as of the close of business on the Distribution
Record Date, there were no shares of capital stock or other equity securities of
IMS issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of IMS are, and all shares which may be issued as described above
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no outstanding
bonds, debentures, notes or other indebtedness or debt securities of IMS having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of the IMS may vote.
Except as set forth above or in the disclosure schedule delivered by IMS to the
Company as of the Record Distribution Date (the "IMS Disclosure Schedule"),
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which IMS
is a party or by which it is bound obligating IMS to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other equity or voting securities of IMS or obligating IMS to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations, commitments, understandings or arrangements of IMS to
repurchase, redeem or otherwise acquire or make any payment in respect of any
shares of capital stock of IMS.
As of the Closing Date, all of the issued and outstanding shares of common
stock of Sub will be owned by IMS free and clear of any lien.
(c) AUTHORITY; NONCONTRAVENTION. IMS has all requisite corporate power and
authority to assume all of the rights and obligations of Parent under Agreement
and the Stock Option Agreement and to consummate the transactions contemplated
hereby and thereby. The assumption by IMS of all the rights and obligations of
Parent under each of this Agreement and the Stock Option Agreement by IMS and
the consummation by IMS of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of IMS. This
Agreement and the Stock Option Agreement
<PAGE>
(assuming due authorization, execution and delivery by the Company) constitute
valid and binding obligations of IMS, enforceable against it in accordance with
their terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing. The assumption by IMS of all the rights and obligations of Parent under
each of this Agreement and the Stock Option Agreement does not, and the
consummation by IMS of the transactions contemplated by this Agreement and
compliance by IMS with the provisions of this Agreement and the Stock Option
Agreement will not, conflict with, or result in any breach or violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of, or a "put" right
with respect to any obligation under, or to a loss of a material benefit under,
or result in the creation of any Lien under, (i) the certificate of
incorporation or by-laws of IMS or any subsidiary of IMS, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or any other contract,
agreement, instrument, permit, concession, franchise or license to which IMS or
any subsidiary of IMS is a party or by which any of their respective properties
or assets are bound or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to IMS
or any subsidiary of IMS or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, breaches, violations
defaults, rights, losses or Liens that individually or in the aggregate could
not reasonably be expected to have a Material Adverse Effect with respect to
IMS. No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity or any other
third party is required by or with respect to IMS in connection with the
assumption by IMS of all of the rights and obligations of Parent under this
Agreement or the Stock Option Agreement by IMS or the consummation by IMS of any
of the transactions contemplated hereby or thereby, except for (i) the filing of
a premerger notification and report form under the HSR Act and the filing of
such applications or notices by IMS as may be required pursuant to merger
control, antitrust, foreign investment or similar laws or regulations in effect
in Canada, Germany or Sweden or any political subdivision thereof, (ii) the
filing with the SEC and the NYSE of (A) the Form S-4 and (B) such reports under
the Exchange Act as may be required in connection with this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby, (iii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iv) such other consents,
approvals, orders, authorizations, registrations, declarations, filings or
notices as may be require under the "takeover" or "blue sky" laws of various
states and (v) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, could not reasonably be expected to
(x) prevent or materially delay consummation of the Merger or the other
transactions contemplated hereby or performance of IMS's obligations hereunder
and under the Stock Option Agreement or (y) have a Material Adverse Effect with
respect to IMS.
(d) IMS SEC DOCUMENTS. IMS has filed with the SEC all reports, schedules,
forms, statements and other Documents required to be filed by it pursuant to the
Securities Act and the Exchange Act (collectively, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein, the "IMS SEC Documents"). As of their respective dates, the IMS SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such IMS SEC
Documents, and none of the IMS SEC Documents (including any and all financial
statements included therein) as of such dates contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any IMS SEC Document has been revised or
superseded by a later filed IMS SEC Document, none of the IMS SEC Documents
(including any and all financial statements included
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therein) contained any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(e) INFORMATION SUPPLIED. None of the information supplied or to be supplied
by IMS for inclusion or incorporation by reference in (i) the Form S-4 will, at
the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The From S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder, except that no representation is made by IMS with respect to
statements made or incorporated by reference therein based on information
supplied in writing by the Company specifically for inclusion or incorporation
by reference therein.
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EXHIBIT E
EXHIBIT E IS REPRODUCED IN THE TABLE ON
PAGE 55 OF THIS
PROXY STATEMENT/PROSPECTUS.
<PAGE>
EXHIBIT F
EXHIBIT F IS REPRODUCED IN THE TABLE ON
PAGE 56 OF THIS
PROXY STATEMENT/PROSPECTUS.
<PAGE>
ANNEX II
<PAGE>
ANNEX II
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 23, 1998 (the "Agreement"), by and
between Walsh International Inc., a Delaware corporation ("Issuer"), and
Cognizant Corporation, a Delaware corporation ("Grantee").
WHEREAS, Grantee, Issuer and WAC Inc., a Delaware corporation and a
wholly-owned subsidiary of Grantee ("Sub"), are concurrently herewith entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"; capitalized terms not defined herein shall have the meanings set
forth in the Merger Agreement), providing for, among other things, the merger of
Sub with and into Issuer with Issuer as the surviving corporation; and
WHEREAS, as a condition to Grantee's willingness to enter into the Merger
Agreement, Grantee has requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Issuer and Grantee agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 2,111,815 (as adjusted as set forth herein) shares (the "Option Shares")
of Common Stock, par value $.01 per share, of Issuer (the "Issuer Common Stock")
at a purchase price of $15.75 per Option Share (the "Purchase Price").
2. EXERCISE OF OPTION. (a) If not in material breach of the Merger
Agreement, Grantee may exercise the Option, in whole or in part, at any time or
from time to time following the occurrence of a Purchase Event (as defined
below) and until termination of this Agreement pursuant to Section 15 hereof;
PROVIDED that, except as otherwise provided herein, the Option shall terminate
and be of no further force and effect upon the earliest to occur of (i) the
Effective Time of the Merger, (ii) 12 months after the first occurrence of a
Purchase Event or (iii) termination of the Merger Agreement prior to the
occurrence of a Purchase Event. Notwithstanding the termination of the Option,
but subject to Section 15 hereof, Grantee shall be entitled to purchase those
Option Shares with respect to which it has exercised the Option pursuant to this
Section 2(a) in accordance with the terms hereof prior to the termination of the
Option. The termination of the Option shall not affect any rights hereunder
which by their terms extend beyond the date of such termination.
(b) As used herein, a "Purchase Event" means the termination of the Merger
Agreement under any circumstance which would entitle Grantee or Issuer to
receive any fee from Issuer pursuant to Section 8.02(a) of the Merger Agreement,
PROVIDED, HOWEVER, that the termination of the Merger Agreement (except pursuant
to Section 7.01(b) thereof) after the occurrence of any event described in
Section 8.02(a)(i)(B)(x) thereof shall constitute a Purchase Event hereunder
whether or not any event described in Section 8.02(a)(i)(B)(y) of the Merger
Agreement shall have occurred.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 20 business days from the Notice Date for the
closing of such purchase (the "Closing"; and the date of such Closing, the
"Closing Date"); PROVIDED that the Closing shall be held only if (A) such
purchase would not otherwise violate or cause the violation of applicable law
(including the HSR Act) and (B) no statute, rule, regulation, decree, order or
injunction shall have been promulgated, enacted, entered into, or enforced by
any Governmental Entity which prohibits delivery of the Option Shares, whether
temporary, preliminary or permanent; PROVIDED, HOWEVER, that the parties hereto
shall use their best efforts to have any such decree, order or injunction
vacated or reversed. If the Closing cannot be consummated by reason of a
restriction set forth in clause (A) or (B) above, notwithstanding the provisions
of Section 2(a), the Closing Date shall be within 20 business days following the
elimination of such restriction.
<PAGE>
3. PAYMENT AND DELIVERY OF CERTIFICATES. (a) On each Closing Date, Grantee
shall pay to Issuer in immediately available funds by wire transfer to a bank
account designated by Issuer an amount equal to the Purchase Price multiplied by
the Option Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Closing, which Option Shares shall be free and clear of all Liens, and
Grantee shall deliver to Issuer a letter agreeing that Grantee shall not offer
to sell or otherwise dispose of such Option Shares in violation of applicable
law or the provisions of this Agreement. If at the time of issuance of any
Option Shares pursuant to an exercise of all or part of the Option hereunder,
Issuer shall not have redeemed the Rights, or shall have issued any similar
securities, then each Option Share issued pursuant to such exercise shall also
represent a corresponding Right or new rights with terms substantially the same
as and at least as favorable to Grantee as are provided under the Rights
Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH 23,
1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT
CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
(ii) the reference to restrictions pursuant to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
4. AUTHORIZED STOCK. Issuer hereby represents and warrants to Grantee that
Issuer has taken all necessary corporate and other action to authorize and
reserve and to permit it to issue, and, at all times from the date hereof until
the obligation to deliver Issuer Common Stock upon the exercise of the Option or
any Substitute Option (as hereinafter defined) terminates, will have reserved
for issuance, upon exercise of the Option or any Substitute Option, shares of
Issuer Common Stock necessary for Grantee to exercise the Option or Substitute
Option, and Issuer will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 6 upon exercise of the Option
or Substitute Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option or Substitute Option, including all additional shares of
Issuer Common Stock or other securities which may be issuable upon exercise of
the Option or Substitute Option pursuant to Section 6, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all Liens, including any preemptive rights
of any stockholder of Issuer.
5. PURCHASE NOT FOR DISTRIBUTION. Grantee hereby represents and warrants to
Issuer that any Option Shares or other securities acquired by Grantee upon
exercise of the Option or Substitute Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
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<PAGE>
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities subject to the Option, and the Purchase
Price therefor, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction, so that Grantee shall receive
upon exercise of the Option the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if the Option had been exercised immediately prior to such event or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement at a price per share less than the
Purchase Price, the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it equals 19.9% of the
number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the shares of Issuer
Common Stock outstanding immediately prior to the consummation of such merger
shall be changed into or exchanged for stock or other securities of Issuer or
any other person or cash or any other property, or the shares of Issuer Common
Stock outstanding immediately prior to the consummation of such merger shall
after such merger represent less than 50% of the outstanding voting securities
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (I) the Acquiring Corporation
(as defined below) or (II) any person that controls the Acquiring Corporation
(any such person specified in clause (I) or (II) being referred to as
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option; PROVIDED
that the exercise price therefor and number of shares subject thereto shall be
as set forth in this Section 6 and the repurchase rights relating thereto shall
be as set forth in Section 8; PROVIDED, FURTHER, that the Substitute Option
shall be exercisable immediately upon issuance without the occurrence of a
Purchase Event with respect to the Substitute Option; and PROVIDED, FURTHER,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option (subject to the variations described in the foregoing
provisos), such terms shall be as similar as possible and in no event less
advantageous to Grantee. Substitute Option Issuer shall also enter into an
agreement with Grantee in substantially the same form as this Agreement (subject
to the variations described in the foregoing provisos), which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock (as defined below) as is equal to the Assigned Value (as
defined below) multiplied by the number of shares of Issuer Common Stock for
which the Option was theretofore exercisable, divided by the Average Price (as
defined below), rounded up to the nearest whole share. The exercise price per
share of Substitute Common Stock of the Substitute Option (the "Substitute
Option Price") shall then be equal to the Purchase Price multiplied by a
fraction in which the numerator is the number of shares of Issuer Common Stock
for which the Option was theretofore exercisable and the denominator is the
number of shares of Substitute Common Stock for which the Substitute Option is
exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of outstanding Substitute
Common Stock but for the limitation in the first sentence of this Section 6(e),
Substitute Option Issuer shall make a cash payment to
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Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in the first sentence of this Section 6(e) over
(ii) the value of the Substitute Option after giving effect to the limitation in
the first sentence of this Section 6(e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by
Grantee.
(f) Issuer shall not enter into any transaction described in Section 6(b)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Agreement
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights comparable
to the Rights by reason of the issuance or exercise of the Substitute Option and
the shares of Substitute Common Stock are otherwise in no way distinguishable
from or have lesser economic value than other shares of common stock issued by
Substitute Option Issuer (other than any diminution in value resulting from the
fact, if applicable, that the shares of Substitute Common Stock are restricted
securities, as defined in Rule 144 under the Securities Act or any successor
provision)).
(g) For purposes of this Agreement, the following terms have the following
meanings:
(1) "Acquiring Corporation" means (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing or surviving
corporation and (iii) the transferee of all or substantially all of Issuer's
assets.
(2) "Assigned Value" means the highest of (w) the price per share of
Issuer Common Stock at which a tender offer or exchange offer for Issuer
Common Stock has been made after the date hereof and prior to the
consummation of the consolidation, merger or sale referred to in Section
6(b), (x) the price per share to be paid by any third party or the
consideration per share to received by holders of Issuer Common Stock, in
each case pursuant to the agreement with Issuer with respect to the
consolidation, merger or sale referred to in Section 6(b), (y) the highest
closing sales price per share for Issuer Common Stock quoted on the NYSE (or
if such Issuer Common Stock is not quoted on the NYSE, the highest bid price
per share as quoted on the National Association of Securities Dealers
Automated Quotation System or, if the shares of Issuer Common Stock are not
quoted thereon, on the principal trading market on which such shares are
traded as reported by a recognized source) during the 12-month period
immediately preceding the consolidation, merger or sale referred to in
Section 6(b) and (z) in the event the transaction referred to in Section
6(b) is a sale of all or substantially all of Issuer's assets, an amount
equal to (i) the sum of the price paid in such sale for such assets
(including assumed liabilities) and the current market value of the
remaining assets of Issuer, as determined by a nationally recognized
investment banking firm selected by Grantee, divided by (ii) the number of
shares of Issuer Common Stock outstanding at such time. In the event that a
tender offer or exchange offer is made for Issuer Common Stock or an
agreement is entered into for a merger or consolidation involving
consideration other than cash, the value of the securities or other property
issuable or deliverable in exchange for Issuer Common Stock shall be
determined by a nationally recognized investment banking firm selected by
Grantee.
(3) "Average Price" means the average closing sales price per share of a
share of Substitute Common Stock quoted on the NYSE (or if such Substitute
Common Stock is not quoted on the NYSE, the highest bid price per share as
quoted on the National Association of Securities Dealers Automated Quotation
System or, if the shares of Substitute Common Stock are not quoted thereon,
on the principal trading market on which such shares are traded as reported
by a recognized source) for the twenty trading days immediately preceding
the fifth business day prior to the consolidation, merger or sale in
question, but in no event higher than the closing price of the shares of
Substitute Common Stock on the day preceding such consolidation, merger or
sale; PROVIDED that if Substitute Option Issuer is Issuer, the Average Price
shall be computed with respect to a share of common stock
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<PAGE>
issued by Issuer, the person merging into Issuer or by any company which
controls such person, as Grantee may elect.
(4) "Substitute Common Stock" means the shares of capital stock (or
similar equity interest) with the greatest voting power in respect of the
election of directors (or persons similarly responsible for the direction of
the business and affairs) of the Substitute Option Issuer.
7. REPURCHASE OF OPTION AND OPTION SHARES. (a) Notwithstanding the
provisions of Section 2(a), but subject to Section 15 hereof, at any time
commencing upon the first occurrence of a Repurchase Event (as defined below)
and ending 12 months after the occurrence of a Purchase Event, Issuer (or any
successor entity thereof) shall:
(i) at the request of Grantee, repurchase from Grantee the Option (if
and to the extent not previously terminated) at a price equal to the excess,
if any, of (x) the Applicable Price (as defined below) as of the Section 7
Request Date (as defined below) for a share of Issuer Common Stock over (y)
the Purchase Price (subject to adjustment pursuant to Section 6(a)),
multiplied by the number of shares of Issuer Common Stock with respect to
which the Option has not been exercised (the "Option Repurchase Price"); and
(ii) at the request of an owner of Option Shares from time to time,
repurchase such number of Option Shares as such owner shall designate at a
price equal to the Applicable Price as of the Section 7 Request Date
multiplied by the number of Option Shares requested to be repurchased by
such owner (the "Option Share Repurchase Price").
(b) If Grantee or an owner of Option Shares exercises its rights under this
Section 7, Issuer shall, within 10 business days after the Section 7 Request
Date, pay the Option Repurchase Price or Option Share Repurchase Price, as the
case may be, in immediately available funds, and Grantee or such owner, as the
case may be, shall surrender to Issuer the Option or Option Shares, as the case
may be.
(c) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Applicable Price," as of any date, means the highest of (A) the
highest price per share at which a tender offer or exchange offer has been
made for shares of Issuer Common Stock after the date hereof and on or prior
to such date, (B) the price per share to be paid by any third party for
shares of Issuer Common Stock or the consideration per share to be received
by holders of Issuer Common Stock, in each case pursuant to an agreement for
a merger or other business combination transaction with Issuer entered into
on or prior to such date or (C) the highest closing sales price per share of
Issuer Common Stock quoted on the NYSE (or if Issuer Common Stock is not
quoted on the NYSE, the highest bid price per share as quoted on the
National Association of Securities Dealers Automated Quotations System or,
if the shares of Issuer Common Stock are not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) during the 60 business days preceding such date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (A) or (B) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Grantee and reasonably
acceptable to Issuer, which determination shall be conclusive for all
purposes of this Agreement.
(ii) "Repurchase Event" means the occurrence of a Purchase Event
followed by the consummation of any transaction the proposal of which would
constitute a Transaction Proposal.
(iii) 'Section 7 Request Date" means the date on which Grantee or an
owner of Option Shares exercises its rights under this Section.
8. REPURCHASE OF SUBSTITUTE OPTION. (a) At any time after issuance of the
Substitute Option and prior to the expiration of the Substitute Option,
Substitute Option Issuer (or any successor entity thereof) shall:
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(i) at the request of Grantee, repurchase from Grantee the Substitute
Option (if and to the extent not previously terminated) at a price equal to
the excess, if any, of (x) the Highest Closing Price as of the Section 8
Request Date (as defined below) for a share of Substitute Common Stock over
(y) the Purchase Price (subject to adjustment pursuant to Section 6(a)),
multiplied by the number of shares of Substitute Common Stock with respect
to which the Substitute Option has not been exercised (the "Substitute
Option Repurchase Price"); and
(ii) at the request of an owner of shares of Substitute Common Stock
issued upon exercise of the Substitute Option, repurchase such number of
shares of Substitute Common Stock as such owner shall designate at a price
equal to the Highest Closing Price as of the Section 8 Request Date
multiplied by the number of shares of Substitute Common Stock requested to
be repurchased by such owner (the "Substitute Share Repurchase Price").
(b) If Grantee or an owner of shares of Substitute Common Stock issued upon
exercise of the Substitute Option exercises its rights under this Section 8,
Substitute Option Issuer shall, within 10 business days after the Section 8
Request Date, pay the Substitute Option Repurchase Price or Substitute Share
Repurchase Price, as the case may be, in immediately available funds, and
Grantee or such owner, as the case may be, shall surrender to Issuer the Option
or shares of Substitute Common Stock, as the case may be.
(c) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Highest Closing Price" means the highest closing sales price for
shares of Substitute Common Stock quoted on the NYSE (or if the Substitute
Common Stock is not quoted on the NYSE, the highest bid price per share as
quoted on the National Association of Securities Dealers Automated
Quotations System or, if the shares of Substitute Common Stock are not
quoted thereon, on the principal trading market on which such shares are
traded as reported by a recognized source) during the six-month period
preceding the Section 8 Request Date; and
(ii) "Section 8 Request Date" means the date on which Grantee or an
Owner exercises its rights under this Section.
9. MANDATORY REPURCHASE OF OPTION. (a) In the event that any person who has
participated in a Purchase Event enters into any agreement or understanding with
Grantee with respect to Grantee's exercise of, or its election not to exercise,
any of Grantee's rights set forth in Section 2 or 7 of this Agreement, Grantee
shall, by written notice to Issuer, require that Issuer repurchase, and Issuer
shall repurchase, (I) the Option and (II) all (but not less than all) the shares
of Issuer Common Stock purchased by Grantee pursuant hereto; PROVIDED, HOWEVER,
that the parties shall not be obligated to effect such mandatory repurchase if
the Board of Directors of Issuer determines, after having consulted with and
considered the written advice of outside counsel, that such mandatory repurchase
would cause the members of the Board of Directors to breach their fiduciary
duties; and PROVIDED, further, that any such determination by the Board of
Directors of Issuer shall not operate to limit Grantee's rights pursuant to
Section 7 hereof. Issuer shall:
(i) repurchase from Grantee the Option (if and to the extent not
previously terminated) at a price equal to the excess, if any, of (x) the
Section 9 Applicable Price (as defined below) as of the Section 9 Notice
Date (as defined below) for a share of Issuer Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 6(a)), multiplied
by the number of shares of Issuer Common Stock with respect to which the
Option has not been exercised (the "Section 9 Option Repurchase Price"); and
(ii) repurchase such number of Option Shares as an owner of Option
Shares shall designate at a price equal to the Section 9 Applicable Price as
of the Section 9 Notice Date multiplied by the number of Option Shares
requested to be repurchased by such owner (the "Section 9 Option Share
Repurchase Price").
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(b) In the event that Issuer is, as a result of law or regulation,
prohibited from performing any of its obligations under this Section 9, Issuer
shall not thereafter enter into any acquisition transaction unless the other
parties thereto agree to assume Issuer's obligations under this Section 9 to the
extent not previously performed. The foregoing sentence shall not operate to
limit or waive any remedies Grantee may have against Issuer for Issuer's failure
to perform its obligations under this Section 9.
(c) If Grantee or an owner of Option Shares exercises its rights under this
Section 9, Issuer shall, within 10 business days after the Section 9 Notice
Date, pay the Section 9 Option Repurchase Price or Section 9 Option Share
Repurchase Price, as the case may be, in immediately available funds, and
Grantee or such owner, as the case may be, shall surrender to Issuer the Option
or Option Shares, as the case may be.
(d) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Section 9 Applicable Price," as of any date, means the highest of
(A) the highest price per share at which a tender offer or exchange offer
has been made for shares of Issuer Common Stock after the date hereof and on
or prior to such date, (B) the price per share to be paid by any third party
for shares of Issuer Common Stock or the consideration per share to be
received by holders of Issuer Common Stock, in each case pursuant to an
agreement for a merger or other business combination transaction with Issuer
entered into on or prior to such date or (C) the highest closing sales price
per share of Issuer Common Stock quoted on the NYSE (or if Issuer Common
Stock is not quoted on the NYSE, the highest bid price per share as quoted
on the National Association of Securities Dealers Automated Quotations
System or, if the shares of Issuer Common Stock are not quoted thereon, on
the principal trading market on which such shares are traded as reported by
a recognized source) during the 60 business days preceding such date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (A) or (B) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Grantee and reasonably
acceptable to Issuer, which determination shall be conclusive for all
purposes of this Agreement.
(ii) "Section 9 Notice Date" means the date on which Grantee or an owner
of Option Shares exercises its rights under this Section.
(iii) "Section 9 Repurchase Consideration" means the aggregate price paid
by Issuer to Grantee under the terms of this Section 9.
10. REGISTRATION RIGHTS. Issuer shall, if requested by Grantee or any owner
of Option Shares (collectively with Grantee, the "Owners") at any time and from
time to time within three years of the first exercise of the Option, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have been
acquired by or are issuable to such Owners upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by such
Owners, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities under any applicable state securities
laws. Issuer shall use all reasonable efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of other
parties which are required therefor and to keep such registration statement
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations of Issuer hereunder to
file a registration statement and to maintain its effectiveness may be suspended
for one or more periods of time not exceeding 30 days in the aggregate if the
Board of Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and adversely affect
Issuer. Any registration statement prepared and filed under this Section 10, and
any sale covered thereby, shall be at Issuer's expense except for underwriting
discounts or commissions,
7
<PAGE>
brokers' fees and the fees and disbursements of Owners' counsel related thereto.
The Owners shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If during the
time period referred to in the first sentence of this Section 10 Issuer effects
a registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or Form
S-8, or any successor form), it shall allow the Owners the right to participate
in such registration, and such participation shall not affect the obligation of
Issuer to effect two registration statements for the Owners under this Section
10; PROVIDED that, if the managing underwriters of such offering advise Issuer
in writing that in their opinion the number of shares of Issuer Common Stock
requested to be included in such registration exceeds the number which can be
sold in such offering, Issuer shall include the shares requested to be included
therein by the Owners pro rata with the shares intended to be included therein
by Issuer. In connection with any registration pursuant to this Section 10,
Issuer and the Owners shall provide each other and any underwriter of the
offering with customary representations, warranties, covenants, indemnification
and contribution in connection with such registration.
11. LISTING. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE, Issuer, upon the
request of any Owner, will promptly file an application to list the shares of
Issuer Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE and will use its best efforts to obtain approval of such
listing as soon as practicable.
12. LIMITATION OF GRANTEE PROFIT. (a) Notwithstanding any other provision
herein, in no event shall Grantee's Total Profit (as defined below) exceed
$5,550,000, and, if it otherwise would exceed such amount, Grantee, at its sole
discretion, shall either (i) reduce the number of shares subject to the Option,
(ii) deliver to Issuer for cancellation shares of Issuer Common Stock (or other
securities into which such Option Shares are converted or exchanged), (iii) pay
cash to Issuer, or (iv) any combination of the foregoing, so that Grantee's
actually realized Total Profit shall not exceed $5,550,000 after taking into
account the foregoing actions.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount of (A) the excess of (x) the net cash amounts received by
Grantee pursuant to a sale of Option Shares (or securities into which such
shares are converted or exchanged) to any unaffiliated third party within 12
months after the exercise of the Option, over (y) the Grantee's aggregate
purchase price for such Option Shares (or other securities), PLUS (B) all
amounts received by Grantee on the transfer of the Option, PLUS (C) all
equivalent amounts with respect to the Substitute Option, PLUS (D) all amounts
received by Grantee pursuant to Section 8.02(a) and (b) of the Merger Agreement,
MINUS (ii) all amounts of cash previously paid to Issuer pursuant to this
Section 12 plus the value of the Option Shares (or other securities) previously
delivered to Issuer for cancellation pursuant to this Section 12.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, any payment provided for in Section 8.02(a) or (b) of the
Merger Agreement; PROVIDED that if and to the extent the Total Profit received
by Grantee would exceed $5,550,000 following receipt of such payment, Grantee
shall be obligated to comply with the terms of Section 12(a) within 30 days of
the latest of (i) the date of receipt of such payment, (ii) the date of receipt
of the net cash by Grantee pursuant to the sale of Option Shares (or securities
into which such Option Shares are converted or exchanged) to any unaffiliated
party within 12 months after the exercise of this Option with respect to such
Option Shares, (iii) the date of receipt of net cash from disposition of the
Option and (iv) the date of receipt of equivalent amounts pursuant to the sale
of the Substitute Option or shares of Substitute Common Stock (or other
securities into which such Substitute Common Stock is converted or exchanged).
8
<PAGE>
(d) For purposes of Section 12(a) and clause (ii) of Section 12(b), the
value of any Option Shares delivered to Issuer shall be the Assigned Value of
such Option Shares and the value of any Substitute Common Stock delivered to
Issuer shall be the Highest Closing Price of such Substitute Common Stock.
13. LOSS, THEFT, ETC. OF AGREEMENT. This Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Issuer Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
14. MISCELLANEOUS. (a) EXPENSES. Except as otherwise provided in Section 10
hereof or in the Merger Agreement, each of the parties hereto shall bear and pay
all costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY. Except as
otherwise set forth in the Merger Agreement, this Agreement, together with the
Merger Agreement, (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency 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. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire,
or does not require Issuer (or Substitute Option Issuer) to repurchase, the full
number of shares of Issuer Common Stock (or Substitute Common Stock) as provided
in Sections 2, 7 and 9 (or in the case of Substitute Common Stock Sections 2 and
8), as adjusted pursuant to Section 6, it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(D) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
APPLICABLE CONFLICTS OF LAW RULES.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Grantee to:
9
<PAGE>
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
Telecopier No.: (203) 222-4313
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon, Esq.
Telecopier No.: (212) 455-2502
If to Issuer to:
Walsh International Inc.
105 Terry Drive, Suite 118
Newtown, PA 18940
Attention: General Counsel
Telecopier No.: (215) 860-3277
with a copy to:
Reboul, MacMurray, Hewitt, Maynard
& Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: Karen C. Wiedemann, Esq.
Telecopier No.: (212) 841-5725
(g) COUNTERPARTS. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
both parties need not sign the same counterpart.
(h) ASSIGNMENT. Grantee may assign this Agreement in whole to any affiliate
of Grantee at any time. Except as provided in the next sentence, Grantee may
not, without the prior written consent of Issuer (which shall not be
unreasonably withheld), assign this Agreement to any other person. Upon the
occurrence of a Purchase Event, Grantee may sell, transfer, assign or otherwise
dispose of, in whole at any time, its rights and obligations hereunder. In the
case of any sale, transfer, assignment or disposition of this Option, Issuer
shall do all things reasonably necessary to facilitate such transaction. This
Agreement shall not be assignable by Issuer except by operation of law. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
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<PAGE>
(i) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Sections 3.01(a) and 3.02(a) of the Merger Agreement, and, to the
extent they relate to this Stock Option Agreement, in Sections 3.01(c),(d), (p),
(q) and (t) and 3.02(c) of the Merger Agreement, are incorporated herein by
reference.
(j) FURTHER ASSURANCES. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(k) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
15. TERMINATION. Notwithstanding any other provision to the contrary
contained in this Agreement, this Agreement shall terminate, and Grantee shall
have no further rights hereunder, upon the payment in full of any and all
amounts due under Sections 8.02(a) and 8.02(b) of the Merger Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized as
of the day and year first written above.
WALSH INTERNATIONAL INC.
By:/S/ MICHAEL A. HAUCK_______________
Name: Michael A. Hauck
Title: Chief Executive Officer
COGNIZANT CORPORATION.
By:/S/ KENNETH S. SIEGEL______________
Name: Kenneth S. Siegel
Title: Chief Executive Officer
11
<PAGE>
ANNEX III
<PAGE>
ANNEX III
NATIONSBANC MONTGOMERY SECURITIES
March 23, 1998
Board of Directors
Walsh International Inc.
Swan House
24 Bridge Street
Leatherhead
Surrey KT22 8BZ
United Kingdom
Gentlemen:
We understand that Walsh International Inc., a Delaware corporation
("Seller"), and Cognizant Corporation, a Delaware corporation ("Buyer"), have
entered into a Merger Agreement dated as of March 23, 1998 (the "Merger
Agreement"), pursuant to which a wholly owned subsidiary of Buyer will be merged
with and into Seller, which will be the surviving entity (the "Merger"). We also
understand that on January 15, 1998, Buyer declared a dividend payable to its
stockholders of record on a date to be determined by Buyer of all the
outstanding common stock of it's wholly-owned subsidiary, IMS Health
Incorporated, a Delaware corporation ("Parent Transaction"). Pursuant to the
Merger, as more fully described in the Merger Agreement, we understand that (i)
if the Merger becomes effective before such record date, each outstanding share
of the common stock, $0.01 par value per share ("Seller Common Stock"), of
Seller will be converted into and exchangeable for a fraction of a share of the
common stock, $0.01 par value per share ("Buyer Common Stock"), of Buyer equal
to the Parent Exchange Ratio (as defined in the Merger Agreement), and (ii) if
the Merger becomes effective after such record date, each outstanding share of
Seller Common Stock will be converted into and exchangeable for a fraction of a
share of the common stock, $0.01 par value per share ("IMS Common Stock"), of
IMS Health Incorporated calculated with reference to the IMS Adjustment Factor
(as defined in the Merger Agreement). The terms and conditions of the Merger are
set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Parent Exchange Ratio and the IMS Adjustment Factor are fair to the stockholders
of Seller from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller and
Buyer, including the consolidated financial statements for recent years and
interim periods to December 31, 1997 and certain other relevant financial and
operating data relating to Seller and Buyer made available to us from published
sources and from the internal records of Seller and Buyer; (ii) reviewed the
financial terms and conditions of the Merger Agreement; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, Seller Common Stock and Buyer Common Stock; (iv) compared Seller and Buyer
from a financial point of view with certain other companies in the health care
information services and marketing information systems industries which we
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
health care services and software industries which we deemed to be comparable,
in whole or in part, to the Merger;
<PAGE>
(vi) reviewed and discussed with representatives of the management of Seller and
Buyer certain information of a business and financial nature regarding Seller
and Buyer, including financial forecasts and related assumptions of Seller
furnished to us by Seller and financial forecasts and related assumptions for
Buyer prepared by us in consultation with management of Buyer; (vii) made
inquiries regarding and discussed the Merger and the Merger Agreement and other
matters related thereto with Seller's management and Seller's counsel; and
(viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecast for Seller provided to us by their management and the financial
forecast for Buyer prepared by us in consultation with management of Buyer, upon
the advice of management of Seller and Buyer and with your consent we have
assumed for purposes of our opinion that the forecasts (including the
assumptions regarding expected revenue enhancements and cost savings, the amount
of goodwill that can be attributed to the write-down of research and development
costs, and other merger related costs) have been reasonably prepared on bases
reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to the future financial performance of
Seller and Buyer and that they provide a reasonable basis upon which we can form
our opinion. We have also assumed that there have been no material changes in
Seller's or Buyer's assets, financial condition, results of operations, business
or prospects since the respective dates of their last financial statements made
available to us. In our review of the proposed Merger and its financial terms
and conditions, we were not asked to, nor did we, make any assessment of the
proposed structure or likelihood of the Parent Transaction, nor did we make any
evaluation of the likely trading prices for the IMS Common Stock following the
completion of the Parent Transaction. We have relied on advice of counsel and
independent accountants to Seller as to all legal, tax and financial reporting
matters with respect to Seller, the Merger and the Merger Agreement. We have
assumed that the Merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934 and all
other applicable federal and state statutes, rules and regulations. In addition,
we have not assumed responsibility for making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of Seller or Buyer, nor have we been furnished with any such
appraisals. You have informed us, and we have assumed, that the Merger will be
recorded as a purchase under generally accepted accounting principles. Finally,
our opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Seller of any of
the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we actively trade the equity securities
of Seller and Buyer for our own account and for the accounts of customers and
may at any time hold a long or a short position in such securities. We currently
hold a long position in such securities of Seller. We have also acted as an
underwriter in connection with offerings of securities of Seller and performed
various investment banking services for Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Parent Exchange Ratio and the IMS Adjustment Factor
are fair to the stockholders of Seller from a financial point of view, as of the
date hereof.
2
<PAGE>
We are not expressing an opinion regarding the price at which the Buyer
Common Stock or the IMS Common Stock may trade at any future time. The market
value of the Buyer Common Stock or the IMS Common Stock to be received by the
stockholders of Seller pursuant to the Merger is fixed only within certain
limits and, accordingly, outside such limits the market value of such stock may
vary significantly.
This opinion is directed to the Board of Directors of Seller in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Parent Exchange Ratio and
the IMS Adjustment Factor to the stockholders and does not address the relative
merits of the Merger and any alternatives to the Merger, Seller's underlying
decision to proceed with or effect the Merger, or any other aspect of the
Merger. This opinion may not be used or referred to by Seller, or quoted or
disclosed to any person in any manner, without our prior written consent, which
consent is hereby given to the inclusion of this opinion in any proxy statement,
tender offer statement or prospectus to be filed with the Securities and
Exchange Commission in connection with the Merger. In furnishing this opinion,
we do not admit that we are experts within the meaning of the term "experts" as
used in the Securities Act and the rules and regulations promulgated thereunder,
nor do we admit that this opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY SECURITIES LLC
3
<PAGE>
ANNEX IV
<PAGE>
ADDITIONAL INFORMATION RELATING TO COGNIZANT DISTRIBUTION
This Annex IV consists of an Information Statement substantially in the form
in which it is expected to be mailed to holders of Cognizant Common Stock in
connection with the Cognizant Distribution. In addition to the terms defined in
the Proxy Statement/Prospectus to which this Information Statement is annexed,
the following capitalized terms used herein without definition have the
indicated meanings: "Distribution" means the Cognizant Distribution (as defined
in the Proxy Statement/Prospectus); and "Record Date" means the Cognizant
Distribution Record Date (as defined in the Proxy Statement/ Prospectus).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND RELATED MATTERS........................................... 1
INFORMATION STATEMENT SUMMARY.............................................................................. 3
FORWARD-LOOKING STATEMENTS................................................................................. 13
RISK FACTORS............................................................................................... 14
THE DISTRIBUTION........................................................................................... 20
RELATIONSHIP BETWEEN IMS HEALTH AND NIELSEN MEDIA RESEARCH AFTER THE DISTRIBUTION.......................... 25
DIVIDEND POLICIES.......................................................................................... 30
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) CAPITALIZATION.............................................. 31
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) SELECTED FINANCIAL DATA..................................... 32
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS....... 33
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF
FINANCIAL POSITION....................................................................................... 39
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................................ 41
IMS HEALTH BUSINESS........................................................................................ 52
COGNIZANT/IMS HEALTH MANAGEMENT AND EXECUTIVE COMPENSATION................................................. 61
COGNIZANT/IMS HEALTH SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 74
DESCRIPTION OF IMS HEALTH CAPITAL STOCK.................................................................... 76
NIELSEN MEDIA RESEARCH CAPITALIZATION...................................................................... 84
NIELSEN MEDIA RESEARCH SELECTED FINANCIAL DATA............................................................. 85
NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS............................... 86
NIELSEN MEDIA RESEARCH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................................... 90
NIELSEN MEDIA RESEARCH BUSINESS............................................................................ 95
NIELSEN MEDIA RESEARCH MANAGEMENT AND EXECUTIVE COMPENSATION............................................... 103
NIELSEN MEDIA RESEARCH SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................... 109
DESCRIPTION OF NIELSEN MEDIA RESEARCH CAPITAL STOCK........................................................ 111
AVAILABLE INFORMATION...................................................................................... 119
REPORTS OF IMS HEALTH...................................................................................... 119
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE DISTRIBUTION AND RELATED MATTERS
Q1: WHAT IS THE DISTRIBUTION?
A: The Distribution is the method by which Cognizant Corporation ("Cognizant")
will be separated into two publicly traded companies: (i) IMS Health
Incorporated ("IMS HEALTH"), the leading global provider of information
solutions to the pharmaceutical and healthcare industries and (ii) Nielsen
Media Research, the leader in television audience measurement services in
North America. Pursuant to the Distribution, Cognizant will distribute to
its stockholders in a tax-free dividend one share of common stock, par value
$0.01 per share, of IMS HEALTH ("IMS HEALTH Common Stock") for each share of
common stock par value $0.01 per share, of Cognizant ("Cognizant Common
Stock") held. Immediately after the Distribution, Cognizant's stockholders
will still own all of Cognizant's current businesses, but they will own them
as two separate investments rather than as a single investment.
Q2: WHAT IS IMS HEALTH?
A: IMS HEALTH is a new company the businesses of which will include: IMS, the
leading global supplier of information and decision-support services to the
pharmaceutical and healthcare industries; Erisco, a leading supplier of
software-based administrative and analytical solutions to the managed care
industry; Enterprises, a venture capital unit principally focused on
investments in emerging healthcare businesses; Cognizant Technology
Solutions, a provider of software application development and maintenance
services and Year 2000 and Eurocurrency compliance services; and an equity
investment in Gartner Group, the leading supplier of research and analysis
to the information technology industry.
Q3: WHAT IS NIELSEN MEDIA RESEARCH?
A: Nielsen Media Research is the leading source of television audience
measurement services in North America, providing audience estimates for
national and local television programming sources, including broadcast
networks, cable networks, syndicators and local television stations. Since
after the Distribution Cognizant's only business will be the Nielsen Media
Research business, at the time of the Distribution Cognizant will change its
name to Nielsen Media Research, Inc.
Q4: WHY IS COGNIZANT SEPARATING ITS BUSINESSES?
A: Cognizant believes that separating its businesses in the Distribution will
allow IMS HEALTH and Nielsen Media Research to pursue opportunities that
will improve their competitive position, enhance their valuation and create
wealth for stockholders. Cognizant believes the separation will enhance
management focus on the businesses, allowing corporate policies and
strategies to be tailored to particular needs. Cognizant also believes the
separation will facilitate IMS HEALTH's ability to pursue acquisition and
growth opportunities and will lead to better investor understanding of the
different businesses.
Q5: HAS COGNIZANT DONE THIS BEFORE?
A: Cognizant is experienced in effecting spin-off transactions, as Cognizant
itself is the product of a spin-off from The Dun & Bradstreet Corporation in
November 1996. Since that spin-off, Cognizant has made significant progress
in pursuing its strategic goals and objectives, and the proposed spin-off
will allow it to continue that progress.
Q6: WHAT IS THE TAX EFFECT OF THE DISTRIBUTION?
A: The Distribution is the most tax-efficient means of separating Cognizant's
businesses. Cognizant has received a ruling from the Internal Revenue
Service that for Federal income tax purposes the
1
<PAGE>
Distribution of the shares of IMS HEALTH Common Stock to Cognizant
stockholders will be tax-free to Cognizant and its stockholders.
Q7: WHAT WILL COGNIZANT STOCKHOLDERS RECEIVE IN THE DISTRIBUTION?
A: In the Distribution, Cognizant stockholders will receive one share of IMS
HEALTH Common Stock, and an associated Right under IMS HEALTH's Shareholder
Rights Plan, for each share of Cognizant Common Stock they own. Immediately
after the Distribution, Cognizant's stockholders will still own their shares
of Cognizant Common Stock and the same stockholders will still own all of
Cognizant's businesses, but they will own them as two separate investments
rather than as a single investment. After the Distribution, certificates
representing the "old" Cognizant Common Stock will represent such
stockholders' interests in the Nielsen Media Research business and
certificates representing IMS HEALTH Common Stock stockholders receive in
the Distribution will represent their interests in the IMS HEALTH
businesses.
Q8: WHAT HAPPENS TO COGNIZANT SHARES AFTER THE DISTRIBUTION?
A: Shares of Cognizant Common Stock will represent ownership of the Nielsen
Media Research business after the Distribution. Cognizant stock certificates
will still be valid after Cognizant changes its name to Nielsen Media
Research, Inc.
Q9: WHAT DOES A COGNIZANT STOCKHOLDER NEED TO DO NOW?
A: Cognizant stockholders do not need to take any action. The approval of the
Cognizant stockholders is not required to effect the Distribution and
Cognizant is not seeking a proxy from any stockholders. COGNIZANT
STOCKHOLDERS SHOULD NOT SEND IN THEIR COGNIZANT SHARE CERTIFICATES.
Cognizant stockholders will automatically receive their shares of IMS HEALTH
Common Stock when the Distribution is effected.
Q10:WHERE CAN COGNIZANT STOCKHOLDERS GET MORE INFORMATION?
A: Cognizant stockholders with additional questions related to the Distribution
should contact First Chicago Trust Company of New York, the Distribution
Agent for the Distribution, at Mail Suite 4694, P.O. Box 2536, Jersey City,
NJ 06303-2536, 1-800-519-3111. Questions may also be directed to the Vice
President--Investor Relations of Cognizant at 200 Nyala Farms, Westport,
Connecticut 06880, (203) 222-4238.
2
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INFORMATION STATEMENT SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT. THIS SUMMARY IS INCLUDED FOR CONVENIENCE ONLY AND SHOULD
NOT BE CONSIDERED COMPLETE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS
INFORMATION STATEMENT. IN THIS INFORMATION STATEMENT, UNLESS THE CONTEXT
OTHERWISE REQUIRES, "COGNIZANT" REFERS TO COGNIZANT CORPORATION PRIOR TO THE
DISTRIBUTION DATE AND "NIELSEN MEDIA RESEARCH" REFERS TO COGNIZANT'S SUBSIDIARY
WITH THAT NAME PRIOR TO THE DISTRIBUTION AND TO THE RENAMED COGNIZANT ON AND
AFTER THE DISTRIBUTION DATE. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS INFORMATION STATEMENT.
BUSINESSES OF COGNIZANT, IMS HEALTH AND NIELSEN MEDIA RESEARCH
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Cognizant.................... Cognizant is a Delaware corporation that began operating as
an independent public company on November 1, 1996 as a
result of its spin-off from The Dun & Bradstreet Corporation
("D&B"). Prior to that spin-off, Cognizant was owned by D&B.
Cognizant primarily is engaged in the integration of
information and technology to create business insight. In
the Distribution, Cognizant will be separated into two
publicly traded companies, IMS HEALTH and Nielsen Media
Research.
IMS HEALTH................... IMS HEALTH is a newly created Delaware corporation, the
businesses of which will focus on information solutions to
the pharmaceutical and healthcare industries. Covering over
90 countries with over 7,200 employees worldwide, IMS
HEALTH's businesses will include those of I.M.S.
International, Inc. ("IMS"), the leading global supplier of
market information and decision-support services to the
pharmaceutical and healthcare industries; Erisco, Inc.
("Erisco"), a leading supplier of software-based
administrative and analytical solutions to the managed care
industry; Cognizant Enterprises, Inc. ("Enterprises"), a
venture capital unit focused on investments in emerging
healthcare businesses; Cognizant Technology Solutions
Corporation ("CTS"), a provider of software application
development and maintenance services and Year 2000 and
Eurocurrency compliance services; SSJ K.K. ("Super Systems
Japan"), an entity based in Japan which markets financial
application software products and services tailored for the
Japanese market; and an equity investment in Gartner Group,
Inc. ("Gartner"), the leading supplier of research and
analysis to the information technology industry
(collectively, the "IMS HEALTH Business").
Robert E. Weissman is currently Chairman and Chief Executive
Officer of Cognizant and Chairman and Chief Executive
Officer of IMS HEALTH. Mr. Weissman will resign from such
positions at Cognizant effective upon the Distribution Date;
however, he will continue as a director of Cognizant (which
will be renamed Nielsen Media Research, Inc. as described
below) after the Distribution. The Board of Directors of IMS
HEALTH will be composed of certain persons who are currently
directors of Cognizant. See "Cognizant/ IMS HEALTH
Management and Executive Compensation--IMS HEALTH Board of
Directors". In addition to Mr. Weissman, the other executive
officers of IMS HEALTH will be drawn from the
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current management of Cognizant or its subsidiaries. See
"Cognizant/ IMS HEALTH Management and Executive
Compensation--IMS HEALTH Executive Officers".
Nielsen Media Research....... Nielsen Media Research is the leading source of television
audience measurement services in North America. As a result
of the Distribution, the television audience measurement
services business of Nielsen Media Research (the "Nielsen
Media Research Business") will remain with Cognizant, and at
the time of the Distribution, Cognizant will change its name
to Nielsen Media Research, Inc.
William G. Jacobi is currently Chairman of Nielsen Media
Research and will be the Chairman of Nielsen Media Research
after the Distribution. John A. Dimling is currently
President and Chief Operating Officer of Nielsen Media
Research and will be President and Chief Executive Officer
of Nielsen Media Research after the Distribution. The
directors of Nielsen Media Research will be composed of
certain persons who are currently directors of Cognizant and
certain persons who are not currently directors of
Cognizant. See "Nielsen Media Research Management and
Executive Compensation--Nielsen Media Research Board of
Directors". In addition to Mr. Dimling, the other executive
officers of Nielsen Media Research will be drawn primarily
from the current management of Nielsen Media Research. See
"Nielsen Media Research Management and Executive
Compensation--Nielsen Media Research Executive Officers".
THE DISTRIBUTION
Form of Transaction;
Basis of Presentation...... The Distribution is the method by which Cognizant will be
separated into two publicly traded companies, IMS HEALTH and
Nielsen Media Research. In the Distribution, Cognizant will
distribute to its stockholders shares of IMS HEALTH Common
Stock, which will represent a continuing interest in
Cognizant's healthcare information and related businesses to
be conducted by IMS HEALTH. After the Distribution,
Cognizant's only business will be the Nielsen Media Research
television audience measurement services business, and the
shares of Cognizant Common Stock held by Cognizant
stockholders will represent a continuing ownership interest
in that business. At the time of the Distribution, Cognizant
will change its name to Nielsen Media Research, Inc. From
and after the Distribution Date, Cognizant Common Stock will
therefore become "Nielsen Media Research Common Stock".
Stockholders should note that notwithstanding the legal form
of the Distribution described above whereby Cognizant
expects to spin off IMS HEALTH, because of the relative
significance of the IMS HEALTH Business to Cognizant, IMS
HEALTH will be treated as the "accounting successor" to
Cognizant for financial reporting purposes. Therefore, the
historical financial information for IMS HEALTH included
herein is that of Cognizant and does not currently
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4
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reflect the separation of the IMS HEALTH Business from the
Nielsen Media Research Business which will occur through the
Distribution. Upon approval of the plan of Distribution, the
historical financial statements of IMS HEALTH as accounting
successor to Cognizant will be restated to present Nielsen
Media Research as a "discontinued operation" for accounting
purposes.
The Distribution is subject to, and requires approval of,
the Cognizant Board of Directors of the plan of the
Distribution as well as of material terms of any
distribution, tax sharing, employee benefits, or other
similar agreements pursuant to which assets and liabilities
are allocated as part of the Distribution.
Shares to be Distributed..... The Distribution will be made to holders of record as of the
close of business on the Record Date of issued and
outstanding shares of Cognizant Common Stock. Each holder of
Cognizant Common Stock on the Record Date will receive as a
dividend one share of IMS HEALTH Common Stock for every
share of Cognizant Common Stock held. Based on the
162,848,673 shares of Cognizant Common Stock outstanding as
of March 31, 1998, the Distribution would consist of
162,848,673 shares of IMS HEALTH Common Stock.
The Board of Directors of IMS HEALTH will adopt a
stockholder rights plan (the "IMS HEALTH Rights Plan") prior
to the Distribution. Certificates evidencing shares of IMS
HEALTH Common Stock issued in the Distribution will
therefore represent the same number of IMS HEALTH Rights (as
defined below) issued under the IMS HEALTH Rights Plan. See
"Description of IMS HEALTH Capital Stock--IMS HEALTH Rights
Plan". Unless the context otherwise requires, references
herein to the IMS HEALTH Common Stock include the related
IMS HEALTH Rights.
Cognizant stockholders will not have to make any payment or
surrender or exchange certificates representing shares of
Cognizant Common Stock in order to receive their pro rata
share of the Distribution. No vote of holders of Cognizant
Common Stock is required or sought in connection with the
Distribution.
Record Date.................. The Record Date will be determined by the Board of Directors
of Cognizant and is expected to occur in June 1998. In order
to be entitled to receive shares of IMS HEALTH Common Stock
in the Distribution, holders of shares of Cognizant Common
Stock must be stockholders as of the close of business on
the Record Date.
Distribution Date............ The "Distribution Date" is presently expected to be on or
about June 30, 1998.
Distribution Agent........... First Chicago Trust Company of New York will be the
Distribution Agent (the "Distribution Agent") for the
Distribution.
Federal Income Tax
Consequences of the
Distribution............... Cognizant has received a ruling from the Internal Revenue
Service to the effect that the Distribution will be tax-free
for Federal income tax purposes. Cognizant stockholders will
apportion their tax basis in Cognizant Common Stock held
immediately before the Distribution
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Date among such Cognizant Common Stock (which will represent
each such stockholder's interest in Nielsen Media Research
after the Distribution) and IMS HEALTH Common Stock received
in the Distribution, based on the relative fair market
values of the Cognizant Common Stock and the IMS HEALTH
Common Stock as of the Distribution Date. Cognizant will
provide appropriate information to each holder of record of
Cognizant Common Stock as of the close of business on the
Record Date concerning the basis allocation. See "The
Distribution--Federal Income Tax Consequences of the
Distribution".
Stock Exchange Listing and
Trading.................... Prior to the date hereof, there has not been any established
trading market for the IMS HEALTH Common Stock. Application
will be made for listing the shares of IMS HEALTH Common
Stock on the New York Stock Exchange (the "NYSE") under the
symbol "RX", and trading is expected to commence on a
"when-issued" basis prior to the Distribution Date. On the
first NYSE trading day following the Distribution Date,
"when-issued" trading in respect of the IMS HEALTH Common
Stock will end and "regular-way" trading will begin. See
"The Distribution--Listing and Trading of IMS HEALTH Common
Stock and Nielsen Media Research Common Stock".
Nielsen Media Research Common Stock (I.E. the "old"
Cognizant Common Stock) will continue to trade on the NYSE
after the Distribution Date, but the symbol under which it
trades will change from "CZT" to "NMR". However, because of
the significant changes that will take place to Cognizant as
a result of the Distribution, the trading market for Nielsen
Media Research Common Stock after the Distribution may be
significantly different from that for Cognizant Common Stock
prior to the Distribution. See "The Distribution-- Listing
and Trading of IMS HEALTH Common Stock and Nielsen Media
Research Common Stock".
Relationship Between
IMS HEALTH and
Nielsen Media Research
After the Distribution..... After the Distribution, neither IMS HEALTH nor Nielsen Media
Research will have any ownership interest in the other,
except as set forth under "Relationship Between IMS HEALTH
and Nielsen Media Research After the Distribution", and each
of IMS HEALTH and Nielsen Media Research will be an
independent public company. IMS HEALTH and Cognizant (which
will become Nielsen Media Research at the time of the
Distribution) will enter into certain agreements governing
the relationship between IMS HEALTH and Nielsen Media
Research subsequent to the Distribution and providing for
the allocation of tax, employee benefits and certain other
assets and liabilities and obligations arising from periods
prior to the Distribution, including contingent liabilities
relating to certain litigation. In addition, there will be
individuals on the Boards of Directors of IMS HEALTH and
Nielsen Media Research who will also serve on the Board of
Directors of the other company. See
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6
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"Relationship Between IMS HEALTH and Nielsen Media Research
After the Distribution".
Certain Indebtedness and
Minority-Interest
Financing.................. In connection with the Distribution, Cognizant will borrow
$300 million, the proceeds of which will be used to repay
existing intercompany indebtedness to certain entities
included in IMS HEALTH. This debt will be an obligation of
Nielsen Media Research after the Distribution. Upon or soon
after the Distribution, IMS HEALTH intends to borrow $50
million in short-term debt. IMS HEALTH also will retain $100
million in pre-existing minority-interest financing. See
"The Distribution--Nielsen Media Research and IMS HEALTH
Indebtedness and Minority-Interest Financing".
Dividend Policies............ The payment and level of cash dividends by IMS HEALTH and
Nielsen Media Research after the Distribution will be
subject to the discretion of the IMS HEALTH Board of
Directors and the Nielsen Media Research Board of Directors,
respectively. It is anticipated that IMS HEALTH will
initially pay a dividend equal to Cognizant's current
annualized dividend of $0.12 per share. Nielsen Media
Research does not anticipate paying a dividend in the near
future. Dividend decisions will be based on, and affected
by, a number of factors, including the respective operating
results and financial requirements of IMS HEALTH and Nielsen
Media Research on a stand-alone basis as well as applicable
legal and contractual restrictions. See "Dividend Policies".
Antitakeover Provisions...... At the time of the Distribution, the Restated Certificate of
Incorporation and Amended and Restated By-laws of each of
IMS HEALTH and Nielsen Media Research will contain
provisions that may have the effect of discouraging an
acquisition of control of IMS HEALTH or Nielsen Media
Research, respectively, not approved by their respective
Board of Directors. Such provisions may also have the effect
of discouraging third parties from making proposals
involving an acquisition or change of control of IMS HEALTH
or Nielsen Media Research, although such proposals, if made,
might be considered desirable by a majority of the
stockholders of IMS HEALTH or Nielsen Media Research, as the
case may be. Such provisions could further have the effect
of making it more difficult for third parties to cause the
replacement of the Board of Directors of IMS HEALTH or
Nielsen Media Research. These provisions have been designed
to enable each of IMS HEALTH and Nielsen Media Research to
develop its businesses and foster its long-term growth
without disruptions caused by the threat of a takeover not
deemed by its Board of Directors to be in the best interest
of IMS HEALTH or Nielsen Media Research, as the case may be,
and their respective stockholders. Certain provisions of the
Distribution Agreement to be entered into between IMS HEALTH
and Cognizant (which will change its name to Nielsen Media
Research, Inc. at the time of the Distribution) may also
have the effect of discouraging third parties from making
proposals involving an acquisition or change of control of
IMS HEALTH or Nielsen Media Research. See "Relationship
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7
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Between IMS HEALTH and Nielsen Media Research After the
Distribution--Distribution Agreement".
At the time of the Distribution, each of IMS HEALTH and
Nielsen Media Research will have stockholder rights plans.
These stockholder rights plans are designed to protect
stockholders in the event of an unsolicited offer or other
takeover tactics which, in the opinion of the relevant Board
of Directors, could impair its ability to represent
stockholder interests. The provisions of the stockholder
rights plans may render an unsolicited takeover of IMS
HEALTH or Nielsen Media Research, as the case may be, more
difficult or less likely to occur or might prevent such a
takeover. See "Description of IMS HEALTH Capital Stock--IMS
HEALTH Rights Plan" and "Description of Nielsen Media
Research Common Stock--Nielsen Media Research Rights Plan".
Each of IMS HEALTH and Nielsen Media Research will be
subject to provisions of Delaware corporate law which may
restrict certain business combination transactions. See
"Description of IMS HEALTH Capital Stock--Delaware General
Corporation Law" and "Description of Nielsen Media Research
Capital Stock--Delaware General Corporation Law".
See also "Description of IMS HEALTH Capital
Stock--Provisions of IMS HEALTH Restated Certificate of
Incorporation and Amended and Restated By-laws Affecting
Change in Control" and "Description of Nielsen Media
Research Capital Stock--Provisions of Nielsen Media Research
Restated Certificate of Incorporation and Amended and
Restated By-laws Affecting Change in Control".
Risk Factors................. Stockholders should carefully consider the matters discussed
under the section entitled "Risk Factors" in this
Information Statement.
Recent Developments.......... On March 23, 1998, Cognizant announced the signing of
definitive agreements to acquire Walsh International Inc.
("Walsh"), which develops and markets leading-edge sales
force automation systems for pharmaceutical companies, and
Pharmaceutical Marketing Services Inc. ("PMSI"), which
provides information services to pharmaceutical and
healthcare companies in the U.S., Europe and Japan
(collectively, the "Acquisitions").
Under terms of the agreements, Walsh shareholders will
receive .3041 shares of Cognizant Common Stock per Walsh
share (or, based on a Cognizant share price of $51.792,
consideration of approximately $166,900,000), and PMSI
shareholders will receive .2800 shares of Cognizant Common
Stock per PMSI share (or, based on a Cognizant share price
of $51.792, consideration of approximately $179,600,000).
The total purchase price of the Walsh acquisition is
currently estimated at $193,000,000, including $166,900,000
of common stock, $11,900,000 of stock options to be issued
and $14,200,000 of accrued acquisition and integration costs
(principally severance and lease terminations).
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The aggregate purchase price, excluding debt assumed, of the
PMSI acquisition is currently estimated at $235,200,000,
including $179,600,000 of common stock, $16,400,000 of stock
options to be issued, and $39,200,000 of accrued acquisition
and integration costs (principally severance, lease
terminations and cancellations of duplicate and other
contracts, all related to PMSI). The estimated aggregate
purchase price of each of the Acquisitions is subject to
adjustment as described below.
The number of shares of Cognizant Common Stock to be issued
in connection with each of the Acquisitions is subject to a
collar adjustment based on the price of Cognizant Common
Stock during a period prior to the closing of each
Acquisition. Currently Walsh and PMSI have approximately
10.6 million and approximately 12.4 million shares
outstanding, respectively. Cognizant expects to issue
approximately 6.7 million shares from treasury stock to
consummate the Acquisitions. In the event the Acquisitions
are not completed prior to the Record Date, Walsh and PMSI
shareholders will receive, in lieu of Cognizant Common
Stock, IMS HEALTH Common Stock pursuant to a formula
designed to recalibrate the collar computations based on the
relative value of IMS HEALTH to the total value of IMS
HEALTH and Nielsen Media Research following the
Distribution. The Acquisitions, which have been
independently authorized by the Cognizant, Walsh and PMSI
Boards of Directors, are subject to approval by Walsh and
PMSI shareholders, the receipt of regulatory and other
required approvals and consents and customary closing
conditions. Each of the Acquisitions is an independent
transaction and neither is conditioned upon the consummation
of the other or upon the consummation of the Distribution.
In connection with the Distribution, Walsh and PMSI will
become part of IMS HEALTH.
On April 9, 1998, CTS filed a registration statement with
the Securities and Exchange Commission (the "SEC") with
respect to an underwritten offering of 2,917,000 shares of
Class A Common Stock, par value $0.01 per share, of CTS
(3,354,550 if the underwriters' over-allotment option
granted by Cognizant is exercised in full). Of such shares,
2,500,000 are to be offered by CTS and 417,000 shares are to
be offered by Cognizant. Following the offering, Cognizant
will own 66.7% of the outstanding common stock of CTS and
approximately 95.3% of the combined voting power of CTS's
outstanding common stock. The initial offering price is
estimated to be between $11.00 and $13.00 per share. A
portion of the proceeds to be received by CTS in the
offering will be used to repay an intercompany balance. The
transaction is expected to result in a significant one-time
gain to the Company. The registration statement has not
become effective under the Securities Act of 1933, as
amended (the "Securities Act"). If the offering is not
completed prior to the Distribution Date, IMS HEALTH will be
the selling stockholder in the offering. See "IMS HEALTH
Business--Recent Developments".
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9
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This Information Statement is being furnished by Cognizant solely to provide
information to stockholders of Cognizant who will receive IMS HEALTH Common
Stock in the Distribution and who will continue to own Nielsen Media Research
Common Stock immediately after the Distribution. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell any securities of
Cognizant, IMS HEALTH or Nielsen Media Research. The information contained in
this Information Statement is believed by Cognizant and IMS HEALTH to be
accurate with respect to Cognizant, IMS HEALTH and Nielsen Media Research as of
the date set forth on the cover. Changes may occur after that date, and
Cognizant, IMS HEALTH and Nielsen Media Research will not update the information
except in the normal course of their respective public disclosure practices.
10
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IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
SUMMARY FINANCIAL DATA
Notwithstanding the legal form of the Distribution, whereby Cognizant
expects to spin off IMS HEALTH, for accounting purposes the transaction is
accounted for as if Cognizant will spin off Nielsen Media Research. For
financial reporting purposes, the following financial information relates to IMS
HEALTH, the accounting successor to Cognizant. The financial data as of and for
all years ended December 31, are the audited financial statements of Cognizant,
which statements for 1997, 1996 and 1995 are contained elsewhere in this
Information Statement. The financial data as of and for the three months ended
March 31, 1998 and 1997 are unaudited. The historical financial information set
forth below relates to Cognizant. See "The Distribution--Form of Transaction;
Basis of Presentation". The following financial data should also be read in
conjunction with, and is qualified in its entirety by, the information set forth
under "IMS HEALTH (Accounting Successor to Cognizant) Selected Financial Data"
and "IMS HEALTH (Accounting Successor to Cognizant) Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Cognizant's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AND AS OF MARCH 31, YEAR ENDED AND AS OF DECEMBER 31,
------------------------------ -----------------------------------------------
1998 1997 1997(1) 1996(2) 1995(3) 1994(4)
-------------- -------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue(6)................... $ 337,032 $ 315,576 $1,418,153 $1,730,596 $1,542,340 $1,257,415
Income Before Cumulative Effect of
Accounting Changes................... $ 60,087 $ 52,905 $ 312,350 $ 195,451 $ 88,881 $ 146,405
Earnings Per Share of Common Stock on
Income Before Cumulative Effect of
Accounting Changes--Basic............ $ 0.37 $ 0.31 $ 1.89 $ 1.15 $ 0.52 $ 0.86
Earnings Per Share of Common Stock on
Income Before Cumulative Effect of
Accounting Changes--Diluted.......... $ 0.36 $ 0.31 $ 1.86 $ 1.15 $ 0.52 $ 0.85
BALANCE SHEET DATA:
Total Assets........................... $1,630,331 $1,405,430 $1,579,520 $1,874,982 $1,442,090 $1,331,038
Long-Term Debt......................... $ 2,813 $ 3,463 $ 2,912 $ 3,736 $ 10,485 $ 15,484
<CAPTION>
1993(5)
-----------
<S> <C>
<S> <C>
INCOME STATEMENT DATA:
Operating Revenue(6)................... $1,039,259
Income Before Cumulative Effect of
Accounting Changes................... $ 108,857
Earnings Per Share of Common Stock on
Income Before Cumulative Effect of
Accounting Changes--Basic............ $ --
Earnings Per Share of Common Stock on
Income Before Cumulative Effect of
Accounting Changes--Diluted.......... $ --
BALANCE SHEET DATA:
Total Assets........................... $1,158,764
Long-Term Debt......................... $ 5,374
</TABLE>
- ------------------------
(1) Income before Cumulative Effect of Accounting Changes in 1997 includes an
unrealized gain on its investment in Gartner of $10,664 and gains from
dispositions-net of $6,818.
(2) Income before Cumulative Effect of Accounting Changes in 1996 includes a
one-time acquisition-related charge of $32,778 related to Gartner's
acquisition of J3 Learning Corporation and gains from dispositions-net of
$112.
(3) Income before Cumulative Effect of Accounting Changes in 1995 includes a
non-recurring charge of $49,268, an incremental provision of postemployment
benefits of $17,778, restructuring expense of $7,002 and gains from
dispositions-net of $8,269.
(4) Income before Cumulative Effect of Accounting Changes in 1994 includes
restructuring expense of $7,957 and a gain from disposition of $12,806.
(5) Income before Cumulative Effect of Accounting Changes in 1993 includes
restructuring expense of $46,408 and a gain from disposition of $13,676.
(6) Operating Revenue for the three months ended March 31, 1998 and 1997 and the
year ended December 31, 1997 reflects Gartner on the equity method of
accounting; accordingly no Gartner revenue is reflected. Operating Revenue
for the years ended December 31, 1996, 1995, 1994 and 1993 reflects Gartner
on a consolidated basis.
11
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NIELSEN MEDIA RESEARCH SUMMARY FINANCIAL DATA
The following data are qualified in their entirety by the financial
statements of Nielsen Media Research and other information contained elsewhere
in this Information Statement. The financial data as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996 and 1995, have been
derived from the audited financial statements of Nielsen Media Research
contained elsewhere in this Information Statement. The financial data as of
March 31, 1998 and 1997, and December 31, 1994 and 1993, for the three months
ended March 31, 1998 and 1997 and for the years ended December 31, 1994 and
1993, are unaudited. The historical financial statements of Nielsen Media
Research contained in this Information Statement are presented as if Nielsen
Media Research were a separate entity for all periods presented. The following
financial data should be read in conjunction with the information set forth
under "Nielsen Media Research Selected Financial Data" and "Nielsen Media
Research Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Nielsen Media Research's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AND AS OF MARCH 31, YEAR ENDED AND AS OF DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue.................. $ 96,064 $ 86,271 $ 358,594 $ 319,404 $ 288,652 $ 250,303 $ 209,894
Net Income......................... $ 14,246 $ 12,730 $ 52,475 $ 47,605 $ 40,412 $ 30,115 $ 19,661
Earnings Per Share of Common
Stock--Basic..................... $ 0.09 $ 0.07 $ 0.32 $ 0.28 $ 0.24 $ 0.18 $ --
Earnings Per Share of Common
Stock--Diluted................... $ 0.09 $ 0.07 $ 0.32 $ 0.28 $ 0.24 $ 0.18 $ --
BALANCE SHEET DATA:
Total Assets....................... $ 199,645 $ 178,598 $ 192,434 $ 170,331 $ 134,521 $ 138,842 $ 97,831
Long-Term Debt..................... $ -- $ -- $ -- $ -- $ 78 $ 244 $ 411
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FORWARD-LOOKING STATEMENTS
This Information Statement and other materials filed or to be filed by
Cognizant (which will become Nielsen Media Research at the time of the
Distribution) and IMS HEALTH with the SEC, as well as information included in
oral statements or other written statements made or to be made by Cognizant and
IMS HEALTH, contain statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this document and include, but
are not limited to, all statements relating to plans for future growth and other
business development activities as well as capital expenditures, financing
sources and the effects of regulation and competition, the terms of the
Distribution and all other statements regarding the intent, plans, beliefs or
expectations of the parties or their directors or officers. Stockholders are
cautioned that such forward-looking statements are not assurances of future
performance or events and involve risks and uncertainties that could cause
actual results and developments to differ materially from those covered in such
forward-looking statements. These risks and uncertainties include, but are not
limited to, risks associated with operating on a global basis, including
fluctuations in the value of foreign currencies relative to the U.S. dollar, and
the ability to successfully hedge such risks; to the extent IMS HEALTH or
Nielsen Media Research seek growth through acquisition, the ability to identify
and consummate acquisitions on satisfactory terms; the ability to develop new or
advanced technologies and systems for their businesses on a cost-effective
basis; the ability to successfully achieve estimated effective tax rates and
corporate overhead levels; competition, particularly in the markets for
pharmaceutical information and audience measurement services; regulatory and
legislative initiatives, particularly in the area of medical privacy; the
ability to timely and cost-effectively resolve any problems associated with the
Year 2000 issue; leverage and debt service (including sensitivity to
fluctuations in interest rates); compliance with covenants in loan agreements;
the ability to obtain future financing on satisfactory terms; deterioration in
economic conditions, particularly in the pharmaceutical, healthcare, media, or
other industries in which customers operate; conditions in the securities
markets which may affect the value or liquidity of portfolio investments; and
the final allocation of assets and liabilities between IMS HEALTH and Nielsen
Media Research. Consequently, all the forward-looking statements contained in
this Information Statement are qualified by the information contained or
incorporated herein, including, but not limited to, the information contained
under this heading and in "Information Statement Summary--The
Distribution--Recent Developments", "Risk Factors", "The Distribution", "IMS
HEALTH (Accounting Successor to Cognizant) Capitalization", "IMS HEALTH
(Accounting Successor to Cognizant) Management's Discussion and Analysis of
Financial Condition and Results of Operations", "IMS HEALTH Business", "Nielsen
Media Research Capitalization", "Nielsen Media Research Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Nielsen
Media Research Business". Neither Cognizant (which will become Nielsen Media
Research at the time of the Distribution) nor IMS HEALTH has any obligation to
publicly release any revision to any forward-looking statement contained or
incorporated herein to reflect any future events or occurrences.
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RISK FACTORS
RISKS RELATING TO IMS HEALTH AND NIELSEN MEDIA RESEARCH
POTENTIAL TAXATION
Cognizant has received a ruling from the Internal Revenue Service to the
effect that, among other things, the Distribution will qualify as a tax-free
spin-off under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
The Internal Revenue Service ruling is based on certain factual
representations made by Cognizant. If such factual representations were
incorrect in a material respect, such ruling could become invalid. Cognizant is
not aware of any facts or circumstances which would cause such representations
to be incorrect in a material respect. Each of Cognizant (which will become
Nielsen Media Research at the time of the Distribution) and IMS HEALTH will
agree in the Distribution Agreement to certain restrictions on its future
actions to provide further assurances that Section 355 of the Internal Revenue
Code will apply to the Distribution. See "Relationship Between IMS HEALTH and
Nielsen Media Research After the Distribution".
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which would be very
substantial) would be payable by the consolidated group, of which Cognizant is
the common parent. In addition, under the consolidated return rules, each member
of the consolidated group would be jointly and severally liable for such tax
liability. If the Distribution occurred and it were not to qualify under Section
355 of the Internal Revenue Code, the resulting tax liability would have a
material adverse effect on the financial position, results of operations and
cash flows of each of IMS HEALTH and Nielsen Media Research. Cognizant estimates
that the aggregate shared tax liability in this regard of IMS HEALTH and Nielsen
Media Research would be in the range of approximately $2.5 to $3.0 billion. See
"The Distribution--Federal Income Tax Consequences of the Distribution".
Moreover, if the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, each Cognizant stockholder receiving shares of IMS HEALTH
Common Stock in the Distribution would be treated as if such stockholder had
received a taxable distribution in an amount equal to the fair market value of
the IMS HEALTH Common Stock received. See "The Distribution--Federal Income Tax
Consequences of the Distribution".
YEAR 2000
Many existing computer systems and software applications use two digits,
rather than four, to record years. Unless modified, such systems will not
properly record or interpret years after 1999, which could lead to business
disruptions (the "Year 2000 issue"). Each of IMS HEALTH and Nielsen Media
Research depends on systems and software both for its internal operations as
well as for the receipt of data used in its information products and the
transmission of those products to its customers. Cognizant began to address the
Year 2000 issue in 1996. IMS HEALTH and Nielsen Media Research expect to
complete upgrading or replacing affected programs during 1998, with testing to
be done during 1999. The two companies' expected costs of upgrading or replacing
substantially all affected programs and the date on which they expect to
complete Year 2000 compliance are based on management's best estimates, which
were derived utilizing numerous assumptions relating to future events.
In addition, IMS HEALTH and Nielsen Media Research are communicating with
their customers and data suppliers to assess their ability to address the Year
2000 issue. Failures by customers to be Year 2000 compliant could hinder their
ability to make use of IMS HEALTH's and Nielsen Media Research's products.
Failures by data suppliers could disrupt the flow of data used in IMS HEALTH's
and Nielsen Media Research's products. While IMS HEALTH and Nielsen Media
Research believe most companies
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they deal with are addressing the issue, they are unable to determine the
effect, if any, such failures might have on their respective businesses or
future results of operations.
The costs of addressing the Year 2000 issue and the date on which each of
IMS HEALTH and Nielsen Media Research expects to complete Year 2000 compliance
are based on their respective best estimates, which were derived utilizing
numerous assumptions of future events. There can be no guarantee that these
estimates will be achieved, and actual results may differ materially. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area of expertise,
the ability to locate and correct all relevant computer codes, and the success
of customers and suppliers in addressing the Year 2000 issue.
CERTAIN ANTITAKEOVER PROVISIONS
At the time of the Distribution, the Restated Certificate of Incorporation
and Amended and Restated By-laws of each of IMS HEALTH and Nielsen Media
Research will contain provisions that may have the effect of discouraging an
acquisition of control of IMS HEALTH or Nielsen Media Research, respectively,
not approved by their respective Board of Directors. Such provisions may also
have the effect of discouraging third parties from making proposals involving an
acquisition or change of control of IMS HEALTH or Nielsen Media Research,
although such proposals, if made, might be considered desirable by a majority of
the stockholders of IMS HEALTH or Nielsen Media Research, as the case may be.
Such provisions could further have the effect of making it more difficult for
third parties to cause the replacement of the Board of Directors of IMS HEALTH
or Nielsen Media Research. These provisions have been designed to enable each of
IMS HEALTH and Nielsen Media Research to develop its businesses and foster its
long-term growth without disruptions caused by the threat of a takeover not
deemed by its Board of Directors to be in the best interests of IMS HEALTH or
Nielsen Media Research, as the case may be, and their stockholders. Certain
provisions of the Distribution Agreement may also have the effect of
discouraging third parties from making proposals involving an acquisition or
change of control of IMS HEALTH or Nielsen Media Research. See "Relationship
Between IMS HEALTH and Nielsen Media Research After the
Distribution--Distribution Agreement".
At the time of the Distribution, each of IMS HEALTH and Nielsen Media
Research will have a stockholder rights plan. These stockholder rights plans are
designed to protect stockholders in the event of an unsolicited offer and other
takeover tactics which, in the opinion of the relevant Board of Directors, could
impair its ability to represent stockholder interests. The provisions of these
stockholder rights plans may render an unsolicited takeover of IMS HEALTH or
Nielsen Media Research, as the case may be, more difficult or less likely to
occur or might prevent such a takeover. See "Description of IMS HEALTH Capital
Stock--IMS HEALTH Rights Plan" and "Description of Nielsen Media Research
Capital Stock-- Nielsen Media Research Rights Plan".
Each of IMS HEALTH and Nielsen Media Research will be subject to the
provisions of Delaware corporate law which may restrict certain business
combination transactions. See "Description of IMS HEALTH Capital Stock--Delaware
General Corporation Law" and "Description of Nielsen Media Research Capital
Stock--Delaware General Corporation Law".
LITIGATION
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS (the "IRI Action"). The
complaint alleges, among other things, various violations of the antitrust laws
and damages in excess of $350 million, which amount IRI has asked to be trebled
under the antitrust laws. IRI also seeks punitive damages in an unspecified
amount. In connection with such action, D&B, ACNielsen Corporation ("ACNielsen")
and Cognizant entered into an Indemnity and Joint Defense Agreement (the
"Indemnity and Joint Defense Agreement") pursuant to which ACNielsen agreed to
be responsible for any
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potential liabilities which may ultimately be incurred by D&B or Cognizant as a
result of such action, up to a maximum amount to be determined by an independent
investment bank if and when any such liabilities are incurred. The determination
of such maximum amount will be based on ACNielsen's ability to satisfy such
liabilities and remain financially viable, subject to certain assumptions and
limitations. However, Cognizant and D&B have agreed that to the extent that
ACNielsen is unable to satisfy any such liabilities in full and remain
financially viable, Cognizant and D&B will each be responsible for 50% of the
difference between the amount, if any, which may be payable as a result of such
litigation and the maximum amount which ACNielsen is then able to pay as
determined by such investment bank. Under the terms of the Distribution
Agreement dated as of October 28, 1996, among Cognizant, D&B and ACNielsen (the
"1996 Distribution Agreement"), pursuant to which shares of Cognizant and
ACNielsen were distributed to the stockholders of D&B (the "D&B spin-off"), as a
condition to the Distribution, IMS HEALTH and Nielsen Media Research are
required to undertake to be jointly and severally liable to D&B and ACNielsen
for Cognizant's obligations under the 1996 Distribution Agreement. However,
pursuant to the Distribution Agreement, IMS HEALTH and Nielsen Media Research
have agreed that, as between themselves, IMS HEALTH will assume 75%, and Nielsen
Media Research will assume 25%, of any payments to be made in respect of the IRI
Action under the Indemnity and Joint Defense Agreement or otherwise, including
any legal fees and expenses related thereto incurred in 1999 or thereafter. IMS
HEALTH has agreed to be fully responsible for any legal fees and expenses
incurred during 1998. Nielsen Media Research's aggregate liability to IMS HEALTH
for payments in respect of the IRI Action and certain other contingent
liabilities shall not exceed $125 million. Management of Nielsen Media Research
and IMS HEALTH are unable to predict at this time the final outcome of the IRI
Action or whether the resolution of such matter could materially affect Nielsen
Media Research's or IMS HEALTH's respective results of operations, cash flows or
financial position.
RISKS RELATING TO IMS HEALTH
ABSENCE OF PRIOR TRADING MARKET FOR THE IMS HEALTH COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for IMS HEALTH Common Stock. Application will be made to list the shares of IMS
HEALTH Common Stock on the NYSE under the symbol "RX", and trading is expected
to commence on a "when-issued" basis prior to the Distribution Date. See "The
Distribution--Listing and Trading of IMS HEALTH Common Stock and Nielsen Media
Research Common Stock".
CHANGES IN TRADING PRICES OF IMS HEALTH COMMON STOCK
There can be no assurance as to the prices at which the IMS HEALTH Common
Stock will trade before, on or after the Distribution Date. Until the IMS HEALTH
Common Stock is fully distributed and an orderly market develops in the IMS
HEALTH Common Stock, the price at which such stock trades may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for the IMS HEALTH Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for IMS HEALTH Common Stock, (ii)
developments affecting the businesses of IMS HEALTH generally and the impact of
those factors referred to below in particular, (iii) investor perception of IMS
HEALTH and (iv) general economic and market conditions. Management expects that
the market will characterize IMS HEALTH Common Stock as a healthcare information
systems and services stock, which category of stock has historically experienced
relatively greater price volatility than broader market indices.
NON-UNITED STATES OPERATIONS
IMS HEALTH operates globally, deriving a significant portion of its revenues
and operating income in 1997 from non-U.S. operations. As a result, fluctuations
in the value of foreign currencies relative to the U.S. dollar may increase the
volatility of U.S. dollar-denominated operating results. IMS HEALTH's
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geographic expansion in emerging markets such as Eastern Europe, Africa and Asia
Pacific is expected to continue. Emerging markets tend to be considerably less
stable than established markets which may further contribute to volatility in
operating results. In addition, IMS HEALTH is subject to the usual risks
inherent in carrying on business in certain countries outside the U.S.,
including possible nationalization, expropriation, price controls or other
restrictive government actions. Management believes that the risk of
nationalization or expropriation is reduced because its basic service is the
delivery of information, rather than the production of products which require
manufacturing facilities or use of natural resources.
ACQUISITIONS
Although an important aspect of IMS HEALTH's business strategy is growth
through acquisitions, there can be no assurance that management of IMS HEALTH
will be able to identify and consummate acquisitions on satisfactory terms.
Furthermore, every acquisition will entail some degree of uncertainty and risk,
and even if consummated, may not produce the operating results or increases in
value over time which were expected at the time of acquisition.
On March 23, 1998, Cognizant announced the signing of definitive agreements
to acquire Walsh and PMSI. Although they have been approved by the Boards of
Directors of Cognizant, Walsh and PMSI, the Acquisitions are still subject to
the approval of the Walsh and PMSI shareholders, the receipt of regulatory and
other required approvals and consents and customary closing conditions. In
addition, while management of IMS HEALTH believes that these acquisitions will
enhance IMS HEALTH's ability to compete globally in the healthcare sales and
marketing services industry, there can be no assurance that such expectations
will materialize.
TECHNOLOGY
IMS HEALTH competes in businesses which demand or sell sophisticated
information systems, software and other technology. The types of systems which
IMS HEALTH's businesses require or sell can be expected to be subject to
refinements as such systems and underlying technologies are upgraded and
advanced, and there can be no guarantee that as various systems and technologies
become outdated, IMS HEALTH will be able to replace them, to replace them as
quickly as IMS HEALTH's competition or to develop and market new and better
products and services in the future on a cost-effective basis.
GARTNER GROUP, INC.
The IMS HEALTH Business will include IMS HEALTH's ownership of a significant
block of the outstanding shares of Gartner, a publicly traded provider of
research and analysis of the computer hardware, software, communications and
related technology industries. In the third quarter of 1997, IMS HEALTH's voting
interest in Gartner fell below 50% based upon the exercise of Gartner employee
stock options and employee stock purchases. Accordingly, as of September 30,
1997, IMS HEALTH deconsolidated Gartner and is accounting for its ownership
interest on the equity basis. Gartner's common stock has historically traded at
higher multiples than market averages and has generally experienced greater
price volatility than the market as a whole. It can be expected that variations
in the market value of the Gartner shares held by IMS HEALTH will have an impact
on the trading prices of IMS HEALTH Common Stock. Gartner's results of
operations may also be subject to the various factors described in Gartner's
reports filed with the SEC from time to time.
PRICE CONTROLS
A number of countries in which IMS HEALTH operates have enacted regulations
limiting the prices pharmaceutical companies may charge for drugs. IMS HEALTH
believes that such cost containment measures will cause pharmaceutical companies
to seek more effective means of marketing their products
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(which will benefit IMS HEALTH in the medium and long term). However, such
governmental regulation may cause pharmaceutical companies to revise or reduce
their marketing programs in the near term.
PRIVACY LEGISLATION
Certain of the data services provided by IMS HEALTH relate to the diagnosis
and treatment of disease. The use of patient-specific information is anticipated
to be an increasingly important tool in the design, development and marketing of
pharmaceuticals. To protect privacy, no individual patient is identified in any
IMS HEALTH database. Recently, there have been a number of regulatory and
legislative initiatives in the area of medical privacy at the federal, state and
foreign government levels. Most of these initiatives seek to place restrictions
on the use and disclosure of patient-identifiable information without consent
and consequently would not apply to the IMS HEALTH Business. However, there can
be no assurance that future initiatives would not adversely affect IMS HEALTH's
ability to generate or assemble data or to develop or market current or future
products and services.
RISKS RELATING TO NIELSEN MEDIA RESEARCH
COMPETITION
In the past, Nielsen Media Research's ratings systems have been criticized
by various participants in the television industry. Such criticism, in part, has
increased the likelihood of additional competition in its business. In
particular, a television ratings project funded by the Committee on Nationwide
Television Audience Measurement ("CONTAM") and designed and operated by
Statistical Research, Inc. ("SRI"), is operating a 500 household sample in
Philadelphia as a national television ratings laboratory. SRI's Philadelphia
sample has provided limited program level data, although SRI has recently
announced plans to provide more complete program level data from a subset of the
sample in early 1998. Funding has been contributed primarily by the three major
broadcast networks, ABC, CBS, and NBC. During 1996, ABC, CBS, and NBC together
through CONTAM contributed $10 million (in addition to the $30 million they
contributed in 1994) in funding for the completion of the Philadelphia test. In
addition to the other three major networks, Fox Broadcasting as well as four
cable networks, fifteen major advertising agencies and buying services, one
program syndicator and five of the nation's largest advertisers have agreed to
support and participate in the testing phase. Some of these companies have
contributed to the funding of SRI and SRI is actively seeking financial support
from major media companies for a national ratings service. The Philadelphia
sample is viewed by some as a test market for a national ratings service. In
addition, the NBC and CBS broadcast television networks have asked SRI for a
business plan for the creation of a national measurement system that could
provide an alternative to the Nielsen Television Index service.
On the local level, ADCOM offers individual cable system measurement. It is
currently collecting and issuing local cable measurement data in Jacksonville,
Florida. Arbitron continues to develop its passive people meter technology and
is believed to be testing this technology for possible use in the television
audience measurement business. Indirectly, on both a national and local basis,
competition stems from other marketing research services offering product
movement and television audience data and services.
In Canada, BBM, an established media research organization, has joined with
Taylor Nelson/AGB, a U.K.-based media research company, and announced plans to
provide a competing metered service in Vancouver. BBM, alone or with Taylor
Nelson/AGB, could offer other competitive services in Canada.
Nielsen Media Research's Monitor-Plus service has significant competition
from Competitive Media Reports, a subsidiary of VNU, a Netherlands-based media
company, which has long been the major participant in this market. See "Nielsen
Media Research Business--Competition".
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TECHNOLOGY
Nielsen Media Research operates in businesses which require sophisticated
information systems, software and other technology. The technology underlying
the media industry continues to undergo rapid change and Nielsen Media Research
will need to develop and refine techniques for data collection to accommodate
such changes, including digital television, interactive television transmission
and Internet usage. There can be no guarantee that Nielsen Media Research will
be able to develop and refine new techniques for data collection or that it will
be able to do so as quickly or cost-effectively as its competition.
INDEBTEDNESS
In connection with the Distribution, Cognizant will borrow $300 million, the
proceeds of which will be used by Nielsen Media Research to repay existing
intercompany indebtedness to certain entities included in IMS HEALTH. This debt
will be an obligation of Nielsen Media Research after the Distribution. After
the Distribution, Nielsen Media Research will be more leveraged than Cognizant
was prior to such transaction and will have indebtedness that is significant in
relation to its stockholders' equity.
While management believes Nielsen Media Research's cash flow will be
sufficient to service its debt and to reinvest in its business, a substantial
portion of Nielsen Media Research's cash flow will be dedicated to payments of
interest on debt, thereby reducing funds available for other purposes such as
investment in new technologies necessary to perform in the emerging television
environment. Covenants in the credit facility or other financing agreements
relating to such debt may restrict Nielsen Media Research's ability to dispose
of assets, incur additional indebtedness, repay other indebtedness, pay
dividends, create liens on assets, make investments or acquisitions, engage in
mergers or consolidations, make capital expenditures or engage in other
corporate activities. In addition, Nielsen Media Research's ability to obtain
additional financing on favorable terms may be impaired in the future by reason
of such indebtedness.
CAPITAL EXPENDITURES; ACCESS TO CAPITAL AS AN INDEPENDENT COMPANY
Nielsen Media Research maintains an active investment program to enhance
existing services and develop new services in response to technological and
marketplace changes. Nielsen Media Research will need to make significant
capital expenditures over the next several years, particularly in light of the
rapid technological changes affecting its business. Prior to the Distribution,
Nielsen Media Research has relied on Cognizant for various financial and
administrative services. After the Distribution, Nielsen Media Research will be
an independent entity responsible for financing its own operations. To the
extent that Nielsen Media Research needs additional funding to finance its
operations and capital expenditures, no assurance can be given that Nielsen
Media Research will be able to access the capital markets or otherwise obtain
necessary financing in the future, or that any such financing can be obtained in
a timely manner or on commercially favorable terms.
EFFECT OF DISTRIBUTION ON TRADING MARKET OF NIELSEN MEDIA RESEARCH COMMON
STOCK
Nielsen Media Research Common Stock (I.E. the "old" Cognizant Common Stock)
will continue to trade on the NYSE after the Distribution, but the symbol under
which it trades will change from "CZT" to "NMR". However, because of the
significant changes that will take place to Cognizant as a result of the
Distribution, the trading market for Nielsen Media Research Common Stock after
the Distribution may be significantly different from that for Cognizant Common
Stock prior to the Distribution. The market may view Nielsen Media Research as a
"new" company after the Distribution, and due to its smaller size, it may not be
the subject of significant research analyst coverage. There can be no assurance
as to the prices at which the Nielsen Media Research Common Stock will trade
before, on or after the Distribution Date, and until an orderly market develops
in the Nielsen Media Research Common Stock, the price at which it trades may
fluctuate significantly. Prices for Nielsen Media Research Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for Nielsen Media Research Common
Stock, (ii) developments affecting the businesses of Nielsen Media Research
including the impact of the factors referred to above, (iii) investor perception
of Nielsen Media Research and (iv) general economic and market conditions.
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THE DISTRIBUTION
INTRODUCTION
On January 15, 1998, the Board of Directors of Cognizant approved in
principle a plan to distribute IMS HEALTH Common Stock to all holders of
outstanding Cognizant Common Stock. The Distribution is subject to, and requires
the approval of, the Cognizant Board of Directors of the plan of the
Distribution as well as of the material terms of any distribution, tax sharing,
employee benefits and other similar agreements pursuant to which assets and
liabilities are allocated as part of the Distribution. In June 1998, the
Cognizant Board of Directors is expected to formally approve the Distribution
and declare a dividend payable to each holder of record at the close of business
on the Record Date of one share of IMS HEALTH Common Stock for each share of
Cognizant Common Stock held by such holder as of the close of business on the
Record Date.
Cognizant has received a tax ruling from the Internal Revenue Service to the
effect that, among other things, that the receipt by Cognizant stockholders of
the IMS HEALTH Common Stock in the Distribution will be tax-free to such
stockholders and Cognizant for Federal income tax purposes. On or before the
Distribution Date, Cognizant will deliver all of the outstanding shares of IMS
HEALTH Common Stock to the Distribution Agent for transfer and distribution to
the holders of record of Cognizant Common Stock as of the close of business on
the Record Date. The Distribution is expected to be made June 30, 1998.
Questions relating to the Distribution prior to the Distribution Date or
relating to transfers of IMS HEALTH Common Stock after the Distribution Date
should be directed to: First Chicago Trust Company of New York, Mail Suite 4694,
P.O. Box 2536, Jersey City, NJ 06303-2536, 1-800-519-3111.
REASONS FOR THE DISTRIBUTION
The Board of Directors of Cognizant believes that the Distribution is in the
best interests of Cognizant and Cognizant's stockholders and that the separation
of IMS HEALTH will provide each of IMS HEALTH and Nielsen Media Research with
greater managerial, operational and financial flexibility to respond to changing
market conditions in their different business environments. The discussion of
the reasons for the Distribution set forth herein includes forward-looking
statements that are based upon numerous assumptions with respect to the trading
characteristics of the IMS HEALTH Common Stock and the Nielsen Media Research
Common Stock, the ability of IMS HEALTH management to successfully take
advantage of growth and acquisition opportunities and the ability of Nielsen
Media Research to successfully operate as a stand-alone company. Many of such
factors are discussed above under the captions "Forward-Looking Statements" and
"Risk Factors".
MANAGEMENT CONSIDERATIONS. At present, the Nielsen Media Research Business
and the IMS HEALTH Business are conducted as separate operating groups under the
direction of Cognizant. The Distribution should be beneficial to each of
Cognizant's operating groups, because it will enable the management of each
group to design and advance corporate policies and strategies that are based
primarily on the business characteristics of the group and to concentrate its
financial resources wholly on its own operations.
The Distribution will also permit each of IMS HEALTH and Nielsen Media
Research to design incentive compensation programs that relate more directly to
its own business characteristics and performance and will provide each company
with a "pure play" publicly traded equity security for use in its compensation
programs.
FACILITATE GROWTH OF IMS HEALTH. IMS HEALTH intends to pursue acquisition
and growth opportunities in its business areas. Such acquisitions and growth may
be pursuant to transactions in which IMS HEALTH Common Stock is offered in
exchange for the stock of the target, or may be pursuant to
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cash acquisitions financed through the sale of capital stock of IMS HEALTH. In
either event, management of Cognizant believes that the Distribution will
facilitate such acquisition and growth strategy because it believes that the IMS
HEALTH Common Stock will generally trade at higher price-earnings multiples than
those at which Cognizant Common Stock has historically traded. Such higher
multiples would make such stock a more attractive acquisition currency for IMS
HEALTH to deliver, and, to the extent such stock is perceived to be a
high-growth stock, a generally more attractive investment opportunity for the
typical seller of a business in IMS HEALTH's industries.
INVESTOR UNDERSTANDING. Investors should be able to evaluate better the
financial performance of each of IMS HEALTH and Nielsen Media Research and their
respective strategies, thereby enhancing the likelihood that each will achieve
appropriate market valuation. In addition, each of the businesses will be better
able to focus its public relations efforts on cultivating the public image it
desires. In connection with the Distribution, the healthcare businesses will be
able to adopt the name "IMS HEALTH", which will provide them with a clearly
defined public identity.
FORM OF TRANSACTION; BASIS OF PRESENTATION
The Distribution is the method by which Cognizant will be separated into two
publicly traded companies, IMS HEALTH and Nielsen Media Research. In the
Distribution, Cognizant will distribute to its stockholders shares of IMS HEALTH
Common Stock, which will represent a continuing interest in Cognizant's
healthcare information and related businesses to be conducted by IMS HEALTH.
After the Distribution, Cognizant's only business will be the Nielsen Media
Research television audience measurement services business, and the shares of
Cognizant Common Stock held by Cognizant stockholders will represent a
continuing ownership interest in that business. At the time of the Distribution,
Cognizant will change its name to Nielsen Media Research, Inc. From and after
the Distribution Date, Cognizant Common Stock will therefore become "Nielsen
Media Research Common Stock".
Stockholders should note that notwithstanding the legal form of the
Distribution described above, because of the relative significance of the IMS
HEALTH Business to Cognizant, IMS HEALTH will be treated as the "accounting
successor" to Cognizant for financial reporting purposes. Therefore, the
historical financial information for IMS HEALTH included herein is that of
Cognizant and does not currently reflect the separation of the IMS HEALTH
Business from the Nielsen Media Research Business which will occur through the
Distribution. Upon approval of the plan of Distribution, the historical
financial statements of IMS HEALTH as accounting successor to Cognizant will be
restated to present Nielsen Media Research as a "discontinued operation" for
accounting purposes.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to stockholders of
record of Cognizant at the close of business on the Record Date. Based on the
162,848,673 shares of Cognizant Common Stock outstanding as of March 31, 1998,
the Distribution would consist of 162,848,673 shares of IMS HEALTH Common Stock.
Prior to the Distribution Date, Cognizant will deliver all outstanding shares of
IMS HEALTH Common Stock to the Distribution Agent for distribution. The
Distribution Agent will mail, on or about the Distribution Date, certificates
representing the shares of IMS HEALTH Common Stock to Cognizant stockholders of
record as of the close of business on the Record Date. Cognizant stockholders
will not be required to pay for shares of IMS HEALTH Common Stock received in
the Distribution, or to surrender or exchange certificates representing shares
of Cognizant Common Stock in order to receive shares of IMS HEALTH Common Stock.
No vote of Cognizant stockholders is required or sought in connection with the
Distribution.
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IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF IMS HEALTH COMMON STOCK IN THE
DISTRIBUTION, COGNIZANT STOCKHOLDERS MUST BE STOCKHOLDERS AT THE CLOSE OF
BUSINESS ON THE RECORD DATE.
The Board of Directors of IMS HEALTH will adopt a stockholder rights plan
prior to the Distribution. Certificates evidencing shares of IMS HEALTH Common
Stock issued in the Distribution will therefore represent the same number of IMS
HEALTH Rights issued under the IMS HEALTH Rights Plan. See "Description of IMS
HEALTH Capital Stock--IMS HEALTH Rights Plan". Unless the context otherwise
requires, references herein to the IMS HEALTH Common Stock include the related
IMS HEALTH Rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Cognizant has received a ruling letter from the Internal Revenue Service to
the effect that, among other things, the Distribution will qualify as a tax-free
spin-off under Section 355 of the Internal Revenue Code. Under Section 355 of
the Internal Revenue Code, in general:
1. Holders of Cognizant Common Stock will not recognize any income,
gain or loss as a result of the Distribution.
2. Holders of Cognizant Common Stock will apportion the tax basis of
their Cognizant Common Stock between such Cognizant Common Stock and IMS
HEALTH Common Stock received by such holder in the Distribution in
proportion to the relative fair market values of such stock on the
Distribution Date. Cognizant will provide appropriate information to each
holder of record of Cognizant Common Stock as of the close of business on
the Record Date concerning the basis allocation.
3. The holding period for the IMS HEALTH Common Stock received in the
Distribution by holders of Cognizant Common Stock will include the period
during which such holder held the Cognizant Common Stock with respect to
which the Distribution was made, provided that such Cognizant Common Stock
is held as a capital asset by such holder on the Distribution Date.
4. The Distribution will not be treated as a taxable disposition of IMS
HEALTH by Cognizant.
Current Treasury regulations require each holder of Cognizant Common Stock
who receives IMS HEALTH Common Stock pursuant to the Distribution to attach to
his or her Federal income tax return for the year in which the Distribution
occurs a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 of the Internal Revenue Code to
the Distribution. Cognizant will convey the appropriate information to each
holder of record of Cognizant Common Stock as of the close of business on the
Record Date.
The Internal Revenue Service ruling is based on certain factual
representations made by Cognizant. If such factual representations were
incorrect in a material respect, such ruling could become invalid. Cognizant is
not aware of any facts or circumstances which would cause such representations
to be incorrect in a material respect. In the Distribution Agreement, each of
Cognizant and IMS HEALTH will agree to certain restrictions on its future
actions to provide further assurances that Section 355 of the Internal Revenue
Code will apply to the Distribution. See "Relationship Between IMS HEALTH and
Nielsen Media Research After the Distribution". If the Distribution were not to
qualify under Section 355 of the Internal Revenue Code, then, in general, a
corporate tax (which, as noted below, would be very substantial) would be
payable by the consolidated group, of which Cognizant is the common parent,
based upon the difference between (x) the fair market value of the IMS HEALTH
Common Stock and (y) the adjusted basis of such IMS HEALTH Common Stock. In
addition, under the consolidated return rules, each member of the consolidated
group would be jointly and severally liable for such tax liability. If the
22
<PAGE>
Distribution occurred and it were not to qualify under Section 355 of the
Internal Revenue Code, the resulting tax liability would have a material adverse
effect on the financial position, results of operations and cash flows of each
of IMS HEALTH and Nielsen Media Research. Cognizant estimates that the aggregate
shared tax liability in this regard of IMS HEALTH and Nielsen Media Research
would be in the range of approximately $2.5 to $3.0 billion.
Furthermore, if the Distribution were not to qualify as a tax-free spin-off,
each Cognizant stockholder receiving shares of IMS HEALTH Common Stock in the
Distribution would be treated as if such stockholder had received a taxable
distribution in an amount equal to the fair market value of IMS HEALTH Common
Stock received, which would result in (i) a dividend to the extent of such
stockholder's pro rata share of Cognizant's current and accumulated earnings and
profits, (ii) a reduction in such stockholder's basis in Cognizant Common Stock
to the extent the amount received exceeds such stockholder's share of earnings
and profits and (iii) a capital gain to the extent the amount received exceeds
the sum of the amount treated as a dividend and the stockholder's basis.
The foregoing summary of the anticipated Federal income tax consequences of
the Distribution is for general information only. COGNIZANT STOCKHOLDERS SHOULD
CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL
TAX LAWS.
LISTING AND TRADING OF IMS HEALTH COMMON STOCK AND NIELSEN MEDIA RESEARCH COMMON
STOCK
Prior to the date hereof, there has not been any established trading market
for IMS HEALTH Common Stock. Application will be made to list the shares of IMS
HEALTH Common Stock on the NYSE under the symbol "RX", and trading is expected
to commence on a "when-issued" basis at least two days prior to the Record Date.
On the first NYSE trading day following the Distribution Date, "when-issued"
trading in respect of the IMS HEALTH Common Stock will end and "regular-way"
trading will begin.
There can be no assurance as to the prices at which the IMS HEALTH Common
Stock will trade before, on or after the Distribution Date. Until the IMS HEALTH
Common Stock is fully distributed and an orderly market develops in the IMS
HEALTH Common Stock, the price at which it trades may fluctuate significantly
and may be lower or higher than the price that would be expected for a fully
distributed issue. Prices for the IMS HEALTH Common Stock will be determined in
the marketplace and may be influenced by many factors, including (i) the depth
and liquidity of the market for IMS HEALTH Common Stock, (ii) developments
affecting the businesses of IMS HEALTH generally including the impact of the
factors referred to in "Risk Factors" above, (iii) investor perception of IMS
HEALTH and (iv) general economic and market conditions.
Shares of IMS HEALTH Common Stock distributed to Cognizant stockholders will
be freely transferable, except for shares of IMS HEALTH Common Stock received by
persons who may be deemed to be "affiliates" of IMS HEALTH under the Securities
Act. Persons who may be deemed to be affiliates of IMS HEALTH after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with, IMS HEALTH, and may include
certain officers and directors of IMS HEALTH, as well as principal stockholders
of IMS HEALTH. Persons who are affiliates of IMS HEALTH will be permitted to
sell their shares of IMS HEALTH Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption for the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(1) of the Securities Act or Rule 144 thereunder.
Nielsen Media Research Common Stock (I.E., the "old" Cognizant Common Stock)
will continue to trade on the NYSE after the Distribution, but the symbol under
which it trades will change from "CZT" to "NMR". However, because of the
significant changes that will take place to Cognizant as a result of the
Distribution, the trading market for Nielsen Media Research Common Stock after
the Distribution may be
23
<PAGE>
significantly different from that for Cognizant Common Stock prior to the
Distribution. The market may view Nielsen Media Research as a "new" company
after the Distribution, and due to its smaller size, it may not be the subject
of significant research analyst coverage. There can be no assurance as to the
prices at which Nielsen Media Research Common Stock will trade before, on or
after the Distribution Date, and until an orderly market develops in the Nielsen
Media Research Common Stock, the price at which it trades may fluctuate
significantly. Prices for Nielsen Media Research Common Stock will be determined
in the marketplace and may be influenced by many factors, including (i) the
depth and liquidity of the market for Nielsen Media Research Common Stock, (ii)
developments affecting the businesses of Nielsen Media Research including the
impact of the factors referred to in "Risk Factors" above, (iii) investor
perception of Nielsen Media Research and (iv) general economic and market
conditions.
NIELSEN MEDIA RESEARCH AND IMS HEALTH INDEBTEDNESS AND MINORITY-INTEREST
FINANCING
In connection with the Distribution, Cognizant will borrow $300 million, the
proceeds of which will be used to repay existing intercompany indebtedness to
certain entities included in IMS HEALTH. This debt will be an obligation of
Nielsen Media Research after the Distribution. The borrowing is expected to bear
interest at prevailing market interest rates and to have a term of 7 to 10
years. IMS HEALTH will retain $100 million in pre-existing minority-interest
financing.
24
<PAGE>
RELATIONSHIP BETWEEN IMS HEALTH
AND NIELSEN MEDIA RESEARCH AFTER THE DISTRIBUTION
IMS HEALTH is wholly owned by Cognizant and the results of operations of
entities that are or will be its subsidiaries have been included in Cognizant's
consolidated financial statements and results of operations. After the
Distribution, Cognizant (to be renamed Nielsen Media Research, Inc.) will not
have any ownership interest in IMS HEALTH, and IMS HEALTH will be an independent
public company. In addition, after the Distribution, IMS HEALTH will not have
any ownership interest in Nielsen Media Research (other than 800,000 shares of
Nielsen Media Research Common Stock which IMS HEALTH will own as a result of
Cognizant Common Stock currently held by a subsidiary of IMS HEALTH and which
pursuant to the Distribution Agreement IMS HEALTH will agree to sell to Nielsen
Media Research and Nielsen Media Research will agree to repurchase on the first
NYSE trading day after the Distribution Date at a market formula price), and
Nielsen Media Research will be an independent public company. Furthermore,
except as described below, all contractual relationships existing prior to the
Distribution between Cognizant (to be renamed Nielsen Media Research, Inc.) and
IMS HEALTH will be terminated except for contracts specifically set forth in a
schedule to the Distribution Agreement.
Prior to the Distribution, Cognizant (which will become Nielsen Media
Research) and IMS HEALTH will enter into certain agreements as described below,
which will govern the relationship between Nielsen Media Research and IMS HEALTH
subsequent to the Distribution and provide for the allocation of tax, employee
benefits and certain other liabilities and obligations arising from periods
prior to the Distribution. Copies of the forms of such agreements are filed as
exhibits to the Registration Statement of IMS HEALTH in respect of the
registration of the IMS HEALTH Common Stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In addition, Cognizant (which will become
Nielsen Media Research) will file a Current Report on Form 8-K in connection
with the Distribution, and the agreements will be filed as exhibits to the Form
8-K. Such agreements may be amended by Cognizant prior to the Distribution Date.
In addition, there will be individuals on the Boards of Directors of IMS HEALTH
and Nielsen Media Research who will also serve on the Board of Directors of the
other company. See "Cognizant/IMS HEALTH Management and Executive
Compensation--Board of Directors" and "Nielsen Media Research Management and
Executive Compensation--Board of Directors".
The following description summarizes certain terms of such agreements, but
is qualified by reference to the texts of such agreements, which are
incorporated herein by reference.
DISTRIBUTION AGREEMENT
Cognizant and IMS HEALTH will enter into the Distribution Agreement
providing for, among other things, certain corporate transactions required to
effect the Distribution and other arrangements between Nielsen Media Research
and IMS HEALTH subsequent to the Distribution.
In particular, the Distribution Agreement defines the assets and liabilities
which are being allocated to and assumed by IMS HEALTH and those which will
remain with Nielsen Media Research. The Distribution Agreement also defines what
constitutes the "IMS HEALTH Business" and what constitutes the "Nielsen Media
Research Business".
Pursuant to the Distribution Agreement, Cognizant is obligated to transfer
or cause to be transferred all its right, title and interest in the assets
comprising the IMS HEALTH Business and other assets not specifically included in
the Nielsen Media Research Business to IMS HEALTH and IMS HEALTH is obligated to
transfer or cause to be transferred all its right, title and interest in the
assets comprising the Nielsen Media Research Business to Cognizant. All assets
are being transferred without any representation or warranty, "as is-where is",
and the relevant transferee bears the risk that any necessary consent to
transfer is not obtained. Each party also agrees to exercise its respective
commercially reasonable efforts promptly to obtain any necessary consents and
approvals and to take such actions as may be reasonably
25
<PAGE>
necessary or desirable to carry out the purposes of the Distribution Agreement
and the other agreements summarized below.
The Distribution Agreement provides for, among other things, assumptions of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) the businesses conducted by Nielsen Media
Research and certain other liabilities formerly within Cognizant to Nielsen
Media Research and (ii) all other liabilities, including liabilities of the IMS
HEALTH Business, to IMS HEALTH. For a discussion of such businesses, see "IMS
HEALTH Business" and "Nielsen Media Research Business". The Distribution
Agreement provides for the allocation generally of the financial responsibility
for the liabilities arising out of or in connection with former businesses,
including those formerly conducted by or associated with Cognizant or IMS
HEALTH, to IMS HEALTH. The Distribution Agreement also allocates between IMS
HEALTH and Nielsen Media Research contingent liabilities related to certain
prior business transactions.
Pursuant to the terms of the 1996 Distribution Agreement, as a condition to
the Distribution, IMS HEALTH and Nielsen Media Research are required to
undertake to be jointly and severally liable to D&B and ACNielsen for any
liabilities arising thereunder. The Distribution Agreement allocates between IMS
HEALTH and Nielsen Media Research the financial responsibility for such
liabilities. Among other things, IMS HEALTH and Nielsen Media Research have
agreed that, as between themselves, IMS HEALTH will assume 75%, and Nielsen
Media Research will assume 25%, of any payments to be made in respect of the IRI
Action under the Indemnity and Joint Defense Agreement or otherwise, including
any legal fees and expenses related thereto incurred in 1999 or thereafter. IMS
HEALTH has agreed to be fully responsible for any legal fees and expenses
incurred during 1998. Nielsen Media Research's aggregate liability to IMS HEALTH
for payments in respect of the IRI Action and certain other contingent
liabilities referred to in the previous paragraph shall not exceed $125 million.
In addition, the Distribution Agreement provides that on the Distribution
Date, Cognizant will contribute to IMS HEALTH all cash in Cognizant's accounts
other than (i) cash required by Cognizant (to be renamed Nielsen Media Research)
to satisfy certain specified obligations and (ii) such additional cash as is
necessary for the net borrowings of Cognizant (to be renamed Nielsen Media
Research) (excluding the items referred to in clause (i)) to be $300 million as
of the Distribution Date.
The Distribution Agreement includes provisions governing the administration
of certain insurance programs and the procedures for making claims. The
Distribution Agreement also allocates the right to proceeds and the obligation
to satisfy deductibles under certain insurance policies.
In the event that any transfers contemplated by the Distribution Agreement
are not effected on or prior to the Distribution Date, the parties will be
required to cooperate to effect such transfers as promptly as practicable
following the Distribution Date, and pending any such transfers, to hold any
asset not so transferred in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto), and to retain any
liability not so transferred for the account of the party by whom such liability
is to be assumed.
The Distribution Agreement provides that Cognizant (which will become
Nielsen Media Research) and IMS HEALTH will comply with and otherwise not take
action inconsistent with each representation and statement made to the Internal
Revenue Service in connection with Cognizant's request for a ruling letter as to
certain tax aspects of the Distribution. Each of Cognizant and IMS HEALTH agrees
to maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Internal Revenue Code, until the
second anniversary of the Distribution Date. Neither Nielsen Media Research nor
IMS HEALTH expects this limitation to inhibit its financing or other activities
or its ability to respond to unanticipated developments. Under the Distribution
Agreement, Cognizant (which will become Nielsen Media Research) agrees that
until two years after the Distribution Date it will not (i) merge or consolidate
with another corporation, (ii) liquidate or partially liquidate, (iii) sell or
transfer all or substantially all of its assets, (iv) redeem or repurchase its
stock (except in certain
26
<PAGE>
limited circumstances), or (v) take any other action which would result in one
or more persons acquiring a 50 percent or greater interest in Cognizant, unless,
prior to taking such action, it obtains a written opinion of a law firm or a
supplemental ruling from the Internal Revenue Service that such action will not
affect the tax-free treatment of the Distribution. As a result of the
representations in the request for a ruling letter and the covenants in the
Distribution Agreement, the acquisition of control of each of Nielsen Media
Research and IMS HEALTH prior to the second anniversary of the Distribution Date
may be more difficult or less likely to occur because of the potential
substantial liability associated with a breach of such representations or
covenants. The Distribution Agreement provides that if a party fails to comply
with the obligations described above or takes or fails to take any action and
such failure, act or omission contributes to a determination that the
Distribution is not tax-free to Cognizant, IMS HEALTH or their stockholders,
such party must indemnify the other party and its stockholders from any taxes
arising therefrom.
Under the Distribution Agreement, each of Cognizant and IMS HEALTH agrees to
provide to the other party, subject to certain conditions, access to certain
corporate records and information and to provide or cause to be provided certain
services on such terms as are set forth in a Transition Services Agreement
between such parties.
The Distribution Agreement also provides that, except as otherwise set forth
therein or in any related agreement, all costs or expenses incurred and for
which invoices have been submitted on or prior to the Distribution Date in
connection with the Distribution will be charged to and paid by Cognizant.
Except as set forth in the Distribution Agreement or any related agreement, all
costs and expenses incurred or for which invoices are submitted after the
Distribution Date in connection with the Distribution will be charged to and
paid by IMS HEALTH. IMS HEALTH will agree to be liable for any claims arising
from or based upon (i) the Acquisitions and any filings with the SEC related
thereto and (ii) "controlling person" liability relating to the Registration
Statement on Form 10 filed with the SEC by IMS HEALTH. Except as set forth in
the Distribution Agreement or any related agreement, each party shall bear its
own costs and expenses incurred after the Distribution Date.
TAX ALLOCATION AGREEMENT
Cognizant and IMS HEALTH will enter into a Tax Allocation Agreement under
which IMS HEALTH will pay any taxes, or receive any refunds or credits of taxes,
shown as due on a U.S. federal, state or local income or franchise tax return
for a taxable period beginning prior to the Distribution Date (including the
current taxable period to the extent such taxes, refunds or credits are
attributable to the portion of such taxable period up to and including the
Distribution Date). Any subsequent adjustment of such taxes shall be allocated
to IMS HEALTH if such adjustment relates to the IMS HEALTH Business and to
Nielsen Media Research if such adjustment relates to the Nielsen Media Research
Business, except that any adjustment of such taxes attributable to tax items or
positions initially determined by Cognizant's corporate office shall be
allocated to IMS HEALTH.
All taxes other than U.S. federal, state and local income and franchise
taxes will be the responsibility of IMS HEALTH if they are attributable to the
IMS HEALTH Business and of Nielsen Media Research if they are attributable to
the Nielsen Media Research Business.
For taxable periods beginning on or after the Distribution Date (and the
portion of the current taxable period beginning after the Distribution Date),
IMS HEALTH and Nielsen Media Research will be responsible for their own taxes.
EMPLOYEE BENEFITS AGREEMENT
Cognizant and IMS HEALTH will enter into an Employee Benefits Agreement (the
"Employee Benefits Agreement"), which allocates responsibility for certain
employee benefits matters on and after the Distribution Date.
27
<PAGE>
The Employee Benefits Agreement provides that IMS HEALTH will adopt a new
defined benefit pension plan for employees of the IMS HEALTH Business ("IMS
HEALTH Employees") and former employees of the IMS HEALTH Business who
terminated employment on or prior to the Distribution Date ("IMS HEALTH
Retirees") and that Nielsen Media Research will continue to sponsor Cognizant's
current plan for the benefit of employees of the Nielsen Media Research Business
("Nielsen Media Research Employees") and former employees of the Nielsen Media
Research Business who terminated employment on or prior to the Distribution Date
("Nielsen Media Research Retirees"). Assets and liabilities of the current
Cognizant pension plan that are attributable to IMS HEALTH Employees and IMS
HEALTH Retirees will be transferred to the new IMS HEALTH plan.
In addition, IMS HEALTH will adopt a new savings plan for IMS HEALTH
Employees and IMS HEALTH Retirees, and Nielsen Media Research will continue to
sponsor its savings plan for the benefit of Nielsen Media Research Employees and
Nielsen Media Research Retirees. The account balances of IMS HEALTH Employees
and IMS HEALTH Retirees will be transferred to the new IMS HEALTH plan.
IMS HEALTH will adopt new nonqualified supplemental pension plans for the
benefit of IMS HEALTH Employees and IMS HEALTH Retirees, and Nielsen Media
Research will retain the liability for benefits under Cognizant's nonqualified
supplemental pension plans with respect to Nielsen Media Research Employees and
Nielsen Media Research Retirees.
The Employee Benefits Agreement also provides that Nielsen Media Research
will continue to sponsor its welfare plans for Nielsen Media Research Employees
and Nielsen Media Research Retirees. As of the Distribution Date, IMS HEALTH
will adopt welfare plans for the benefit of IMS HEALTH Employees and IMS HEALTH
Retirees. Each of IMS HEALTH and Nielsen Media Research will provide retiree
welfare benefits, where applicable, to its own employees and retirees.
Nielsen Media Research and IMS HEALTH will each generally retain the
severance liabilities of their respective employees who terminated employment
prior to the Distribution Date.
With respect to equity-based plans, the Employee Benefits Agreement provides
that unexercised Cognizant stock options held by Nielsen Media Research
Employees as of the Distribution Date will be adjusted to reflect the
Distribution. The number of shares of Nielsen Media Research Common Stock
covered by each adjusted stock option will be determined by (i) multiplying the
number of shares of Cognizant Common Stock covered by the unexercised Cognizant
stock option by a fraction, the numerator of which is the average of the Daily
Average Trading Prices per share of Cognizant Common Stock for the five
consecutive trading days immediately preceding the first date on which Cognizant
Common Stock is traded ex-dividend, and the denominator of which is the average
of the Daily Average Trading Prices per share of Nielsen Media Research Common
Stock for the five consecutive trading days starting on the first date on which
Nielsen Media Research Common Stock is traded ex-dividend (the "Nielsen Media
Research Ratio"), and (ii) rounding down the result to a whole number of shares.
The Daily Average Trading Price of a given stock on a given day means the
average of the high and low trading prices for such stock on such date. The
exercise price per share of an adjusted Cognizant stock option will be
determined by dividing the exercise price per share of an unexercised Cognizant
stock option by the Nielsen Media Research Ratio. The adjustment of the
Cognizant stock options will not result in a compensation charge to Cognizant or
Nielsen Media Research.
Unexercised Cognizant stock options held by IMS HEALTH Employees as of the
Distribution Date will be canceled and replaced with options that are
exercisable into shares of IMS HEALTH Common Stock. The number of shares of IMS
HEALTH Common Stock covered by each replacement stock option will be determined
by (i) multiplying the number of shares of Cognizant Common Stock covered by the
canceled Cognizant stock option by a fraction, the numerator of which is the
average of the Daily Average Trading Prices per share of Cognizant Common Stock
for the five consecutive trading days immediately preceding the first date on
which Cognizant Common Stock is traded ex-dividend, and the denominator of which
is the average of the Daily Average Trading Prices per share of IMS HEALTH
Common Stock for
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<PAGE>
the five consecutive trading days starting on the first date on which IMS HEALTH
Common Stock is traded regular way (the "IMS HEALTH Ratio"), and (ii) rounding
down the result to a whole number of shares. The exercise price per share of a
replacement stock option will be determined by dividing the exercise price per
share of the canceled Cognizant stock option by the IMS HEALTH Ratio. Except as
otherwise provided in the applicable plans, all other terms of the replacement
stock options will remain substantially identical to the terms of the canceled
Cognizant stock options. The issuance of the replacement stock options will not
result in a compensation charge to IMS HEALTH.
All limited stock appreciation rights will be adjusted or converted in
substantially the same manner as the unexercised Cognizant stock options. See
"Cognizant Management and Executive Compensation-- Option Grants on Cognizant
Common Stock to Cognizant Executives in Last Fiscal Year" and "Cognizant/ IMS
HEALTH Management and Executive Compensation--Option Grants on Cognizant Common
Stock to Executives in Last Fiscal Year".
With respect to restricted stock, IMS HEALTH restricted stock received by
Nielsen Media Research Employees in the Distribution shall be forfeited and each
such individual shall receive a number of additional shares of Nielsen Media
Research restricted stock, determined by multiplying the number of shares of
forfeited IMS HEALTH restricted stock by the Nielsen Media Research Ratio and
the reciprocal of the IMS HEALTH Ratio, having the same terms as the Cognizant
restricted stock from which they arose.
Cognizant restricted stock held by IMS HEALTH Employees and IMS HEALTH
restricted stock received by IMS HEALTH Employees in the Distribution shall be
forfeited and such individuals shall receive replacement IMS HEALTH restricted
stock equal to (i) the number of shares of forfeited IMS HEALTH restricted stock
plus (ii) the number of shares of forfeited Cognizant restricted stock
multiplied by the IMS HEALTH Ratio and the reciprocal of the Nielsen Media
Research Ratio, such replacement IMS HEALTH restricted stock to have the same
terms as the Cognizant restricted stock from which they arose.
From and after the Distribution Date, Nielsen Media Research shall continue
to sponsor an Employee Stock Purchase Plan. IMS HEALTH shall adopt the IMS
HEALTH Employee Stock Purchase Plan for the benefit of IMS HEALTH Employees.
As of the Distribution Date, IMS HEALTH Employees will generally cease
participation in Cognizant's employee benefit plans, and IMS HEALTH will
generally recognize, among other things, their respective employees' past
service with Cognizant under their respective employee benefit plans. Except as
specifically provided therein, nothing in the Employee Benefits Agreement
restricts Nielsen Media Research's or IMS HEALTH's ability to amend or terminate
any of their respective employee benefit plans after the Distribution Date.
INTELLECTUAL PROPERTY AGREEMENT
Cognizant and IMS HEALTH will enter into an Intellectual Property Agreement
(the "IP Agreement") which provides for the allocation and recognition by and
between Nielsen Media Research and IMS HEALTH of rights under patents,
copyrights, software, technology, trade secrets and certain other intellectual
property owned by IMS HEALTH and Nielsen Media Research and their respective
subsidiaries as of the Distribution Date. See "IMS HEALTH Business--Intellectual
Property" and "Nielsen Media Research Business--Intellectual Property".
SHARED TRANSACTION SERVICES AGREEMENTS
Cognizant and IMS HEALTH will enter into Shared Transaction Services
Agreements providing for the orderly continuation, for a transitional period
after the Distribution Date, of certain of the shared
29
<PAGE>
transaction and other services (such as payroll, accounts payable, general
accounting and computer processing and support) currently being provided by or
to Nielsen Media Research and IMS HEALTH.
DATA SERVICES AGREEMENTS
Cognizant and IMS HEALTH will enter into Data Services Agreements providing
for the orderly continuation, for a transitional period after the Distribution
Date, of certain specified computer processing and related services to be
provided by or to Nielsen Media Research and IMS HEALTH.
TRANSITION SERVICES AGREEMENT
Cognizant and IMS HEALTH will enter into a Transition Services Agreement
pursuant to which Nielsen Media Research and IMS HEALTH have agreed to certain
basic terms governing the provision by or to the other party of specified
administrative or other support services for a transitional period after the
Distribution Date.
OVERLAPPING DIRECTORS
After the Distribution Date, there will be individuals on the Boards of
Directors of IMS HEALTH and Nielsen Media Research who will also serve on the
Board of Directors of the other company. Robert E. Weissman and M. Bernard
Puckett will serve on the Boards of Directors of both companies. See
"Cognizant/IMS HEALTH Management and Executive Compensation--Board of Directors"
and "Nielsen Media Research Management and Executive Compensation--Board of
Directors".
DIVIDEND POLICIES
IMS HEALTH
The payment and level of cash dividends by IMS HEALTH after the Distribution
will be subject to the discretion of the Board of Directors of IMS HEALTH. It is
anticipated that IMS HEALTH will initially pay a dividend equal to Cognizant's
current annualized dividend of $0.12 per share. Future dividend decisions will
be based on, and affected by, a number of factors, including the operating
results and financial requirements of IMS HEALTH on a stand-alone basis.
NIELSEN MEDIA RESEARCH
The payment and level of cash dividends by Nielsen Media Research after the
Distribution will be subject to the discretion of the Board of Directors of
Nielsen Media Research. Nielsen Media Research currently intends to retain
future earnings for the development of its business and does not anticipate
paying cash dividends in the near future. Future dividend decisions will be
based on, and affected by, a number of factors, including the operating results
and financial requirements of Nielsen Media Research on a stand-alone basis as
well as applicable legal and contractual restrictions. There can be no assurance
that any dividends will be declared or paid.
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<PAGE>
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) CAPITALIZATION
Notwithstanding the legal form of the Distribution, whereby Cognizant
expects to spin off IMS HEALTH, for accounting purposes the transaction is
accounted for as if Cognizant will spin off Nielsen Media Research. For
financial reporting purposes, the following financial information relates to IMS
HEALTH, the accounting successor to Cognizant.
The following table sets forth the capitalization of IMS HEALTH at March 31,
1998 on a historical basis, and at March 31, 1998 on a pro forma basis as
adjusted to give effect to the Distribution and the transactions contemplated
thereby. Accordingly, the table does not reflect the proposed acquisitions of
Walsh and PMSI. The historical financial information set forth below relates to
Cognizant. See "The Distribution--Form of Transaction; Basis of Presentation".
The following data is qualified in its entirety by the consolidated financial
statements of Cognizant and other information contained elsewhere in this
Information Statement. See "Risk Factors".
<TABLE>
<CAPTION>
IMS HEALTH
(AT MARCH 31, 1998)
(UNAUDITED)
------------------------
HISTORICAL PRO FORMA
----------- -----------
($ AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and Cash Equivalents................................... $ 340,247 640,247(1)
----------- -----------
Long-Term Debt.............................................. 2,352 2,352
Minority Interests.......................................... 102,891 102,891
Shareholders' Equity:
Preferred Stock, par value $.01 per share,
authorized -- 10,000,000 shares;
outstanding -- none..................................... -- --
Series Common Stock, par value $.01 per share, authorized
-- 10,000,000 shares;
outstanding -- none..................................... -- --
Common Stock, par value $.01 per share, authorized --
400,000,000 shares;
issued -- 171,120,069 shares (Historical) and
162,848,673
(Pro forma)........................................... 1,711 1,628(3)
Capital Surplus............................................. 808,015 507,848(3)
Retained Earnings........................................... 413,643 583,110(1)(2)
Cumulative Translation Adjustment........................... (75,868) (76,511)(2)
Unrealized Gains on Investments............................. 25,011 25,011
Treasury Stock--8,271,396 shares (Historical) and 0 shares
(Pro forma)............................................... (300,250) -- (3)
----------- -----------
Total Equity............................................ 872,262 1,041,086
----------- -----------
Total Capitalization.................................... $ 977,966 $1,146,329
----------- -----------
----------- -----------
</TABLE>
SUMMARY OF SIGNIFICANT PRO FORMA CAPITALIZATION ASSUMPTIONS
The capitalization table presented above gives effect to the Distribution
Agreement and the transactions contemplated thereby. See "Relationship Between
IMS HEALTH and Nielsen Media Research After the Distribution--Distribution
Agreement." The Distribution Agreement is to be entered into by Cognizant and
IMS HEALTH prior to the Distribution and is subject to approval by Cognizant's
Board of Directors. The assumptions upon which this capitalization table is
based therefore remain to be finalized and do not necessarily reflect all the
factors that may affect the capitalization of IMS HEALTH at the time of the
Distribution.
(1) In connection with the Distribution, Cognizant will borrow $300 million,
which will be used to repay existing intercompany liabilities. This debt
will be the obligation of Nielsen Media Research after the Distribution. The
adjustment is reflected as an increase in cash and cash equivalents
resulting from the proceeds of the debt.
(2) This adjustment reflects the dividend of Nielsen Media Research in
connection with the Distribution.
(3) The adjustment reflects the recapitalization of IMS HEALTH including the
elimination of treasury stock which will be treasury shares of Nielsen Media
Research after the Distribution.
31
<PAGE>
IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
SELECTED FINANCIAL DATA
Notwithstanding the legal form of the Distribution, whereby Cognizant
expects to spin off IMS HEALTH, for accounting purposes the transaction is
accounted for as if Cognizant will spin off Nielsen Media Research. For
financial reporting purposes, the following financial information relates to IMS
HEALTH, the accounting successor to Cognizant. The financial data as of and for
all years ended December 31, are from the audited financial statements of
Cognizant, which statements for 1997, 1996 and 1995 are contained elsewhere in
this Information Statement. The financial data as of and for the three months
ended March 31, 1998 and 1997 are unaudited. The historical financial
information set forth below relates to Cognizant. See "The Distribution-Form of
Transaction; Basis of Presentation". The following financial data should also be
read in conjunction with the information set forth under "IMS HEALTH (Accounting
Successor to Cognizant) Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Cognizant's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AND
AS OF
MARCH 31, YEAR ENDED AND AS OF DECEMBER 31,
------------------------ ---------------------------------------------------------
1998 1997 1997(1) 1996(2) 1995(3) 1994(4) 1993(5)
----------- ----------- --------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue(6)........ $ 337,032 $ 315,576 $1,418,153 $1,730,596 $1,542,340 $1,257,415 $1,039,259
Income before Cumulative
Effect of Accounting
Changes................... $ 60,087 $ 52,905 $ 312,350 $ 195,451 $ 88,881 $ 146,405 $ 108,857
Earnings Per Share of Common
Stock on Income before
Cumulative Effect of
Accounting
Changes--Basic............ $ 0.37 $ 0.31 $ 1.89 $ 1.15 $ 0.52 $ 0.86 $ --
Earnings Per Share of Common
Stock on Income before
Cumulative Effect of
Accounting Changes--
Diluted................... $ 0.36 $ 0.31 $ 1.86 $ 1.15 $ 0.52 $ 0.85 $ --
BALANCE SHEET DATA:
Total Assets................ $1,630,331 $1,405,430 $1,579,520 $1,874,982 $1,442,090 $1,331,038 $1,158,764
Long-Term Debt.............. $ 2,813 $ 3,463 $ 2,912 $ 3,736 $ 10,485 $ 15,484 $ 5,374
</TABLE>
- ------------------------
(1) Income before Cumulative Effect of Accounting Changes in 1997 includes an
unrealized gain on its investment in Gartner of $10,664 and gains from
dispositions-net of $6,818.
(2) Income before Cumulative Effect of Accounting Changes in 1996 includes a
one-time acquisition-related charge of $32,778 related to Gartner's
acquisition of J3 Learning Corporation and gains from dispositions-net of
$112.
(3) Income before Cumulative Effect of Accounting Changes in 1995 includes a
non-recurring charge of $49,268, an incremental provision of postemployment
benefits of $17,778, restructuring expense of $7,002 and gains from
dispositions-net of $8,269.
(4) Income before Cumulative Effect of Accounting Changes in 1994 includes
restructuring expense of $7,957 and a gain from disposition of $12,806.
(5) Income before Cumulative Effect of Accounting Changes in 1993 includes
restructuring expense of $46,408 and a gain from disposition of $13,676.
(6) Operating Revenue for the three months ended March 31, 1998 and 1997 and the
year ended December 31, 1997 reflects Gartner on the equity method of
accounting; accordingly no Gartner revenue is reflected. Operating Revenue
for the years ended December 31, 1996, 1995, 1994 and 1993 reflects Gartner
on a consolidated basis.
32
<PAGE>
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
Notwithstanding the legal form of the Distribution, whereby Cognizant
expects to spin off IMS HEALTH, for accounting purposes the transaction is
accounted for as if Cognizant will spin off Nielsen Media Research. For
financial reporting purposes, the following financial information relates to IMS
HEALTH, the accounting successor to Cognizant. The historical Consolidated
Statement of Income for IMS HEALTH is from the historical (pre-Distribution)
Consolidated Statement of Income of Cognizant. The Unaudited Consolidated Pro
Forma Statement of Income for IMS HEALTH for the three months ended March 31,
1998 and the years ended December 31, 1997, 1996 and 1995 present the results of
operations of IMS HEALTH and material pro forma adjustments necessary for this
purpose.
The Unaudited Consolidated Pro Forma Statement of Income and Statement of
Financial Position of IMS HEALTH should be read in conjunction with the
historical consolidated financial statements of Cognizant contained elsewhere in
this Information Statement. The pro forma data are for informational purposes
only and may not necessarily reflect future results of operations and or what
the results of operations would have been had IMS HEALTH been operated as a
separate entity.
As described under "The Distribution--Form of Transaction; Basis of
Presentation", for financial reporting purposes, IMS HEALTH will be treated as
the "accounting successor" to Cognizant. Therefore, the historical financial
information for IMS HEALTH included herein is that of Cognizant. The following
tables set forth the IMS HEALTH historical Consolidated Statement of Income for
the three months ended March 31, 1998, and years ended December 31, 1997, 1996
and 1995, giving effect, on a pro forma basis, to Nielsen Media Research as a
discontinued operation as of the beginning of the periods presented, although
not yet required to be reflected in the historical financial statements. The IMS
HEALTH historical Unaudited Condensed Consolidated Pro Forma Statement of
Financial Position as of March 31, 1998 gives effect to Nielsen Media Research
as a discontinued operation. Upon approval of the plan of Distribution, the
historical financial statements of IMS HEALTH as accounting successor to
Cognizant will be restated to present Nielsen Media Research as a "discontinued
operation" for accounting purposes.
The Distribution requires approval by the Cognizant Board of Directors of
the plan of the Distribution as well as material terms of any distribution, tax
sharing, employee benefits, or other similar agreements pursuant to which assets
and liabilities are allocated as part of the Distribution.
33
<PAGE>
IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME(1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA) IMS HEALTH
HISTORICAL PRO FORMA PRO FORMA
IMS HEALTH ADJUSTMENTS(2) HISTORICAL
------------ -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE $ 337,032 $ (96,064) $ 240,968
Operating Costs and Selling and Administrative Expense 263,739 (63,193) 200,546
Depreciation and Amortization 28,816 (7,122) 21,694
------------ -------------- -------------
OPERATING INCOME 44,477 (25,749) 18,728
Gartner Equity Income 15,574 -- 15,574
Other Non-Operating Income--Net 22,713 2 22,715
Non-Operating Income--Net(3) 38,287 2 38,289
------------ -------------- -------------
Income from Continuing Operations Before Provision for
Income Taxes 82,764 (25,747) 57,017
Provision for Income Taxes 22,677 (7,055) 15,622
------------ -------------- -------------
Income from Continuing Operations 60,087 (18,692) 41,395
Income From Discontinued Operations--Net of Income Taxes -- 18,692 18,692
------------ -------------- -------------
NET INCOME $ 60,087 $ 0 $ 60,087
------------ -------------- -------------
------------ -------------- -------------
BASIC EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.37 $ (0.12) $ 0.25
BASIC EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.12 0.12
------------ -------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.37 $ 0.00 $ 0.37
------------ -------------- -------------
------------ -------------- -------------
DILUTED EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.36 $ (0.12) $ 0.24
DILUTED EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.12 0.12
------------ -------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.36 $ 0.00 $ 0.36
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Average Number of Shares Outstanding--Basic................. 162,406,000 162,406,000
Average Number of Shares Outstanding--Diluted............... 167,282,000 167,282,000
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statements of
Income, on page 38.
34
<PAGE>
IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA) IMS HEALTH
HISTORICAL PRO FORMA PRO FORMA
IMS HEALTH ADJUSTMENTS(2) HISTORICAL
------------ -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE $1,418,153 $ (358,594) $ 1,059,559
Operating Costs and Selling and Administrative Expense 965,497 (222,199) 743,298
Depreciation and Amortization 117,314 (28,663) 88,651
------------ -------------- -------------
OPERATING INCOME 335,342 (107,732) 227,610
------------ -------------- -------------
Gartner Equity Income 65,120 -- 65,120
Other Non-Operating Income--Net 29,773 (29) 29,744
Non-Operating Income--Net(3) 94,893 (29) 94,864
------------ -------------- -------------
Income from Continuing Operations Before Provision for
Income Taxes 430,235 (107,761) 322,474
Provision for Income Taxes 117,885 (29,527) 88,358
------------ -------------- -------------
Income from Continuing Operations 312,350 (78,234) 234,116
Income From Discontinued Operations--Net of Income Taxes -- 78,234 78,234
------------ -------------- -------------
NET INCOME $ 312,350 $ 0 $ 312,350
------------ -------------- -------------
------------ -------------- -------------
BASIC EARNINGS PER SHARE CONTINUING OPERATIONS $ 1.89 $ (0.47) $ 1.42
BASIC EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.47 0.47
------------ -------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 1.89 $ 0.00 $ 1.89
------------ -------------- -------------
------------ -------------- -------------
DILUTED EARNINGS PER SHARE CONTINUING OPERATIONS $ 1.86 $ (0.47) $ 1.39
DILUTED EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.47 0.47
------------ -------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.86 $ 0.00 $ 1.86
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE NUMBER OF SHARES OUTSTANDING--BASIC................. 165,163,000 165,163,000
AVERAGE NUMBER OF SHARES OUTSTANDING--DILUTED............... 167,490,000 167,490,000
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statements of
Income, on page 38.
35
<PAGE>
IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA) IMS HEALTH
HISTORICAL PRO FORMA PRO FORMA
IMS HEALTH ADJUSTMENTS(2) HISTORICAL
------------ -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE $1,730,596 $ (319,404) $ 1,411,192
Operating Costs and Selling and Administrative Expense 1,253,567 (194,714) 1,058,853
Depreciation and Amortization 133,861 (25,229) 108,632
------------ -------------- -------------
OPERATING INCOME 343,168 (99,461) 243,707
Non-Operating Income--Net(3) 5,853 -- 5,853
------------ -------------- -------------
Income from Continuing Operations Before Provision for
Income Taxes 349,021 (99,461) 249,560
Provision for Income Taxes 153,570 (43,764) 109,806
------------ -------------- -------------
Income from Continuing Operations 195,451 (55,697) 139,754
Income From Discontinued Operations--Net of Income Taxes -- 55,697 55,697
------------ -------------- -------------
NET INCOME $ 195,451 $ 0 $ 195,451
------------ -------------- -------------
------------ -------------- -------------
BASIC EARNINGS PER SHARE CONTINUING OPERATIONS $ 1.15 $ (0.33) $ 0.82
BASIC EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.33 0.33
------------ -------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 1.15 $ 0.00 $ 1.15
------------ -------------- -------------
------------ -------------- -------------
DILUTED EARNINGS PER SHARE CONTINUING OPERATIONS $ 1.15 $ (0.33) $ 0.82
DILUTED EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.33 0.33
------------ -------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.15 $ 0.00 $ 1.15
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE NUMBER OF SHARES OUTSTANDING--BASIC................. 169,944,000 169,944,000
AVERAGE NUMBER OF SHARES OUTSTANDING--DILUTED............... 170,500,000 170,500,000
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statements of
Income, on page 38.
36
<PAGE>
IMS HEALTH
(ACCOUNTING SUCCESSOR TO COGNIZANT)
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA) IMS HEALTH
HISTORICAL PRO FORMA PRO FORMA
IMS HEALTH ADJUSTMENTS(2) HISTORICAL
------------ -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE $1,542,340 $ (288,652) $ 1,253,688
Operating Costs and Selling and Administrative Expense 1,242,331 (177,241) 1,065,090
Depreciation and Amortization 132,532 (24,343) 108,189
Restructuring Expense 12,800 -- 12,800
------------ -------------- -------------
OPERATING INCOME 154,677 (87,068) 67,609
Non-Operating Income--Net(3) 7,880 -- 7,880
------------ -------------- -------------
Income from Continuing Operations Before Provision for
Income Taxes 162,557 (87,068) 75,489
Provision for Income Taxes 73,676 (39,462) 34,214
------------ -------------- -------------
Income from Continuing Operations 88,881 (47,606) 41,275
Income From Discontinued Operations--Net of Income Taxes -- 47,606 47,606
------------ -------------- -------------
NET INCOME $ 88,881 $ 0 $ 88,881
------------ -------------- -------------
------------ -------------- -------------
BASIC EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.52 $ (0.28) $ 0.24
BASIC EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.28 0.28
------------ -------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.52 $ 0.00 $ 0.52
------------ -------------- -------------
------------ -------------- -------------
DILUTED EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.52 $ (0.28) $ 0.24
DILUTED EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.28 0.28
------------ -------------- -------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.52 $ 0.00 $ 0.52
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE NUMBER OF SHARES OUTSTANDING--BASIC................. 169,522,000 169,522,000
AVERAGE NUMBER OF SHARES OUTSTANDING--DILUTED............... 171,608,000 171,608,000
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statements of
Income, on page 38.
37
<PAGE>
SUMMARY OF ADJUSTMENTS TO UNAUDITED CONSOLIDATED
PRO FORMA STATEMENTS OF INCOME
(1) As described in Note 22 to Cognizant's Consolidated Financial Statements
included elsewhere in this Information Statement, on March 23, 1998
Cognizant entered into two separate definitive agreements to acquire Walsh
and PMSI. As these acquisitions do not either individually or in the
aggregate meet the "significant subsidiary test" for purposes of pro forma
disclosures, they have not been reflected in the above tables.
(2) The pro forma adjustments reflect Nielsen Media Research revenue, operating
expense, operating income, non-operating income and provision for income
taxes for the three months ended March 31, 1998 and the years ended December
31, 1997, 1996 and 1995 as a discontinued operation, although not yet
required to be reflected in the historical financial statements. As such,
these amounts do not reflect certain adjustments made in the preparation of
the Nielsen Media Research audited separate financial statements included
elsewhere in this Information Statement. Such adjustments include primarily
a tax provision for Nielsen Media Research on a separate company basis and
the allocation of corporate overhead expense.
(3) Non-Operating Income--Net does not include a pro forma adjustment to reflect
the impact of interest income for all periods presented related to the
proceeds from the repayment of existing intercompany liabilities to IMS
HEALTH of $300 million. Interest income related to the proceeds from the
repayment of existing intercompany liabilities to IMS HEALTH of $300
million, at an assumed annual interest rate of 5.25%, would be $15.75
million per year and $3.94 million per quarter. See Nielsen Media Research
Unaudited Consolidated Pro Forma Statement of Income included elsewhere in
this Information Statement for the related impact of interest expense on the
$300 million of third-party debt.
38
<PAGE>
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) UNAUDITED CONDENSED
CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------------
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA) IMS HEALTH
HISTORICAL PRO FORMA PRO FORMA
IMS HEALTH ADJUSTMENTS(2) HISTORICAL(3)
------------ -------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents................................... $ 344,251 $ (4,004) $ 340,247
Accounts Receivable--Net.................................... 303,047 (52,966) 250,081
Other Current Assets........................................ 77,209 (5,115) 72,094
------------ -------------- -------------
Total Current Assets.................................... 724,507 (62,085) 662,422
------------ -------------- -------------
Investment in Gartner Group................................. 212,863 -- 212,863
Notes Receivable and Other Investments...................... 100,707 (751) 99,956
Property, Plant and Equipment--Net.......................... 233,578 (58,023) 175,555
Other Assets--Net
Computer Software......................................... 147,911 (45,724) 102,187
Goodwill.................................................. 91,464 -- 91,464
Other Assets.............................................. 119,301 (38,712) 80,589
------------ -------------- -------------
Total Other Assets--Net..................................... 358,676 (84,436) 274,240
------------ -------------- -------------
Net Assets of Discontinued Operations....................... 0 131,176 131,176
------------ -------------- -------------
Total Assets................................................ $1,630,331 $ (74,119) $ 1,556,212
------------ -------------- -------------
------------ -------------- -------------
Liabilities and Shareholders' Equity
Accrued Liabilities......................................... $ 203,264 $ (18,563) $ 184,701
Other Current Liabilities................................... 222,138 (24,755) 197,383
------------ -------------- -------------
Current Liabilities......................................... 425,402 (43,318) 382,084
Minority Interests.......................................... 102,891 -- 102,891
Other Liabilities........................................... 229,776 (30,801) 198,975
------------ -------------- -------------
Total Liabilities........................................... 758,069 (74,119) 683,950
------------ -------------- -------------
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock, Par Value $.01 Per Share, Authorized--
10,000,000 Shares; Outstanding--None
Series Common Stock, Par Value $.01 Per Share,
Authorized--10,000,000 Shares; Outstanding--None
Common Stock, Par Value $.01, Authorized--400,000,000
Shares; Issued--171,120,069 Shares........................ 1,711 -- 1,711
Capital in Excess of Par.................................... 808,015 -- 808,015
Retained Earnings........................................... 413,643 -- 413,643
Treasury Stock, at Cost, 8,271,396.......................... (300,250) -- (300,250)
Cumulative Translation Adjustment........................... (75,868) -- (75,868)
Unrealized Gains on Investments............................. 25,011 -- 25,011
------------ -------------- -------------
Total Shareholders' Equity.................................. 872,262 -- 872,262
------------ -------------- -------------
Total Liabilities and Shareholders' Equity.................. $1,630,331 $ (74,119) $ 1,556,212
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statement
of Financial Position, on page 40.
39
<PAGE>
SUMMARY OF ADJUSTMENTS TO UNAUDITED CONSOLIDATED
PRO FORMA STATEMENT OF FINANCIAL POSITION
(1) As described in Note 22 to Cognizant's Consolidated Financial Statements
included elsewhere in this Information Statement, on March 23, 1998
Cognizant entered into merger agreements to acquire each of Walsh and PMSI.
As these acquisitions do not, either individually or in the aggregate, meet
the "significant subsidiary test" for purposes of pro forma disclosures,
they are not reflected in the above tables.
(2) The pro forma adjustments reflect Nielsen Media Research assets and
liabilities for the period ended March 31, 1998 as a discontinued operation,
although not yet required to be presented in the historical financial
statements. As such, these amounts do not reflect certain adjustments made
in the preparation of the Nielsen Media Research audited financial
statements included elsewhere in this Information Statement. Such
adjustments include accrued tax and deferred tax accounts for Nielsen Media
Research on a separate company basis.
(3) In connection with the Distribution, adjustments will be made that are not
included in IMS HEALTH's pro forma historical balances for the period ended
March 31, 1998. These pro forma adjustments are reflected in the IMS HEALTH
Capitalization Table on page 31.
40
<PAGE>
IMS HEALTH (ACCOUNTING SUCCESSOR TO COGNIZANT) MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS DESCRIBED UNDER "THE DISTRIBUTION--FORM OF TRANSACTION; BASIS OF
PRESENTATION", FOR FINANCIAL REPORTING PURPOSES, IMS HEALTH WILL BE TREATED AS
THE "ACCOUNTING SUCCESSOR" TO COGNIZANT. THEREFORE, THE HISTORICAL FINANCIAL
INFORMATION FOR IMS HEALTH INCLUDED HEREIN, AND MANAGEMENT'S DISCUSSION AND
ANALYSIS THEREOF SET FORTH BELOW, ARE THOSE OF COGNIZANT. THE FOLLOWING HAS BEEN
TAKEN FROM COGNIZANT'S 1997 ANNUAL REPORT TO SHAREHOLDERS AND THEREFORE INCLUDES
THE NIELSEN MEDIA RESEARCH BUSINESS FROM WHICH THE IMS HEALTH BUSINESS IS BEING
SEPARATED IN THE DISTRIBUTION. FOR A DISCUSSION OF THE HISTORICAL FINANCIAL
RESULTS OF NIELSEN MEDIA RESEARCH AS THOUGH IT WERE A STAND-ALONE ENTITY, SEE
"NIELSEN MEDIA RESEARCH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" INCLUDED ELSEWHERE IN THIS INFORMATION
STATEMENT.
On January 15, 1998, Cognizant announced a plan to separate into two
independent, publicly traded companies--IMS HEALTH and Nielsen Media Research.
The transaction is subject to final approval by Cognizant's Board of Directors.
IMS HEALTH consists of I.M.S. International, Inc. ("IMS"), Erisco, Inc.
("Erisco"), Cognizant Enterprises, Inc. ("Enterprises"), Cognizant Technology
Solutions Corporation ("CTS"), SSJ K.K. ("Super Systems Japan"), and an equity
investment in Gartner Group, Inc. ("Gartner").
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Revenue for the first quarter of 1998 increased by 6.8% to $337,032 from
$315,576 for the first quarter of the prior year. Revenue growth for the quarter
was held down by the absence of Pilot Software, Inc. ("Pilot") revenues since
its divestiture and the impact of a stronger U.S. dollar. Adjusting for these
items, revenue for the first quarter of 1998 increased by 13.7%. This increase
reflected double-digit constant dollar revenue growth at IMS and Nielsen Media
Research. The impact of a stronger U.S. dollar decreased reported revenue by
approximately 4% in the first quarter, including the impact of gains related to
IMS HEALTH's hedging strategy.
Operating income for the first quarter of 1998 decreased by 7.1% to $44,477
from $47,887 for the first quarter of the prior year. Operating income in the
first quarter includes Year 2000 costs of $13,157, and one-time spin-related
charges of $4,900. Adjusting for these items and the impact of a stronger U.S.
dollar, operating income for the first quarter of 1998 increased by 36.5%.
Operating income growth outpaced revenue growth primarily due to the absence of
Pilot operating losses since its divestiture. The impact of a stronger U.S.
dollar decreased reported operating income by approximately 5% in the first
quarter, including the impact of gains related to IMS HEALTH's hedging strategy.
Non-operating income-net for the first quarter of 1998 was $38,287, compared
with $23,373 for the first quarter of the prior year. This increase is primarily
related to realizing higher gains in 1998 related to Enterprises' investments
($13,600) as compared with 1997 ($5,436) and recording a pre-tax unrealized gain
on Gartner stock of $7,987 corresponding to the net increase in the value of the
Company's investment in Gartner ("SAB 51 Gain"), partially offset by recording,
within Gartner equity income, IMS HEALTH's share of an in-process R&D write-off
at Gartner of $2,998.
IMS HEALTH's effective tax rate was 27.4% for the first quarter of 1998,
compared with an effective tax rate of 25.8% in the comparable period of the
prior year.
IMS HEALTH's net income for the first quarter of 1998 increased 13.6% to
$60,087 from $52,905 in the first quarter of the prior year. Excluding the
after-tax impact of Year 2000 costs, the one-time spin-related charges, the SAB
51 Gain, IMS HEALTH's share of the in-process R&D write-off at Gartner, and
gains associated with the sale of Cognizant Enterprises' investments, net income
for the quarter increased 22.2%.
41
<PAGE>
Basic earnings per share for the first quarter of 1998 increased 19.4% to
$.37 from $.31 for the first quarter of the prior year. Excluding the after-tax
impact of the items in the preceding paragraph, basic earnings per share for the
quarter increased 27.6%.
IMS
IMS is the leading global provider of market information and
decision-support services to the pharmaceutical and healthcare industries. IMS
revenue for the first quarter 1998 increased 6.5% to $223,401 from $209,822 in
the first quarter of the prior year. Adjusting for the impact of a stronger U.S.
dollar, revenue for the first quarter 1998 increased by 12.6%. IMS revenue
growth benefited from strong performance of its sales management products,
geographic expansion and excellent growth of its electronic territory management
product. IMS operating income for the first quarter of 1998 decreased 17.1% to
$30,926 from $37,316 in the first quarter of the prior year. Operating income in
the first quarter of 1998 includes $9,972 of costs related to Year 2000.
Excluding these costs and the impact of a stronger U.S. dollar, operating income
for the first quarter of 1998 increased 17.2%.
NIELSEN MEDIA RESEARCH
Nielsen Media Research is the leading provider of television audience
measurement services, both nationally and locally, in the United States and
Canada. Nielsen Media Research revenue for the first quarter 1998 increased
11.4% to $96,064 from $86,271 in the first quarter of the prior year. Nielsen
Media Research achieved continuing growth from new metered markets, additional
cable networks and its local Hispanic and Monitor Plus measurement services.
Nielsen Media Research operating income for the first quarter 1998 decreased
2.0% to $25,749 from $26,279 in the first quarter of the prior year. Operating
income in the first quarter of 1998 includes $3,185 of costs related to Year
2000. Excluding these costs, operating income for the first quarter of 1998
increased 10.1%.
EMERGING MARKETS
Emerging Markets includes Erisco, the premier supplier of software-based
administrative and analytical solutions to the managed care industry; CTS, a
provider of software application development and maintenance services
specializing in Year 2000 and Eurocurrency compliance services; Super Systems
Japan, a marketer of financial application software products to the Japanese
market; Enterprises, IMS HEALTH's venture capital unit, focused on investments
in emerging healthcare businesses; and Pilot, which was sold on July 31, 1997.
Emerging Markets revenue for the first quarter 1998 decreased 9.8% to
$17,567 from $19,483 in the first quarter of the prior year. This decrease was
primarily due to the absence of revenues from Pilot since its divestiture.
Excluding the effect of Pilot and the impact of a stronger U.S. dollar, revenue
for the first quarter 1998 increased 50.9%, primarily due to strong growth at
CTS and Erisco. Emerging Markets operating income for the first quarter 1998
increased to $902 from an operating loss of $8,808 in the first quarter of the
prior year. This increase was primarily due to the absence of losses from Pilot
since its divestiture.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
In September 1997, Cognizant's voting interest in Gartner fell below 50% as
a result of the exercise of Gartner employee stock options and employee stock
purchases. Accordingly, in the third quarter, Cognizant deconsolidated Gartner
(the "Gartner Deconsolidation") as of January 1, 1997 and is accounting for its
ownership interest on the equity basis.
Revenue in 1997 decreased 18.1% to $1,418,153 from $1,730,596 in 1996. This
decrease primarily reflects the impact of the Gartner Deconsolidation. Revenue
in 1997 increased by 10.7%, excluding Gartner revenue from both years and the
impact of a stronger U.S. dollar. The increase reflects double-digit revenue
performance at IMS and Nielsen Media Research, partially offset by Pilot, which
was sold in
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the third quarter of 1997. IMS revenue growth benefited from strong performance
of its core business services, geographic expansion and excellent growth of its
electronic territory management product. The growth at Nielsen Media Research
was driven by the addition of new cable and broadcast customers, new products
and services, and continued service expansion to existing customers. The impact
of a stronger U.S. dollar in 1997 decreased reported revenue by approximately
2.0%.
Operating costs and selling and administrative expenses in 1997 were
$965,497 compared with $1,253,567 in 1996, a decrease of 23.0%. This decrease
primarily reflects the impact of the Gartner Deconsolidation. Excluding Gartner
expenses from both years and discontinued business units in 1996, operating
costs and selling and administrative expenses increased 7.1% to $965,497 in 1997
from $901,454 in 1996. This increase reflects Cognizant's increased spending on
new revenue growth initiatives which contributed to revenue growth of 10.7% in
1997. The impact of a stronger U.S. dollar in 1997 decreased operating costs and
selling and administrative expenses by approximately 2.0%.
Operating income in 1997 decreased 2.3% to $335,342 from $343,168 in 1996.
This decrease primarily reflects the impact of the Gartner Deconsolidation.
Excluding Gartner operating income in both years and discontinued business units
in 1996, operating income increased 17.1% to $335,342 in 1997 from $286,332 in
1996. Operating income growth outpaced revenue growth primarily due to IMS's
ability to leverage its resources. The impact of a stronger U.S. dollar in 1997
decreased reported operating income by less than 1.0%. The sale of Pilot, which
had been generating an operating loss, enabled Cognizant to redeploy resources
to strategic technology investments, including the initiative to accelerate Year
2000 compliance. The impact on operating income of Year 2000 compliance was
$12,500 in 1997.
Operating margin in 1997 was 23.6%, compared with 19.8% in 1996. Excluding
Gartner results from both years, and discontinued business units in 1996,
operating margin was 23.6% in 1997 compared with 21.9% in 1996.
Non-operating income-net in 1997 was $94,893, compared with $5,853 in 1996.
The increase was due principally to recording $65,120 of Gartner equity income
in 1997 as a result of the Gartner Deconsolidation. Cognizant also recognized a
pre-tax unrealized gain on its investment in Gartner ("SAB 51 Gain") of $14,689
(included as a separate line in the income statement) corresponding to the net
increase in the underlying value of its investment in Gartner. In addition,
non-operating income-net for 1997 includes gains of $39,336 related to the
disposition of Enterprises' investment in WEFA Group, Inc. and a portion of its
investment in TSI International, Inc. and Aspect Development, Inc., and a
$29,945 loss on the sale of Pilot (included in gains from dispositions-net).
Cognizant's consolidated 1997 effective tax rate was 27.4%, compared with
44.0% in 1996. Cognizant's lower tax rate in 1997 is due to the benefits of
global tax planning strategies.
Net income in 1997 was $312,350, compared with $195,451 in 1996, an increase
of 59.8%. This increase principally reflects gains from dispositions-net and SAB
51 gains in 1997 and a reduction in the tax rate from 44.0% in 1996 to 27.4% in
1997 due to global tax-planning actions. It also reflects a one-time after-tax
acquisition-related charge of $32,778 for in-process research and development
costs associated with Gartner's acquisition of J3 Learning Corportion (the "J3
charge") in 1996. Excluding these items, net income increased 17.9% to $294,850
in 1997 from $250,079 in 1996.
RESULTS BY BUSINESS SEGMENT
IMS
The IMS segment consists of IMS, the leading global provider of market
information and decision-support services to the pharmaceutical and healthcare
industries, and Sales Technologies, Inc. ("Sales Technologies"), a leading U.S.
provider of automated sales support technologies to the pharmaceutical industry.
IMS revenue increased 8.4% in 1997 to $980,521 from $904,444 in 1996. This
growth reflected strong performance of core business services, new product
introductions, geographic expansion and strong revenue growth at Sales
Technologies. Excluding the impact of a stronger U.S. dollar, revenue growth was
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11.4%. Operating income grew 14.0% to $265,351 in 1997 from $232,827 in 1996 due
to the factors described above. Operating income growth outpaced revenue growth
primarily due to IMS's ability to leverage its resources. Excluding the impact
of Year 2000 compliance and a stronger U.S. dollar in 1997, and discontinued
business units in 1996, operating income grew 18.2%.
NIELSEN MEDIA RESEARCH
Nielsen Media Research is the leading provider of television audience
measurement services, both nationally and locally, in the United States and
Canada. Nielsen Media Research revenue increased 12.3% in 1997 to $358,594 from
$319,404 in 1996. Revenue growth resulted from additional cable customers,
entrance into three new metered markets, an increase in the level of special
analyses and the continued growth of the Hispanic service. 1997 operating income
for the Nielsen Media Research segment was $107,732, compared with $99,461 in
1996, an increase of 8.3%. Excluding the impact of Year 2000 compliance,
operating income increased 11.0% to $110,413 in 1997, from $99,461 in 1996.
GARTNER
Gartner is the world's leading independent provider of research and analysis
on the computer hardware, software, communications and related information
technology industries. As discussed earlier, Cognizant's voting interest in
Gartner fell below 50% in September 1997. Accordingly, Cognizant has
deconsolidated Gartner and is accounting for its ownership interest on the
equity basis as of January 1, 1997. In 1997, the income statement impact of
Cognizant's ownership interest appears in non-operating income-net as Gartner
equity income and as a pre-tax unrealized gain on Gartner stock (included as a
separate line in the income statement). 1996 revenue and operating income for
Gartner were $424,382 and $60,114, respectively. Operating income was adversely
affected by the J3 charge. Excluding this item, operating income was $93,347.
EMERGING MARKETS
The Emerging Markets segment consists of Erisco, CTS, Enterprises, Pilot and
Super Systems Japan. In the third quarter, Cognizant sold Pilot and recorded a
non-cash pre-tax loss of $29,945. The segment had a 4.0% decrease in 1997
revenue to $79,038 from $82,366 in 1996, reflecting the sale of Pilot. Erisco,
CTS and Super Systems Japan posted high revenue growth through the addition of
new customers and new product introductions. The 1997 operating loss for the
segment was $9,752, compared with $12,903 in 1996, reflecting the sale of Pilot.
RESULTS BY GEOGRAPHIC AREA
Revenue in the United States decreased by 20.1% to $759,070 in 1997 from
$950,526 in 1996. This decrease is primarily the result of the Gartner
Deconsolidation. Excluding Gartner revenue in both years, 1997 revenue in the
United States increased by 12.0.%. The increase reflected Nielsen Media
Research's addition of new customers and service expansions; and new product
introductions and a strong performance of core business services by IMS,
partially offset by Pilot. Non-U.S. revenue decreased 15.5% to $659,083 in 1997
from $780,070 in 1996. The decrease is primarily the result of the Gartner
Deconsolidation. Excluding Gartner revenue in both years, 1997 revenue for
non-U.S. increased by 4.9%, and rose 9.4%, excluding the impact of a stronger
U.S. dollar. The non-U.S. revenue growth is due to new product introductions and
geographic expansion by IMS.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue in 1996 increased 12.2% to $1,730,596 from $1,542,340 in 1995.
Revenue growth was held down principally by the one-time impact in 1995 of
conforming fiscal quarters between Cognizant and Gartner ("the Gartner fiscal
quarter change") and by the impact of discontinued business units not in the
portfolio in 1996. Excluding these items, revenue growth was 14.8%. The increase
reflected continued high
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growth at Gartner, principally from the introduction of new products and
delivery options, and double-digit revenue performance at IMS and Nielsen Media
Research, partially offset by declining revenue at Pilot. The growth at Nielsen
Media Research was driven by the addition of new cable and broadcast customers,
new products and services and continued service expansion to existing customers.
The impact of a stronger U.S. dollar in 1996 decreased revenue growth for
Cognizant by approximately 1%.
Operating costs and selling and administrative expenses in 1996 were
$1,253,567, compared with $1,242,331 in 1995, an increase of 0.9%. Operating
costs and selling and administrative expenses in 1995 include a non-recurring
charge of $90,070 ($49,268 after-tax) for costs principally associated with
asset impairments, software write-offs and contractual obligations that have no
future economic benefit; an incremental provision for postemployment benefit
expense of $32,500 ($17,778 after tax); the Gartner fiscal quarter change and
the impact of discontinued business units not in the portfolio in 1996.
Operating costs and selling and administrative expenses in 1996 also include the
J3 charge. Excluding the above-mentioned 1995 and 1996 items, operating costs
and selling and administrative expenses increased 13.4% to $1,217,056 in 1996
from $1,072,980 in 1995, reflecting Cognizant's increased spending in new
revenue growth initiatives which contributed to revenue growth of 14.8% in 1996.
The impact of a stronger U.S. dollar in 1996 decreased operating costs and
selling and administrative expense growth by approximately 1%.
Operating income in 1996 increased 121.9% to $343,168 from $154,677 in 1995.
The increase reflects the impact of the 1995 and 1996 items discussed above, as
well as 1995 restructuring expense of $12,800 ($7,002 after-tax). Excluding
these 1995 and 1996 items, operating income increased 25.5% to $379,679 in 1996
from $302,438 in 1995. Operating income growth outpaced revenue growth,
primarily due to Gartner's ability to take advantage of economies of scale and
IMS's ability to leverage its resources. The impact of a stronger U.S. dollar in
1996 decreased operating income growth by approximately 2%.
Operating margin in 1996 was 19.8%, compared with 10.0% in 1995. The
increase reflects the impact of the 1995 and 1996 items described above.
Excluding these items in both years, operating margin was 21.9% in 1996,
compared with 20.1% in 1995.
Non-operating income-net in 1996 was $5,853, compared with $7,880 in 1995, a
decrease of 25.7%. The decrease was due principally to lower disposition gains
in 1996, partially offset by lower minority interest expense related to Gartner
due to the J3 charge, and the impact in 1996 of a foreign exchange hedge gain.
Cognizant's consolidated 1996 effective tax rate was 44.0%, compared with
45.3% in 1995. The tax rates were computed on a separate-company basis.
Net income in 1996 was $195,451, compared with $88,881 in 1995, an increase
of 119.9%. Excluding the after-tax impact of the items discussed in operating
and non-operating income, net income increased 28.0% to $208,075 in 1996, from
$162,593 in 1995.
RESULTS BY BUSINESS SEGMENT
IMS
IMS revenue increased 8.3% in 1996 to $904,444 from $835,422 in 1995. The
growth reflected strong performance of core business services, new product
introductions and geographic expansion at IMS; and strong revenue growth at
Sales Technologies. Excluding the impact of a stronger U.S. dollar in 1996 and
discontinued business units in both years, revenue growth was 11.2%. Operating
income grew 160.6% to $232,827 in 1996 from $89,335 in 1995. The increase was
primarily due to the absence in 1996 of: $53,630 of the 1995 non-recurring
charge, $24,300 of the 1995 incremental provision for postemployment benefits
expense, and 1995 restructuring expense of $12,800. Excluding these items,
discontinued business units in 1996, and the impact of a stronger U.S. dollar,
operating income growth was 21.3%. Operating income growth outpaced revenue
growth primarily due to IMS's ability to leverage its resources.
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NIELSEN MEDIA RESEARCH
Nielsen Media Research revenue increased 10.7% in 1996 to $319,404 from
$288,652 in 1995. Revenue growth resulted from the expansion of network
schedules, increased demand for special analyses, addition of cable customers
and entrance into two new metered markets. 1996 operating income for the segment
was $99,461, compared with $87,068 in 1995, an increase of 14.2%. The increase
was due, in part, to the absence in 1996 of $2,300 of the 1995 non-recurring
charge. Excluding this item, operating income growth for Nielsen Media Research
was 11.3%, reflecting the revenue factors described above.
GARTNER
Gartner, a majority-owned subsidiary in 1995 and 1996, had 1996 revenue of
$424,382, up 25.7% from $337,639 in 1995. Revenue growth was held down by the
impact of a Gartner fiscal quarter change. Excluding this impact, revenue growth
was 31.9%. This growth principally reflected strong gains from symposium events,
consulting and technology-based training businesses.
Operating income for Gartner increased 17.5% to $60,114 in 1996 from $51,180
in 1995. This growth was held down by the J3 charge. In addition, 1995 results
include $8,200 of the incremental provision for postemployment benefits expense
and the impact of the Gartner fiscal quarter change. Excluding these items,
operating income grew 67.2% to $93,347 in 1996 from $55,818 in 1995. The growth
in operating income was primarily due to revenue growth and Gartner's ability to
take advantage of economies of scale.
EMERGING MARKETS
Emerging Markets had a 2.2% increase in 1996 revenue to $82,366 from $80,607
in 1995. The increase reflected strong growth at CTS and the addition of new
customers at Erisco and Super Systems Japan, partially offset by declining
revenue at Pilot. The 1996 operating loss for the segment was $12,903, compared
with $18,366 in 1995. The 1996 operating loss was due to Pilot. 1995 results
include $16,940 of the 1995 non-recurring charge.
RESULTS BY GEOGRAPHIC AREA
Revenue in the United States increased by 13.9% to $950,526 in 1996 from
$834,786 in 1995. The increase reflected Gartner's introduction of new products
and delivery options, Nielsen Media Research's addition of new customers and
service expansions; and new product introductions by IMS, partially offset by
declining revenue at Pilot, the impact of the Gartner fiscal quarter change and
the absence of revenue from discontinued business units no longer in the
portfolio. Non-U.S. revenue increased 10.3% to $780,070 in 1996 from $707,554 in
1995, principally reflecting expansion into new global markets at IMS and
Gartner's increased subscription services revenue and geographic expansion.
Excluding the 1996 and 1995 items discussed previously and the impact of a
stronger U.S. dollar, non-U.S. revenue growth was 11.8%.
CHANGES IN FINANCIAL POSITION AT MARCH 31, 1998 COMPARED TO DECEMBER 31, 1997
Notes Receivable and Other Investments decreased to $100,707 at March 31,
1998, from $109,712 at December 31, 1997, primarily reflecting the sale of
certain Enterprise investments.
Accrued Income Taxes decreased to $48,335 at March 31, 1998, from $57,549 at
December 31, 1997, primarily reflecting tax payments during 1998, partially
offset by the first quarter 1998 tax provision.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1997 COMPARED WITH DECEMBER 31,
1996
Cash and Cash Equivalents decreased to $318,435 at December 31, 1997 from
$428,520 at December 31, 1996, primarily due to the purchase of 9,074,600 shares
of Cognizant Common Stock and the absence of Gartner's cash balance as a result
of the Gartner Deconsolidation. Offsetting the above were
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strong operating cash flows from IMS and Nielsen Media Research and proceeds
from minority interest financing in 1997.
Accounts Receivable-Net decreased to $303,609 at December 31, 1997 from
$453,791 at December 31, 1996, principally due to the Gartner Deconsolidation.
Investment in Gartner Group of $195,695 at December 31, 1997 represents the
accounting for Gartner on an equity basis, compared with consolidating Gartner
results in 1996.
Goodwill decreased to $87,430 at December 31, 1997 from $251,483 at December
31, 1996, principally due to the Gartner Deconsolidation and the sale of Pilot.
Accrued and Other Current Liabilities decreased to $212,944 at December 31,
1997 from $266,932 at December 31, 1996, principally due to the Gartner
Deconsolidation.
Deferred Revenue decreased to $111,921 at December 31, 1997 from $292,970 at
December 31, 1996, principally due to the Gartner Deconsolidation.
Minority Interests increased to $101,209 at December 31, 1997 from $90,635
at December 31, 1996, principally due to minority interest financing offset by
the Gartner Deconsolidation.
Shareholders' Equity decreased to $801,570 at December 31, 1997 from
$872,613 at December 31, 1996, principally due to the purchase of Cognizant
Common Stock, payment of dividends and the change in cumulative translation
adjustment, partially offset by net income.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In 1995, Cognizant recorded a pre-tax charge of $90,070 that included an
impairment loss of $40,570 related to long-lived assets for which management,
having the authority to approve such business decisions, committed to a plan to
discontinue certain product lines and dispose of certain real property.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" requires that long-lived assets and certain intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In general, this statement
requires recognition of an impairment loss when the sum of undiscounted expected
future cash flows is less than the carrying amount of such assets. The
measurement for such impairment loss is then based on the fair value of the
asset. While SFAS No. 121 affected the measurement of the impairment charge
noted above, it had no effect on the timing of recognition of the impairment.
The 1995 charge principally reflected an impairment loss of $40,570
reflecting the revaluation of certain fixed assets, administrative and
production systems and other intangibles that were replaced or no longer used.
In addition, Cognizant recorded a charge of $20,300, principally related to the
write-off of certain computer software product lines at Pilot. (See Note 3 to
the Cognizant Consolidated Financial Statements.)
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 "Accounting for Stock-Based Compensation", which requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. Cognizant has chosen to
continue applying Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the fixed stock option plans. If compensation cost for
Cognizant's stock-based compensation plans had been determined based on the fair
value at the grant dates for awards under those plans, consistent with the
method of SFAS No. 123, Cognizant's net income and earnings per share
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would have been reduced to the pro forma amounts as disclosed in Note 12 to the
Cognizant Consolidated Financial Statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
simplifies existing computational guidelines, revises disclosure requirements
and increases the comparability of earnings-per-share data on an international
basis. Basic earnings per common share are based on the weighted average number
of common shares outstanding in each year. Diluted earnings per common share
assume that outstanding common shares were increased by shares issuable upon
exercise of those stock options for which market price exceeds exercise price,
less shares which could have been purchased by Cognizant with related proceeds.
This statement, which has been adopted by Cognizant, requires restatement of all
prior period earnings-per-share data presented. (See Note 2 to the Cognizant
Consolidated Financial Statements.)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for periods beginning after
December 15, 1997. Cognizant is in the process of determining its preferred
disclosure format.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
financial statements for periods beginning after December 15, 1997. Management
has decided to early adopt this Statement. (See Note 19 to the Cognizant
Consolidated Financial Statements.)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions And Other Postretirement Benefits", which changes current
financial statement disclosure requirements from those required under SFAS No.
87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The statement does not change the
existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106, and
is effective for the fiscal years beginning after December 15, 1997. Cognizant
is in the process of evaluating the disclosure requirements under this standard.
RESTRUCTURING
In 1995, Cognizant recorded a $12,800 restructuring provision, primarily to
write off software for product lines that were discontinued at Sales
Technologies, a unit of IMS.
NON-U.S. OPERATING AND MONETARY ASSETS
Cognizant operates globally, deriving a significant portion of its operating
income from non-U.S. operations. As a result, fluctuations in the value of
foreign currencies relative to the U.S. dollar may increase the volatility of
U.S. dollar operating results. In 1997, foreign currency translation decreased
U.S. dollar revenue growth and operating income growth by approximately 2% and
1%, respectively. In 1996, foreign currency translation decreased U.S. dollar
revenue growth and operating income growth by approximately 1% and 2%,
respectively.
Non-U.S. monetary assets are maintained in currencies other than the U.S.
dollar, principally in Switzerland, Japan and Spain. Changes in the value of
these currencies relative to the U.S. dollar are charged or credited to
shareholders' equity. The effect of exchange rate changes during 1997 decreased
the U.S. dollar amount of cash and cash equivalents by $11,222.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $35,969 for the three
months ended March 31, 1998 compared with $58,537 for the comparable period in
1997. The decrease of $22,568 principally reflects a lower increase in deferred
revenues ($15,276), and a net increase in Other Working Capital items ($5,432).
Net cash used in investing activities totaled $25,946 for the three months
ended March 31, 1998 compared with $37,383 for the comparable period in 1997.
The decrease in cash usage of $11,437 is principally due to higher proceeds from
the sale of investments in 1998 as compared with 1997 ($16,161), partially
offset by payments for acquisitions for businesses ($2,938).
Net cash provided by / (used in) financing activities totaled $15,663 for
the three months ended March 31, 1998 compared with ($99,311) for the comparable
period in 1997. The increase in cash provided by financing activities of
$114,974 was primarily due to the purchase of treasury shares in 1997 ($95,069)
and higher proceeds from the exercise of stock options in 1998 ($17,833), as
compared with 1997 ($1,151).
At December 31, 1997, cash and cash equivalents totaled $318,435. At
December 31, 1996, cash and cash equivalents totaled $428,520 (including
$123,697 of Gartner cash). The decrease in cash of $110,085 was primarily due to
the Gartner Deconsolidation.
Net cash provided by operating activities was $357,014, $352,023 and
$288,539 in 1997, 1996 and 1995, respectively. The increase of $4,991 in
operating activities in 1997 primarily reflected increased cash from operations,
improved collections of accounts receivable, the absence in 1997 of
restructuring payments, and a lower level of postemployment benefit and
non-recurring charge payments. These increases were partially offset by payment
of income taxes in 1997 of $72,827. The increase of $63,484 in net cash provided
by operating activities in 1996 primarily reflected increased cash from
operations, improved collections of accounts receivable and lower postemployment
benefit payments, partially offset by lower other working capital items
($75,459), lower deferred revenue ($30,512), higher income tax payments
($21,416) and payments related to the 1995 non-recurring charge of ($13,125).
Net cash used in investing activities totaled $240,679 for 1997, compared
with $158,065 and $148,169 in 1996 and 1995, respectively. The increase in cash
usage in 1997 of $82,614 primarily reflected the change in Gartner to an equity
basis ($123,697), the absence of net proceeds from marketable securities
($27,601) offset in part by higher proceeds from the sale of businesses and
investments ($43,336) and the absence of purchases of Gartner common stock
($49,419). The increase in cash usage in 1996 of $9,896 primarily reflected the
purchase of Gartner common stock, higher payments for acquisitions and equity
investments, offset in part by higher net proceeds for marketable securities and
lower additions to computer software.
Net cash (used in)/provided by financing activities totaled ($215,198) for
1997, compared with $80,531 and ($116,095) in 1996 and 1995, respectively. The
increase in 1997 of cash used in financing activities primarily reflected the
purchase of shares of Cognizant Common Stock ($324,767) and dividend payments
($19,883); partially offset by minority interest financing $100,000 and proceeds
from exercise of stock options $26,409.
The increase in 1996 cash provided by financing activities principally
reflected a net amount transferred from D&B as a result of Cognizant's
separation from D&B in the D&B spin-off, compared with net transfers to D&B in
1995 and long-term liabilities assumed with the D&B spin-off related to prior
business transactions, offset in part by the payment of short-term debt assumed
with the D&B spin-off. The increase in cash usage in 1995 of $10,035 primarily
reflected short and long-term debt payments, included in Other financing
activities.
On February 18, 1997, Cognizant announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 8,500,000 shares
of Cognizant's outstanding common stock. The stock repurchases are held in
treasury and reissued upon exercise of employee stock options. This program was
completed on September 5, 1997 at a total cost of $299,737.
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On October 21, 1997, Cognizant announced that its board of directors had
authorized a second systematic stock repurchase program to buy up to 10,000,000
shares of Cognizant's outstanding common stock. A portion of this program is
intended to cover option exercises. Through December 31, 1997, 574,600 shares
have been acquired at a total cost of $22,756.
Cognizant's existing balances of cash, cash equivalents and marketable
securities, and cash generated from operations and debt capacity are expected to
be sufficient to meet Cognizant's long-term and short-term cash requirements
including dividends, acquisitions and the stock repurchase programs.
YEAR 2000
Many existing computer systems and software applications use two digits,
rather than four, to record years, e.g., "98" instead of "1998." Unless
modified, such systems will not properly record or interpret years after 1999,
which could lead to business disruptions. This is known as the Year 2000 issue.
Cognizant depends on systems and software both for its internal operations
as well as for the receipt of data used in its information products and the
transmission of those products to its customers. Cognizant began to address the
Year 2000 issue in 1996. It expects to complete upgrading or replacing affected
programs during 1998, with testing to be done during 1999. The operating income
impact of Year 2000 compliance was $12,500 in 1997. Based on current
information, the operating income impact of Year 2000 compliance in 1998 is
expected to be in the range of $50,000 to $55,000. Year 2000 compliance
expenditures for 1999, the final year of the project, are in the process of
being determined; however, they are expected to be significantly less than in
1998. These costs are being expensed as incurred.
In addition, Cognizant is communicating with its customers and data
suppliers to assess their ability to address the Year 2000 issue. Failures by
customers to be Year 2000 compliant could hinder their ability to make use of
Cognizant's products. Failures by data suppliers could disrupt the flow of data
used in Cognizant's products. While Cognizant believes most companies it deals
with are addressing the issue, it is unable to determine the effect, if any,
such failures might have on Cognizant's business or future results of
operations.
The costs of addressing the Year 2000 issue and the date on which Cognizant
expects to complete Year 2000 compliance are based on the best estimates of
Cognizant management, which were derived utilizing various assumptions regarding
future events. There can be no guarantee that these estimates will be achieved,
and actual results may differ materially. Specific factors that may cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area of expertise, the ability to locate and
correct all relevant computer codes, and the success of customers and suppliers
in addressing the Year 2000 issue.
MARKET RISK
Cognizant's primary market risks are the impact of foreign exchange
fluctuations on non-dollar-denominated revenue and price fluctuations on equity
securities.
In the normal course of business, Cognizant employs established practices
and procedures to manage its exposure to fluctuations in the value of foreign
currencies using a variety of financial instruments.
Cognizant's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business activities. Accordingly, Cognizant enters into various contracts
which change in value as foreign exchange rates change to protect the value of a
portion of committed and anticipated foreign currency revenues and
non-functional currency assets and liabilities. The principal currencies hedged
are the Japanese yen, Swiss franc, German mark and Italian lira. By policy,
Cognizant maintains
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hedge coverage between minimum and maximum percentages of its anticipated
foreign exchange exposures over the next year. The gains and losses on these
hedges offset changes in the value of the related exposures.
It is Cognizant's policy to enter into foreign currency transactions only to
the extent necessary to meet its objectives as stated above. Cognizant does not
enter into foreign currency transactions for speculative purposes.
The fair value of Cognizant's hedging instruments are subject to change as a
result of potential changes in foreign exchange rates. The potential loss in
fair value for foreign exchange rate-sensitive instruments, based on a
hypothetical 10% decrease in the value of U.S. dollar or, in the case of
non-dollar-related instruments, the currency being purchased, was $2,600 at
December 31, 1997. The estimated fair values of the foreign exchange risk
management contracts were determined based on quoted market prices.
Cognizant also invests in marketable securities and is subject to equity
price risk. These investments are classified as available for sale and
consequently, carried at fair value, with unrealized gains and losses, net of
income taxes, reported as a component of shareholders' equity. Cognizant does
not hedge this market risk exposure. A 10% decline in the market price of these
equity securities would cause the fair value of the securities to decrease by
$4,800 at December 31, 1997.
DIVIDENDS
The payment and level of cash dividends by Cognizant are subject to the
discretion of the Board of Directors of Cognizant. Although Cognizant has
declared and anticipates that it will declare quarterly dividends in the range
of 5% to 8% of net earnings, dividend decisions will be based on, and affected
by, a number of factors, including the operating results and financial
requirements of Cognizant.
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IMS HEALTH BUSINESS
AS DESCRIBED UNDER "THE DISTRIBUTION--FORM OF TRANSACTION; BASIS OF
PRESENTATION", FOR FINANCIAL REPORTING PURPOSES, IMS HEALTH WILL BE TREATED AS
THE "ACCOUNTING SUCCESSOR" TO COGNIZANT. THEREFORE, THE HISTORICAL FINANCIAL
INFORMATION INCLUDED HEREIN WITH RESPECT TO IMS HEALTH IS THAT OF COGNIZANT.
HOWEVER, WHILE THE FOLLOWING DESCRIPTION OF THE IMS HEALTH BUSINESS IS DERIVED
FROM THE COGNIZANT FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, IT INCLUDES
ADDITIONAL INFORMATION ON THE IMS HEALTH BUSINESS AND IT DOES NOT INCLUDE A
DESCRIPTION OF THE NIELSEN MEDIA RESEARCH BUSINESS FROM WHICH THE IMS HEALTH
BUSINESS IS BEING SEPARATED IN THE DISTRIBUTION. FOR A DESCRIPTION OF THE
NIELSEN MEDIA RESEARCH BUSINESS, SEE "NIELSEN MEDIA RESEARCH BUSINESS" INCLUDED
ELSEWHERE IN THIS INFORMATION STATEMENT.
I.M.S. INTERNATIONAL
GENERAL
IMS provides information and decision-support services to the pharmaceutical
and healthcare industries worldwide. These services broadly include market
research services, sales management services, and other professional, software,
direct marketing and research and development services. IMS provides information
services covering 94 countries and maintains offices in 74 countries on six
continents, with 64% of total revenue generated outside the United States in
1997. In 1997, IMS continued its expansion in developing markets in Eastern
Europe, Asia and Sub-Saharan Africa. Revenue in 1997 increased by 16% over 1996
in these developing markets.
MARKET RESEARCH SERVICES
Market research services represented approximately 41% of IMS's worldwide
revenue in 1997. The principal market research services are syndicated
pharmaceutical, medical, hospital, promotional, prescription and self-medication
audits. Market research services are utilized by clients for various strategic
and tactical purposes, including analyzing market shares, therapeutic
prescribing trends and price movements at the national and subnational levels.
The information reported in these services is generated or derived from data
collected primarily from pharmaceutical manufacturers, pharmaceutical
wholesalers, pharmacies, hospitals and doctors. Market research services are
delivered to clients via hardcopy reports, CD-ROMs, computer on-line services
and magnetic media for use in client computer systems. IMS's principal market
research services are as follows:
- PHARMACEUTICAL AUDITS. These audits measure the sale of pharmaceutical
products into pharmacies, supplemented in some countries by data collected
from prescribing physicians, retail chains and discount stores. These
audits contain data projected to national estimates, showing product sales
by therapeutic class broken down by package size and dosage form. IMS
publishes pharmaceutical audits in over 84 countries.
- MEDICAL AUDITS. These audits are based on information collected from
panels of practicing physicians and contain projected national estimates
of the number of consultations for each diagnosed disease with details of
the therapy prescribed. These audits also analyze the use physicians make
of individual drugs by listing the diseases for which they are prescribed,
the potential therapeutic action the physician is expecting, other drugs
prescribed at the same time, and estimates of the total number of drugs
used for each disease. IMS publishes medical audits in over 47 countries.
- HOSPITAL AUDITS. These audits contain data projected to national estimates
and show the sale of pharmaceutical products to hospitals by therapeutic
class. Related reports provide audits of laboratory diagnostic supplies,
hospital supplies, and hospital records. IMS publishes hospital audits for
37 countries.
- PROMOTIONAL AUDITS. These audits measure pharmaceutical promotion for a
particular market, including sales-force promotion and journal and mail
advertising, based on information received
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from panels of physicians and from monitoring medical journals and direct
mail. IMS publishes promotional reports for 27 countries.
- PRESCRIPTION AUDITS. These audits analyze the rate at which drugs move out
of the pharmacy and into the hands of the consumer, and measure both what
is prescribed by physicians and what is actually dispensed at the
pharmacy. IMS publishes prescription audits in over 13 countries.
- SELF-MEDICATION REPORTS. These reports provide detailed product movement,
market share and pricing information for over-the-counter, personal care
and patient care products. IMS publishes self-medication reports in 22
countries.
- OTHER MARKET RESEARCH REPORTS. These include managed care reports which
offer an array of information to quantify the effects of managed care on
the pharmaceutical and healthcare industry; personal care reports which
measure the sale of healthcare accessories, wound care and dietetic aids;
and veterinary reports which analyze the animal care pharmaceutical
market. IMS has developed, in certain countries, disease and treatment
information at the patient level (which information is not identifiable to
any individual patient) that gives participants in the healthcare industry
new insights into the treatment of diseases. The availability, scope and
frequency of the foregoing reports vary on a country-by-country basis.
SALES MANAGEMENT SERVICES
Sales management services represented approximately 45% of IMS's worldwide
revenue in 1997. Sales management services include sales territory reports,
prescription tracking reports, call reporting services and doctor profiling
services. These reports are customized for each pharmaceutical client and are
used principally by pharmaceutical manufacturers to measure and forecast the
effectiveness and efficiency of sales representatives and to target the
marketing and sales efforts of a client's salesforce. IMS's principal sales
management services are as follows:
- SALES TERRITORY REPORTING SERVICES. Sales territory reporting is the
principal sales management service offered by IMS to its pharmaceutical
clients. Sales territory reports can be precisely tailored for each
client, and measure the sales of a client's own products and those of
competitors within specified geographical configurations. These reports
are designed to provide marketing and sales managers with a reliable
measurement of each salesperson's activity and effectiveness in his or her
sales territory, and therefore are used by clients, among other things,
for determining sales force compensation. Data reported for multiple
territories are used for applications such as resource allocation,
territory alignment, market analyses and distribution management.
Depending on the particular market, sales territory reports are available
to clients on a weekly, monthly or quarterly basis. In the United States,
sales territory reports from IMS's DDD service allow pharmaceutical
clients to track the flow of their products and those of their competitors
to various levels of geography and channels of distribution. The DDD
database contains a virtual census of sales of pharmaceutical products
through all distribution channels, including direct sales by
pharmaceutical manufacturers and indirect sales through drug wholesalers,
mail order distributors, warehousing chains and other market participants.
IMS provides sales territory reporting services in 34 countries.
- PRESCRIPTION TRACKING REPORTING SERVICES. Prescription tracking reporting
services are designed to monitor prescription activity and to track the
movement of pharmaceutical products out of pharmacies. Prescription
tracking services are used by pharmaceutical companies to facilitate
product marketing at the prescriber level. In the United States, the
Xponent service monitors prescription activity at the retail pharmacy and
mail order outlet level, and uses a patented statistical methodology to
project the prescription activity of over one million individual
prescribers on a monthly basis. In Europe, IMS has begun rolling out
Xtrend, a prescription database service. The Xtrend database is built from
prescription data collected from retail pharmacies and coding centers
which are linked to the geographical area in which the prescription was
written, and where permissible under local data privacy laws, to
individual prescribers. Xtrend is currently available in
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the United Kingdom, Germany, Belgium, and the Netherlands, and is expected
to be launched in Italy, Spain, and France in 1998. In order to protect
patient privacy, IMS does not collect any data with patient-identifiable
information.
- CALL REPORTING SERVICES. Call reporting services further assist
pharmaceutical companies in the management of their sales forces. IMS's
call reporting services aid a pharmaceutical client's sales
representatives and management to record, assess, and organize their call
activity to physicians and other healthcare providers. IMS provides call
reporting services in over 10 countries.
Sales management services are made available to clients and their sales
representatives and management via hardcopy reports, CD-ROMs, computer on-line
services, and magnetic media for use in client computer systems. IMS's data
delivery systems assist clients in maximizing efficiency by aiding in the
setting of sales targets and calculation of sales bonuses; giving fast access to
sales data and permitting more sophisticated analyses; improving call reporting;
and improving communication between sales management and their sales forces. In
the United States, IMS has launched Xplorer, a customized client-server decision
support system that allows a client to store large amounts of data at its own
site and integrate its own internal sales and marketing data with IMS data and
other external data. IMS also provides clients with customized data warehouse
tools. In 1997, IMS released Xplorer.Web, which is a web-type browser front-end
to the Xplorer system.
VALUE-ADDED SERVICES
The remaining 14% of IMS's 1997 revenue was derived primarily through
professional consulting, software, direct marketing, and research and
development services. IMS provides pharmaceutical and other clients with a range
of value-added services that are used (i) to study specific issues and trends in
the pharmaceutical marketplace and the healthcare industry, (ii) to evaluate the
effectiveness of marketing programs, (iii) to analyze components of a product
marketing program at any stage of its implementation, and (iv) for consultancy
in optimizing strategy, marketing programs and product commercialization. These
services are as follows:
- IMS GLOBAL SERVICES. IMS's Global Services unit is based in the United
Kingdom and provides global level information services and strategic
solutions to pharmaceutical clients operating on a multinational level.
Global Services' core service offering, MIDAS, is a multinational
integrated data analysis tool and on-line system which harnesses IMS's
worldwide databases and is used by the pharmaceutical industry to assess
world-wide pharmaceutical information. MIDAS gives clients on-line access
to IMS-compiled pharmaceutical, medical and chemical statistics. Using
MIDAS, clients are able to select information from the national databases
compiled by IMS and produce statistical reports in the format the client
requires. IMS Global Services also publishes various in-depth reviews of
the worldwide pharmaceutical marketplace and provides custom market
research services.
- PROFESSIONAL CONSULTING SERVICES. IMS's professional consulting services
are provided to assist clients in the analysis and evaluation of market
trends, strategies and tactics, and to assist in the development and
implementation of customized software applications and data warehouse
tools. In the United States, IMS provides professional consulting services
through its divisions The Plymouth Group and the Decision Support
Consulting Group. The Plymouth Group provides a range of custom market
research and consulting services on the pharmaceutical and healthcare
marketplace. The Decision Support Consulting Group assists clients in
designing customized decision support systems based on a variety of
cutting-edge technologies which enable clients to optimize IMS data more
rapidly and effectively in their decision-making process. Outside of the
United States, a variety of consulting services is generally offered on a
country-by-country basis.
- SOFTWARE SERVICES. IMS's software services include the development,
licensing and implementation of healthcare information systems, including
electronic sales territory management systems provided by IMS's Sales
Technologies, Inc. ("Sales Technologies") operating unit. Sales
Technologies is
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a leading provider in the United States of automated sales support
technologies to the pharmaceutical industry. Sales Technologies' core
product, Cornerstone, is a software suite which provides pharmaceutical
salespeople with a comprehensive tool that supports key selling
requirements, including profiling, targeting, activity reporting, team
selling and sample management. In October 1997, Sales Technologies entered
into a joint venture agreement with Valuation, Ltd. ("Valuation") whereby
Valuation will be the exclusive value-added reseller of Cornerstone in
Europe. IMS's Amfac/Chemdata business unit is a significant provider of
pharmacy dispensing and point-of-sales software systems to retail
pharmacies in Australia.
- DIRECT MARKETING SERVICES. IMS engages in the direct marketing businesses
in the United States. Clark-O'Neill, Inc. ("Clark-O'Neill"), a
wholly-owned subsidiary, represents the core of IMS's direct marketing
business. Clark-O'Neill's services include sample distribution,
pharmaceutical field force support services, publication circulation
management, direct mail, telemarketing projects utilizing physicians and
other healthcare professionals, and other customized promotion programs.
- RESEARCH AND DEVELOPMENT SERVICES. IMS's research and development services
provide clients with information and workstation tools intended to improve
the effectiveness and speed of clinical research and subsequent regulatory
approvals. IMS's regulatory affairs database, IDRAC, covers the European
Union and the United States and guides users through the drug development
and registration process. IMS also owns a 40% equity interest in DataEdge,
an information provider to the pharmaceutical industry on clinical trial
design and implementation.
DATA SUPPLIERS
Over the past four decades, IMS has developed strong relationships with its
data suppliers in each market in which it operates. As the supply of
pharmaceutical data is critical to IMS's business, IMS devotes significant human
and financial resources to its data collection efforts and in many cases has
historical connections with the trade associations and professional associations
involved. In the United States, IMS America and Clark-O'Neill each have been
designated as database licensees by the American Medical Association ("AMA") for
use and sublicensing of the AMA's physician database.
CUSTOMERS
Sales to the healthcare industry accounted for substantially all of IMS's
revenue in 1997. All major pharmaceutical companies are customers of IMS, and
many of the companies subscribe to reports and services in several countries.
IMS's customer base is broad in scope and enables it to avoid dependence on any
single customer. None of IMS's customers accounted for more than 10% of its
gross revenues in 1997.
COMPETITION
While no competitor provides the geographical reach or breadth of IMS's
services, IMS does have competition in each of the countries in which it
operates from other information services companies, as well as the in-house
capabilities of its customers. Generally, competition has arisen on a
country-by-country basis. In the United States, certain of IMS's sales
management services, including its sales territory reports, representing
approximately 60% of the annual revenue of the IMS America unit, compete with
the services of National Data Corp. Quality, completeness and speed of delivery
of information services and products are the principal methods of competition in
IMS's market.
ERISCO, INC.
Erisco has been a leading provider of application software and services
serving the healthcare industry for over two decades. Erisco's legacy system
solutions, ClaimFacts and GroupFacts, were designed to help indemnity insurance
carriers, third party administrators and self-administered corporations manage
the administration of group health and life insurance products.
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Erisco's primary offering, Facets, is a client/server system which
integrates advanced technology with clinical information to help managed care
organizations ("MCOs") provide high-quality, cost-effective solutions in their
marketplace. Primary markets include health maintenance organizations, preferred
provider organizations, Blue Cross/Blue Shield organizations, managed-indemnity
carriers and specialized MCOs.
Erisco's strategic growth will come from Facets sales to the MCO market.
Ongoing change in healthcare has had a significant impact on this market
segment, resulting in the migration of plan members from indemnity-oriented
plans to managed care. By the year 2000, managed health plan membership in the
U.S. is estimated to surpass the 100,000,000 mark. Erisco believes that market
growth and the limitations of aging information systems will increase the demand
for sophisticated managed care applications.
Within the high-growth managed care market segment, Erisco competes with
three other information systems vendors -- HBOC/Amisys, Computer Sciences
Corporation and Health Systems Design. Competition is principally based on
reputation, functionality, ease of use and service.
Erisco also extends its Facets business solution through a service bureau
offering for low-volume customers, and through alliances with strategic,
complementary systems partners, and systems integration and implementation
consultants.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
SERVICES
CTS delivers high-quality, cost-effective, full life cycle solutions to
complex software development and maintenance problems. Its services include the
following:
- APPLICATION DEVELOPMENT SERVICES. CTS develops new applications for IBM
mainframe, client/server architectures and other emerging technology
environments. CTS follows either of two approaches including (i) full life
cycle application development in which CTS assumes total start-to-finish
responsibility and accountability for analysis, design, implementation and
testing of systems, and (ii) cooperative development in which CTS's
employees work with a customer's in-house information technology ("IT")
personnel to analyze, design, implement and test new systems.
- APPLICATION MAINTENANCE SUPPORT SERVICES. CTS provides services to ensure
that a customer's legacy software systems are operational and responsive
to end-users' changing needs. In doing so, CTS is often able to introduce
process enhancements and improve service levels to customers requesting
modifications and on-going support.
- YEAR 2000 COMPLIANCE SERVICES. With the year 2000 approaching, computer
software systems that were not designed to process dates correctly in the
next century are expected to fail. Organizations rely on mission-critical
software systems and must either repair the problem presented by the Year
2000 issue or replace legacy systems. CTS uses its proprietary Year 2000
toolset and methodology, Century Transition Services 2000, to provide a
cost-effective total solution for all phases of a Year 2000 compliance
project. The Century Transition Services 2000 methodology covers the
entire life cycle of a Year 2000 compliance project and comprises a seven
step process: (i) inventory preparation, (ii) impact analysis, (iii)
strategy and design, (iv) code change and data migration, (v) unit, system
and acceptance testing, (vi) implementation and (vii) post-implementation
support. The Century Transition Services 2000 toolset covers a wide array
of common programming languages and environments including many
client/server environments. CTS is thus able to provide complete solutions
across a larger portion of customers' systems.
- EUROCURRENCY COMPLIANCE SERVICES. The upcoming monetary union of the
European Community presents a significant opportunity for CTS as computer
systems which deal with any European denominated currency will need to be
modified to handle local currency and Eurocurrency transactions. CTS has
begun to address the Eurocurrency compliance problem and has established
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a dedicated practice to focus on this problem. CTS believes that portions
of its Year 2000 toolset and methodology can be extended to efficiently
address the European currency compliance needs of customers.
- TESTING AND QUALITY ASSURANCE SERVICES. Testing and quality assurance is a
critical aspect of any software development activity. CTS works with
customers to better define the quality assurance processes which are in
use by the customers' in-house IT departments. CTS utilizes its quality
assurance expertise to ensure better quality software through fundamental
process improvements.
- RE-HOSTING AND RE-ENGINEERING SERVICES. Through CTS's re-hosting and
re-engineering service offerings, CTS works with customers to migrate
systems based on legacy computing environments to newer,
open-systems-based platforms and client/server architectures.
CUSTOMERS
CTS began operations in 1994 as an in-house technology development center
for D&B, the former parent of Cognizant, and has only served third-party
customers for a limited time. While CTS has increased the percentage of revenues
generated from third parties, 41.8% of CTS's 1997 revenue was generated from
Cognizant and its current affiliates and an additional 31.9% of CTS's 1997
revenue was generated from companies previously affiliated with D&B. During
1997, CTS's five largest third-party customers (which include certain former
affiliates) accounted for 36.6% of revenues. CTS believes that demand for Year
2000 compliance services will diminish after the Year 2000, as many solutions
are implemented and tested. A core element of CTS's growth strategy is to use
the business relationships it has developed and the knowledge of its customers'
computer systems obtained in providing Year 2000 services to generate additional
projects for these customers. There can be no assurance, however, that CTS will
be successful in generating demand for other services from its Year 2000
customers.
COMPETITION
The IT services market includes a large number of participants, is subject
to rapid changes and is highly competitive. In certain markets in which CTS
competes, such as the Year 2000 compliance market, there are no significant
barriers to entry. Many of CTS's competitors have significantly greater
financial, technical and marketing resources and greater name recognition than
CTS. The principal competitive factors affecting the markets for CTS's services
include (i) performance and reliability, (ii) quality of technical support,
training and services, (iii) responsiveness to customer needs, (iv) reputation,
experience and financial stability and (v) competitive pricing of services.
COGNIZANT ENTERPRISES, INC.
Enterprises invests in emerging and established businesses, primarily in the
health care information industry. It invests as a limited partner in Information
Partners Capital Fund, Information Associates, L.P. and Information Associates
II, L.P., venture capital limited partnerships, as well as through direct
investments.
SSJ K.K.
Super Systems Japan, an entity based in Japan, markets financial application
software products and services tailored for the Japanese market.
FOREIGN OPERATIONS
As indicated above, IMS HEALTH and its subsidiaries engage in a significant
portion of their business outside of the United States. IMS HEALTH's foreign
operations are subject to the usual risks inherent in carrying on business
outside of the United States, including fluctuation in relative currency values,
possible nationalization, expropriation, price controls and other restrictive
government actions.
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IMS HEALTH believes that the risk of nationalization or expropriation is reduced
because its products are software, services and information, rather than the
production of products which require manufacturing facilities or the use of
natural resources.
INTELLECTUAL PROPERTY
IMS HEALTH owns and controls a number of patents, trade secrets,
confidential information, trademarks, trade names, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to its business. Management believes that the "IMS" name and related names,
marks and logos are of material importance to IMS HEALTH. IMS HEALTH is licensed
to use certain technology and other intellectual property rights owned and
controlled by others, and similarly, other companies are licensed to use certain
technology and other intellectual property rights owned and controlled by IMS
HEALTH. The technology and other intellectual property rights licensed by IMS
HEALTH are of importance to its business, although management of IMS HEALTH
believes that IMS HEALTH's business, as a whole, is not dependent upon any one
intellectual property or group of such properties.
The names of IMS HEALTH's and its subsidiaries' products and services
referred to herein are trademarks, service marks, registered trademarks or
registered service marks owned by or licensed to IMS HEALTH or one of its
subsidiaries.
EMPLOYEES
As of December 31, 1997, IMS HEALTH had approximately 7,200 employees in
approximately 70 countries. Of these, approximately 2,500 are located in the
United States, and none of these is represented by labor unions. In the
Netherlands, Italy, Spain, France and Germany, IMS has Workers' Councils, which
are a legal requirement in those countries. IMS has also established a European
Workers' Council as required under European Union regulations. IMS HEALTH
believes that, generally, relations with its employees are good and have been
maintained in a normal and customary manner.
PROPERTIES
IMS HEALTH's real property is geographically distributed to meet sales and
operating requirements worldwide. Most of IMS HEALTH's properties are leased
from third parties. IMS HEALTH's properties are generally considered to be both
suitable and adequate to meet current operating requirements and virtually all
space is being utilized.
STRATEGY
IMS HEALTH believes that the expanding need for efficient quality healthcare
will generate increasing demand for healthcare information services. IMS
HEALTH's strategy is to capitalize on the significant new growth opportunities
in the industry by expansion of its core business through internal investment
and carefully targeted acquisitions in its areas of strength.
Key areas for internal investment and development include:
- New product and service innovations, such as the launch of the Xtrend
prescription tracking service in Europe;
- Market extension, by introducing existing products to new markets through
IMS HEALTH's global distribution channels;
- Geographic expansion, including building upon IMS HEALTH's initial
presence in China, India and Poland and planned expansion in Sri Lanka,
Nepal, Zimbabwe and Kenya; and
- Expansion beyond the traditional customer base to provide new products and
services within the healthcare industry.
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Acquisitions are expected to help drive future growth. However, acquisitions
will be measured against clearly defined criteria:
- Target companies should be within the healthcare information services
market; and
- Target companies should be logical extensions of IMS HEALTH's businesses
into related areas.
RECENT DEVELOPMENTS
On March 23, 1998, Cognizant announced the signing of definitive agreements
to acquire Walsh, which develops and markets leading-edge sales force automation
systems for pharmaceutical companies, and PMSI, which provides information
services to pharmaceutical and healthcare companies in the U.S., Europe and
Japan. Under terms of the agreements, Walsh shareholders will receive .3041
shares of Cognizant Common Stock per Walsh share (or, based on a Cognizant share
price of $51.792, consideration of approximately $167 million), and PMSI
shareholders will receive .2800 shares of Cognizant Common Stock per PMSI share
(or, based on a Cognizant share price of $51.792, consideration of approximately
$180 million). The number of shares of Cognizant Common Stock to be issued in
connection with each of the Acquisitions is subject to a collar adjustment based
on the price of Cognizant Common Stock during a period prior to the closing of
the Acquisitions. Currently Walsh and PMSI have approximately 10.6 million and
approximately 12.4 million shares outstanding, respectively. Cognizant expects
to issue approximately 6.7 million shares from treasury stock to consummate the
Acquisitions. In the event the Acquisitions are not completed prior to the
Record Date, Walsh and PMSI stockholders will receive, in lieu of Cognizant
Common Stock, IMS HEALTH Common Stock pursuant to a formula designed to
recalibrate the collar computations based on the relative value of IMS HEALTH to
the total value of IMS HEALTH and Nielsen Media Research following the
Distribution. The Acquisitions, which have been independently authorized by the
Cognizant, Walsh and PMSI Boards of Directors, are subject to approval by Walsh
and PMSI shareholders, the receipt of regulatory and other required approvals
and consents and customary closing conditions. Each of the Acquisitions is an
independent transaction and neither is conditioned upon the consummation of the
other or upon the consummation of the Distribution. Following the Distribution,
Walsh and PMSI will be part of IMS HEALTH.
On April 9, 1998, CTS filed a registration statement with the SEC with
respect to an underwritten offering of 2,917,000 shares of Class A Common Stock,
par value $0.01 per share, of CTS (3,354,550 if the underwriters' over-allotment
option granted by Cognizant is exercised in full). Of such shares, 2,500,000 are
to be offered by CTS and 417,000 shares are to be offered by Cognizant.
Following the offering, Cognizant will own 66.7% of the outstanding common stock
of CTS and approximately 95.3% of the combined voting power of CTS's outstanding
common stock and, accordingly, will continue to consolidate CTS results within
its financial statements. The initial offering price is estimated to be between
$11.00 and $13.00 per share. The transaction is expected to result in a
significant one-time gain to Cognizant. A portion of the proceeds to be received
by CTS in the offering will be used to repay an intercompany balance. The
registration statement has not become effective under the Securities Act. If the
offering is not completed prior to the Distribution Date, IMS HEALTH will be the
selling stockholder in the offering.
LEGAL PROCEEDINGS
IMS HEALTH and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of all current proceedings, claims and litigation, if
decided adversely, could have a material effect on quarterly or annual operating
results or cash flows when resolved in a future period. However, in the opinion
of management, these matters will not materially affect IMS HEALTH's
consolidated financial position.
In addition, on July 29, 1996, IRI filed a complaint in the United States
District Court for the Southern District of New York, naming as defendants D&B,
A.C. Nielsen Company and IMS.
59
<PAGE>
The complaint, as subsequently amended, alleges various violations of the
United States antitrust laws, including alleged violations of Sections 1 and 2
of the Sherman Act. The complaint also alleges a claim of tortious interference
with a contract and a claim of tortious interference with a prospective business
relationship. These latter claims relate to the acquisition by defendants of
SRG. IRI alleges that SRG violated an alleged agreement with IRI when it agreed
to be acquired by defendants and that the defendants induced SRG to breach that
agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
has asked to be trebled under the antitrust laws. IRI also seeks punitive
damages in an unspecified amount. Defendants have filed answers denying the
material allegations in IRI's complaint and amended complaint, and A.C. Nielsen
Company has filed a counterclaim alleging that IRI has made false and misleading
statements about its services and commercial activities.
In connection with the 1996 Distribution, with respect to the IRI Action,
D&B, ACNielsen (the parent company of A.C. Nielsen Company) and Cognizant
entered into the Indemnity and Joint Defense Agreement pursuant to which they
agreed (i) to certain arrangements allocating IRI Liabilities that may arise out
of or in connection with the IRI Action, and (ii) to conduct a joint defense of
such action. In particular, the Indemnity and Joint Defense Agreement provides
that ACNielsen will assume exclusive liability for IRI Liabilities up to the ACN
Maximum Amount, and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
is able to pay after giving effect to (i) any plan submitted by such investment
bank which is designed to maximize the claims paying ability of ACNielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring shareholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of ACNielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due and to finance the current and anticipated
operating and capital requirements of its business, as reconstituted by such
plan, for two years from the date any such plan is expected to be implemented.
Under the terms of the 1996 Distribution Agreement, as a condition to the
Distribution, IMS HEALTH and Nielsen Media Research are required to undertake to
be jointly and severally liable to D&B and ACNielsen for Cognizant's obligations
under the 1996 Distribution Agreement. However, pursuant to the Distribution
Agreement, IMS HEALTH and Nielsen Media Research have agreed that, as between
themselves, IMS HEALTH will assume 75%, and Nielsen Media Research will assume
25%, of any payments to be made in respect of the IRI Action under the Indemnity
and Joint Defense Agreement or otherwise, including any legal fees and expenses
related thereto incurred in 1999 or thereafter. IMS HEALTH has agreed to be
fully responsible for any legal fees and expenses incurred during 1998. Nielsen
Media Research's aggregate liability to IMS HEALTH for payments in respect of
the IRI Action and certain other contingent liabilities shall not exceed $125
million.
Management of IMS HEALTH is unable to predict at this time the final outcome
of this matter or whether the resolution of this matter could materially affect
IMS HEALTH's results of operations, cash flows or financial position.
60
<PAGE>
COGNIZANT/IMS HEALTH MANAGEMENT AND EXECUTIVE COMPENSATION
Robert E. Weissman is currently Chairman and Chief Executive Officer of
Cognizant and Chairman and Chief Executive Officer of IMS HEALTH. Mr. Weissman
will resign from such positions at Cognizant effective upon the Distribution
Date, but will remain a director of Cognizant after the Distribution. The Board
of Directors of IMS HEALTH will be composed of certain persons who are currently
directors of Cognizant. See "--Cognizant/IMS HEALTH Board of Directors". In
addition to Mr. Weissman, the other executive officers of IMS HEALTH will be
drawn from the current management of Cognizant or its subsidiaries, and they
will resign from their positions at Cognizant effective upon the Distribution.
See "--Cognizant/IMS HEALTH Executive Officers".
COGNIZANT/IMS HEALTH BOARD OF DIRECTORS
Immediately after the Distribution, IMS HEALTH expects to have a Board of
Directors composed of nine directors (including all eight members of the Board
of Directors of Cognizant).
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of IMS
HEALTH following the Distribution, including information as to service with
Cognizant, if applicable.
<TABLE>
<CAPTION>
POSITIONS DIRECTOR
WITH OF COGNIZANT PRINCIPAL OCCUPATION OTHER
NAME COGNIZANT SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
- ------------------------ ------------- --------------- ------------------------ ----- ------------------------
<S> <C> <C> <C> <C> <C>
Clifford L. Alexander, Director 1996 President, Alexander & 64 The Dun & Bradstreet
Jr. Associates, Inc., Corporation; MCI
Washington, DC Communications
(consulting firm Corporation; Dreyfus
specializing in Third Century Fund;
workforce Dreyfus General Family
inclusiveness), 1/81 to of Funds; Dreyfus
present. Premier Family of Funds;
Mutual of America Life
Insurance Company;
American Home Products
Corp.; TLC Beatrice
International Holdings,
Inc.
Victoria R. Fash Executive -- Executive Vice President 46 Orion Capital
Vice and Chief Financial Corporation; Ligand
President Officer of Cognizant Pharmaceuticals
and 9/96 to present; Incorporated
Chief Chairman and Chief
Financial Executive Officer of
Officer IMS, 12/97 to present;
Senior Vice President--
Business Strategy, The
Dun & Bradstreet
Corporation, Wilton, CT
(information services),
4/95 to 10/96; Vice
President-- Business
Operations Planning,
5/94 to 4/95; Assistant
to the President, 9/91
to 5/94.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
POSITIONS DIRECTOR
WITH OF COGNIZANT PRINCIPAL OCCUPATION OTHER
NAME COGNIZANT SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
- ------------------------ ------------- --------------- ------------------------ ----- ------------------------
<S> <C> <C> <C> <C> <C>
John P. Imlay, Jr. Director 1996 Chairman, Imlay 61 Gartner Group, Inc.;
Investments, Inc., Metromedia International
Atlanta, GA (private Group
venture capital
investments), 1990 to
present; Chairman, Dun &
Bradstreet Software
Services, Inc., Atlanta,
GA (software company),
3/90 to 11/96; Principal
Executive Officer, 3/90
to 1/93; President, 3/90
to 3/92.
Robert Kamerschen Director 1996 Chairman and Chief 62 ADVO, Inc.; Micrografx,
Executive Officer, ADVO, Inc.
Inc., Windsor, CT
(direct mail marketing
services), 11/88 to
present.
Robert J. Lanigan Director 1996 Limited Partner, 69 The Dun & Bradstreet
Palladium Equity Corporation; Owens-
Partners, New York, NY Illinois, Inc.;
(private investment Transocean Offshore,
firm), 6/97 to present, Inc.; Sonat Inc.;
Chairman Emeritus, Chrysler Corporation
Owens-Illinois, Inc.,
Toledo, OH (glass,
plastics and other
packaging products),
1/92 to present;
Chairman of the Board
4/84 to 10/91; Chief
Executive Officer, 1/84
to 9/90.
H. Eugene Lockhart Director 1996 President, Retail 48 Niagara Mohawk Power
Banking Division, Corp.; RJR Nabisco
BankAmerica Corporation, Holdings Corp.
San Francisco, CA
(financial services),
5/97 to present;
President and Chief
Executive Officer,
MasterCard International
Inc., Purchase, NY
(credit card company),
3/94 to 4/97; Executive
Vice President, First
Manhattan Consulting
Group, New York, NY
(banking consulting
firm), 9/92 to 2/94;
Chief Executive Officer,
UK Banking and Group
Operations, Midland Bank
plc, London, England,
1986 to 1993.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
POSITIONS DIRECTOR
WITH OF COGNIZANT PRINCIPAL OCCUPATION OTHER
NAME COGNIZANT SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
- ------------------------ ------------- --------------- ------------------------ ----- ------------------------
<S> <C> <C> <C> <C> <C>
M. Bernard Puckett Director 1996 Private Investor, 1/96 53 P-Com, Inc.; R.R.
to present; President Donnelley & Sons
and Chief Executive Company; Oacis
Officer, Mobile Healthcare Holdings
Telecommunication Corp.
Technologies Corp.;
Jackson, MS
(telecommunications),
5/95 to 1/96; President,
Chief Operating Officer,
1/94 to 5/95; Senior
Vice President-Corporate
Strategy and
Development,
International Business
Machines Corporation,
Armonk, NY (computers),
7/93 to 12/93; General
Manager of Applications
Solutions, 1/91 to 7/93.
William C. Van Faasen Director 1998 President and Chief 49 BankBoston Corporation
Executive Officer, Blue
Cross and Blue Shield of
Massachusetts, Boston,
MA (health insurance),
9/92 to present.
Robert E. Weissman Chairman and 1996 Chairman and Chief 57 State Street Boston
Chief Executive Officer, Corporation; Gartner
Executive Cognizant, 9/96 to Group, Inc.; Nielsen
Officer, present; Chairman and Media Research
Director Chief Executive Officer,
The Dun & Bradstreet
Corporation, Wilton, CT
(information services)
4/95 to 10/96; President
and Chief Executive
Officer 1/94 to 3/95;
President and Chief
Operating Officer 1/85
to 12/93.
</TABLE>
- ------------------------
* As of March 13, 1998
DIRECTORS' COMPENSATION--IMS HEALTH
The Board of Directors of Cognizant has approved a director compensation
program for IMS HEALTH. It is anticipated that the Board of Directors of IMS
HEALTH will adopt and implement such program as described below prior to, on or
shortly after the Distribution Date.
If such program is adopted and implemented, each non-employee director will
receive a 1998 retainer of $12,500; thereafter, the retainer will be paid at an
annual rate of $25,000. Each non-employee director who is the Chairman of a
Committee of the Board of Directors will be paid an additional retainer of
$1,500 for 1998 and $3,000 annually thereafter. A fee of $1,000 will be paid to
each non-employee director for every Board or Committee meeting attended.
Directors who are employed by IMS HEALTH shall receive no retainers or meeting
fees.
Unexercised options to acquire Cognizant Common Stock held by non-employee
directors of IMS HEALTH as of the Distribution Date will be cancelled and
replaced with options that are exercisable into
63
<PAGE>
shares of IMS HEALTH Common Stock (except in the case of unexercised options
held by M. Bernard Puckett, which will be cancelled and replaced with options
exercisable for IMS HEALTH Common Stock and options excercisable for NMR Common
Stock, in proportion to the relative value of shares of IMS HEALTH Common Stock
and NMR Common Stock immediately after the Distribution). On the second
anniversary of the date a non-employee director commences service on the Board
of Directors, and on each anniversary thereafter, a non-employee director will
receive option grants for shares of IMS HEALTH Common Stock. Such options will
vest in accordance with a schedule set by the Compensation and Benefits
Committee of the IMS HEALTH Board of Directors at the time of grant. The
exercise price per share of all options granted will be not less than 100% of
the Fair Market Value (as hereinafter defined) of a share on the date of grant.
For purposes of these and the following provisions, Fair Market Value of a share
on a given date means the average of the high and low trading prices of such
share on such date.
Each non-employee director may elect to have all or a specified part of the
retainer and fees deferred until he or she ceases to be a director. Deferred
amounts may be credited to the account of the directors as deferred cash, which
bears interest at prescribed rates, or as deferred share units in an amount
equal to the amount of deferred compensation divided by the Fair Market Value of
a share of IMS HEALTH Common Stock on the date the compensation would otherwise
have been paid. Deferred share units are credited with dividend equivalents.
Deferred amounts and accrued interest and dividend equivalents are paid in the
form of cash or stock, as appropriate, on the first business day of the calendar
year following the date of the director's termination of service on the IMS
HEALTH Board of Directors.
DIRECTORS' COMPENSATION--COGNIZANT
During 1997, each director not employed by Cognizant was paid a retainer at
an annual rate of $25,000 in quarterly installments and each non-employee
director who was chairman of a committee of the Cognizant Board of Directors was
paid an additional retainer at an annual rate of $3,000 in quarterly
installments. In addition, each non-employee director of Cognizant was paid a
fee of $1,000 for each Board or Committee meeting attended in 1997. Directors
who were employed by Cognizant received no retainers or fees.
Each non-employee director of Cognizant may elect to have all or a specified
part of the retainer and fees deferred until he or she ceases to be a director.
Deferred amounts may be credited to the account of directors as deferred cash,
which bears interest at prescribed rates, or as deferred share units in an
amount equal to the amount of deferred compensation divided by the fair market
value of a share of Cognizant Common Stock on the date the compensation would
otherwise have been paid. Deferred share units are credited with dividend
equivalents. Fair market value is the average of the high and low trading prices
of the Cognizant Common Stock on the date of determination. Deferred amounts and
accrued interest and dividend equivalents are paid in the form of cash or stock,
as appropriate, on the first business day of the calendar year following the
date of the director's termination of service on Cognizant's Board of Directors.
Upon the occurrence of a Change in Control (as defined below under
"--Change-in-Control Agreements") of Cognizant, the Compensation and Benefits
Committee may take such action as it deems necessary or desirable with respect
to deferred amounts.
The Non-Employee Directors' Stock Incentive Plan provides for the granting
of stock options and restricted stock to non-employee directors of Cognizant on
such terms as are determined by the Compensation and Benefits Committee of the
Cognizant Board of Directors. No grants under this plan were made in 1997.
Upon the occurrence of a Change in Control (as defined below under
"--Change-in-Control Agreements") of Cognizant, the Compensation and Benefits
Committee may take such action as it deems necessary or desirable with respect
to awards, including acceleration of an award, payment of cash in
64
<PAGE>
exchange for cancellation of an award, and/or issuing substitute awards that
substantially preserve the value, rights and benefits of previously granted
awards.
COMMITTEES OF THE IMS HEALTH BOARD OF DIRECTORS
Prior to the Distribution, the IMS HEALTH Board of Directors will establish
Audit, Executive, Compensation and Benefits, and Nominating Committees and
designate specific functions and areas of oversight as to such committees. No
final determination has yet been made as to the memberships of such standing
committees.
COMMITTEES OF THE COGNIZANT BOARD OF DIRECTORS
The Audit Committee of the Cognizant Board of Directors reviews the scope of
the audits of Cognizant's internal audit staff and the auditors' evaluation of
internal controls, receives an annual summary of the results of such audits and
reviews the scope of the audit of Cognizant's consolidated financial statements
by independent public accountants and their report on the audit. The committee
also recommends the appointment of Cognizant's independent public accountants to
the full Board. The Audit Committee consists of Messrs. Alexander (Chairman),
Lanigan and Lockhart. The Audit Committee held three meetings during 1997.
The Compensation and Benefits Committee of the Cognizant Board of Directors
establishes and revises all compensation arrangements for certain executives of
Cognizant consistent with a statement of executive compensation philosophy
adopted by the Cognizant Board of Directors. The committee also has authority to
administer Cognizant's executive benefit plans and to establish and review the
policies regarding executive and all other benefit programs. The committee
consists of Messrs. Puckett (Chairman), Imlay, Kamerschen and Van Faasen. The
Compensation and Benefits Committee held four meetings during 1997.
The Nominating Committee of the Cognizant Board of Directors screens
candidates for membership on the Cognizant Board of Directors and makes
recommendations to the full Board. Shareholders' recommendations of nominees for
membership on the Cognizant Board of Directors will be considered by the
Nominating Committee; the Nominating Committee has not adopted formal procedures
for the submission of such recommendations. However, shareholders may recommend
nominees for membership on the Cognizant Board of Directors to the Nominating
Committee by submitting the names in writing to: Kenneth S. Siegel, Senior Vice
President, General Counsel and Secretary, Cognizant Corporation, 200 Nyala
Farms, Westport, Connecticut 06880. The Nominating Committee consists of Messrs.
Alexander, Imlay, Kamerschen, Lanigan, Lockhart, Peterson and Puckett.
Cognizant's By-Laws specify certain time limitations, notice requirements and
other procedures applicable to the submission of nominations before an Annual or
Special Meeting. The Nominating Committee was recently established and held no
meetings during 1997.
Six meetings of the Cognizant Board of Directors were held during 1997. No
Director attended fewer than 75% of the total number of meetings of the
Cognizant Board of Directors and of the Committees of the Board on which the
Director serves.
65
<PAGE>
COGNIZANT/IMS HEALTH EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution. Except as otherwise noted, the
position listed below for each of the IMS HEALTH executives officers is
identical to the position held by such executive officer with Cognizant.
<TABLE>
<CAPTION>
NAME, POSITION WITH IMS HEALTH AND AGE* BIOGRAPHICAL DATA
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Robert E. Weissman, 57.................................. See information under "Cognizant/IMS HEALTH Board of
Chairman and Chief Executive Officer Directors".
Victoria R. Fash, 46.................................... See information under "Cognizant/IMS HEALTH Board of
President and Chief Operating Officer(1) Directors".
Alan J. Klutch, 53...................................... Senior Vice President--Finance of Cognizant 9/96 to
Senior Vice President--Finance present; Vice President--Financial Planning, D&B, 10/84
to 10/96.
Kenneth S. Siegel, 42................................... Senior Vice President and General Counsel of Cognizant
Senior Vice President, General Counsel and Secretary 1/97 to present; Secretary of Cognizant 7/97 to present;
Partner, Baker & Botts, L.L.P., 9/94 to 1/97; Partner,
O'Sullivan Graev & Karabell, 7/87 to 9/94.
James C. Malone, 49..................................... Senior Vice President--Finance and Controller of
Senior Vice President--Finance and Controller Cognizant, 12/96 to present; Vice President-- Finance of
Cognizant, 9/96 to 12/96; Assistant Vice President, D&B,
2/95 to 10/96; Vice President and Controller, The Reuben
H. Donnelley Corporation (a subsidiary of D&B), 1990 to
2/95.
Leslye G. Katz, 43...................................... Vice President and Treasurer of Cognizant, 9/96 to
Vice President and Treasurer present; Senior Vice President and Chief Financial
Officer, The Reuben H. Donnelley Corporation, 9/92 to
9/96.
Craig S. Kussman, 39.................................... Vice President--Corporate Development of Cognizant,
Vice President--Corporate Development 10/97 to present; Vice President-- Mergers and
Acquisitions of Cognizant, 9/96 to 10/97; Assistant Vice
President, D&B, 5/91 to 9/96.
</TABLE>
- ------------------------
* As of March 13, 1998
(1) Ms. Fash's position with Cognizant is Executive Vice President and Chief
Financial Officer.
66
<PAGE>
COMPENSATION OF COGNIZANT/IMS HEALTH EXECUTIVE OFFICERS
The following table discloses the compensation paid by Cognizant for
services rendered to Cognizant in 1997 to the Chief Executive Officer of
Cognizant and IMS HEALTH and to each of the persons who are either one of the
three other most highly compensated executive officers of Cognizant or are
anticipated to be one of the three other most highly compensated executive
officers of IMS HEALTH following the Distribution. During the period presented,
the individuals were compensated in accordance with Cognizant's plans and
policies.
Four of the executive officers named in the Summary Compensation Table below
were employed by D&B until November 1, 1996, the date on which Cognizant was
spun off from D&B (the "D&B Spin-off Date"). Accordingly, for 1996 the Summary
Compensation Table shows separately the amounts paid by Cognizant (indicated as
"CZT") starting on the D&B Spin-off Date and the amount paid by D&B (indicated
as "D&B") before the D&B Spin-off Date.
In particular, D&B's 1996 payments included acceleration of certain
long-term awards (as described in the footnotes to the Summary Compensation
Table) upon the D&B Spin-off Date as required by the applicable D&B compensation
plans. In addition, Cognizant has discontinued the performance unit component of
D&B's compensation program.
All 1995 compensation amounts were paid by D&B.
67
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------
PAYOUTS
-----------
ANNUAL AWARDS
COMPENSATION -------------------------------- (G)
-------------------- (F) SECURITIES (H)
(A) RESTRICTED UNDERLYING LONG-TERM
NAME AND PRINCIPAL (C) (D) (E) STOCK OPTIONS/ INCENTIVE
POSITION WITH (B) SALARY BONUS(1) OTHER ANNUAL AWARD(S)(3) SARS(4) PAYOUTS(5)
COGNIZANT/IMS HEALTH YEAR ($) ($) COMPENSATION(2)($) ($) (#) ($)
- -------------------- --------- --------- --------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Weissman.. 1997 CZT 750,000 1,007,100 1,006 0 0 0
Chairman and Chief 1996 CZT 125,000 125,000 0 0 575,000* 0
Executive Officer 1995 D&B 720,833 1,887,500 89 0 400,000** 4,432,257
of Cognizant and Total 845,833 2,012,500 89 0 568,721*** 4,432,257
IMS HEALTH D&B 830,000 802,095 216 443,895 0 887,800
1,543,721
34,823
William G. Jacobi 1997 CZT 400,000 375,984 4,352 0 0 0
(7)...............
Executive Vice 1996 CZT 66,667 46,667 0 0 275,000* 0
President 125,000**
of Cognizant 114,842***
D&B 333,333 615,000 2,921 0 0 996,459
--------- --------- ------- ----------- ----------- -----------
Total 400,000 661,667 2,921 0 514,842 996,459
1995 D&B 377,315 277,557 3,448 277,964 13,813 155,996
Victoria R. Fash.... 1997 CZT 375,000 349,128 0 268,938 0 0
President and
Chief 1996 CZT 62,500 43,333 0 0 275,000* 0
Operating Officer 125,000**
of IMS HEALTH; 34,617***
Executive Vice
President and D&B 245,833 462,500 4,825 0 0 383,002
Chief Financial Total 308,333 505,833 4,825 0 434,617 383,002
Officer of
Cognizant
1995 D&B 258,359 250,901 0 219,283 8,788 38,600
Alan J. Klutch...... 1997 CZT 325,000 303,473 0 0 0 0
Senior Vice
President-- 1996 CZT 54,167 33,333 0 0 175,000* 0
Finance of 50,000***
Cognizant and 122,451***
IMS HEALTH D&B 270,833 450,000 30,116 0 0 869,045
--------- --------- ------- ----------- -----------
Total 325,000 483,333 30,116 0 347,451 869,045
1995 D&B 312,500 224,772 34,778 101,303 6,588 202,650
Kenneth S. 1997 CZT 325,000 235,025 127,388 0 190,000 0
Siegel(6).........
Senior Vice
President, General
Counsel and
Secretary of
Cognizant and
IMS HEALTH
<CAPTION>
(A)
NAME AND PRINCIPAL ALL OTHER
POSITION WITH COMPENSATION(6)
COGNIZANT/IMS HEALTH ($)
- -------------------- -----------------
<S> <C>
Robert E. Weissman.. 72,568
Chairman and Chief 3,750
Executive Officer 65,313
of Cognizant and 69,063
IMS HEALTH 55,063
William G. Jacobi 28,944
(7)...............
Executive Vice 2,000
President
of Cognizant
25,502
------
27,502
21,217
Victoria R. Fash.... 19,655
President and
Chief 1,875
Operating Officer
of IMS HEALTH;
Executive Vice
President and 16,777
Chief Financial 18,652
Officer of
Cognizant
4,176
Alan J. Klutch...... 22,637
Senior Vice
President-- 1,625
Finance of
Cognizant and
IMS HEALTH 19,868
------
21,493
6,795
Kenneth S. 4,800
Siegel(6).........
Senior Vice
President, General
Counsel and
Secretary of
Cognizant and
IMS HEALTH
</TABLE>
- ------------------------
* Effective Date Stock Options
** Effective Date Purchased Options
*** D&B Substitute Options
68
<PAGE>
(1) The 1997 bonus awards were earned in 1997 and paid in 1998. The 1996
Cognizant bonus amounts were earned in 1996 and paid in 1997 while the 1996
D&B bonus amounts were earned and paid in 1996. The 1995 bonus amounts were
earned in 1995 and paid in 1996.
(2) Amounts shown for those other than Mr. Siegel represent reimbursement for
taxes paid by the named executive officers with respect to company-directed
travel and certain other expenses. Amounts shown for Mr. Siegel include
reimbursement of relocation expenses in connection with his joining
Cognizant and related tax obligations. The value of certain personal
benefits is not included since it does not exceed $50,000 for any named
executive officer.
(3) The amount shown for Ms. Fash represents the dollar value of restricted
stock on the date of the grant. This grant was a special one-time award and
will vest one year following the date of the award. Dividends are paid at
the rate established from time to time for Cognizant Common Stock. In 1996,
no restricted stock was granted and there were no restricted stock holdings
outstanding for the named executive officers at December 31, 1996. Previous
D&B restricted stock awards either vested or were paid in cash in connection
with the D&B Spin-off. Amounts shown for 1995 represent the dollar value on
the date of grant of D&B restricted stock granted that year.
(4) Only the amounts designated as Effective Date Stock Options reflect new
Cognizant option grants for 1996. Those designated as Effective Date
Purchased Options are options that were purchased by the named executive
officers for cash at a price of 10% of the exercise price. The remaining 90%
is payable if and when the options are exercised. The 10% purchase price is
forfeited if the options expire without being exercised, and the portion of
the purchase price attributable to vested options is also forfeitable upon
termination of employment in certain circumstances. The new grants were
designed to implement a front-loaded equity based incentive covering several
years. Accordingly, while the grants are larger than typical annual grants,
none of the named executive officers who received options in 1996 received
options in 1997. The options designated as Substitute Options were issued in
substitution of D&B options that were canceled as of the D&B Spin-off Date.
Amounts granted in 1995 represent the original number of D&B stock options
granted in 1995. These shares are among the D&B options that were replaced
by the Substitute Options shown in the 1996 grant. All the options in this
table are without tandem stock appreciation rights, except for the Limited
SARs described under the "Option/SAR Grants in Last Fiscal Year" table
below. In addition, Ms. Fash received a grant of options for 6,500 shares
(after adjustment for a reverse stock split) (without tandem stock
appreciation rights) of Cognizant's subsidiary Cognizant Technology
Solutions Corporation, as described under the table "Option/SAR Grants in
Last Fiscal Year".
(5) Amounts shown for 1995 represent payments made under the Dun & Bradstreet
Key Employees Performance Unit Plan ("PUP"). The amounts shown for 1996
represent a cash payout of the cash and restricted stock components of the
1993, 1994 and 1995 PUP awards. The 1994 and 1995 PUP awards would normally
have been paid in future years, but were accelerated pursuant to the terms
of the PUP as a result of the D&B Spin-off. Cognizant does not have an
incentive plan equivalent to the PUP.
(6) Amounts shown represent aggregate annual company contributions for the
account of each named executive officer under the Dun & Bradstreet Profit
Participation Plan ("PPP") and Profit Participation Benefit Equalization
Plan ("PPBEP"), and the Cognizant Corporation Savings Plan ("Savings Plan")
and Savings Benefit Equalization Plan ("SBEP"), plans which are open to
employees of D&B or Cognizant and certain subsidiaries. The PPP and Savings
Plan are tax-qualified defined contribution plans and the PPBEP and SBEP are
non-qualified plans which provide a benefit to participants in the PPP and
Savings Plan equal to the amount of company contributions that would have
been made to the participant's PPP and Savings Plan accounts but for certain
Federal tax laws.
(7) Mr. Jacobi ceased being an executive officer of Cognizant on December 31,
1997. It is expected that Mr. Jacobi will continue to be employed by IMS
HEALTH until his scheduled retirement in 1998; however, he will not be an
executive officer of IMS HEALTH.
(8) Mr. Siegel joined Cognizant on January 31, 1997. The salary and bonus
amounts provided above have been annualized for the full year 1997.
69
<PAGE>
OPTION GRANTS ON COGNIZANT COMMON STOCK TO COGNIZANT/IMS HEALTH EXECUTIVES IN
LAST FISCAL YEAR
The following table provides information on fiscal year 1997 grants of
options to the named executives of Cognizant and IMS HEALTH to purchase shares
of Cognizant Common Stock. Options to acquire Cognizant Common Stock will be
replaced by options to acquire IMS HEALTH Common Stock. See "Relationship
Between IMS HEALTH and Nielsen Media Research After the Distribution--Employee
Benefits Agreement".
OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR TO PURCHASE COGNIZANT COMMON STOCK
<TABLE>
<CAPTION>
(B)
NUMBER OF (C)
SECURITIES % OF TOTAL (F)
UNDERLYING OPTIONS/SARS (D) GRANT DATE
OPTIONS/SARS GRANTED TO EXERCISE OR (E) PRESENT
(A) GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION VALUE(2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
- ------------------------------------------------- ------------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Robert E. Weissman............................... 0 NA NA NA NA
William G. Jacobi(3)............................. 0 NA NA NA NA
Victoria R. Fash(4).............................. 0 NA NA NA NA
Alan J. Klutch................................... 0 NA NA NA NA
Kenneth S. Siegel(5)............................. 190,000 4.8% $ 33.0625 01/30/07 $ 1,678,032
</TABLE>
- ------------------------
(1) The amount shown represents a non-qualified stock option, without tandem
stock appreciation rights ("SARs"), granted in 1997. The option may not be
exercised for at least one year after grant and may then be exercised in
installments of one-sixth of the grant amount each year until they are 100%
vested. Payment must be made in full upon exercise in cash or Cognizant
Common Stock. The option holder may elect to have shares of Cognizant Common
Stock issuable upon exercise withheld by Cognizant to pay withholding taxes
due. The option shown includes Limited SARs in tandem with the option.
Limited SARs are exercisable only if and to the extent that the related
option is exercisable and are exercisable only during the 30-day period
following the acquisition of at least 20% of the outstanding Cognizant
Common Stock pursuant to a tender or exchange offer not made by Cognizant.
Each Limited SAR permits the holder to receive cash equal to the excess over
the related option exercise price or the highest price paid pursuant to a
tender or exchange offer for Cognizant Common Stock which is in effect at
any time during the 60 days preceding the date upon which the Limited SAR is
exercised. Limited SARs can be exercised regardless of whether Cognizant
supports or opposes the offer.
(2) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions for the January 31,
1997 grant: an expected stock-price volatility factor of 25%, a risk-free
rate of return of 6.23%, an annual dividend yield of 0.30%, an assumed time
of exercise of 4.5 years from grant date, and a reduction of approximately
15.4% to reflect the probability of forfeiture due to termination prior to
vesting. These assumptions may or may not be fulfilled. The amount shown
cannot be considered predictions of future value. In addition, the option
will gain value only to the extent the stock price exceeds the option
exercise price during the life of the option.
(3) Mr. Jacobi ceased being an executive officer of Cognizant on December 31,
1997.
(4) In 1997, Ms. Fash was granted options for 6,500 shares (after adjustment for
a reverse stock split) of Class A Common Stock of Cognizant's subsidiary,
CTS, in her capacity as a director of CTS. This grant represents 1.2% of the
total CTS options granted in 1997. The options' exercise price approximates
fair market value on the date of grant and they expire on December 31, 2007.
The options become exercisable in 8.75 years, except that accelerated
vesting occurs on the first and second anniversary of an initial public
offering or controlling interest sale of CTS. The potential realizable value
of this grant assuming annual rates of appreciation of the Class A Common
Stock, from the grant date until the expiration date, of 5% and 10% is
calculated at $51,105 and $108,031, respectively.
(5) Mr. Siegel joined Cognizant on January 31, 1997.
70
<PAGE>
AGGREGATE COGNIZANT OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
COGNIZANT OPTION VALUES
The following table provides information on option exercises in 1997 by the
named executives of Cognizant and IMS HEALTH and the value of each such
executive's unexercised in-the-money options to acquire Cognizant Common Stock
at December 31, 1997. See also "Relationship Between IMS HEALTH and Nielsen
Media Research After the Distribution--Employee Benefits Agreement".
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
(E)
VALUE OF
UNEXERCISED,
(D) IN-THE-MONEY
NUMBER OF SECURITIES COGNIZANT
UNDERLYING UNEXERCISED OPTIONS/SARS
COGNIZANT OPTIONS/SARS AT AT
(B) (C) FISCAL
SHARES ACQUIRED VALUE FISCAL YEAR-END(2)(#) YEAR-END(3)($)
(A) ON EXERCISE(1) REALIZED -------------------------- -----------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------- ----------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Weissman....... Effective Date Options 0 0 162,499 812,501 $1,767,177
SUBSTITUTE OPTIONS 3,256 $ 6,756 473,122 49,985 $7,160,966
15,813 $ 32,809
26,545 $ 430,483
William G. Jacobi(4)..... Effective Date Options 0 $ 0 66,666 333,334 $ 724,993
SUBSTITUTE OPTIONS 3,256 $ 5,535 82,600 16,479 $1,087,499
3,588 $ 6,099
8,919 $ 124,015
Victoria R. Fash(5)...... Effective Date Options 0 $ 0 66,666 333,334 $ 724,993
SUBSTITUTE OPTIONS 0 $ 0 24,678 9,939 $ 300,235
Alan J. Klutch........... Effective Date Options 0 $ 0 37,499 187,501 $ 407,802
SUBSTITUTE OPTIONS 3,256 $ 6,756 97,120 9,456 $1,491,515
2,119 $ 4,397
7,803 $ 126,542
2,697 $ 39,256
Kenneth S. Siegel(6)..... Stock Options 0 $ 0 0 190,000 $ 0
<CAPTION>
(A)
NAME UNEXERCISABLE
- ------------------------- -------------
<S> <C>
Robert E. Weissman....... $ 8,835,948
$ 546,848
William G. Jacobi(4)..... $ 3,625,007
$ 189,244
Victoria R. Fash(5)...... $ 3,625,007
$ 109,811
Alan J. Klutch........... $ 2,039,073
$ 103,451
Kenneth S. Siegel(6)..... $ 2,125,625
</TABLE>
- ------------------------
(1) Effective Date Options reflect Cognizant option grants for 1996. Substitute
Options were issued in substitution of D&B options that were canceled as of
the date of the D&B spin-off.
(2) No SARs were outstanding at December 31, 1997.
(3) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the fair market value of the underlying
Cognizant Common Stock at December 31, 1997. Options are in-the-money if the
fair market value of the Cognizant Common Stock exceeds the exercise price
of the option.
(4) Mr. Jacobi ceased being an executive officer of Cognizant on December 31,
1997.
(5) The value at year-end of in-the-money options held by Ms. Fash for shares of
Class A Common Stock of CTS, a subsidiary of Cognizant, none of which are
presently exercisable, was zero.
(6) Mr. Siegel joined Cognizant on January 31, 1997.
COGNIZANT RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under the Cognizant Retirement Plan, the Cognizant Corporation
Supplemental Executive Retirement Plan and the Cognizant Retirement Excess Plan
to persons in the specified average final compensation and credited service
classifications upon retirement at age 65. Amounts shown in the table include
U.S. Social Security benefits and benefits payable under predecessor plans of
D&B which would be deducted in calculating benefits payable under these plans.
These aggregate annual retirement benefits do not increase as a result of
additional credited service after 15 years.
71
<PAGE>
Benefits vest after five years of credited service and are calculated at 5%
of average final compensation per year for the first 10 years of credited
service, and 2% per year for the next five years, up to a maximum of 60% of
average final compensation after 15 years of credited service.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFITS
------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE ASSUMING CREDITED SERVICE OF:
FINAL ------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ------------- ------------ ------------ ------------ ------------
$ 550,000 $ 330,000 $ 330,000 $ 330,000 $ 330,000
700,000 420,000 420,000 420,000 420,000
850,000 510,000 510,000 510,000 510,000
1,000,000 600,000 600,000 600,000 600,000
1,300,000 780,000 780,000 780,000 780,000
1,600,000 960,000 960,000 960,000 960,000
1,900,000 1,140,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service for Messrs. Weissman and Jacobi and
Ms. Fash are 18, 18 and 6, respectively.
Compensation, for the purpose of determining retirement benefits, consists
of base salary, annual bonuses, commissions and overtime pay. Severance pay,
income derived from equity-based awards, contingent payments and other forms of
special remuneration are excluded. The bonuses included in the Summary
Compensation Table above were not paid until the year following the year in
which they were accrued and expensed; therefore, compensation for purposes of
determining retirement benefits varies from the Summary Compensation Table
amounts in that bonuses expensed in the previous year but paid in the current
year are part of retirement compensation in the current year and any unpaid
current year's bonuses accrued and included in the Summary Compensation Table
are not part of retirement compensation in that year. For 1997, compensation for
purposes of determining retirement benefits for Messrs. Weissman and Jacobi and
Ms. Fash was $875,000, $446,667 and $418,333, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the participant's credited service.
Participants vest in their accrued retirement benefit upon completion of five
years' service. The benefits shown in the table above are calculated on a
straight-life annuity basis.
Retirement benefits for Messrs. Klutch and Siegel are determined solely
under the Cognizant Retirement Plan and the Retirement Excess Plan. Under these
plans, Cognizant contributes 6% of the participant's compensation monthly to the
participant's cash balance in the plan. The cash balance earns monthly
investment credits based on the yield on 30-year Treasury bonds from time to
time. These plans also include a minimum monthly benefit for certain employees
who had attained age 50 and had earned 5 years of service as of October 31,
1996, including Mr. Klutch. The minimum benefit is equal to the excess of (i)
1.7% of final average compensation multiplied by years of credited service not
in excess of 25, plus 1.0% of average final compensation multiplied by years of
credited service in excess of 25, over (ii) 1.7% of the primary Social Security
insurance benefits multiplied by years of credited service not in excess of 25,
plus 0.5% of the primary Social Security insurance benefits multiplied by years
of credited service in excess of 25. Mr. Klutch's estimated annual benefits upon
retirement at age 65 are $202,828, based upon his credited service to date for
these plans of 23.5 years. In 1997, Mr. Siegel was not eligible to participate
in the Cognizant Retirement Plan and the Cognizant Retirement Excess Plan.
LIMITED SARS
Cognizant Limited SARs held by IMS HEALTH executive officers will be
converted into Limited SARs of IMS HEALTH which will have the terms described
for Cognizant Limited SARs in footnote 1 under the caption "--Option Grants on
Cognizant Common Stock to IMS HEALTH Executives in Last
72
<PAGE>
Fiscal Year" above. See "Relationship Between IMS HEALTH and Nielsen Media
Research After the Distribution--Employee Benefits Agreement".
CHANGE-IN-CONTROL-AGREEMENTS
Cognizant has entered into agreements with the executive officers named in
the Summary Compensation Table above (as well as with other officers and key
employees of Cognizant and its subsidiaries), providing for certain benefits
upon termination of employment in the event of a Change in Control (as defined
below) of Cognizant. If, following a Change in Control, the employment of a
named executive officer is terminated without cause or he or she terminates
employment for "good reason" (generally, an adverse change in employment status,
compensation or benefits, a required relocation or the lapse of 12 months
following the Change in Control), the officer will receive a lump sum payment
equal to three times base salary and annual target bonus, reimbursement for
outplacement expenses, life and health insurance coverage for 36 months after
termination, retiree medical coverage, the accelerated vesting of stock options
and the accelerated payment of prorated annual and other bonuses. Messrs.
Weissman and Jacobi and Ms. Fash will also receive full vesting under the
Supplemental Executive Retirement Plan and crediting of the maximum years of
service for purposes of determining the amount of retirement benefits. A Change
in Control will generally have occurred under the following circumstances: (i)
an acquisition by any person of 20% of the combined voting power of Cognizant's
securities, (ii) during any period of twenty-four months a majority of the Board
ceases to consist of (x) directors in office at the beginning of such period or
(y) directors whose election was approved by two-thirds of the directors in
office at the beginning of the period or by directors whose election was so
approved, (iii) Cognizant's merger or consolidation with another entity (other
than one in which Cognizant's shares outstanding prior to the merger represent
66 2/3% of the voting power of the surviving company and no shareholder holds
20% or more of such remaining voting power) or (iv) the liquidation or sale of
substantially all of Cognizant's assets.
EXECUTIVE TRANSITION PLAN
The Cognizant Executive Transition Plan (the "ETP") provides severance
benefits to executive officers of Cognizant (including those named in the
Summary Compensation Table above) and certain of its subsidiaries, selected by
the Chief Executive Officer of Cognizant. The ETP generally provides for the
payment of severance benefits if the employment of a covered executive
terminates by reason of a reduction in force, job elimination, unsatisfactory
job performance or a mutually acceptable resignation. In the event of an
eligible termination, the executive will be paid 104 weeks of salary
continuation consisting of annual base salary and annual bonus opportunity for
the year of termination. However, if the executive is terminated by reason of
unsatisfactory performance, the bonus opportunity will not be included.
In addition, the ETP provides to eligible terminated executives (i)
continued medical, dental and life insurance coverage throughout the salary
continuation period; (ii) payment of the annual bonus for the year of
termination that would have been paid if employment continued, prorated based on
the number of months worked during that year; and (iii) in certain instances,
outplacement services and financial counseling. The Chief Executive Officer of
Cognizant may increase or decrease ETP benefits for executives other than the
Cognizant Chief Executive Officer, provided such decision is reported to the
Compensation and Benefits Committee of the Cognizant Board, and that Committee
may increase or decrease ETP benefits for the Cognizant Chief Executive Officer.
Neither the prorated annual bonus nor the financial counseling is provided
if employment terminates due to unsatisfactory performance.
73
<PAGE>
COGNIZANT/IMS HEALTH SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of IMS HEALTH Common Stock are currently held by
Cognizant. The following table sets forth the number of shares of Cognizant
Common Stock beneficially owned, and the number of shares of IMS HEALTH Common
Stock that are expected to be beneficially owned after the Distribution, by each
of the Cognizant and IMS HEALTH directors, by each of the executive officers
named in the Cognizant/IMS HEALTH Summary Compensation Table above, by all such
directors and executive officers as a group and by each person known by IMS
HEALTH to beneficially own more than 5% of the outstanding shares of Cognizant
Common Stock at December 31, 1997 ("5% Owners"). Stock ownership information is
based on (i) the number of shares of Cognizant Common Stock held by directors
and executive officers as of December 31, 1997, (ii) the number of shares held
by 5% Owners, based upon a Schedule 13G filed with the SEC by such 5% Owners and
(iii) one share of IMS HEALTH Common Stock being distributed for every share of
Cognizant Common Stock. See "The Distribution" and "Cognizant/IMS HEALTH
Management and Executive Compensation--Compensation of Cognizant/IMS HEALTH
Executive Officers". Information regarding shares subject to options reflects
shares of Cognizant Common Stock subject to options as of December 31, 1997 and
exercisable within 60 days thereafter and represents the number of shares of IMS
HEALTH Common Stock which would be obtained in the Distribution if the Cognizant
stock options were exercised prior to the Record Date. Unexercised Cognizant
stock options held by IMS HEALTH employees as of the Distribution Date will be
converted into options that are exercisable into shares of IMS HEALTH Common
Stock based upon a conversion formula to be calculated after the Distribution
Date. See "Relationship Between IMS HEALTH and Nielsen Media Research After the
Distribution--Employee Benefits Agreement". All directors and executive officers
as a group beneficially owned less than one percent of the outstanding shares of
Cognizant Common Stock outstanding on December 31, 1997 and are expected to own
less than one percent of the shares of IMS HEALTH Common Stock outstanding as of
the Distribution Date. The mailing address for each of the IMS HEALTH directors
and executive officers listed herein is 200 Nyala Farms, Westport, Connecticut
06880.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO OPTIONS
NUMBER OF SHARES EXERCISABLE WITHIN 60
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED DAYS
- ------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Clifford L. Alexander, Jr.......................................... 4,198(1) 1,166
Victoria R. Fash(2)................................................ 8,804(3) 91,344
John P. Imlay, Jr.................................................. 10,898(1) 1,166
Robert Kamerschen.................................................. 4,898(1) 1,166
Alan J. Klutch..................................................... 12,206 134,619
Robert J. Lanigan.................................................. 7,998(1)(4) 1,166
H. Eugene Lockhart................................................. 1,198(1) 1,166
M. Bernard Puckett................................................. 4,498(1) 1,166
Kenneth S. Siegel.................................................. -- 31,666
William C. Van Faasen.............................................. 200(5) --
Robert E. Weissman................................................. 122,964 635,621
All Directors and Executive Officers as a Group(6)................. 177,862 900,246
FMR Corporation.................................................... 18,355,768(7)(8) --
82 Devonshire Street
Boston, MA 02109
</TABLE>
74
<PAGE>
- ------------------------
(1) Includes 898 shares of restricted stock granted under the Non-Employee
Directors' Stock Incentive Plan, which shares are scheduled to vest on
November 15, 2001.
(2) Ms. Fash also owns 3,250 shares (after adjustment for a reverse stock split)
of restricted Class A Common Stock of CTS, purchased pursuant to the CTS
Restricted Stock Purchase Plan. These restricted shares vest upon the
occurrence of an initial public offering of CTS, and represent less than 1%
of the outstanding shares of CTS.
(3) Includes 6,500 shares of restricted stock granted under the Key Employees'
Stock Incentive Plan, which shares are scheduled to vest on October 21,
1998.
(4) These shares are held in two revocable trusts (one trust holding 5,900
shares and the other 1,200 shares) for the benefit of Mr. Lanigan in which
he is the settlor and sole beneficial owner and over which he has sole
investment control.
(5) In addition, on April 21, 1998, Mr. Van Faasen was granted 556 shares of
restricted stock under the Non-Employee Directors' Stock Incentive Plan,
which shares are scheduled to vest on April 21, 2003.
(6) Includes all shares beneficially owned regardless of the nature of
ownership.
(7) Represents 11.32% of the total outstanding Cognizant Common Stock on
December 31, 1997.
(8) FMR Corporation ("FMR Corp.") and its wholly owned subsidiaries, Fidelity
Management & Research Company ("Fidelity") and Fidelity Management Trust
Company ("FMTC"), jointly filed a Schedule 13G with the SEC on February 14,
1998. This Schedule 13G shows that Fidelity, a registered investment
adviser, beneficially owned at December 31, 1997, 17,116,190 shares of
Cognizant Common Stock. Edward C. Johnson, 3rd, Chairman of FMR Corp., FMR
Corp. and the registered investment companies advised by Fidelity each has
sole dispositive power (but no voting power) over such shares. Voting power
with respect to such shares resides with the respective Boards of Trustees
of each of the Fidelity Funds. Mr. Johnson and FMR Corp. each has sole
dispositive power over 1,239,578 shares of Cognizant Common Stock held by
FMTC, a bank as defined under the Securities Act which serves as investment
manager for institutional accounts, sole voting power over 749,378 of such
shares and no voting power over 490,200 of such shares.
75
<PAGE>
DESCRIPTION OF IMS HEALTH CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that IMS HEALTH has
authority to issue under its Restated Certificate of Incorporation is
420,000,000 shares of which 400,000,000 shares represent shares of IMS HEALTH
Common Stock, 10,000,000 shares represent shares of Preferred Stock (the "IMS
HEALTH Preferred Stock") and 10,000,000 shares represent shares of Series Common
Stock (the "IMS HEALTH Series Common Stock"). Based on 162,848,673 shares of
Cognizant Common Stock outstanding as of March 31, 1998, and a distribution
ratio of one share of IMS HEALTH Common Stock for every one share of Cognizant
Common Stock, 162,848,673 shares of IMS HEALTH Common Stock would be distributed
to holders of Cognizant Common Stock on the Distribution Date.
IMS HEALTH COMMON STOCK
Subject to any preferential rights of any IMS HEALTH Preferred Stock or IMS
HEALTH Series Common Stock created by the Board of Directors of IMS HEALTH, each
outstanding share of IMS HEALTH Common Stock will be entitled to such dividends,
if any, as may be declared from time to time by the Board of Directors of IMS
HEALTH. See "Dividend Policies--IMS HEALTH". Each outstanding share is entitled
to one vote on all matters submitted to a vote of stockholders. In the event of
liquidation, dissolution or winding up of IMS HEALTH, holders of IMS HEALTH
Common Stock are entitled to receive on a pro rata basis any assets remaining
after provision for payment of creditors and after payment of any liquidation
preferences to holders of IMS HEALTH Preferred Stock and IMS HEALTH Series
Common Stock.
IMS HEALTH PREFERRED STOCK AND IMS HEALTH SERIES COMMON STOCK
Each of the authorized IMS HEALTH Preferred Stock and the authorized IMS
HEALTH Series Common Stock is available for issuance from time to time in one or
more series at the discretion of the IMS HEALTH Board of Directors without
stockholder approval. The IMS HEALTH Board of Directors has the authority to
prescribe for each series of IMS HEALTH Preferred Stock or IMS HEALTH Series
Common Stock it establishes the number of shares in that series, the voting
rights (if any) to which such shares in that series are entitled, the
consideration for such shares in that series and the designation, powers,
preference and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions of the shares in that series.
Depending upon the rights of such IMS HEALTH Preferred Stock or IMS HEALTH
Series Common Stock, as applicable, the issuance of IMS HEALTH Preferred Stock
or IMS HEALTH Series Common Stock, as applicable, could have an adverse effect
on holders of IMS HEALTH Common Stock by delaying or preventing a change in
control of IMS HEALTH, making removal of the present management of IMS HEALTH
more difficult or resulting in restrictions upon the payment of dividends and
other distributions to the holders of IMS HEALTH Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the IMS HEALTH Common Stock remained listed on the NYSE,
require stockholder approval of certain issuances equal to or exceeding 20% of
the then outstanding voting power or then outstanding number of shares of IMS
HEALTH Common Stock. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital or to facilitate corporate acquisitions. Under terms of the agreements
relating to the Acquisitions and subject to Walsh and PMSI shareholder approval,
Walsh shareholders will receive .3041 shares of Cognizant Common Stock per Walsh
share outstanding and PMSI shareholders will receive .2800 shares of Cognizant
Common Stock per PMSI share outstanding. The number of shares of Cognizant
Common Stock to be issued in connection with each of the Acquisitions is subject
to a collar
76
<PAGE>
adjustment based on the price of Cognizant Common Stock during a period prior to
the closing of each Acquisition. Cognizant expects to issue approximately 6.7
million shares from treasury stock to consummate the Acquisitions. In the event
the Acquisitions are not completed prior to the Record Date, Walsh and PMSI
shareholders will receive, in lieu of Cognizant Common Stock, IMS HEALTH Common
Stock pursuant to a formula designed to recalibrate the collar computations
based on the relative value of IMS HEALTH to the total value of IMS HEALTH and
Nielsen Media Research following the Distribution. In addition, IMS HEALTH will
be required to issue IMS HEALTH Common Stock with a value between $550,000 and
$4,400,000 within the next five years as part of the consideration for a
previous acquisition. IMS HEALTH currently does not have any other plans to
issue additional shares of IMS HEALTH Common Stock, IMS HEALTH Preferred Stock
or IMS HEALTH Series Common Stock other than in connection with employee
compensation plans. See, however, "Risk Factors--Risks Relating to IMS
HEALTH--Acquisitions".
One of the effects of the existence of unissued and unreserved IMS HEALTH
Common Stock, IMS HEALTH Preferred Stock and IMS HEALTH Series Common Stock may
be to enable the Board of Directors of IMS HEALTH to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of IMS HEALTH by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
IMS HEALTH's management and possibly deprive the stockholders of opportunities
to sell their shares of IMS HEALTH Common Stock at prices higher than prevailing
market prices. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of IMS HEALTH pursuant to the
operation of the IMS HEALTH Rights Plan, which is discussed below.
IMS HEALTH RIGHTS PLAN
Prior to the Distribution, the Board of Directors of IMS HEALTH will declare
a dividend of one preferred share purchase right (an "IMS HEALTH Right") for
each outstanding share of IMS HEALTH Common Stock. The dividend will be payable
to Cognizant on a date prior to the Distribution which is set by IMS HEALTH
Board of Directors (the "IMS HEALTH Record Date"). Cognizant will be the sole
stockholder of record on the IMS HEALTH Record Date. Each IMS HEALTH Right will
entitle the registered holder to purchase from IMS HEALTH one one-thousandth of
a share of Series A Junior Participating IMS HEALTH Preferred Stock, par value
$.01 per share (the "IMS HEALTH Participating Preferred Stock"), of IMS HEALTH
at a price per one one-thousandth of a share of IMS HEALTH Participating
Preferred Stock to be determined by the IMS HEALTH Board of Directors (as the
same may be adjusted, hereinafter referred to as the "IMS HEALTH Participating
Preferred Stock Purchase Price"), subject to adjustment. The description and
terms of the IMS HEALTH Rights will be set forth in an IMS HEALTH Rights
Agreement (the "IMS HEALTH Rights Agreement") to be entered into between IMS
HEALTH and First Chicago Trust Company of New York, as the IMS HEALTH Rights
Agent (the "IMS HEALTH Rights Agent").
It is anticipated that until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(with certain exceptions, hereinafter referred to in this description of IMS
HEALTH Rights, an "IMS HEALTH Acquiring Person") have acquired beneficial
ownership of 15% or more of the outstanding shares of IMS HEALTH Common Stock or
(ii) 10 business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person or group of affiliated
persons becomes an IMS HEALTH Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding shares of IMS HEALTH Common Stock (the
earlier of such dates hereinafter referred to in this description of IMS HEALTH
Rights as the "IMS HEALTH Rights Distribution Date"), the IMS HEALTH Rights will
be evidenced by the certificates representing IMS HEALTH Common Stock.
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The IMS HEALTH Rights Agreement is expected to provide that, until the IMS
HEALTH Rights Distribution Date (or earlier redemption or expiration of the IMS
HEALTH Rights), the IMS HEALTH Rights will be transferred with and only with the
IMS HEALTH Common Stock. Until the IMS HEALTH Rights Distribution Date (or
earlier redemption or expiration of the IMS HEALTH Rights), IMS HEALTH Common
Stock certificates will contain a notation incorporating the IMS HEALTH Rights
Agreement by reference. Until the IMS HEALTH Rights Distribution Date (or
earlier redemption or expiration of the IMS HEALTH Rights), the surrender for
transfer of any certificates for shares of IMS HEALTH Common Stock will also
constitute the transfer of the IMS HEALTH Rights associated with the shares of
IMS HEALTH Common Stock represented by such certificate. As soon as practicable
following the IMS HEALTH Rights Distribution Date, separate certificates
evidencing the IMS HEALTH Rights ("IMS HEALTH Rights Certificates") will be
mailed to holders of record of the IMS HEALTH Common Stock as of the close of
business on the IMS HEALTH Rights Distribution Date and such separate IMS HEALTH
Rights Certificates alone will evidence the IMS HEALTH Rights.
The IMS HEALTH Rights will not be exercisable until the IMS HEALTH Rights
Distribution Date. The IMS HEALTH Rights are expected expire on June 30, 2008
(hereinafter referred to in this description of IMS HEALTH Rights as the "IMS
HEALTH Final Expiration Date"), unless the IMS HEALTH Final Expiration Date is
advanced or extended or unless the IMS HEALTH Rights are earlier redeemed or
exchanged by IMS HEALTH, in each case as described below.
The IMS HEALTH Participating Preferred Stock Purchase Price payable, and the
number of shares of IMS HEALTH Participating Preferred Stock or other securities
or property issuable, upon exercise of the IMS HEALTH Rights will be subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the IMS
HEALTH Participating Preferred Stock, (ii) upon the grant to holders of the IMS
HEALTH Participating Preferred Stock of certain rights or warrants to subscribe
for or purchase IMS HEALTH Participating Preferred Stock at a price, or
securities convertible into IMS HEALTH Participating Preferred Stock with a
conversion price, less than the then-current market price of the IMS HEALTH
Participating Preferred Stock or (iii) upon the distribution to holders of the
IMS HEALTH Participating Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends or dividends payable in IMS HEALTH
Participating Preferred Stock) or of subscription rights or warrants (other than
those referred to above).
The IMS HEALTH Rights will also be subject to adjustment in the event of a
stock dividend on the IMS HEALTH Common Stock payable in shares of IMS HEALTH
Common Stock or subdivisions, consolidations or combinations of the IMS HEALTH
Common Stock occurring, in any such case, prior to the IMS HEALTH Rights
Distribution Date.
Shares of IMS HEALTH Participating Preferred Stock purchasable upon exercise
of the IMS HEALTH Rights will not be redeemable. Each share of IMS HEALTH
Participating Preferred Stock will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of $10 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend declared per share
of IMS HEALTH Common Stock. In the event of liquidation, dissolution or winding
up of IMS HEALTH, the holders of the IMS HEALTH Participating Preferred Stock
will be entitled to a minimum preferential liquidation payment of $100 per share
(plus any accrued but unpaid dividends) but will be entitled to an aggregate
payment of 1,000 times the payment made per share of IMS HEALTH Common Stock.
Each share of IMS HEALTH Participating Preferred Stock will have 1,000 votes,
voting together with the IMS HEALTH Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of IMS HEALTH Common
Stock are converted or exchanged, each share of IMS HEALTH Participating
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of IMS HEALTH Common Stock. These rights will be protected by customary
antidilution provisions.
Because of the nature of the IMS HEALTH Participating Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of IMS HEALTH Participating
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Preferred Stock purchasable upon exercise of each IMS HEALTH Right should
approximate the value of one share of IMS HEALTH Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an IMS HEALTH Acquiring Person, each holder of an IMS HEALTH Right,
other than IMS HEALTH Rights beneficially owned by the IMS HEALTH Acquiring
Person (which will thereupon become void), will thereafter have the right to
receive upon exercise of an IMS HEALTH Right and payment of the IMS HEALTH
Participating Preferred Stock Purchase Price, that number of shares of IMS
HEALTH Common Stock having a market value of two times the IMS HEALTH
Participating Preferred Stock Purchase Price.
In the event that, after a person or group has become an IMS HEALTH
Acquiring Person, IMS HEALTH is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of an IMS
HEALTH Right (other than IMS HEALTH Rights beneficially owned by an IMS HEALTH
Acquiring Person which will have become void) will thereafter have the right to
receive, upon the exercise thereof, that number of shares of common stock of the
person with whom IMS HEALTH has engaged in the foregoing transaction (or its
parent), which number of shares at the time of such transaction will have a
market value of two times the IMS HEALTH Participating Preferred Stock Purchase
Price.
At any time after any person or group becomes an IMS HEALTH Acquiring Person
and prior to the acquisition by such person or group of 50% or more of the
outstanding shares of IMS HEALTH Common Stock or the occurrence of an event
described in the prior paragraph, the Board of Directors of IMS HEALTH will be
able to exchange the IMS HEALTH Rights (other than IMS HEALTH Rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one share of IMS HEALTH Common Stock, or a fractional share of
IMS HEALTH Participating Preferred Stock of equivalent value (or of a share of a
class or series of IMS HEALTH's Preferred Stock having similar rights,
preferences and privileges), per IMS HEALTH Right (subject to adjustment).
With certain exceptions, no adjustment in the IMS HEALTH Participating
Preferred Stock Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such IMS HEALTH Participating Preferred
Stock Purchase Price. No fractional shares of IMS HEALTH Participating Preferred
Stock will be issued (other than fractions which are integral multiples of one
one-thousandth of a share of IMS HEALTH Participating Preferred Stock, which
may, at the election of IMS HEALTH, be evidenced by depositary receipts) and in
lieu thereof, an adjustment in cash will be made based on the market price of
the IMS HEALTH Participating Preferred Stock on the last trading period to the
date of exercise.
At any time prior to the time an IMS HEALTH Acquiring Person becomes such,
the Board of Directors of IMS HEALTH will be able to redeem the IMS HEALTH
Rights in whole, but not in part, at a price of $.01 per IMS HEALTH Right
(hereinafter referred to in this description of IMS HEALTH Rights as the "IMS
HEALTH Right Redemption Price"). It is expected that the redemption of the IMS
HEALTH Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the IMS HEALTH Rights, the right to exercise
the IMS HEALTH Rights will terminate and the only right of the holders of IMS
HEALTH Rights will be to receive the IMS HEALTH Right Redemption Price.
For so long as the IMS HEALTH Rights are then redeemable, IMS HEALTH may,
except with respect to the IMS HEALTH Right Redemption Price, amend the IMS
HEALTH Rights in any manner. After the IMS HEALTH Rights are no longer
redeemable, IMS HEALTH may, except with respect to the IMS HEALTH Right
Redemption Price, amend the IMS HEALTH Rights in any manner that does not
adversely affect the interests of holders of the IMS HEALTH Rights.
Until an IMS HEALTH Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of IMS HEALTH, including, without limitation,
the right to vote or to receive dividends.
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A copy of the IMS HEALTH Rights Agreement will be filed as an exhibit to the
Registration Statement on Form 10 of IMS HEALTH in respect of the registration
of the IMS HEALTH Common Stock under the Exchange Act. A copy of the IMS HEALTH
Rights Agreement is available free of charge from IMS HEALTH. The summary
description of the IMS HEALTH Rights set forth above does not purport to be
complete and is qualified in its entirety by reference to the IMS HEALTH Rights
Agreement, as the same may be amended from time to time, which is hereby
incorporated herein by reference.
CERTAIN EFFECTS OF THE IMS HEALTH RIGHTS AGREEMENT
The IMS HEALTH Rights Agreement will be designed to protect stockholders of
IMS HEALTH in the event of unsolicited offers to acquire IMS HEALTH and other
coercive takeover tactics which, in the opinion of the Board of Directors of IMS
HEALTH, could impair its ability to represent stockholder interests. The
provisions of the IMS HEALTH Rights Agreement may render an unsolicited takeover
of IMS HEALTH more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer IMS HEALTH's stockholders the
opportunity to sell their stock at a price above the prevailing market rate and
may be favored by a majority of the stockholders of IMS HEALTH.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of IMS HEALTH authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
IMS HEALTH of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the General Corporation Law of the State of
Delaware (the "DGCL") apply to IMS HEALTH since it is a Delaware corporation.
Pursuant to Section 203, with certain exceptions, a Delaware corporation may not
engage in any of a broad range of business combinations, such as mergers,
consolidations and sales of assets, with an "interested stockholder" for a
period of three years from the time that such person became an interested
stockholders unless (a) the transaction that results in the person's becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (b) upon consummation of the transaction which results in the
stockholder becoming an interested stockholder, the interested stockholder owns
85% or more of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and
also officers and shares owned by certain employee stock plans or (c) on or
after the time the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by holders
of at least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder, at a meeting of stockholders. Under
Section 203, an "interested stockholder" is defined as any person, other than
the corporation and any direct or indirect majority-owned subsidiary, that is
(a) the owner of 15% or more of the outstanding voting stock of the corporation
or (b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder. Section 203 does
not apply to a corporation that so provides in an amendment to its certificate
of incorporation or by-laws passed by a majority of its outstanding shares, but
such stockholder action does not become effective for 12 months following its
adoption and would not apply to persons who were already interested stockholders
at the time of the amendment. IMS HEALTH's Restated Certificate of Incorporation
does not exclude IMS HEALTH from the restrictions imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring IMS HEALTH to
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negotiate in advance with IMS HEALTH's Board of Directors, because the
stockholder approval requirement would be avoided if the Board of Directors
approves either the business combination or the transaction which results in the
stockholder becoming an interested stockholder. Such provisions also may have
the effect of preventing changes in the Board of Directors of IMS HEALTH. It is
further possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
PROVISIONS OF IMS HEALTH RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the IMS HEALTH Restated Certificate of Incorporation
and Amended and Restated By-laws may delay or make more difficult unsolicited
acquisitions or changes of control of IMS HEALTH. It is believed that such
provisions will enable IMS HEALTH to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by its Board of Directors to be in the best interests of IMS
HEALTH and its stockholders. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change of control of IMS HEALTH, although such proposals, if
made, might be considered desirable by a majority of IMS HEALTH's stockholders.
Such provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the current Board of Directors of IMS
HEALTH. These provisions include (i) the availability of capital stock for
issuance from time to time at the discretion of the Board of Directors (see
"--Authorized but Unissued Capital Stock"), (ii) prohibitions against
stockholders calling a special meeting of stockholders or acting by written
consent in lieu of a meeting, (iii) requirements for advance notice for raising
business or making nominations at stockholders' meetings, (iv) the ability of
the Board of Directors to increase the size of the board and to appoint
directors to newly created directorships, (v) a classified Board of Directors
and (vi) higher than majority requirements to make certain amendments to the
By-laws and Certificate of Incorporation. These provisions are present in the
Restated Certificate of Incorporation or Amended and Restated By-laws of
Cognizant.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The IMS HEALTH Restated Certificate of Incorporation and Amended and
Restated By-laws provide that stockholder action can be taken only at an annual
or special meeting and cannot be taken by written consent in lieu of a meeting.
The IMS HEALTH Restated Certificate of Incorporation and Amended and Restated
By-laws also provide that special meetings of the stockholders can be called
only by the Chief Executive Officer of IMS HEALTH or by a vote of the majority
of the Board of Directors. Furthermore, the By-laws of IMS HEALTH provide that
only such business as is specified in the notice of any such special meeting of
stockholders may come before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By-laws of IMS HEALTH establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of IMS HEALTH who is entitled to vote at the
meeting who has given to the Secretary of IMS HEALTH timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
directors of IMS HEALTH.
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To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of IMS HEALTH at the
principal executive offices of IMS HEALTH not less than 70 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting;
PROVIDED, HOWEVER, that in the event that the date of the annual meeting is
advanced by more than 20 days, or delayed by more than 70 days, from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of IMS HEALTH at
the principal executive offices of IMS HEALTH not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of IMS HEALTH held by,
the stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of IMS HEALTH 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; a description of all arrangements or
understandings between the stockholder 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 by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and the consent of each nominee to serve as a director if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES; REMOVAL
The IMS HEALTH Restated Certificate of Incorporation and Amended and
Restated By-laws provide that newly created directorships resulting from an
increase in the authorized number of directors (or any vacancy) may be filled by
a vote of a majority of directors then in office. Accordingly, the Board of
Directors of IMS HEALTH may be able to prevent any stockholder from obtaining
majority representation on the Board of Directors by increasing the size of the
board and filling the newly created directorships with its own nominees. If any
applicable provision of the DGCL expressly confers power on stockholders to fill
such a directorship at a special meeting of stockholders, such a directorship
may be filled at such meeting only by the affirmative vote of at least 80% in
voting power of all shares of IMS HEALTH entitled to vote generally in the
election of directors, voting as a single class. Directors may be removed only
for cause, and only by the affirmative vote of at least 80% in voting power of
all shares of IMS HEALTH entitled to vote generally in the election of
directors, voting as a single class.
CLASSIFIED BOARD OF DIRECTORS
The IMS HEALTH Restated Certificate of Incorporation provides for IMS
HEALTH's Board of Directors to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one third of IMS
HEALTH's Board of Directors will be elected each year. See Cognizant/ "IMS
HEALTH Management and Executive Compensation--Cognizant/IMS HEALTH Board of
Directors".
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IMS HEALTH believes that a classified board will help to assure the
continuity and stability of its Board of Directors, and its business strategies
and policies as determined by its Board of Directors, because a majority of the
directors at any given time will have prior experiences as directors of IMS
HEALTH. This provision should also help to ensure that IMS HEALTH's Board of
Directors, if confronted with an unsolicited proposal from a third party that
has acquired a block of IMS HEALTH's voting stock, will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of IMS HEALTH's Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of IMS HEALTH and could thus increase the
likelihood that incumbent directors will retain their positions.
AMENDMENTS TO THE AMENDED AND RESTATED BY-LAWS
The IMS HEALTH Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% in voting power of all the
shares of IMS HEALTH entitled to vote generally in the election of directors,
voting together as a single class, shall be required in order for the
stockholders to alter, amend or repeal any provision of the Amended and Restated
By-laws which is to the same effect as provisions contained in the Restated
Certificate of Incorporation relating to (i) the amendment of the Amended and
Restated By-laws, (ii) the classified Board of Directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION
The IMS HEALTH Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of IMS HEALTH entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
Restated Certificate of Incorporation relating to (i) the amendment of the
Restated Certificate of Incorporation and/or the Amended and Restated By-laws,
(ii) the classified Board of Directors and the filling of director vacancies and
(iii) calling and taking actions at meetings of stockholders and prohibiting
stockholders from taking action by written consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The IMS HEALTH Restated Certificate of Incorporation provides that IMS
HEALTH shall indemnify directors and officers to the fullest extent permitted by
the laws of the State of Delaware. The IMS HEALTH Restated Certificate of
Incorporation also provides that a director of IMS HEALTH shall not be liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL as the same exists or may
hereafter be amended.
The indemnification rights conferred by the Restated Certificate of
Incorporation of IMS HEALTH are not exclusive of any other right to which a
person seeking indemnification may otherwise be entitled. IMS HEALTH will also
provide liability insurance for the directors and officers for certain losses
arising from claims or charges made against them, while acting in their
capacities as directors or officers.
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NIELSEN MEDIA RESEARCH CAPITALIZATION
The following table sets forth the capitalization of Nielsen Media Research
at March 31, 1998 on a historical basis, and at March 31, 1998 on a pro forma
basis, as adjusted to give effect to the Distribution and the transactions
contemplated thereby. Accordingly, the table does not reflect the proposed
acquisitions of Walsh and PMSI. The following data are qualified in their
entirety by the consolidated financial statements of Nielsen Media Research and
other information contained elsewhere in this Information Statement. See "Risk
Factors".
<TABLE>
<CAPTION>
NIELSEN MEDIA RESEARCH
(AT MARCH 31, 1998)
(UNAUDITED)
------------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
-------------- --------------
<CAPTION>
($ AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and Cash Equivalents................................................ $ 4,004 $ 4,004
-------------- --------------
-------------- --------------
Long-Term Debt........................................................... -- 300,000(1)
Divisional/Shareholders' Equity:
Divisional Equity...................................................... 107,137 -- (2)
Preferred Stock, par value $.01 per share, authorized -- 10,000,000
shares;
outstanding -- none.................................................. -- --
Series Common Stock, par value $.01 per share, authorized -- 10,000,000
shares;
outstanding -- none.................................................. -- --
Common Stock, par value $.01 per share, authorized -- 400,000,000
shares;
issued -- 171,120,069 shares (Pro forma)............................. -- 1,711(2)
Capital Surplus.......................................................... -- -- (1)(2)
Retained Earnings/Deficit................................................ -- (150,179)(1)(2)(3)
Cumulative Translation Adjustment........................................ -- 643(2)
Treasury Stock -- 0 shares (Actual) and 8,271,396 shares
(Pro forma)............................................................ -- (45,038)(2)(3)
-------------- --------------
Total Equity....................................................... 107,137 (192,863)
-------------- --------------
Total Capitalization............................................... $ 107,137 $ 107,137
-------------- --------------
-------------- --------------
</TABLE>
SUMMARY OF SIGNIFICANT PRO FORMA CAPITALIZATION ASSUMPTIONS
The capitalization table presented above gives effect to the Distribution
Agreement and the transactions contemplated thereby. See "Relationship Between
IMS HEALTH and Nielsen Media Research After the Distribution--Distribution
Agreement." The Distribution Agreement is to be entered into by Cognizant and
IMS HEALTH prior to the Distribution and is subject to approval by Cognizant's
Board of Directors. The assumptions upon which this capitalization table is
based therefore remain to be finalized and do not necessarily reflect all the
factors that may affect the capitalization of Nielsen Media Research at the time
of the Distribution.
(1) In connection with the Distribution, Cognizant will borrow $300 million,
which will be used to repay intercompany liabilities. This debt will be the
obligation of Nielsen Media Research after the Distribution. The adjustment
is reflected as an increase in long-term debt.
(2) This adjustment reflects the recapitalization of Nielsen Media Research in
connection with the Distribution.
(3) The cost basis of the shares of treasury stock on a pro forma basis reflects
an allocation of the historical cost of such treasury shares to Nielsen
Media Research.
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NIELSEN MEDIA RESEARCH SELECTED FINANCIAL DATA
The following data are qualified in their entirety by the financial
statements of Nielsen Media Research and other information contained elsewhere
in this Information Statement. The financial data as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996 and 1995, have been
derived from the audited financial statements of Nielsen Media Research
contained elsewhere in this Information Statement. The financial data as of
March 31, 1998 and 1997, and December 31, 1994 and 1993, for the three months
ended March 31, 1998 and 1997 and for the years ended December 31, 1994 and
1993, are unaudited. The historical financial statements of Nielsen Media
Research contained in this Information Statement are presented as if Nielsen
Media Research were a separate entity for all periods presented. The following
financial data should be read in conjunction with the information set forth
under "Nielsen Media Research Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Nielsen Media Research's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AND AS OF
MARCH 31, YEAR ENDED AND AS OF DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue..................... $ 96,064 $ 86,271 $ 358,594 $ 319,404 $ 288,652 $ 250,303 $ 209,894
Net Income............................ $ 14,246 $ 12,730 $ 52,475 $ 47,605 $ 40,412 $ 30,115 $ 19,661
Earnings Per Share of Common
Stock--Basic........................ $ 0.09 $ 0.07 $ 0.32 $ 0.28 $ 0.24 $ 0.18 $ --
Earnings Per Share of Common
Stock--Diluted...................... $ 0.09 $ 0.07 $ 0.32 $ 0.28 $ 0.24 $ 0.18 $ --
BALANCE SHEET DATA:
Total Assets.......................... $ 199,645 $ 177,200 $ 192,434 $ 170,331 $ 134,521 $ 138,842 $ 97,831
Long-Term Debt........................ $ -- $ -- $ -- $ -- $ 78 $ 244 $ 411
</TABLE>
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NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
The historical Consolidated Statement of Income for Nielsen Media Research
has been derived from the historical (pre-Distribution) Consolidated Statement
of Income of Cognizant and is presented as if Nielsen Media Research had been
operated as a separate entity. The Unaudited Consolidated Pro Forma Statement of
Income of Nielsen Media Research for the year ended December 31, 1997 presents
the results of operations of Nielsen Media Research and all material pro forma
adjustments necessary for this purpose.
The Unaudited Consolidated Pro Forma Statement of Income and Statement of
Financial Position of Nielsen Media Research should be read in conjunction with
the historical consolidated financial statements of Nielsen Media Research
contained elsewhere in this Information Statement. The pro forma data are for
informational purposes only and may not necessarily reflect future results of
operations or what the results of operations would have been had Nielsen Media
Research been operated as a separate entity.
The following tables set forth the Nielsen Media Research historical
Consolidated Statement of Income for the year ended December 31, 1997 and the
three months ended March 31, 1998, giving effect to the impact of interest
expense as of the beginning of the period presented related to the anticipated
borrowing by Cognizant of $300 million of third-party debt in connection with
the repayment of existing intercompany liabilities to IMS HEALTH. The Nielsen
Media Research Unaudited Condensed Consolidated Pro Forma Statement of Financial
Position as of March 31, 1998 gives effect to the anticipated borrowing of $300
million of third party debt. This debt will be an obligation of Nielsen Media
Research after the Distribution.
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NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
PRO FORMA
NIELSEN MEDIA PRO FORMA NIELSEN MEDIA
RESEARCH ADJUSTMENTS RESEARCH
-------------- ----------- --------------
<S> <C> <C> <C>
($ AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
OPERATING REVENUE.................................................... $ 358,594 $ 0 $ 358,594
-------------- ----------- --------------
Operating Costs and Selling and Administrative Expense............... 239,670 0 239,670
Depreciation and Amortization........................................ 28,663 0 28,663
-------------- ----------- --------------
OPERATING INCOME..................................................... 90,261 0 90,261
-------------- ----------- --------------
Non-Operating Income--Net............................................ 0 (19,300)(1) (19,300)
-------------- ----------- --------------
Income Before Provision for Income Taxes............................. 90,261 (19,300) 70,961
Provision for Income Taxes........................................... (37,786) 8,080 (29,706)
-------------- ----------- --------------
NET INCOME........................................................... $ 52,475 $ (11,220) $ 41,255
-------------- ----------- --------------
-------------- ----------- --------------
BASIC EARNINGS PER SHARE OF COMMON STOCK............................. $ 0.32 $ (0.07) $ 0.25
DILUTED EARNINGS PER SHARE OF COMMON STOCK........................... $ 0.32 $ (0.08)(2) $ 0.24
Average Number of Shares Outstanding--Basic.......................... 165,163,000 -- 165,163,000
Average Number of Shares Outstanding--Diluted........................ 165,664,990 -- 175,355,183
</TABLE>
See Summary of Adjustments to Unaudited Consolidated Pro Forma Statements of
Income.
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NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED PRO FORMA
STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
PRO FORMA
NIELSEN MEDIA PRO FORMA NIELSEN MEDIA
RESEARCH ADJUSTMENTS RESEARCH
------------- ----------- -------------
<S> <C> <C> <C>
($ AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
OPERATING REVENUE................................................ $ 96,064 $ -- $ 96,064
------------- ----------- -------------
Operating Costs and Selling and Administrative Expense........... 67,625 67,625
Depreciation and Amortization.................................... 7,122 -- 7,122
------------- ----------- -------------
OPERATING INCOME................................................. 21,317 -- 21,317
------------- ----------- -------------
Non-Operating Income--Net........................................ 3,185 (4,800)(1) (1,615)
------------- ----------- -------------
Income Before Provision for Income Taxes......................... 24,502 (4,800) 19,702
------------- ----------- -------------
Provision for Income Taxes....................................... (10,256) 2,001 (8,255)
------------- ----------- -------------
NET INCOME....................................................... $ 14,246 $ (2,799) $ 11,447
------------- ----------- -------------
------------- ----------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK......................... $ 0.09 $ (0.02) $ 0.07
DILUTED EARNINGS PER SHARE OF COMMON STOCK....................... $ 0.09 $ (0.02)(2) $ 0.07
</TABLE>
<TABLE>
<S> <C> <C> <C>
Average Number of Shares Outstanding--Basic........ 162,406,000 -- 162,406,000
Average Number of Shares Outstanding--Diluted...... 163,321,842 -- 171,670,784
</TABLE>
SUMMARY OF ADJUSTMENTS TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(1) Non-Operating Income--Net includes the impact of interest expense as of the
beginning of the period presented related to $300 million of debt at an
assumed annual interest rate of 6.4%. Each 1/8% variance in the actual
interest rate will result in an increase or decrease in interest expense of
$375,000 for the year ended December 31, 1997 and $94,000 for the three
months ended March 31, 1998.
(2) Diluted Earnings Per Share of Common Stock for the year ended December 31,
1997 includes the impact ($0.01) of the conversion of Cognizant stock
options held by Nielsen Media Research Employees into Nielsen Medica
Research stock options in accordance with the methodology described under
"Relationship Between IMS HEALTH and Nielsen Media Research After the
Distribution--Employee Benefits Agreement". The impact for the three months
ended March 31, 1998 is less than $0.01.
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NIELSEN MEDIA RESEARCH UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------
PRO FORMA
NIELSEN NIELSEN
MEDIA PRO FORMA MEDIA
RESEARCH ADJUSTMENTS RESEARCH
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents........................................... $ 4,004 -- $ 4,004
Accounts Receivable--Net............................................ 52,966 -- 52,966
Other Current Assets................................................ 5,115 -- 5,115
----------- ----------- -----------
Total Current Assets.................................................. 62,085 -- 62,085
----------- ----------- -----------
Property, Plant and Equipment--Net.................................... 58,023 -- 58,023
Computer Software..................................................... 45,724 -- 45,724
Intangibles........................................................... 12,085 -- 12,085
Other Assets.......................................................... 21,728 -- 21,728
----------- ----------- -----------
Total Assets.......................................................... $ 199,645 -- 199,645
----------- ----------- -----------
----------- ----------- -----------
Liabilities and Divisional Equity
Current Liabilities................................................... $ 43,539 -- 43,539
Long-Term Debt........................................................ -- 300,000(1) 300,000
Other Liabilities..................................................... 48,969 -- 48,969
----------- ----------- -----------
Total Liabilities..................................................... 92,508 300,000 392,508
----------- ----------- -----------
Divisional/Shareholders' Equity....................................... 107,137 (107,137)(2) --
Other Divisional Equity............................................. -- -- --
Preferred Stock, par value $.01 per share, authorized-- 10,000,000
shares; outstanding--none......................................... -- -- --
Series Common Stock, par value $.01 per share,
authorized--10,000,000 shares; outstanding--none.................. -- -- --
Common Stock, par value $.01 per share, authorized-- 400,000,000
shares; outstanding--162,848,673 shares........................... -- 1,711(2) 1,711
Capital Surplus....................................................... -- -- --
Retained Earnings..................................................... -- (150,179)(2) (150,179)
Cumulative Translation Adjustment..................................... -- 643(2) 643
Treasury Stock--8,271,396 shares...................................... -- (45,038)(2) (45,038)
----------- ----------- -----------
Total Equity.................................................... 107,137 (300,000) (192,863)
----------- ----------- -----------
----------- ----------- -----------
Total Liabilities and Divisional/Shareholders' Equity................. $ 199,645 $ 0 $ 199,645
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SUMMARY OF ADJUSTMENTS TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT
OF FINANCIAL POSITION
(1) Long-term debt reflects the borrowing by Cognizant of $300 million to repay
intercompany liabilities. This debt will be an obligation of Nielsen Media
Research after the Distribution.
(2) Divisional/Shareholders' Equity reflects the recapitalization of Nielsen
Media Research in connection with the Distribution.
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NIELSEN MEDIA RESEARCH MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
DOLLAR AMOUNTS IN THOUSANDS
On January 15, 1998, Cognizant announced a plan to separate into two
independent, publicly traded companies--Nielsen Media Research and IMS HEALTH.
The Distribution is subject to final approval by the Cognizant Board of
Directors and obtaining a ruling from the Internal Revenue Service with respect
to the tax-free treatment of the transaction. See Notes 1 and 8 to the Nielsen
Media Research Consolidated Financial Statements.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Nielsen Media Research revenue for the first three months of 1998 increased
11.4% to $96,064 from $86,271. Continuing revenue growth resulted from new
metered markets, additional cable networks and the local Hispanic and
Monitor-Plus measurement services.
Operating costs and selling and administrative expenses for the first three
months of 1998 were $67,625 compared with $57,728 in 1997, an increase of 17.1%.
The increase reflects higher costs related to Year 2000 and increased investment
in the business, including the establishment of new metered markets.
Operating income for the first three months of 1998 were $21,317 compared
with $21,910 in 1997, a decline of 2.7%. The decline resulted primarily from
Year 2000 expenses offset by the revenue growth factors noted above. Excluding
the Year 2000 expenses of 3,185, operating income would have increased 11.8%.
Operating margin during the first three months of 1998 was 22.2%, compared
with 25.4% in 1997. Excluding the Year 2000 expense mentioned above, 1997
operating margin for the first three months of 1998 was 25.5%.
Non-operating income--net of $3,185 for the first three months of 1998
included gains from the disposition of investments.
The consolidated effective tax rate of Nielsen Media Research was 41.9% for
the first three months of 1998 and 1997. The tax rates were computed on a
separate-company basis.
Net income for the first three months of 1998 was $14,246, compared with
$12,730 for the first three months of 1997, an increase of 11.9%.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Nielsen Media Research revenue increased 12.3% in 1997 to $358,594 from
$319,404 in 1996. Revenue growth resulted from additional cable customers,
entrance into three new metered markets, an increase in the level of special
analyses and the continued growth of the Hispanic service.
Operating costs and selling and administrative expenses in 1997 were
$239,670, compared with $212,214 in 1996, an increase of 12.9%. The increase
reflects higher costs related to increased investment in the business, including
the opening of new metered markets and expanded Hispanic services.
Operating income in 1997 was $90,261 compared with $81,961 in 1996, an
increase of 10.1%. The increase resulted primarily from the factors noted above,
partially offset by Year 2000 expenses of $2,681. Excluding the Year 2000
expenses, operating income would have increased 13.4%.
Operating margin in 1997 was 25.2%, compared with 25.7% in 1996. Excluding
the Year 2000 expenses mentioned above, 1997 operating margin was 25.9%.
Nielsen Media Research's consolidated 1997 and 1996 effective tax rate was
41.9%. The tax rates were computed on a separate-company basis.
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Net income in 1997 was $52,475, compared with $47,605 in 1996, an increase
of 10.2%.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue increased 10.7% in 1996 to $319,404 from $288,652 in 1995. Revenue
growth resulted from the expansion of network schedules, increased demand for
custom analyses, addition of cable customers and entrance into two new metered
markets.
Operating costs and selling and administrative expenses in 1996 were
$212,214, compared with $194,741 in 1995, an increase of 9.0%. Operating costs
and selling and administrative expenses in 1995 include a non-recurring charge
of $2,300. Excluding this charge, the increase was 10.3%. The higher operating
costs and selling and administrative expenses were the result of additional
costs related to increased investments in the business, including expanded
metered markets and cable operations.
Operating income in 1996 increased 17.8% to $81,961 from $69,568 in 1995.
Included in the 1995 results were $2,300 of non-recurring charges. Excluding
these charges, the 1996 operating income growth rate was 14.0%. The increase was
the result of the factors mentioned above.
Operating margin in 1996 was 25.7%, compared with 24.1% in 1995. The 1995
margin includes $2,300 of non-recurring charges. Excluding these charges, the
operating margin was 24.9%.
Nielsen Media Research's consolidated effective tax rate was 41.9%, in 1996
and 1995. The tax rates were computed on a separate-company basis.
Net income in 1996 was $47,605, compared with $40,412 in 1995, an increase
of 17.8%.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1997 COMPARED WITH DECEMBER 31,
1996
Accounts Receivable-Net increased to $51,986 at December 31, 1997 from
$44,773 at December 31, 1996, principally due to higher receivables from
increased revenues from cable customers and new metered markets.
Property, Plant and Equipment increased to $55,050 at December 31, 1997 from
$44,310 at December 31, 1996, principally due to equipment purchases for metered
markets.
Computer Software increased to $43,093 at December 31, 1997 from $35,653 at
December 31, 1996, principally due to software related to the transition from
mainframe to client server technology.
Unbilled Accounts Receivable (included in Other Assets) decreased to $12,566
at December 31, 1997 from $15,547 at December 31, 1996, principally due to the
timing of contract billings.
Accounts Payable increased to $14,355 at December 31, 1997 from $6,876 at
December 31, 1996, principally due to the timing of payments.
Deferred Income Taxes increased to $34,394 at December 31, 1997 from $29,379
at December 31, 1996, principally due to the future tax impact arising from
computer software additions.
Divisional Equity increased to $101,583 at December 31, 1997 from $99,353 at
December 31, 1996, principally due to net income of $52,475, partially offset by
transfers to Cognizant of $51,107.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In 1995, Nielsen Media Research recorded a pre-tax charge of $2,300 that
included an impairment loss of $500 related to long-lived assets for which
management, having the authority to approve such business decisions, committed
to a plan to replace certain production systems.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" requires that long-lived assets and certain intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In general, this statement
requires recognition of an impairment loss when the sum of undiscounted expected
future cash flows is less than the carrying
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amount of such assets. The measurement for such impairment loss is then based on
the fair value of the asset. While SFAS No. 121 affected the measurement of the
impairment charge noted above, it had no effect on the timing of recognition of
the impairment.
The 1995 charge principally reflected an impairment loss related to the
revaluation of certain production systems which were replaced or no longer used
and the write-down of an equity investment.
In October 1995, the Financial Accounting Standards Board (``FASB") issued
SFAS No. 123 ``Accounting for Stock-Based Compensation", which requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. Nielsen Media Research
has chosen to continue applying Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. If
compensation cost for Nielsen Media Research's stock-based compensation plans
had been determined based on the fair value at the grant dates for awards under
those plans, consistent with the method of SFAS No. 123, Nielsen Media
Research's net income and earnings per share would have been reduced to the pro
forma amounts as disclosed in Note 5 to the Nielsen Media Research Consolidated
Financial Statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
simplifies existing computational guidelines, revises disclosure requirements
and increases the comparability of earnings-per-share data on an international
basis. Basic earnings per common share are based on the weighted average number
of common shares outstanding in each year. Diluted earnings per common share
assume that outstanding common shares were increased by shares issuable upon
exercise of those stock options for which market price exceeds exercise price,
less shares which could have been purchased by Nielsen Media Research with
related proceeds. This statement has been adopted by Nielsen Media Research.
(See Note 2 to the Nielsen Media Research Consolidated Financial Statements.)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for periods beginning after
December 15, 1997. Nielsen Media Research is in the process of evaluating the
disclosure requirements under this standard.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
periods beginning after December 15, 1997. Nielsen Media Research is in the
process of evaluating the disclosure requirements under this standard.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions And Other Postretirement Benefits", which changes current
financial statement disclosure requirements from those required under SFAS No.
87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The statement does not change the
existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106, and
is effective for periods beginning after December 15, 1997. Nielsen Media
Research is in the process of evaluating the disclosure requirements under this
standard.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance on
costs to be capitalized and when capitalization of such costs should commence.
Nielsen Media Research is evaluating the impact of this SOP on its financial
position and
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results of operations and will be required to implement SOP 98-1 for the fiscal
year ended December 31, 1999.
NON-U.S. OPERATING AND MONETARY ASSETS
Nielsen Media Research operates in the U.S. and Canada. Approximately 3% of
Nielsen Media Research's revenues and 4% of operating income in 1997 were
derived from Canadian operations. As a result, fluctuations in the value of the
Canadian dollar relative to the U.S. dollar do not significantly affect Nielsen
Media Research's results of operations.
Non-U.S. monetary assets are maintained in Canadian dollars. Changes in the
value of this currency relative to the U.S. dollar are charged or credited to
Divisional Equity. The effect of exchange rate changes during 1997 was not
material.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4,004 and $10,081 at March 31, 1998 and
1997, respectively, a decrease of $6,077.
Net cash provided by operating activities was $21,481 and $28,295 for the
three months ended March 31, 1998 and 1997, respectively. The decrease of $6,814
in cash provided by operating activities compared to the prior period primarily
reflected an increase in other working capital.
Net cash used in investing activities totaled $14,944 for the three months
ended March 31, 1998 compared with $9,685 in the prior period. The increase of
$5,259 primarily reflected an increase in additions to computer software.
Net cash used in financing activities was $8,530 for the three months ended
March 31, 1998 compared with $14,061 in the prior period. The decrease of $5,531
in cash used in financing activities compared to the prior period reflected a
decrease in the net transfers to Cognizant.
Cash and cash equivalents totaled $5,993 and $5,557 at December 31, 1997 and
1996, respectively. The increase in cash and cash equivalents of $436 was
primarily due to increased cash flow from operations, offset, in part, by
increased cash used in investing activities and transfers to Cognizant.
Net cash provided by operating activities was $94,392, $64,667 and $90,273
in 1997, 1996 and 1995, respectively. The increase of $29,725 in cash provided
by operating activities in 1997 primarily reflected a lower increase in accounts
receivable, an increase in accounts payable and an increase in postretirement
benefits, offset, in part, by a lower increase in deferred income taxes. The
decrease of $25,606 in net cash provided by operating activities in 1996
primarily reflected a higher level of accounts receivable and a decrease in
postretirement benefits, offset, in part, by an increase in deferred income
taxes.
Net cash used in investing activities totaled $42,842 for 1997, compared
with $40,785 and $30,899 in 1996 and 1995, respectively. The increase of $2,057
in cash used in investing activities in 1997 primarily reflected an increase in
capital expenditures and an increase in additions to computer software. The
increase of $9,886 in cash used in investing activities in 1996 primarily
reflected an increase in capital expenditures and an increase in additions to
intangibles.
Net cash used in financing activities totaled $51,107 for 1997, compared
with $19,069 and $58,755 in 1996 and 1995, respectively. The increase of $32,038
of cash used in financing activities in 1997 reflected an increase in the net
transfers to Cognizant/D&B. The decrease of $39,686 of cash used in financing
activities in 1996 reflected a decrease in the net transfer to Cognizant/D&B.
On February 18, 1997 Cognizant announced that its Board of Directors had
authorized a systematic stock repurchase program to buy up to 8.5 million shares
of Cognizant's outstanding common stock. The stock purchases are held in
Treasury and reissued upon exercise of employee stock options. This program was
completed on September 5, 1997 at a total cost of $299,737.
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On October 21, 1997 Cognizant announced that its Board of Directors had
authorized a second systematic stock repurchase program to buy up to 10 million
shares of Cognizant's outstanding common stock. A portion of this program is
intended to cover option exercises. Through December 31, 1997, 574,600 shares
have been acquired at a total cost of $22,756. Nielsen Media Research's
management has not decided the extent to which Nielsen Media Research will
continue this stock repurchase program after the Distribution.
Nielsen Media Research's existing balances of cash and cash equivalents and,
cash generated from operations and debt capacity are expected to be sufficient
to meet Nielsen Media Research's long-term and short-term cash requirements
including continued investment in the business.
YEAR 2000
Many existing computer systems and software applications use two digits,
rather than four, to record years, e.g., "98" instead of "1998." Unless
modified, such systems will not properly record or interpret years after 1999,
which could lead to business disruptions. This is known as the "Year 2000
issue".
Nielsen Media Research depends on systems and software both for its internal
operations as well as for the receipt of data used in its information products
and the transmission of those products to its customers. Nielsen Media Research
began to address the Year 2000 issue in 1996. It expects to complete upgrading
or replacing substantially all affected programs during 1998, with testing to be
done during 1999. The operating income impact of Year 2000 compliance in 1997
was $2,681. Based on current information, the operating income impact of Year
2000 compliance in 1998 is expected to be in the range of $8,000 to $9,000. Year
2000 compliance expenditures for 1999 are in the process of being determined;
however, the costs are expected to be less than in 1998. These costs are being
expensed as incurred.
In addition Nielsen Media Research is communicating with its customers and
data suppliers to assess their ability to address the Year 2000 issue. Failures
by customers to be Year 2000 compliant could hinder their ability to make use of
Nielsen Media Research's products. Failures by data suppliers could disrupt the
flow of data used in Nielsen Media Research's products. While Nielsen Media
Research believes most companies it deals with are addressing the issue, it is
unable to determine the effect, if any, such failures might have on Nielsen
Media Research's business or future results of operations.
The costs of addressing the Year 2000 issue and the date on which Nielsen
Media Research expects to complete Year 2000 compliance are based on the best
estimates of Nielsen Media Research management, which were derived utilizing
various assumptions regarding future events. There can be no guarantee that
these estimates will be achieved and actual results may differ materially.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area of
expertise, the ability to locate and correct all relevant computer codes, and
the success of customers and suppliers in addressing the Year 2000 issue.
DIVIDENDS
The payment and level of cash dividends by Nielsen Media Research are
subject to the discretion of the Board of Directors of Nielsen Media Research.
Nielsen Media Research currently intends to retain future earnings for the
development of its business and does not anticipate paying cash dividends in the
near future. Future dividend decisions will be based on, and affected by, a
number of factors, including the operating results and financial requirements of
Nielsen Media Research on a stand-alone basis. There can be no assurance that
any dividends will be declared or paid.
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NIELSEN MEDIA RESEARCH BUSINESS
GENERAL
Nielsen Media Research conducts television audience measurement and related
services in the United States and, through a wholly owned subsidiary, Nielsen
Media Research, Ltd., in Canada.
Nielsen Media Research estimates television audience size and demographics
and reports this and related information to advertisers, advertising agencies,
program syndicators, broadcast networks, cable networks, cable operators,
television stations, station representatives and others in order to increase the
effectiveness of television advertising and programming. This syndicated
information is offered on a subscription basis. Custom or ad-hoc analyses of the
data are also offered to subscribers. The information is used by subscribers to
buy, sell, plan and price television time and to make programming and scheduling
decisions.
In 1997, advertisers spent approximately $42 billion in the United States on
national and local television advertising, according to McCann-Erickson
Worldwide, to bring a variety of programs and advertising messages to
approximately 98 million U.S. television households. This underscores the need
for television stations, networks, advertisers, advertising agencies and others
to understand how many households and what types of people are reached by such
programming.
Nielsen Media Research estimates television audiences and reports data in
the United States primarily through these services: Nielsen Television Index,
Nielsen Syndication Services, Nielsen Homevideo Index, Nielsen Station Index,
Nielsen Hispanic Television Index and Nielsen Hispanic Station Index. In Canada,
Nielsen Media Research measures television audiences and reports data through
national and local market people meter services.
Nielsen Media Research also offers services that enable advertisers to
manage their media spending by linking television ratings to commercial
occurrences, and that provide information to the expanding interactive media
industry.
NATIONAL SERVICES
Through its U.S. national services, Nielsen Media Research serves the
television audience measurement needs of 6 national television broadcast
networks, 46 national and regional cable networks, more than 100 program
syndicators, and more than 150 national advertising agencies and advertisers.
Audience measurement data are collected nationally through Nielsen People Meters
installed in over 5,000 randomly selected households across the U.S. Audience
estimates are produced and delivered to subscribers daily. People meters not
only collect television set tuning data (which channel the set is tuned to) but
also the demographics of the audience (who in the household is watching).
Three national services are offered in the United States:
- NIELSEN TELEVISION INDEX (NTI) provides daily audience total and
demographic estimates for all national broadcast network television
programs to broadcast networks and agencies. This service was established
in 1950.
- NIELSEN HOMEVIDEO INDEX (NHI) - NATIONAL provides audience estimates of
cable and pay cable television. This service was established in 1980.
- NIELSEN SYNDICATION SERVICES (NSS) provides reports and services on both
the local and national levels to the program syndication segment of the
television industry. This service was established in 1985.
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LOCAL SERVICES
Nielsen Media Research's local services serve the television audience
measurement needs of more than 1,000 television stations, more than 150 local
cable operators and syndicators, and over 2,000 national, regional and local
advertising agencies and advertisers in over 200 local television markets
throughout the United States. Nielsen Media Research currently provides metered
service in 38 of the nation's largest markets representing about 59% of
television households in the United States. Six additional markets are scheduled
to be metered during 1998, bringing the total number of local metered markets to
44. Television set tuning data are collected electronically using a Nielsen
Media Research set meter. Household audience (as opposed to persons) estimates
are delivered daily to subscribers. In these markets, written diaries are used,
during designated measurement periods, to collect audience demographic estimates
for integration with the metered tuning data. Diaries are used in the balance of
local markets to collect both tuning and persons-viewing information during
designated periods.
Two local services are offered in the United States:
- NIELSEN STATION INDEX (NSI) provides local market television audience
measurement to stations and agencies throughout the U.S. This service was
established in 1954.
- NIELSEN HOMEVIDEO INDEX (NHI) - LOCAL provides audience measurement
services for more than 150 local cable operators.
U.S. HISPANIC SERVICES
Hispanic Services provide both national and local television audience
measurement of U.S. Hispanic households.
- NIELSEN HISPANIC TELEVISION INDEX (NHTI) provides viewing estimates of
national Hispanic audiences. Begun in November 1992, the NHTI service
remains the first and only metered national Hispanic audience measurement
service. Based on a sample of 800 Hispanic households across the U.S., it
uses the same methodology as the other national services (the Nielsen
People Meter) to collect Hispanic audience data.
- NIELSEN HISPANIC STATION INDEX (NHSI) uses a language-stratified sample to
reflect the unique characteristics of each local Hispanic market. The NHSI
service provides advertisers, agencies, networks and syndicators viewing
information in more than a dozen television markets with significant
Hispanic population. The data are collected using a people meter
methodology in the Los Angeles market and a variety of set meter and diary
methodologies in the remaining markets.
CANADIAN SERVICES
In Canada, Nielsen Media Research has offered national people meter service
since 1989 to Canadian national and regional broadcasters, cable networks,
agencies and advertisers. Nielsen Media Research has also provided local people
meter service in Canada's two largest English-language markets, Toronto (since
1995) and Vancouver (begun in the fall of 1997) to local broadcasters, agencies
and advertisers.
OTHER SERVICES
- MONITOR-PLUS. Nielsen Media Research's Monitor-Plus service links
television ratings to commercial occurrence data and tracks "share of
spending" and "share of voice" (the proportion of all television
advertising within a product category attributable to a brand or
advertiser, as expressed in rating points) by company, by brand, and by
product category across fifteen monitored media. These include print,
outdoor, radio and free-standing inserts as well as television, for which
it also reports at the creative execution and campaign level. This service
offers the data and tools necessary for advertisers and their agencies to
actively manage their media spending by enabling them to
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understand their own performance and that of their competitors. Customers
use the data to determine competitive advertising trends and performance
within markets of interest. The media also use this service for sales
planning and targeting.
In January 1997, Monitor-Plus expanded service to 75 markets from 50,
thereby matching the coverage of its principal competitor and market
leader Competitive Media Reports. Monitor-Plus plans to deploy new digital
data collection and processing technology in 1998.
- NEW MEDIA SERVICES (NMS) is a successor to a service formed in 1980 that
provides custom research and start-up services for newly developed
syndicated products, both national and local. This includes measurement
performance of non-traditional research such as place-based media and out-
of-home studies. The automated tracking of the use of video news releases
and the measuring of media exposure in airports and in-flight are two more
examples of NMS research services.
- NIELSEN INTERACTIVE SERVICES. In 1995, Nielsen Media Research formed a
separate service to develop research products and services for the
Internet and other interactive media.
During 1995, Nielsen Media Research entered into a strategic relationship
with Internet Profiles Corporation ("I/Pro") to jointly market and brand
two Internet measurement tools: Netline (formerly I/COUNT), which monitors
Web site usage and I/AUDIT, which audits and verifies audience usage and
characteristics.
In addition, separate from its agreement with I/Pro, Nielsen Media
Research plans to establish a panel to monitor computer usage and activity
in households. The panel will provide high quality research to computer
and Internet industry participants (media, advertisers, agencies, hardware
manufacturers, software developers, etc.). Roll-out of the service is
planned for 1998. Additional offerings in the interactive/Internet area
include the Nielsen CommerceNet Internet Demographics Study (a twice per
year study that profiles the size and audience composition of on-line
users) and the Home Technology Report, a survey that provides data on
consumer interest and use of various technologies in the home.
DATA COLLECTION
PEOPLE METER. The heart of the Nielsen Media Research national and Hispanic
services in the United States and all services in Canada is an electronic
measurement system called the Nielsen People Meter. These meters are placed in a
sample of 5,000 households in the U.S., 850 U.S. Hispanic households and over
2,000 households in Canada, randomly selected and recruited by Nielsen Media
Research. A set meter is installed on each television set in a national sample
home along with a device to record who is watching the television. Each member
of the household is assigned a personal viewing button identified by name or
symbol on the people meter that the viewer can use to enter his or her viewing
status. Household members are instructed to record their viewing on a television
set in a household whenever they are watching or listening to that set. Each
button is linked to the age and gender of a person in the household. Additional
buttons on the meter enable visitors to a sample household to record when they
watch television by entering their age and gender and pushing a visitor button.
The Nielsen Media Research metering system stores half minute by half minute
records of television receiver tuning activity and of people meter audience data
entries in sample households. The U.S. tuning records are automatically
transmitted by phone to Nielsen Media Research's central computer facility in
Dunedin, Florida where the data are matched with program line-up information and
processed to create ratings estimates.
SET METER. In 38 of the largest local markets in the U.S., a set metering
system provides household television ratings information on a daily basis. In
each of these markets, approximately 400-550 households (or approximately 19,000
households across the U.S.) are recruited to participate in a sample distinct
from the national people meter sample. Electronic meters are attached to each
television set in each sample
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home. Homes recruited for local samples are not equipped with people meter
attachments, so that the information is limited to identification of the program
to which the set is tuned. The metered market samples of television households
are used to obtain audience estimates with measurable reliability of television
programs for stations which originated in or are assigned for reporting purposes
to Nielsen Media Research's Designated Market Areas ("DMAs").
DIARIES. In addition to set meters, Nielsen Media Research uses diaries in
local markets (over 200 DMAs in the U.S.) to collect viewing data during at
least four designated measurement periods each year. Diary measurement is used
to collect viewing information (both tuning and demographics) from sample homes
in every local television market across the United States in November, February,
May and July (known as "sweeps" months) of each year. The diary provides
audience (both tuning and demographics) data in the smaller non-metered markets
and demographic data for the metered markets. In addition to the four sweeps
months, in some larger markets diaries are used to provide viewer information in
as many as three additional months (October, January, and March). Diaries
returned to Nielsen Media Research are examined and edited using established
procedures. Audience estimates are then computed separately for each quarter
hour of viewing recorded in the diary.
INVESTMENTS
Nielsen Media Research maintains an active investment program to enhance
existing services and develop new services in response to the rapidly changing
media marketplace, as well as to develop the technology necessary to succeed in
the emerging television environment. The majority of the investment effort and
spending is dedicated to improving the quality and efficiency of existing
services; realizing the full potential of those services by adding new,
value-added or derivative products, especially new software products; developing
a next-generation data collection capability and infrastructure; and creating
new services and businesses.
Nielsen Media Research's most significant investment initiatives include the
local service diary sample expansion; new client-server based data processing
and delivery software development; the Universal Metering Initiative ("UMI");
and new business development, notably Nielsen Interactive Services and New
Millennium.
In March 1996, Nielsen Media Research announced plans to implement a
significant increase in the size of its diary samples. Beginning in May 1996,
diary samples were increased by 10% and by an additional 5% in October 1996.
During 1997, Nielsen Media Research increased diary samples by an additional 35%
in 88 markets where stations financially supported the increase.
Since 1992, Nielsen Media Research has continued to make significant
investments to transition itself to a new flexible client/server architecture
for data collection, processing and delivery. These investments are designed to
provide Nielsen Media Research with reengineered and more capable data
collection and processing systems, and to provide customers with flexible and
high value Windows-TM--based software products.
As part of its UMI program, Nielsen Media Research is developing a
next-generation metering system, known as the Active/Passive, or "A/P", metering
system, to enable measurement of program viewing in the emerging digital
television environment. This new system uses codes, which are imperceptible to
the viewer, inserted in the audio and/or video portions of programs and
commercials that can be detected by metering equipment installed in the sample
households. The system also has a passive signature-recognition back-up
capability. This encoding approach builds upon Nielsen Media Research's
experience in developing and using its highly successful program video code
technology used in today's analog television environment, which has received
permanent authorization from the Federal Communications Commission (the "FCC").
There can be no assurance, however, that the coding used by the new system will
be adopted by the television industry, be approved by the FCC, or be compatible
with signal compression techniques implemented by the industry in the future.
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In December 1997, Nielsen Media Research purchased approximately 5% of the
outstanding shares in I/Pro.
New Millennium is an agency buying system that Nielsen Media Research
believes will be superior in design and concept to any existing or anticipated
competitive product. It is being designed to give advertising agencies the
ability to perform pre-buy analyses, track negotiations and scheduling of ad
time, evaluate overall performance in terms of delivery and cost, and finally,
perform the reconciliation and subsequent accounting functions. By automating
tasks now done manually at agencies, the system may substantially reduce agency
costs. To date, the first of seven planned modules, Spot TV, has been built.
In January 1998, Nielsen Media Research announced the development of a new
metering system to track television viewing within Microsoft Corporation's
Windows 98-TM-. This new technology, developed jointly by Nielsen Media Research
and Microsoft engineers, will be used to capture audience for those sample
households where television programming is viewed using this Microsoft operating
system.
COMPETITION
Nielsen Media Research has maintained a strong leadership position in
relation to its competitors. Arbitron, a former competitor, discontinued its
local syndicated broadcast and cable television ratings service as of December
31, 1993.
A television ratings project funded by the CONTAM and designed and operated
by SRI, is operating a 500 household sample in Philadelphia as a national
television ratings laboratory. SRI's Philadelphia sample has yet to provide
program level data, although SRI has recently announced plans to provide program
level data from a subset of the sample in early 1998. Funding has been
contributed primarily by the three major broadcast networks, ABC, CBS, and NBC.
During 1996, ABC, CBS, and NBC together through CONTAM contributed $10 million
(in addition to the $30 million they contributed in 1994) in funding for the
completion of the Philadelphia test. In addition to the other three major
networks, Fox Broadcasting as well as four cable networks, fifteen major
advertising agencies and buying services, one program syndicator and five of the
nation's largest advertisers have agreed to support and participate in the
testing phase. Some of these companies have contributed to the funding of SRI
and SRI is actively seeking financial support from major media companies for a
national ratings service. The Philadelphia sample is viewed by some as a test
market for a national ratings service. In addition, the NBC and CBS broadcast
television networks have asked SRI for a business plan for the creation of a
national measurement system that could provide an alternative to the Nielsen
Television Index service.
On the local level, ADCOM offers individual cable system measurement. It is
currently collecting and issuing local cable measurement data in Jacksonville,
Florida. Arbitron continues to develop its passive people meter technology and
is believed to be testing this technology for possible use in the television
audience measurement business. Indirectly, on both a national and local basis,
competition stems from other marketing research services offering product
movement and television audience data and services.
In Canada, BBM, an established media research organization, has joined with
Taylor Nelson/AGB, a U.K.-based media research company, and announced plans to
provide a competing metered service in Vancouver. BBM, alone or with Taylor
Nelson/AGB, could offer other competitive services in Canada.
Monitor-Plus has significant competition from Competitive Media Reports, a
subsidiary of VNU, a Netherlands-based media company, which has long been the
major participant in this market.
INTELLECTUAL PROPERTY
Nielsen Media Research owns and controls a number of patents, trade secrets,
confidential information, trademarks, trade names, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to its business. Management believes that the "Nielsen Media Research" name and
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related names, marks and logos are of material importance to Nielsen Media
Research. Nielsen Media Research is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by Nielsen Media Research.
Pursuant to the Intellectual Property Agreement dated as of October 28, 1996
between Cognizant, D&B and ACNielsen (the "D&B IP Agreement"), Nielsen Media
Research has exclusive and unrestricted rights to the "Nielsen Media Research"
name worldwide; however, Nielsen Media Research's use of the "Nielsen" name,
standing alone and as part of a name describing new products and services to be
offered, is subject to certain limitations. In addition, the D&B IP Agreement
provided for the establishment of a limited liability company jointly owned by
Cognizant and ACNielsen, into which certain trademarks incorporating or relating
to the "Nielsen" name in various countries were assigned. This company is
obligated to license such trademarks on a royalty-free basis to Nielsen Media
Research or ACNielsen for use in a manner consistent with the D&B IP Agreement
and for purposes of conducting their respective businesses, and is responsible
for preserving the quality of those trademarks and minimizing any risk of
possible confusion. Pursuant to the TAM Master Agreement dated as of October 28,
1996 between Cognizant and ACNielsen, Cognizant granted a non-exclusive license
to ACNielsen to use certain trademarks, technology and related intellectual
property rights in the conduct of the television audience measurement business
outside of the United States and Canada for a period of five years. This
agreement does not restrict Nielsen Media Research from doing business outside
the United States and Canada.
The technology and other intellectual property rights licensed by Nielsen
Media Research are of importance to its business, although management of Nielsen
Media Research believes that, with the exception of the trademarks incorporating
or relating to the "Nielsen" name, the business, as a whole, is not dependent
upon any one intellectual property or group of such properties.
The names of Nielsen Media Research's and its subsidiaries' products and
services referred to herein are trademarks, service marks, registered trademarks
or registered service marks owned by or licensed to Nielsen Media Research or
one of its subsidiaries.
EMPLOYEES
As of December 31, 1997, Nielsen Media Research had approximately 3,300
full-time equivalent employees in the United States and Canada. Of these,
approximately 3,200 are located in the United States, and none of these are
represented by labor unions. Nielsen Media Research believes that, generally,
relations with its employees are good and have been maintained in a normal and
customary manner.
PROPERTIES
Nielsen Media Research's real property is geographically distributed to meet
sales and operating requirements. Nielsen Media Research owns its major
processing facility in Dunedin, Florida. Its other properties are leased from
third parties. Nielsen Media Research's properties are generally considered to
be both suitable and adequate to meet current operating requirements and
virtually all space is being utilized.
STRATEGY
Nielsen Media Research's strategic goal is to be the acknowledged worldwide
leader in satisfying the media industry's needs for high quality information
which defines the value of media, and services which enable its customers and
the marketplace to operate more effectively.
Nielsen Media Research's strategy has two components: first, to realize the
potential of its existing businesses, both national and local; and second, to
optimize its market strengths and capabilities into realizing new opportunities
in adjacent markets and new businesses.
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- Nielsen Media Research intends to realize the potential of its core
businesses by enhancing quality in its operations, enhancing productivity,
anticipating environmental and marketplace changes and competitive
threats, responding with fast moving and flexible capabilities and
decision support solutions, adding derivative products and services, and
providing value-added solutions. Central to this strategy are its
investments in data collection and processing technology, as well as in
data and sample quality.
- Nielsen Media Research intends to optimize its capabilities and
infrastructure into new high-potential opportunities by providing services
that not only enable its customers to make better decisions but allow them
to better anticipate their own futures. Nielsen Media Research's most
significant initiatives in this area include Monitor-Plus, Nielsen
Interactive Services and New Millennium.
LEGAL PROCEEDINGS
Nielsen Media Research and its subsidiaries are involved in legal
proceedings and litigation arising in the ordinary course of business. In the
opinion of management, the outcome of all current proceedings, claims and
litigation, if decided adversely, could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
However, in the opinion of management, these matters will not materially affect
Nielsen Media Research's consolidated financial position.
In addition, on July 29, 1996, IRI filed a complaint in the United States
District Court for the Southern District of New York, naming as defendants D&B,
A.C. Nielsen Company and IMS.
The complaint, as subsequently amended, alleges various violations of the
United States antitrust laws, including alleged violations of Sections 1 and 2
of the Sherman Act. The complaint also alleges a claim of tortious interference
with a contract and a claim of tortious interference with a prospective business
relationship. These latter claims relate to the acquisition by defendants of
SRG. IRI alleges that SRG violated an alleged agreement with IRI when it agreed
to be acquired by defendants and that the defendants induced SRG to breach that
agreement.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
has asked to be trebled under the antitrust laws. IRI also seeks punitive
damages in an unspecified amount. Defendants have filed answers denying the
material allegations in IRI's complaint and amended complaint, and A.C. Nielsen
Company has filed a counterclaim alleging that IRI has made false and misleading
statements about its services and commercial activities.
In connection with the 1996 Distribution, with respect to the IRI Action,
D&B, ACNielsen (the parent company of A.C. Nielsen Company) and Cognizant
entered into the Indemnity and Joint Defense Agreement pursuant to which they
agreed (i) to certain arrangements allocating IRI Liabilities that may arise out
of or in connection with the IRI Action, and (ii) to conduct a joint defense of
such action. In particular, the Indemnity and Joint Defense Agreement provides
that ACNielsen will assume exclusive liability for IRI Liabilities up to ACN
Maximum Amount, and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
is able to pay after giving effect to (i) any plan submitted by such investment
bank which is designed to maximize the claims paying ability to ACNielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring shareholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of ACNielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due and to finance the current and anticipated
operating and capital requirements of its business, as reconstituted by such
plan, for two years from the date any such plan is expected to be implemented.
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Under the terms of the 1996 Distribution Agreement, as a condition to the
1996 Distribution, IMS HEALTH and Nielsen Media Research are required to
undertake to be jointly and severally liable to D&B and ACNielsen for
Cognizant's obligations under the 1996 Distribution Agreement. However, pursuant
to the Distribution Agreement, IMS HEALTH and Nielsen Media Research have agreed
that, as between themselves, IMS HEALTH will assume 75%, and Nielsen Media
Research will assume 25%, of any payments to be made in respect of the IRI
Action under the Indemnity and Joint Defense Agreement or otherwise, including
any legal fees and expenses related thereto incurred in 1999 or thereafter. IMS
HEALTH has agreed to be fully responsible for any legal fees and expenses
incurred during 1998. Nielsen Media Research's aggregate liability to IMS HEALTH
for payments in respect of the IRI Action and certain other contingent
liabilities shall not exceed $125 million.
Management of Nielsen Media Research is unable to predict at this time the
final outcome of this matter or whether the resolution of this matter could
materially affect Nielsen Media Research's results of operations, cash flows or
financial position.
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NIELSEN MEDIA RESEARCH MANAGEMENT AND EXECUTIVE COMPENSATION
William G. Jacobi is currently Chairman of Nielsen Media Research and will
be non-executive Chairman of the Board of Directors of Nielsen Media Research
after the Distribution. John A. Dimling is currently President and Chief
Operating Officer of Nielsen Media Research and will be President and Chief
Executive Officer of Nielsen Media Research after the Distribution. The Board of
Directors of Nielsen Media Research will be composed of certain persons who are
currently directors of Cognizant and certain persons who are not currently
directors of Cognizant. In addition to Mr. Dimling, the other executive officers
of Nielsen Media Research will be drawn primarily from the current management of
Nielsen Media Research and Cognizant.
NIELSEN MEDIA RESEARCH BOARD OF DIRECTORS
Immediately after the Distribution, Nielsen Media Research expects to have a
Board of Directors composed of seven directors.
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of Nielsen
Media Research following the Distribution, including information as to service
with Cognizant, if applicable.
<TABLE>
<CAPTION>
DIRECTOR OF
POSITIONS WITH COGNIZANT PRINCIPAL OCCUPATION DURING
NAME COGNIZANT SINCE LAST FIVE YEARS AGE*
- ---------------------------- ------------------ ------------ -------------------------------------------- ---------
<S> <C> <C> <C> <C>
John A. Dimling............. President and -- President and Chief Operating Officer, 59
Chief Operating Nielsen Media Research, 7/93 to present
Officer of Nielsen
Media Research
William G. Jacobi........... Chairman of -- Chairman, Nielsen Media Research, 11/96 to 54
Nielsen Media present; Chairman, IMS; Executive Vice
Research President, Cognizant, 9/96 to 12/97; Senior
Vice President, The Dun & Bradstreet
Corporation, Wilton, CT (information
services), 7/93 to 10/96; President and
Chief Operating Officer, Nielsen Media
Research, 1/91 to 7/93.
M. Bernard Puckett.......... Director 1996 Private Investor, 1/96 to present; President 53
and Chief Executive Officer, Mobile
Telecommunication Technologies Corp.;
Jackson, MS (telecommunications), 5/95 to
1/96; President, Chief Operating Officer,
1/94 to 5/95; Senior Vice President--
Corporate Strategy and Development,
International Business Machines Corporation,
Armonk, NY (computers), 7/93 to 12/93;
General Manager of Applications Solutions,
1/91 to 7/93.
Robert E. Weissman.......... Chairman and 1996 Chairman and Chief Executive Officer, 57
Chief Executive Cognizant, 9/96 to present; Chairman and
Officer, Director Chief Executive Officer, The Dun &
Bradstreet Corporation, Wilton, CT
(information services), 4/95 to 10/96;
President and Chief Executive Officer, 1/94
to 3/95; President and Chief Operating
Officer, 1/85 to 12/93.
<CAPTION>
OTHER
NAME DIRECTORSHIPS
- ---------------------------- ------------------
<S> <C>
John A. Dimling.............
William G. Jacobi...........
M. Bernard Puckett.......... P-Com, Inc.; R.R.
Donnelley & Sons
Company; Oacis
Healthcare
Holdings Corp.
Robert E. Weissman.......... State Street
Boston
Corporation;
Gartner Group,
Inc.; Cognizant
Corporation.
</TABLE>
- ------------------------
* As of March 13, 1998
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DIRECTOR'S COMPENSATION
Under the director compensation program of Nielsen Media Research, each
non-employee director other than Mr. Jacobi will receive a 1998 retainer of
$12,500; thereafter, the retainer will be paid at an annual rate of $25,000.
Each non-employee director who is the Chairman of a Committee of the Board of
Directors will be paid an additional retainer of $1,500 for 1998 and $3,000
annually thereafter. A fee of $1,000 will be paid to each non-employee director
for every Board or Committee meeting attended. Directors who are employed by
Nielsen Media Research will receive no retainers or meeting fees. As non-
executive Chairman of the Board of Directors, Mr. Jacobi will receive an annual
retainer of $300,000, commencing with his retirement as an employee of IMS
HEALTH in February 1999.
Each non-employee director may elect to have all or a specified part of the
retainer and fees deferred until he or she ceases to be a director. Deferred
amounts may be credited to the account of the directors as deferred cash, which
bears interest at prescribed rates, or as deferred share units in an amount
equal to the amount of deferred compensation divided by the Fair Market Value
(as defined below) of a share of Nielsen Media Research Common Stock on the date
the compensation would otherwise have been paid. Deferred share units are
credited with dividend equivalents. Fair Market Value is the average of the high
and low trading prices of the Nielsen Media Research Common Stock on the date of
determination. Deferred amounts and accrued interest and dividend equivalents
are paid in the form of cash or stock, as appropriate, on the first business day
of the calendar year following the date of the director's termination of service
on the Board of Directors.
COMMITTEES OF THE NIELSEN MEDIA RESEARCH BOARD OF DIRECTORS
Nielsen Media Research's Board of Directors has established Audit and
Compensation and Benefits Committees and designated specific functions and areas
of oversight as to such committees. However, no final determination has yet been
made as to the memberships of such standing committees after the Distribution.
NIELSEN MEDIA RESEARCH EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH NIELSEN MEDIA RESEARCH AND AGE* BIOGRAPHICAL DATA
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
John A. Dimling, 59..................................... See information under "Nielsen Media Research Board of
President and Chief Executive Officer Directors".
Thomas W. Young, 59..................................... Executive Vice President and Chief Financial Officer,
Executive Vice President and Chief Financial Officer 2/98 to present; employee of D&B, 11/96-2/98; Senior
Vice President and Controller, D&B, 4/92 to 10/96.
Barry P. Cook, 53....................................... Senior Vice President and Chief Research Officer, 11/90
Senior Vice President and Chief Research Officer to present.
Stuart J. Goldshein, 51................................. Assistant Controller, Cognizant, 11/96 to present;
Vice President and Controller Assistant Controller, D&B, 1991 to 10/96.
Stephen J. Boatti, 48................................... Associate General Counsel, Cognizant, 11/96 to present;
Senior Vice President, Chief Legal Officer and Secretary Associate General Counsel, D&B, 1993 to 10/96.
Robert A. Lane, 38...................................... Vice President--Finance and Planning, 7/92 to present.
Vice President and Treasurer
Anita M. Rubino, 41..................................... Vice President--Human Resources, 5/94 to present; Vice
Senior Vice President and Chief Human Resources Officer President--Organizational Development, Marketing
Information Services Division, D&B, 5/93-5/94.
John A. Loftus, 55...................................... Vice President--Communications, 4/90 to present.
Senior Vice President and Chief Communication Officer
</TABLE>
- ------------------------
* As of March 13, 1998
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COMPENSATION OF NIELSEN MEDIA RESEARCH EXECUTIVE OFFICERS
The following table discloses the compensation paid by Cognizant for
services rendered to Cognizant in 1997 of Nielsen Media Research's Chief
Executive Officer and to each of the persons who are currently anticipated to be
one of the four other most highly compensated executive officers of Nielsen
Media Research following the Distribution. During the period presented, the
individuals were compensated in accordance with Cognizant's plans and policies.
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH COGNIZANT
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
----------------------- -----------
ANNUAL COMPENSATION (G)
---------------------------------------- (F) SECURITIES (H)
RESTRICTED UNDERLYING LONG-TERM
(A) (C) (D) (E) STOCK OPTIONS/ INCENTIVE
NAME AND PRINCIPAL POSITION WITH (B) SALARY BONUS(1) OTHER ANNUAL AWARD(S) SARS PAYOUTS
NIELSEN MEDIA RESEARCH YEAR ($) ($) COMPENSATION ($) (#) ($)
- ----------------------------------- --------- --------- --------- ------------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Dimling.................... 1997 303,000 181,662 -0- -0- -0- -0-
President and Chief Executive
Officer
Thomas W. Young(3)................. 1997 0 0 0 0 0 0
Executive Vice President and Chief
Financial Officer
Barry P. Cook...................... 1997 212,167 109,165 0 0 0 0
Senior Vice President and
Chief Research Officer
Stuart J. Goldshein................ 1997 211,500 105,746 0 0 0 0
Vice President and Controller
Stephen J. Boatti.................. 1997 188,100 98,226 0 0 0 0
Senior Vice President, Chief
Legal Officer and Secretary
<CAPTION>
(I)
(A) ALL OTHER
NAME AND PRINCIPAL POSITION WITH COMPENSATION(2)
NIELSEN MEDIA RESEARCH ($)
- ----------------------------------- ----------------
<S> <C>
John A. Dimling.................... 19,682
President and Chief Executive
Officer
Thomas W. Young(3)................. 0
Executive Vice President and Chief
Financial Officer
Barry P. Cook...................... 11,454
Senior Vice President and
Chief Research Officer
Stuart J. Goldshein................ 10,508
Vice President and Controller
Stephen J. Boatti.................. 9,585
Senior Vice President, Chief
Legal Officer and Secretary
</TABLE>
- ------------------------
(1) The 1997 bonus award was earned in 1997 and paid in 1998.
(2) The amounts shown represent aggregate annual company contributions for the
account of each named executive officer under the Cognizant Corporation
Savings Plan ("Savings Plan") and Savings Benefit Equalization Plan
("SBEP"), plans which are open to employees of Cognizant and certain
subsidiaries. The Savings Plan is a tax-qualified defined contribution plan
and the SBEP is a non-qualified plan which provides a benefit to
participants in the Savings Plan equal to the amount of company
contributions that would have been made to the participant's Savings Plan
accounts but for certain Federal tax laws.
(3) Mr. Young was not employed by Cognizant during 1997.
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OPTION GRANTS ON COGNIZANT COMMON STOCK TO NIELSEN MEDIA RESEARCH EXECUTIVES
IN LAST FISCAL YEAR
The following table provides information on fiscal year 1997 grants of
options to the named Nielsen Media Research executives to purchase shares of
Cognizant Common Stock. Options to acquire Cognizant Common Stock become options
to purchase Nielsen Media Research Common Stock. See "Relationship Between IMS
HEALTH and Nielsen Media Research After the Distribution--Employee Benefits
Agreement".
OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR
TO PURCHASE COGNIZANT COMMON STOCK
<TABLE>
<CAPTION>
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ (D)
UNDERLYING SARS EXERCISE (F)
OPTIONS/SARS GRANTED TO OR (E) GRANT DATE
(A) GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
- ------------------------------------------ ------------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
John A. Dimling........................... -0- NA NA NA NA
Thomas W. Young........................... -0- NA NA NA NA
Barry P. Cook............................. -0- N/A N/A N/A N/A
Stuart J. Goldshein....................... -0- N/A N/A N/A N/A
Stephen J. Boatti......................... -0- N/A N/A N/A N/A
</TABLE>
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AGGREGATE COGNIZANT OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
COGNIZANT OPTION VALUES
The following table provides information on option exercises in 1997 by the
named executives of Nielsen Media Research and the value of each such
executive's unexercised options to acquire Cognizant Common Stock at December
31, 1997. See also, "Relationship Between IMS HEALTH and Nielsen Media Research
After the Distribution--Employee Benefits Agreement".
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
(B) UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES (C) OPTIONS/SARS AT FISCAL OPTIONS/SARS
ACQUIRED VALUE YEAR-END(1)(#) AT FISCAL YEAR-END(2)($)
(A) ON EXERCISE REALIZED ---------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ----------------- --------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Dimling Effective Date 1,667 $ 16,462 28,015 190,085 $ 304,683 $ 2,067,175
Options 8,333 $ 82,288
Substitute Options 4,989 $ 80,907 36,252 5,241 $ 516,425 $ 57,341
5,514 $ 80,258
7,599 $ 157,963
Thomas W. Young Effective Date -0- $ 0 -0- -0- $ 0 $ 0
Options -0- $ 0 -0- -0- $ 0 $ 0
Substitute Options
Barry P. Cook Effective Date -0- $ 0 13,333 66,667 $ 144,996 $ 725,004
Options -0- $ 0 16,982 2,646 $ 216,682 $ 28,947
Substitute Options
Stuart J. Effective Date -0- $ 0 12,332 61,868 $ 134,111 $ 676,640
Goldshein Options -0- $ 0 13,856 4,430 $ 151,389 $ 48,463
Substitute Options
Stephen J. Boatti Effective Date -0- $ 0 11,333 56,667 $ 123,246 $ 616,254
Options -0- $ 0 30,237 4,431 $ 442,278 $ 48,478
Substitute Options
</TABLE>
- ------------------------
(1) Effective Date Options reflect Cognizant option grants for 1996. Substitute
Options were issued in substitution of D&B Options that were canceled as of
the date of the D&B Spin-off.
(2) No SARs were outstanding at December 31, 1997.
(3) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the fair market value of the underlying
Cognizant Common Stock at December 31, 1997. Options are in-the-money if the
fair market value of the Cognizant Common Stock exceeds the exercise price
of the option.
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COGNIZANT RETIREMENT BENEFITS
Retirement benefits for the named Nielsen Media Research executive officers
are determined under the Cognizant Retirement Plan and the Cognizant Retirement
Excess Plan. Under these plans, Cognizant contributes 6% of the participant's
compensation monthly to the participant's cash balance in the plan. The cash
balance earns monthly investment credits based on the yield on 30-year Treasury
bonds from time to time. These plans also include a minimum monthly benefit for
certain employees who had attained age 50 and had earned 5 years of service as
of October 31, 1996, including Messrs. Dimling and Cook. The minimum benefit is
equal to the excess of (i) 1.7% of final average compensation multiplied by
years of credited service not in excess of 25, plus 1.0% of average final
compensation multiplied by years of credited service in excess of 25, over (ii)
1.7% of the primary Social Security insurance benefits multiplied by years of
credited service not in excess of 25, plus 0.5% of the primary Social Security
insurance benefits multiplied by years of credited service in excess of 25. The
estimated annual benefits upon retirement at age 65 for Messrs. Dimling, Cook,
Goldshein and Boatti are $82,974, $27,830, $41,152 and $29,123, respectively,
based upon their respective credited service to date for these plans of 12, 7,
12 and 11 years. In 1997, Mr. Young was not eligible to participate in the
Cognizant Retirement Plan and the Cognizant Retirement Excess Plan.
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NIELSEN MEDIA RESEARCH SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
After the Distribution, shares of Cognizant Common Stock will be shares of
Nielsen Media Research Common Stock. The following table sets forth the number
of shares of Cognizant Common Stock, the only outstanding equity security (other
than stock options) or voting security of Cognizant, beneficially owned by each
of the directors, each of the executive officers named in the Summary
Compensation Table above, and all persons expected to be directors and executive
officers of Cognizant after the Distribution as a group, at December 31, 1997.
The table also sets forth the name and address of the only persons known to
Cognizant to be the beneficial owners of more than 5% of the outstanding
Cognizant Common Stock (the "5% Owners") and the number of shares so owned, to
Cognizant's knowledge, on December 31, 1997. This information is based upon
information furnished by each such person (or, in the case of the 5% Owners,
based upon a Schedule 13G filed by the 5% Owners with the SEC). Please note that
in certain cases shares required under rules of the SEC to be shown as
beneficially owned are shares as to which the indicated person holds only rights
to acquire within 60 days through exercise of stock options. Unless otherwise
stated, the indicated persons have sole voting and investment power over the
shares listed. All persons expected to be directors and executive officers of
Nielsen Media Research after the Distribution as a group owned less than one
percent of the Cognizant Common Stock on December 31, 1997 and are expected to
own less than one percent of the Nielsen Media Research Common Stock as of the
Distribution Date. Percentages are based upon the number of shares of Cognizant
Common Stock outstanding at December 31, 1997 plus, where applicable, the number
of shares that the indicated person or group had a right to acquire within 60
days of such date. The mailing address for each of the Nielsen Media Research
directors and executive officers listed herein is 299 Park Avenue, New York, New
York 10171.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO OPTIONS
NUMBER OF SHARES EXERCISABLE WITHIN 60
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED DAYS
- ------------------------------------------------------------------ -------------------- ------------------------
<S> <C> <C>
Stephen J. Boatti................................................. 732 41,570
Barry P. Cook..................................................... 639 30,315
John A. Dimling................................................... 1,819 64,267
Stuart J. Goldshein............................................... 873 26,188
William G. Jacobi................................................. 6,742 149,266
M. Bernard Puckett................................................ 4,498(1) 1,166
Robert E. Weissman................................................ 122,964 635,621
Thomas W. Young................................................... 0 0
FMR Corporation................................................... 18,355,768(2)(3) --
82 Devonshire Steet
Boston, MA 02109
</TABLE>
- ------------------------
(1) Includes 898 shares of restricted stock granted under the Non-Employee
Directors' Stock Incentive Plan, which shares are scheduled to vest on
November 15, 2001.
(2) Represents 11.32% of the total outstanding Cognizant Common Stock on
December 31, 1997.
(3) FMR Corporation ("FMR Corp.") and its wholly owned subsidiaries, Fidelity
Management & Research Company ("Fidelity") and Fidelity Management Trust
Company ("FMTC"), jointly filed a Schedule 13G with the SEC on February 14,
1998. This Schedule 13G shows that Fidelity, a registered investment
adviser, beneficially owned at December 31, 1997, 17,116,190 shares of
Cognizant Common Stock. Edward C. Johnson, 3rd, Chairman of FMR Corp., FMR
Corp. and the registered
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investment companies advised by Fidelity each has sole dispositive power
(but no voting power) over such shares. Voting power with respect to such
shares resides with the respective Boards of Trustees of each of the
Fidelity Funds. Mr. Johnson and FMR Corp. each has sole dispositive power
over 1,239,578 shares of Cognizant Common Stock held by FMTC, a bank as
defined under the Securities Act which serves as investment manager for
institutional accounts, sole voting power over 749,378 of such shares and no
voting power over 490,200 of such shares.
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DESCRIPTION OF NIELSEN MEDIA RESEARCH CAPITAL STOCK
Since after the Distribution the capital stock of Cognizant held by
Cognizant stockholders will represent a continuing ownership interest in the
Nielsen Media Research Business, the following summary of Cognizant's current
capital stock structure describes Nielsen Media Research's capital structure
from and after the Distribution.
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that Nielsen Media
Research has authority to issue under its Restated Certificate of Incorporation
is 420,000,000 shares of which 400,000,000 shares represent shares of Nielsen
Media Research Common Stock, 10,000,000 shares represent shares of Preferred
Stock (the "Nielsen Media Research Preferred Stock") and 10,000,000 shares
represent shares of Series Common Stock (the "Nielsen Media Research Series
Common Stock").
NIELSEN MEDIA RESEARCH COMMON STOCK
Subject to any preferential rights of any Nielsen Media Research Preferred
Stock or Nielsen Media Research Series Common Stock created by the Board of
Directors of Nielsen Media Research, each outstanding share of Nielsen Media
Research Common Stock will be entitled to such dividends, if any, as may be
declared from time to time by the Board of Directors of Nielsen Media Research.
See "Dividend Policies--Nielsen Media Research". Each outstanding share is
entitled to one vote on all matters submitted to a vote of stockholders. In the
event of liquidation, dissolution or winding up of Nielsen Media Research,
holders of Nielsen Media Research Common Stock are entitled to receive on a pro
rata basis any assets remaining after provision for payment of creditors and
after payment of any liquidation preferences to holders of Nielsen Media
Research Preferred Stock and Nielsen Media Research Series Common Stock.
NIELSEN MEDIA RESEARCH PREFERRED STOCK AND NIELSEN MEDIA RESEARCH SERIES COMMON
STOCK
Each of the authorized Preferred Stock and the authorized Series Common
Stock of Nielsen Media Research is available for issuance from time to time in
one or more series at the discretion of the Nielsen Media Research Board of
Directors without stockholder approval. The Nielsen Media Research Board of
Directors has the authority to prescribe for each series of Nielsen Media
Research Preferred Stock or Nielsen Media Research Series Common Stock it
establishes the number of shares in that series, the voting rights (if any) to
which such shares in that series are entitled, the consideration for such shares
in that series and the designation, powers, preference and relative,
participating, optional or other special rights, and such qualifications,
limitations or restrictions of the shares in that series. Depending upon the
rights of such Preferred Stock or Series Common Stock, as applicable, the
issuance of Nielsen Media Research Preferred Stock or Nielsen Media Research
Series Common Stock, as applicable, could have an adverse effect on holders of
Nielsen Media Research Common Stock by delaying or preventing a change in
control of Nielsen Media Research, making removal of the present management of
Nielsen Media Research more difficult or resulting in restrictions upon the
payment of dividends and other distributions to the holders of Nielsen Media
Research Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the Nielsen Media Research Common Stock remained listed on the
NYSE, require stockholder approval of certain issuances equal to or exceeding
20% of the then outstanding voting power or then outstanding number of shares of
Nielsen Media Research Common Stock. These additional shares may be used for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. Under
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<PAGE>
terms of the agreements relating to the Acquisitions and subject to Walsh and
PMSI shareholder approval, Walsh shareholders will receive .3041 shares of
Cognizant Common Stock per Walsh share outstanding and PMSI shareholders will
receive .2800 shares of Cognizant Common Stock per PMSI share outstanding. The
number of shares of Cognizant Common Stock to be issued in connection with each
of the Acquisitions is subject to a collar adjustment based on the price of
Cognizant Common Stock during a period prior to the closing of the Acquisitions.
In the event the Acquisitions are not completed prior to the Record Date, Walsh
and PMSI shareholders will receive, in lieu of Cognizant Common Stock, IMS
HEALTH Common Stock pursuant to a formula designed to recalibrate the collar
computations based on the relative value of IMS HEALTH to the total value of IMS
HEALTH and Nielsen Media Research following the Distribution. Cognizant expects
to issue approximately 6.7 million shares from treasury stock to consummate the
Acquisitions. Nielsen Media Research currently does not have any other plans to
issue additional shares of Nielsen Media Research Common Stock, Nielsen Media
Research Preferred Stock or Nielsen Media Research Series Common Stock other
than in connection with employee compensation plans.
One of the effects of the existence of unissued and unreserved Nielsen Media
Research Common Stock, Nielsen Media Research Preferred Stock and Nielsen Media
Research Series Common Stock may be to enable the Board of Directors of Nielsen
Media Research to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of Nielsen Media Research by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of Nielsen Media Research's
management and possibly deprive the stockholders of opportunities to sell their
shares of Nielsen Media Research Common Stock at prices higher than prevailing
market prices. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Nielsen Media Research
pursuant to the operation of the Nielsen Media Research Rights Plan, which is
discussed below.
NIELSEN MEDIA RESEARCH RIGHTS PLAN
Nielsen Media Research plans to continue the Cognizant Rights Plan pursuant
to which a dividend of one preferred share purchase right (a "Nielsen Media
Research Right") for each outstanding share of Nielsen Media Research Common
Stock was declared. Each Nielsen Media Research Right entitles the registered
holder to purchase from Nielsen Media Research one one-thousandth of a share of
Series A Junior Participating Nielsen Media Research Preferred Stock, par value
$0.01 per share (the "Nielsen Media Research Participating Preferred Stock"), of
Nielsen Media Research at a price of $210 per one one-thousandth of a share of
Nielsen Media Research Participating Preferred Stock (as the same may be
adjusted, hereinafter referred to as the "Nielsen Media Research Participating
Preferred Stock Purchase Price"), subject to adjustment. The description and
terms of the Nielsen Media Research Rights are set forth in a Rights Agreement
dated as of October 15, 1996, as the same may be amended from time to time (the
"Nielsen Media Research Rights Agreement"), between Cognizant as predecessor to
Nielsen Media Research and First Chicago Trust Company of New York, as the
Nielsen Media Research Rights Agent (the "Nielsen Media Research Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of Nielsen Media
Research Rights, a "Nielsen Media Research Acquiring Person") have acquired
beneficial ownership of 15% or more of the outstanding shares of Nielsen Media
Research Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes a Nielsen Media Research Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
shares of Nielsen Media Research Common Stock (the earlier of such dates
hereinafter referred to in this description of Nielsen Media Research Rights as
the "Nielsen Media Research Rights Distribution Date"), the Nielsen Media
Research Rights will be evidenced by the certificates representing Nielsen Media
Research Common Stock.
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The Nielsen Media Research Rights Agreement provides that, until the Nielsen
Media Research Rights Distribution Date (or earlier redemption or expiration of
the Nielsen Media Research Rights), the Nielsen Media Research Rights will be
transferred with and only with the Nielsen Media Research Common Stock. Until
the Nielsen Media Research Rights Distribution Date (or earlier redemption or
expiration of the Nielsen Media Research Rights), Nielsen Media Research Common
Stock certificates will contain a notation incorporating the Nielsen Media
Research Rights Agreement by reference. Until the Nielsen Media Research Rights
Distribution Date (or earlier redemption or expiration of the Nielsen Media
Research Rights), the surrender for transfer of any certificates for shares of
Nielsen Media Research Common Stock will also constitute the transfer to the
Nielsen Media Research Rights associated with the shares of Nielsen Media
Research Common Stock represented by such certificate. As soon as practicable
following the Nielsen Media Research Rights Distribution Date, separate
certificates evidencing the Nielsen Media Research Rights ("Nielsen Media
Research Rights Certificates") will be mailed to holders of record of the
Nielsen Media Research Common Stock as of the close of business on the Nielsen
Media Research Rights Distribution Date and such separate Nielsen Media Research
Rights Certificates alone will evidence the Nielsen Media Research Rights.
The Nielsen Media Research Rights will expire on October 23, 2006
(hereinafter referred to in this description of Nielsen Media Research Rights as
the "Nielsen Media Research Final Expiration Date"), unless the Nielsen Media
Research Final Expiration Date is advanced or extended or unless the Nielsen
Media Research Rights are earlier redeemed or exchanged by Nielsen Media
Research, in each case as described below.
The Nielsen Media Research Participating Preferred Stock Purchase Price
payable, and the number of shares of Nielsen Media Research Participating
Preferred Stock or other securities or property issuable, upon exercise of the
Nielsen Media Research Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Nielsen Media Research Participating
Preferred Stock, (ii) upon the grant to holders of the Nielsen Media Research
Participating Preferred Stock of certain rights or warrants to subscribe for or
purchase Nielsen Media Research Participating Preferred Stock at a price, or
securities convertible into Nielsen Media Research Participating Preferred Stock
with a conversion price, less than the then-current market price of the Nielsen
Media Research Participating Preferred Stock or (iii) upon the distribution to
holders of the Nielsen Media Research Participating Preferred Stock of evidences
of indebtedness or assets (excluding regular periodic cash dividends or
dividends payable in Nielsen Media Research Participating Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The Nielsen Media Research Rights are also subject to adjustment in the
event of a stock dividend on the Nielsen Media Research Common Stock payable in
shares of Nielsen Media Research Common Stock or subdivisions, consolidations or
combinations of the Nielsen Media Research Common Stock occurring, in any such
case, prior to the Nielsen Media Research Rights Distribution Date.
Shares of Nielsen Media Research Participating Preferred Stock purchasable
upon exercise of the Nielsen Media Research Rights will not be redeemable. Each
share of Nielsen Media Research Participating Preferred Stock will be entitled,
when, as and if declared, to a minimum preferential quarterly dividend payment
of $10 per share but will be entitled to an aggregate dividend of 1,000 times
the dividend declared per share of Nielsen Media Research Common Stock. In the
event of liquidation, dissolution or winding up of Nielsen Media Research, the
holders of the Nielsen Media Research Participating Preferred Stock will be
entitled to a minimum preferential liquidation payment of $100 per share (plus
any accrued but unpaid dividends) but will be entitled to an aggregate payment
of 1,000 times the payment made per share of Nielsen Media Research Common
Stock. Each share of Nielsen Media Research Participating Preferred Stock will
have 1,000 votes, voting together with the Nielsen Media Research Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Nielsen Media Research Common Stock are converted or exchanged, each
share of Nielsen Media Research Participating Preferred
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Stock will be entitled to receive 1,000 times the amount received per share of
Nielsen Media Research Common Stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Nielsen Media Research Participating Preferred
Stock's dividend, liquidation and voting rights, the value of the one
one-thousandth interest in a share of Nielsen Media Research Participating
Preferred Stock purchasable upon exercise of each Nielsen Media Research Right
should approximate the value of one share of Nielsen Media Research Common
Stock.
In the event that any person or group of affiliated or associated persons
becomes a Nielsen Media Research Acquiring Person, each holder of a Nielsen
Media Research Right, other than Nielsen Media Research Rights beneficially
owned by the Nielsen Media Research Acquiring Person (which will thereupon
become void), will thereafter have the right to receive upon exercise of a
Nielsen Media Research Right and payment of the Nielsen Media Research
Participating Preferred Stock Purchase Price, that number of shares of Nielsen
Media Research Common Stock having a market value of two times the Nielsen Media
Research Participating Preferred Stock Purchase Price.
In the event that, after a person or group has become a Nielsen Media
Research Acquiring Person, Nielsen Media Research is acquired in a merger or
other business combination transaction or 50% or more of its consolidated assets
or earning power are sold, proper provision will be made so that each holder of
a Nielsen Media Research Right (other than Nielsen Media Research Rights
beneficially owned by a Nielsen Media Research Acquiring Person which will have
become void) will thereafter have the right to receive, upon the exercise
thereof, that number of shares of common stock of the person with whom Nielsen
Media Research has engaged in the foregoing transaction (or its parent), which
number of shares at the time of such transaction will have a market value of two
times the Nielsen Media Research Participating Preferred Stock Purchase Price.
At any time after any person or group becomes a Nielsen Media Research
Acquiring Person and prior to the acquisition by such person or group of 50% or
more of the outstanding shares of Nielsen Media Research Common Stock or the
occurrence of an event described in the prior paragraph, the Board of Directors
of Nielsen Media Research may exchange the Nielsen Media Research Rights (other
than Nielsen Media Research Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Nielsen
Media Research Common Stock, or a fractional share of Nielsen Media Research
Participating Preferred Stock of equivalent value (or of a share of a class or
series of Nielsen Media Research's Preferred Stock having similar rights,
preferences and privileges), per Nielsen Media Research Right (subject to
adjustment).
With certain exceptions, no adjustment in the Nielsen Media Research
Participating Preferred Stock Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Nielsen Media Research
Participating Preferred Stock Purchase Price. No fractional shares of Nielsen
Media Research Participating Preferred Stock will be issued (other than
fractions which are integral multiples of one one-thousandth of a share of
Nielsen Media Research Participating Preferred Stock, which may, at the election
of Nielsen Media Research, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Nielsen Media Research Participating Preferred Stock on the last trading period
to the date of exercise.
At any time prior to the time a Nielsen Media Research Acquiring Person
becomes such, the Board of Directors of Nielsen Media Research may redeem the
Nielsen Media Research Rights in whole, but not in part, at a price of $0.01 per
Nielsen Media Research Right (hereinafter referred to in this description of
Nielsen Media Research Rights as the "Nielsen Media Research Right Redemption
Price"). The redemption of the Nielsen Media Research Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the Nielsen Media Research Rights, the right to exercise the Nielsen Media
Research Rights will terminate and the only right of the holders of Nielsen
Media Research Rights will be to receive the Nielsen Media Research Right
Redemption Price.
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For so long as the Nielsen Media Research Rights are then redeemable,
Nielsen Media Research may, except with respect to the Nielsen Media Research
Right Redemption Price, amend the Nielsen Media Research Rights in any manner.
After the Nielsen Media Research Rights are no longer redeemable, Nielsen Media
Research may, except with respect to the Nielsen Media Research Right Redemption
Price, amend the Nielsen Media Research Rights in any manner that does not
adversely affect the interests of holders of the Nielsen Media Research Rights.
Until a Nielsen Media Research Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of Nielsen Media Research, including,
without limitation, the right to vote or to receive dividends.
The summary description of the Nielsen Media Research Rights set forth above
does not purport to be complete and is qualified in its entirety by reference to
the Nielsen Media Research Rights Agreement, as the same may be amended from
time to time.
CERTAIN EFFECTS OF THE NIELSEN MEDIA RESEARCH RIGHTS AGREEMENT
The Nielsen Media Research Rights Agreement is designed to protect
stockholders of Nielsen Media Research in the event of unsolicited offers to
acquire Nielsen Media Research and other coercive takeover tactics which, in the
opinion of the Board of Directors of Nielsen Media Research, could impair its
ability to represent stockholder interests. The provisions of the Nielsen Media
Research Rights Agreement may render an unsolicited takeover of Nielsen Media
Research more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer Nielsen Media Research's
stockholders the opportunity to sell their stock at a price above the prevailing
market rate and may be favored by a majority of the stockholders of Nielsen
Media Research.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of Nielsen Media Research authorized at the
time of the Distribution will have any preemptive right to subscribe to any
securities of Nielsen Media Research of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the DGCL apply to Nielsen Media Research since
it is a Delaware corporation. Pursuant to Section 203, with certain exceptions,
a Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the time that such
person became an interested stockholders unless (a) the transaction that results
in the person's becoming an interested stockholder or the business combination
is approved by the board of directors of the corporation before the person
becomes an interested stockholder, (b) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares owned by
persons who are directors and also officers and shares owned by certain employee
stock plans or (c) on or after the time the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by holders of at least two-thirds of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at a meeting
of stockholders. Under Section 203, an "interested stockholder" is defined as
any person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation or (b) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding shares, but such stockholder
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action does not become effective for 12 months following its adoption and would
not apply to persons who were already interested stockholders at the time of the
amendment. Nielsen Media Research's Restated Certificate of Incorporation does
not exclude Nielsen Media Research from the restrictions imposed under Section
203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring Nielsen Media
Research to negotiate in advance with Nielsen Media Research's Board of
Directors, because the stockholder approval requirement would be avoided if the
Board of Directors approves either the business combination or the transaction
which results in the stockholder becoming an interested stockholder. Such
provisions also may have the effect of preventing changes in the Board of
Directors of Nielsen Media Research. It is further possible that such provisions
could make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
PROVISIONS OF NIELSEN MEDIA RESEARCH RESTATED CERTIFICATE OF INCORPORATION AND
AMENDED AND RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the Nielsen Media Research Restated Certificate of
Incorporation and Amended and Restated By-laws may delay or make more difficult
unsolicited acquisitions or changes of control of Nielsen Media Research. It is
believed that such provisions will enable Nielsen Media Research to develop its
business in a manner that will foster its long-term growth without disruption
caused by the threat of a takeover not deemed by its Board of Directors to be in
the best interests of Nielsen Media Research and its stockholders. Such
provisions could have the effect of discouraging third parties from making
proposals involving an unsolicited acquisition or change of control of Nielsen
Media Research, although such proposals, if made, might be considered desirable
by a majority of Nielsen Media Research's stockholders. Such provisions may also
have the effect of making it more difficult for third parties to cause the
replacement of the current Board of Directors of Nielsen Media Research. These
provisions include (i) the availability of capital stock for issuance from time
to time at the discretion of the Board of Directors (see "--Authorized but
Unissued Capital Stock"), (ii) prohibitions against stockholders calling a
special meeting of stockholders or acting by written consent in lieu of a
meeting, (iii) requirements for advance notice for raising business or making
nominations at stockholders' meetings, (iv) the ability of the Board of
Directors to increase the size of the board and to appoint directors to newly
created directorships, (v) a classified Board of Directors and (vi) higher than
majority requirements to make certain amendments to the By-laws and Certificate
of Incorporation.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Nielsen Media Research Restated Certificate of Incorporation and Amended
and Restated By-laws provide that stockholder action can be taken only at an
annual or special meeting and cannot be taken by written consent in lieu of a
meeting. The Nielsen Media Research Restated Certificate of Incorporation and
Amended and Restated By-laws also provide that special meetings of the
stockholders can be called only by the Chief Executive Officer of Nielsen Media
Research or by a vote of the majority of the Board of Directors. Furthermore,
the By-laws of Nielsen Media Research provide that only such business as is
specified in the notice of any such special meeting of stockholders may come
before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By-laws of Nielsen Media Research establish an advance notice procedure
for stockholder proposals to be brought before an annual meeting of stockholders
and for nominations by stockholders of candidates for election as directors at
an annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of Nielsen Media Research who is entitled to
vote at the meeting who has given to the Secretary of Nielsen Media
116
<PAGE>
Research timely written notice, in proper form, of the stockholder's intention
to bring that business before the meeting. The chairman of such meeting has the
authority to make such determinations. Only persons who are nominated by, or at
the direction of, the Chairman of the Board of Directors, or who are nominated
by a stockholder who has given timely written notice, in proper form, to the
Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of Nielsen Media Research.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of Nielsen Media Research at
the principal executive offices of Nielsen Media Research not less than 70 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 70 days, from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of Nielsen Media
Research at the principal executive offices of Nielsen Media Research not
earlier than the ninetieth day prior to such special meeting and not later than
the close of business on the later of the seventieth day prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of Nielsen Media
Research held by, the stockholder who intends to make the nomination and the
beneficial owner, if any, on whose behalf the nomination is being made; the name
and address of the person or persons to be nominated; a representation that the
stockholder is a holder of record of stock of Nielsen Media Research 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; a description of all
arrangements or understandings between the stockholder 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 by the stockholder; such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC had each nominee been nominated, or intended to be nominated,
by the Board of Directors; and the consent of each nominee to serve as a
director if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES; REMOVAL
The Nielsen Media Research Restated Certificate of Incorporation and Amended
and Restated By-laws provide that newly created directorships resulting from an
increase in the authorized number of directors (or any vacancy) may be filled by
a vote of a majority of directors then in office. Accordingly, the Board of
Directors of Nielsen Media Research may be able to prevent any stockholder from
obtaining majority representation on the Board of Directors by increasing the
size of the board and filling the newly created directorships with its own
nominees. If any applicable provision of the DGCL expressly confers power on
stockholders to fill such a directorship at a special meeting of stockholders,
such a directorship may be filled at such meeting only by the affirmative vote
of at least 80% in voting power of all shares of Nielsen Media Research entitled
to vote generally in the election of directors, voting as a single class.
Directors may be removed only for cause, and only by the affirmative vote of at
least 80% in voting power of all shares of Nielsen Media Research entitled to
vote generally in the election of directors, voting as a single class.
117
<PAGE>
CLASSIFIED BOARD OF DIRECTORS
The Nielsen Media Research Restated Certificate of Incorporation provides
for Nielsen Media Research's Board of Directors to be divided into three classes
of directors serving staggered three-year terms. As a result, approximately one
third of Nielsen Media Research's Board of Directors will be elected each year.
See "Nielsen Media Research Management and Executive Compensation--Nielsen Media
Research Board of Directors."
Nielsen Media Research believes that a classified board will help to assure
the continuity and stability of its Board of Directors, and its business
strategies and policies as determined by its Board, because a majority of the
directors at any given time will have prior experiences as directors of Nielsen
Media Research. This provision should also help to ensure that Nielsen Media
Research's Board of Directors, if confronted with an unsolicited proposal from a
third party that has acquired a block of Nielsen Media Research's voting stock,
will have sufficient time to review the proposal and appropriate alternatives
and to seek the best available result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of Nielsen Media Research's
Board of Directors until the second annual stockholders meeting following the
date the acquiror obtains the controlling stock interest, could have the effect
of discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of Nielsen Media Research and could thus increase
the likelihood that incumbent directors will retain their positions.
AMENDMENTS TO THE AMENDED AND RESTATED BY-LAWS
The Nielsen Media Research Restated Certificate of Incorporation provides
that the affirmative vote of the holders of at least 80% in voting power of all
the shares of Nielsen Media Research entitled to vote generally in the election
of directors, voting together as a single class, shall be required in order for
the stockholders to alter, amend or repeal any provision of the Amended and
Restated By-laws which is to the same effect as provisions contained in the
Restated Certificate of Incorporation relating to (i) the amendment of the
Amended and Restated By-laws, (ii) the classified Board of Directors and the
filling of director vacancies and (iii) calling and taking actions at meetings
of stockholders and prohibiting stockholders from taking action by written
consent.
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION
The Nielsen Media Research Restated Certificate of Incorporation requires
the affirmative vote of the holders of at least 80% in voting power of all the
shares of Nielsen Media Research entitled to vote generally in the election of
directors, voting together as a single class, to alter, amend or repeal
provisions of the Restated Certificate of Incorporation relating to (i) the
amendment of the Restated Certificate of Incorporation and/or the Amended and
Restated By-laws, (ii) the classified Board of Directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The Nielsen Media Research Restated Certificate of Incorporation provides
that Nielsen Media Research shall indemnify directors and officers to the
fullest extent permitted by the laws of the State of Delaware. The Nielsen Media
Research Restated Certificate of Incorporation also provides that a director of
Nielsen Media Research shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the DGCL as the same exists or may hereafter be amended.
The indemnification rights conferred by the Restated Certificate of
Incorporation of Nielsen Media Research are not exclusive of any other right to
which a person seeking indemnification may otherwise be entitled. Nielsen Media
Research will also provide liability insurance for the directors and officers
for certain losses arising from claims or charges made against them, while
acting in their capacities as directors or officers.
118
<PAGE>
AVAILABLE INFORMATION
IMS HEALTH has filed with the SEC a Registration Statement on Form 10 with
respect to the shares of IMS HEALTH Common Stock to be received by the
stockholders of Cognizant in the Distribution. This Information Statement does
not contain all of the information set forth in the Form 10 Registration
Statement and the exhibits thereof, to which reference is hereby made.
Statements made in this Information Statement as to the contents of any
contract, agreement or other documents referred to herein are not necessarily
complete. With respect to each such contract, agreement or other documents filed
as an exhibit to the Form 10 Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The Form
10 Registration Statement and the exhibits thereto may be inspected and copied
at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the SEC at
Seven World Trade Center, Suite 1300, New York, New York 10048 and in the
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60662.
In addition, copies of the Form 10 Registration Statement and related documents
may be obtained through the SEC Internet address at http://www.sec.gov.
REPORTS OF IMS HEALTH
After the Distribution, IMS HEALTH will be required to comply with the
reporting requirements of the Exchange Act and, in accordance therewith, to file
reports, proxy statements and other information with the SEC.
After the Distribution, such reports, proxy statements and other information
may be inspected and copied at the public reference facilities of the SEC listed
above and obtained by mail from the SEC as described above. Application will be
made for listing the shares of IMS HEALTH Common Stock on the NYSE and, when
such shares of IMS HEALTH Common Stock commence trading on the NYSE, such
reports, proxy statements and other information will be available for inspection
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Additionally, IMS HEALTH will be required to provide annual reports,
containing audited financial statements, to its stockholders in connection with
its annual meetings of stockholders.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COGNIZANT CORPORATION (1)
Report of Independent Accountants.......................................................................... F-2
Financial Statements:
Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 (unaudited) and the
Three Years Ended December 31, 1997...................................................................... F-3
Consolidated Statements of Financial Position as of March 31, 1998 (unaudited) and
December 31, 1997 and 1996............................................................................... F-4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (unaudited) and
the Three Years Ended December 31, 1997.................................................................. F-5
Consolidated Statements of Shareholders' Equity............................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
Five-Year Selected Financial Data (Unaudited).............................................................. F-33
Report of Independent Accountants.......................................................................... F-34
Schedule II -- Valuation and Qualifying Accounts for the years ended December 31, 1997, 1996 and 1995...... F-35
IMS HEALTH INCORPORATED
Report of Independent Accountants.......................................................................... F-36
Statement of Financial Position as of March 31, 1998....................................................... F-37
Notes to Financial Statement............................................................................... F-38
NIELSEN MEDIA RESEARCH, INC.
Report of Independent Accountants.......................................................................... F-39
Financial Statements:
Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 (unaudited) and the
Three Years Ended December 31, 1997...................................................................... F-40
Consolidated Statements of Financial Position as of March 31, 1998 (unaudited) and December 31, 1997 and
1996..................................................................................................... F-41
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (unaudited) and
the Three Years Ended December 31, 1997.................................................................. F-42
Consolidated Statements of Divisional Equity for the Three Months Ended March 31, 1998 (unaudited) and the
Three Years Ended December 31, 1997...................................................................... F-43
Notes to Consolidated Financial Statements................................................................. F-44
Financial Statement Schedule:
Report of Independent Accountants.......................................................................... F-58
Schedule II -- Valuation and Qualifying Accounts for the years ended December 31, 1997, 1996 and 1995...... F-59
GARTNER GROUP, INC. (2)
Report of Independent Auditors............................................................................. F-60
Report of Independent Accountants.......................................................................... F-61
Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and 1996.............................................. F-62
Consolidated Statements of Operations for the Fiscal Years Ended September 30, 1997, 1996 and 1995......... F-63
Consolidated Statements of Changes in Stockholders' Equity................................................. F-64
Consolidated Statements of Cash Flows...................................................................... F-65
Notes to Consolidated Financial Statements ................................................................ F-66
</TABLE>
- ------------------------
(1) Because of the significance to Cognizant of the IMS HEALTH Business to be
distributed to Cognizant stockholders in the Distribution, IMS HEALTH will
be the accounting successor to Cognizant from a financial reporting
perspective. See Note 20 to the Cognizant Consolidated Financial Statements.
(2) Gartner is a significant investee of Cognizant.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Cognizant Corporation:
We have audited the accompanying consolidated statements of financial
position of Cognizant Corporation as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cognizant
Corporation as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, in 1995,
the Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
February 17, 1998
F-2
<PAGE>
COGNIZANT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
1998 1997 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING REVENUE.............. $ 337,032 $ 315,576 $ 1,418,153 $ 1,730,596 $ 1,542,340
-------------- -------------- -------------- -------------- --------------
Operating Costs................ 166,784 147,959 597,199 746,781 753,466
Selling and Administrative
Expenses..................... 96,955 86,786 368,298 506,786 488,865
Depreciation and
Amortization................. 28,816 32,944 117,314 133,861 132,532
Restructuring Expense.......... 0 0 12,800
-------------- -------------- -------------- -------------- --------------
OPERATING INCOME............... 44,477 47,887 335,342 343,168 154,677
-------------- -------------- -------------- -------------- --------------
Interest Income................ 4,098 3,616 12,775 9,456 10,325
Interest Expense............... (200) (450) (2,293) (1,338) (540)
Gartner Equity Income.......... 15,574 15,534 65,120 0 0
Gain from Sale of Subsidiary
Stock (SAB51)................ 7,987 0 14,689 0 0
Gains from Dispositions--
Net.......................... 13,600 5,436 9,391 200 15,124
Other Expense--Net............. (2,772) (763) (4,789) (2,465) (17,029)
-------------- -------------- -------------- -------------- --------------
Non-Operating Income-- Net..... 38,287 23,373 94,893 5,853 7,880
-------------- -------------- -------------- -------------- --------------
Income Before Provision for
Income Taxes................. 82,764 71,260 430,235 349,021 162,557
Provision for Income Taxes..... (22,677) (18,355) (117,885) (153,570) (73,676)
-------------- -------------- -------------- -------------- --------------
NET INCOME..................... $ 60,087 $ 52,905 $ 312,350 $ 195,451 $ 88,881
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
BASIC EARNINGS PER SHARE OF
COMMON STOCK................. $ .37 $ .31 $ 1.89 $ 1.15 $ .52
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
DILUTED EARNINGS PER SHARE OF
COMMON STOCK................. $ .36 $ .31 $ 1.86 $ 1.15 $ .52
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Average Number of Shares
Outstanding--Basic........... 162,406,000 169,770,000 165,163,000 169,944,000 169,522,000
Dilutive Effect of Shares
Issuable as of Year-End Under
Stock Option Plans........... 4,276,000 178,000 1,667,000 187,000 2,061,000
Adjustment of Shares Applicable
to Exercised Stock Options
and Restricted Stock......... 600,000 14,000 660,000 369,000 25,000
-------------- -------------- -------------- -------------- --------------
Average Number of Shares
Outstanding--Diluted......... 167,282,000 169,962,000 167,490,000 170,500,000 171,608,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COGNIZANT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents............................................ $ 344,251 $ 318,435 $ 428,520
Accounts Receivable--Net............................................. 303,047 303,609 453,791
Other Current Assets................................................. 77,209 72,368 112,151
------------ ------------ -----------
Total Current Assets 724,507 694,412 994,462
------------ ------------ -----------
INVESTMENT IN GARTNER GROUP.......................................... 212,863 195,695 0
------------ ------------ -----------
NOTES RECEIVABLE AND OTHER INVESTMENTS............................... 100,707 109,712 117,706
------------ ------------ -----------
PROPERTY, PLANT AND EQUIPMENT--NET................................... 233,578 233,583 268,888
------------ ------------ -----------
Other Assets--Net....................................................
Computer Software.................................................... 147,911 142,268 139,040
Goodwill............................................................. 91,464 87,430 251,483
Other Assets......................................................... 119,301 116,420 103,403
------------ ------------ -----------
Total Other Assets--Net 358,676 346,118 493,926
------------ ------------ -----------
TOTAL ASSETS......................................................... $ 1,630,331 $ 1,579,520 $ 1,874,982
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and Notes Payable........................................... $ 59,630 $ 58,796 $ 46,923
Accrued and Other Current Liabilities................................ 203,264 212,944 266,932
Accrued Income Taxes................................................. 48,335 57,549 63,416
Deferred Revenues.................................................... 114,173 111,921 292,970
------------ ------------ -----------
Total Current Liabilities 425,402 441,210 670,241
------------ ------------ -----------
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS........................... 47,915 49,927 60,269
DEFERRED INCOME TAXES................................................ 108,373 113,749 105,074
MINORITY INTERESTS................................................... 102,891 101,209 90,635
OTHER LIABILITIES.................................................... 73,488 71,855 76,150
------------ ------------ -----------
TOTAL LIABILITIES.................................................... $ 758,069 $ 777,950 $ 1,002,369
------------ ------------ -----------
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES........................................
SHAREHOLDERS' EQUITY.................................................
Preferred Stock, Par Value $.01 Per Share, Authorized--
10,000,000 Shares; Outstanding--None...............................
Series Common Stock, Par Value $.01 Per Share, Authorized--
10,000,000 Shares; Outstanding--None...............................
Common Stock, Par Value $.01 Per Share, Authorized-- 400,000,000
Shares; Issued 171,120,069, 171,120,069 and 171,082,301 Shares in
1998, 1997 and 1996, respectively.................................. 1,711 1,711 1,711
Capital Surplus...................................................... 808,015 808,550 805,170
Retained Earnings.................................................... 413,643 358,456 65,989
Treasury Stock, at cost, 8,039,396, 9,026,448 and 800,000 Shares in
1998, 1997 and 1996, respectively.................................. (300,250) (323,026) (25,200)
Cumulative Translation Adjustment.................................... (75,868) (76,771) (11,752)
Unrealized Gains on Investments...................................... 25,011 32,650 36,695
------------ ------------ -----------
TOTAL SHAREHOLDERS' EQUITY........................................... 872,262 801,570 872,613
------------ ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 1,630,331 $ 1,579,520 $ 1,874,982
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COGNIZANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income..................................................... $ 60,087 $ 52,905 $ 312,350 $ 195,451 $ 88,881
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization.............................. 28,816 32,944 117,314 133,861 132,532
Net Gains from Dispositions................................ (13,600) (5,436) (9,391) (200) (15,124)
Write-Off of Purchased In-Process Research and
Development.............................................. -- -- -- 33,233 --
Restructuring Provisions................................... -- -- -- -- 12,800
Restructuring Payments..................................... -- -- -- (11,515) (15,544)
Postemployment Benefit Expense............................. -- -- -- 666 37,632
Postemployment Benefit Payments............................ (1,391) (3,157) (7,129) (11,045) (18,480)
Non-Recurring Charge....................................... -- -- 90,070
Non-Recurring Charge Payments.............................. (955) (2,180) (5,255) (13,125) --
Net Increase in Accounts Receivable........................ 579 450 (1,378) (19,576) (83,035)
Net Increase in Deferred Revenue........................... 2,245 17,521 9,973 23,276 53,788
Equity Income, Net of Taxes................................ (9,181) (8,902) (38,040) -- --
Gain from Sale of Subsidiary Stock (SAB 51)................ (7,987) -- (14,689) -- --
Minority Interests......................................... 2,146 156 4,797 11,710 14,696
Deferred Income Taxes...................................... 1,460 (13,012) 38,562 16,566 (13,392)
Net (Decrease) Increase in Accrued Income Taxes............ (9,210) (1,144) (21,352) 23,606 (35,994)
Net (Increase) Decrease in Other Working Capital Items..... (17,040) (11,608) (28,749) (30,885) 39,709
--------- --------- --------- --------- ---------
Net Cash Provided by Operating Activities...................... 35,969 58,537 357,014 352,023 288,539
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Maturities of Marketable Securities.............. -- -- -- 193,392 40,338
Payments for Marketable Securities............................. -- -- -- (165,791) (70,546)
Payments for Acquisitions of Businesses........................ (2,938) -- -- (24,386) (10,916)
Proceeds from Sale of Businesses and Investments............... 23,165 7,004 44,901 1,565 11,349
Capital Expenditures........................................... (12,691) (14,778) (71,894) (74,963) (77,032)
Additions to Computer Software................................. (15,415) (15,726) (66,673) (49,395) (70,565)
Additions to Other Assets...................................... (9,254) (5,644) (32,905) (19,187) (4,694)
Increase in Other Investments--Net............................. (8,092) (10,693) (16,705) (24,423) (8,232)
Payments for Purchase of Gartner Group Common Stock............ -- -- -- (49,419) (8,372)
Other.......................................................... (721) 2.454 26,294 54,542 50,501
--------- --------- --------- --------- ---------
Net Cash Used in Investing Activities.......................... (25,946) (37,383) (116,982) (158,065) (148,169)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Purchase of Treasury Stock........................ 0 (95,069) (324,767) -- --
Proceeds from Exercise of Stock Options........................ 17,833 1,151 26,409 557 --
Dividends Paid................................................. (4,900) (5,117) (19,883) -- --
Proceeds from Employee Stock Purchase Plan..................... 2,733 0 1,683 -- --
Other Stock Transactions with Employees........................ -- -- -- 14,377 5,149
Proceeds from Issuance of Purchased Stock Options.............. -- -- -- 8,699 --
Net Transfers from (to) The Dun & Bradstreet Corporation....... -- -- -- 44,880 (113,051)
Minority Interest Financing.................................... -- -- 100,000 -- --
Payment of Short-Term Debt..................................... -- -- -- (50,000) --
Other.......................................................... (3) (276) 1,360 62,018 (8,193)
--------- --------- --------- --------- ---------
Net Cash (Used in) Provided by Financing Activities............ 15,663 (99,311) (215,198) 80,531 (116,095)
--------- --------- --------- --------- ---------
Change of Gartner Group to Equity Basis........................ -- (123,697) (123,697) -- --
Effect of Exchange Rate Changes on Cash and Cash Equivalents... 130 (7,244) (11,222) (3,074) 4,846
--------- --------- --------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents............... 25,816 (209,098) (110,085) 271,415 29,121
Cash and Cash Equivalents, Beginning of Year................... 318,435 428,520 428,520 157,105 127,984
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of Year......................... $ 344,251 $ 219,422 $ 318,435 $ 428,520 $ 157,105
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the Period for Interest....................... $ 200 $ 255 $ 2,293 $ 1,463 $ 425
Cash Paid during the Period for Income Taxes................... $ 30,728 $ 21,524 $ 72,827 $ 48,372 $ 26,956
NON-CASH INVESTING ACTIVITIES:
Stock Issued in Connection with Acquisition.................... $ 1,412 -- -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COGNIZANT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
UNREALIZED
CUMULATIVE GAINS
DIVISIONAL COMMON CAPITAL RETAINED TREASURY TRANSLATION (LOSSES) ON
EQUITY STOCK SURPLUS EARNINGS STOCK ADJUSTMENT INVESTMENTS
---------- ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $ 622,253 $ -- $ -- $ -- $ -- $ (15,770) $ --
---------- ----------- --------- ----------- --------- ----------- -----------
Net Income.......................... 88,881
Net Transfers to The Dun &
Bradstreet Corporation............ (113,051)
Change in Cumulative Translation
Adjustment........................ 22,275
---------- ----------- --------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1995.......... 598,083 -- -- -- -- 6,505 --
---------- ----------- --------- ----------- --------- ----------- -----------
Net Income.......................... 129,462
Net Transfers from The Dun &
Bradstreet Corporation............ 44,880
Change in Cumulative Translation
Adjustment........................ (16,817)
---------- ----------- --------- ----------- --------- ----------- -----------
BALANCE, NOVEMBER 1, 1996........... -- 1,711 795,914 -- (25,200) (10,312) --
---------- ----------- --------- ----------- --------- ----------- -----------
Net Income.......................... 65,989
Exercise of Stock Options
(18,467).......................... 557
Restricted Stock Plan (6,286)....... 210
Less: Unearned Portion.......... (210)
Purchase of Stock Options
(2,692,700)....................... 8,699
Change in Cumulative Translation
Adjustment........................ (1,440)
Unrealized Gains on
Investments--Net.................. 36,695
---------- ----------- --------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1996.......... -- 1,711 805,170 65,989 (25,200) (11,752) 36,695
---------- ----------- --------- ----------- --------- ----------- -----------
Net Income.......................... 312,350
Cash Dividends ($.12 per share)..... (19,883)
Exercise of Stock Options
(37,768).......................... 1,151
Treasury Stock Reissued Under:
Exercise of Stock Options
(818,925)....................... 2,187 25,258
Restricted Stock Plan (41,400).... 1,741
Less: Unearned Portion.......... (1,741)
Plus: Earned Portion............ 42
Employee Stock Purchase Plan
(46,645)........................ 1,683
Treasury Shares Acquired
(9,133,418)....................... (324,767)
Change in Cumulative Translation
Adjustment........................ (65,019)
Unrealized Loss on
Investments--Net.................. (4,045)
---------- ----------- --------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1997 $ -- $ 1,711 $ 808,550 $ 358,456 $(323,026) $ (76,771) $ 32,650
---------- ----------- --------- ----------- --------- ----------- -----------
UNAUDITED
Net Income.......................... 60,087
Cash Dividends...................... (4,900)
Treasury Stock Reissued Under:
Exercise of Stock Options
(675,558)....................... (535) 17,833
Restricted Stock Plan (6,010)..... 297
Less: Unearned Portion.......... (297)
Plus: Earned Portion of
Grants........................ 798
Employee Stock Purchase Plan
(47,733)........................ 2,733
Issued in Connection with
Acquisition (25,571).............. 1,412
Change in Cumulative Translation
Adjustment........................ 903
Unrealized Gains on Investments..... (7,639)
---------- ----------- --------- ----------- --------- ----------- -----------
BALANCE, MARCH 31, 1998 $ -- $ 1,711 $ 808,015 $ 413,643 $(300,250) $ (75,868) $ 25,011
---------- ----------- --------- ----------- --------- ----------- -----------
---------- ----------- --------- ----------- --------- ----------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE, JANUARY 1, 1995............ $ 606,483
---------
Net Income.......................... 88,881
Net Transfers to The Dun &
Bradstreet Corporation............ (113,051)
Change in Cumulative Translation
Adjustment........................ 22,275
---------
BALANCE, DECEMBER 31, 1995.......... 604,588
---------
Net Income.......................... 129,462
Net Transfers from The Dun &
Bradstreet Corporation............ 44,880
Change in Cumulative Translation
Adjustment........................ (16,817)
---------
BALANCE, NOVEMBER 1, 1996........... 762,113
---------
Net Income.......................... 65,989
Exercise of Stock Options
(18,467).......................... 557
Restricted Stock Plan (6,286)....... 210
Less: Unearned Portion.......... (210)
Purchase of Stock Options
(2,692,700)....................... 8,699
Change in Cumulative Translation
Adjustment........................ (1,440)
Unrealized Gains on
Investments--Net.................. 36,695
---------
BALANCE, DECEMBER 31, 1996.......... 872,613
---------
Net Income.......................... 312,350
Cash Dividends ($.12 per share)..... (19,883)
Exercise of Stock Options
(37,768).......................... 1,151
Treasury Stock Reissued Under:
Exercise of Stock Options
(818,925)....................... 27,445
Restricted Stock Plan (41,400).... 1,741
Less: Unearned Portion.......... (1,741)
Plus: Earned Portion............ 42
Employee Stock Purchase Plan
(46,645)........................ 1,683
Treasury Shares Acquired
(9,133,418)....................... (324,767)
Change in Cumulative Translation
Adjustment........................ (65,019)
Unrealized Loss on
Investments--Net.................. (4,045)
---------
BALANCE, DECEMBER 31, 1997 $ 801,570
---------
UNAUDITED
Net Income.......................... 60,087
Cash Dividends...................... (4,900)
Treasury Stock Reissued Under:
Exercise of Stock Options
(675,558)....................... 17,298
Restricted Stock Plan (6,010)..... 297
Less: Unearned Portion.......... (297)
Plus: Earned Portion of
Grants........................ 798
Employee Stock Purchase Plan
(47,733)........................ 2,733
Issued in Connection with
Acquisition (25,571).............. 1,412
Change in Cumulative Translation
Adjustment........................ 903
Unrealized Gains on Investments..... (7,639)
---------
BALANCE, MARCH 31, 1998 $ 872,262
---------
---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 1. BASIS OF PRESENTATION
Cognizant Corporation (the "Company") integrates information and technology
to create business insight. The Company includes I.M.S. International, Inc.
("IMS"), Nielsen Media Research, Inc. ("Nielsen Media Research"), Erisco Inc.
("Erisco"), Cognizant Technology Solutions Corporation ("CTS"), Cognizant
Enterprises, Inc. ("Enterprises"), SSJ K.K. ("Super Systems Japan"), and Pilot
Software, Inc. ("Pilot"), which was divested in July 1997. During 1997, the
Company's voting interest in Gartner Group, Inc. ("Gartner") fell below 50% due
principally to Gartner stock option exercises. Accordingly, the Company has
deconsolidated its investment in Gartner and accounted for its interest on an
equity basis for the year-ended December 31, 1997. The prior years' financial
statements, however, continue to account for Gartner as a consolidated
subsidiary.
On November 1, 1996 (the "D&B Distribution Date"), The Dun & Bradstreet
Corporation ("D&B") distributed to its shareholders all of the outstanding
shares of common stock of the Company, then a wholly-owned subsidiary of D&B
(the "D&B Distribution"). In the D&B Distribution, holders of D&B common stock
received one share of the Company's common stock for every share of D&B common
stock held.
These financial statements reflect the financial position, results of
operations and cash flows of the Company as if it were a separate entity for all
periods presented. D&B's historical basis in the assets and liabilities of the
Company has been carried over.
The financial statements for 1996 and 1995 also include allocations of
certain D&B corporate headquarters assets (including prepaid pension assets),
liabilities (including pension and postretirement benefits) and expenses
(including cash management, legal, accounting, tax, employee benefits, insurance
services, data services and other D&B corporate overhead) relating to the
Company's businesses that were transferred to the Company from D&B. Management
believes these allocations are reasonable. However, the financial information
included herein for 1996 and 1995 may not necessarily reflect the financial
position, results of operations, and cash flows had the Company been a separate
entity.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements of the Company include
the accounts of the Company and its subsidiaries after elimination of all
material intercompany accounts and transactions. Investments in companies over
which the Company has significant influence but not a controlling interest are
accounted for under the equity method of accounting. The Company recognizes as
income any gains or losses related to the sale or issuance of stock by a
consolidated subsidiary or a company accounted for under the equity basis. The
financial statements of IMS and its affiliates reflect a fiscal year ending
November 30 to facilitate timely reporting of the Company's financial results.
UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying interim
consolidated balance sheet as of March 31, 1998 and the consolidated statements
of operations and cash flows for the three months ended March 31, 1997 and 1998
together with the related disclosures and amounts set forth in the notes are
unaudited but include all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly, in all
material respects, the consolidated financial position, the consolidated results
of operations and cash flows for the three months ended March 31, 1997 and 1998.
Results for the three months ended March 31, 1997 and 1998 are not necessarily
indicative of results for the entire year.
F-7
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of 90 days or less at the time of purchase to be cash equivalents.
MARKETABLE SECURITIES. The Company values all marketable securities that
mature in more than 90 days at amortized cost (which approximates market value)
as it is management's intent to hold these instruments to maturity. Other
marketable securities, principally consisting of equity securities, are
classified as available-for-sale. Such securities are carried at fair value,
with the unrealized gains and losses, net of income taxes, reported as a
component of shareholders' equity.
PROPERTY, PLANT AND EQUIPMENT. Buildings and machinery and equipment are
depreciated over their estimated useful lives using principally the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful life of
the improvement.
COMPUTER SOFTWARE. Direct costs incurred in the development of computer
software are capitalized in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed". Costs incurred to establish technological
feasibility of a computer software product are expensed in the periods in which
they are incurred. Capitalization ceases and amortization starts when the
product is available for general release to customers. Computer software costs
are being amortized, on a product by product basis, generally over three to five
years. Annual amortization is the greater of the amount computed using (a) the
ratio that gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product, or (b) the straight-line
method over the remaining estimated economic life of the product. At each
balance sheet date, the Company reviews the recoverability of the unamortized
capitalized costs of computer software products by comparing the carrying value
of computer software with its estimated net realizable value.
GOODWILL. Goodwill represents the excess purchase price over the fair value
of identifiable net assets of businesses acquired and is amortized on a
straight-line basis over seven to forty years. At each balance sheet date, the
Company reviews the recoverability of goodwill, not identified with impaired
long-lived assets, based on estimated undiscounted future cash flow from
operating activities compared with the carrying value of goodwill and recognizes
any impairment on the basis of such comparison. The recognition and measurement
of goodwill impairment is assessed at the business unit level.
OTHER ASSETS. Other intangibles result from acquisitions and database
development and are included in other assets. Other intangibles are being
amortized, using principally the straight-line method, over three to seven
years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1995. This statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In general, this statement requires recognition of an
impairment loss when the sum of undiscounted expected future cash flow is less
than the carrying amount of such assets. The measurement for such impairment
loss is then based on the fair value of the asset. See Note 6 to the Cognizant
Consolidated Financial Statements.
F-8
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION. The Company recognizes revenue as earned, which is
over the contract period or as the information is delivered or related services
are performed. Amounts billed for service and subscriptions are credited to
deferred revenues and reflected in operating revenue over the subscription term,
which is generally one year. Software license revenue is recognized upon
delivery of the software and documentation when there are no significant
remaining related obligations. Revenue from post-contract customer support
(maintenance) is recognized on a straight-line basis over the term of the
contract.
FOREIGN CURRENCY TRANSLATION. The Company has significant investments in
non-U.S. countries. Therefore, changes in the value of foreign currencies affect
the Company's consolidated financial statements when translated into U.S.
dollars.
For all operations outside the United States where the Company has
designated the local currency as the functional currency, assets and liabilities
are translated using end-of-period exchange rates; revenues and expenses are
translated using average rates of exchange. For these countries, currency
translation adjustments are accumulated in a separate component of shareholders'
equity whereas realized transaction gains and losses are recognized in other
expense--net. For operations in countries that are considered to be highly
inflationary, where the U.S. dollar is designated as the functional currency,
monetary assets and liabilities are translated using end-of-period exchange
rates, non-monetary accounts are translated using historical exchange rates, and
all translation and transaction adjustments are recognized in other
expense--net.
INCOME TAXES. Prior to the D&B Distribution, the Company was included in
the Federal and certain state and non-U.S. income tax returns of D&B. The
provision for income taxes in the Company's financial statements has been
calculated on a separate-company basis. Income taxes paid on behalf of the
Company by D&B, prior to the D&B Distribution, are included in Divisional
Equity.
DIVISIONAL EQUITY. Divisional Equity includes historical investments and
advances from D&B prior to the D&B Distribution, including net transfers to/from
D&B, third-party liabilities paid on behalf of the Company by D&B and amounts
due to/from D&B for services and other charges, as well as current-period income
through the D&B Distribution Date.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates. Estimates are used for, but
not limited to, the accounting for: allowance for uncollectible accounts
receivable, depreciation and amortization, capitalized software costs, employee
benefit plans, taxes, restructuring reserves and contingencies.
EARNINGS PER SHARE. In 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". Previously reported earnings per share amounts have been restated.
Basic earnings per share are calculated by dividing net income by weighted
average common shares. Diluted earnings per share are calculated by dividing net
income by dilutive potential common shares. Dilutive potential common shares are
calculated in accordance with the Treasury stock method, which assumes that
proceeds from the exercise of all options are used to repurchase common stock at
market value. The amount of shares remaining after the proceeds are exhausted
represent the potentially dilutive effect of the securities. The computation
includes the weighted average number of shares of D&B common stock outstanding
through the D&B Distribution
F-9
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Date, reflecting the one-for-one distribution ratio, and the weighted average
number of shares of Cognizant common stock outstanding since the D&B
Distribution.
CONCENTRATIONS OF CREDIT RISK. IMS maintains accounts receivable balances
($228,284 and $237,279 at December 31, 1997 and 1996, respectively), principally
from customers in the pharmaceutical industry.
RECLASSIFICATIONS. Certain prior-year amounts have been reclassified to
conform with the current period presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for periods beginning
after December 15, 1997. The Company is in the process of determining its
preferred disclosure format.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions And Other Postretirement Benefits", which changes current
financial statement disclosure requirements from those required under SFAS No.
87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The statement does not change the
existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106, and
is effective for the fiscal years beginning after December 15, 1997. The Company
is in the process of evaluating the disclosure requirements under this standard.
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which provides guidance on when and in what amounts revenue should be recognized
for the licensing, selling, leasing or marketing of computer software. This
statement is effective for the periods beginning after December 15, 1997. The
Company has determined that the impact of the adoption of this standard will not
have a material effect on its financial statements.
NOTE 3. INVESTMENT IN GARTNER
In the third quarter of 1997, the Company's voting interest in Gartner fell
below 50% as a result of the exercise of Gartner employee stock options and
employee stock purchases. Accordingly, the Company has deconsolidated Gartner
and is accounting for its ownership interest on the equity basis.
The Company has restated the first and second quarter Statements of Income
to reflect the change to equity accounting as of January 1, 1997. Generally
accepted accounting principles do not permit the restatement of prior-year
financial results.
During the third and fourth quarters of 1997, the proceeds from the issuance
of shares to Gartner employees, including associated tax benefits, increased
Gartner's equity and reduced the Company's ownership interest by slightly less
than 2%. This reduction in ownership was partially offset by an increase in
Gartner treasury stock. As a result, the Company recognized, as a separate line
on the income statement, a pre-tax unrealized gain on its investment in Gartner
("SAB 51 Gain") of $14,689 corresponding to the net increase in the underlying
value of its investment in Gartner.
F-10
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 3. INVESTMENT IN GARTNER (CONTINUED)
Selected financial information regarding the results of operations and
financial position of Gartner is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
(UNAUDITED)
Condensed Income Statement Information
Operating Revenue..................................................... $ 548,539 $ 423,565
Operating Income...................................................... $ 126,239 $ 61,624
Income Before Provision for Taxes..................................... $ 134,385 $ 65,803
Net Income............................................................ $ 79,732 $ 23,987
Condensed Balance Sheet Information
Current Assets........................................................ $ 439,356 $ 325,904
Non-current Assets.................................................... $ 237,284 $ 133,031
Current Liabilities................................................... $ 338,087 $ 273,616
Non-current Liabilities............................................... $ 3,933 $ 2,871
</TABLE>
NOTE 4. DISPOSITIONS
During 1997, the Company recorded a $39,336 pre-tax gain on the sale of its
investment in WEFA Group, Inc. and a portion of its investment in TSI
International, Inc. and Aspect Development, Inc. These investments, which were
part of Enterprises' portfolio, generated cash proceeds of $43,601.
Additionally, in the third quarter, the Company sold Pilot and recorded a
non-cash pre-tax loss of $29,945.
NOTE 5. INVESTMENT PARTNERSHIP
Three of the Company's subsidiaries have contributed assets to, and
participate in, a limited partnership. One subsidiary serves as general partner,
and all other partners hold limited partnership interests. The partnership,
which is a separate and distinct legal entity, is in the business of licensing
database assets and computer software. In the second quarter of 1997,
third-party investors contributed $100,000 to the partnership in exchange for
limited partnership interests. For financial reporting purposes, the assets,
liabilities, results of operations and cash flows of the partnership are
included in the Company's consolidated financial statements because the Company
and its subsidiaries maintain a controlling (84%) interest in the partnership.
The third-parties' investments in this partnership are reflected in minority
interests.
NOTE 6. NON-RECURRING CHARGES
In the fourth quarter of 1995, the Company recorded within operating costs a
charge of $90,070. This charge primarily reflected an impairment loss in
connection with the adoption of the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
($40,570), the write-off of certain computer software ($20,300), a provision for
postemployment
F-11
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 6. NON-RECURRING CHARGES (CONTINUED)
benefits ($7,400) under the Company's severance plan and an accrual for
contractual obligations that have no future economic benefits ($21,800).
SFAS No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In connection with
this review, the Company recorded an impairment loss of $40,570 reflecting the
revaluation of certain fixed assets, administrative and production systems and
other intangibles that were replaced or no longer used. In addition, the Company
recognized a charge of $20,300, principally related to the write-off of certain
computer software product lines at Pilot.
The provision for postemployment benefits of $7,400 represented the cost of
workforce reductions. The accrual for contractual obligations that have no
future economic benefits of $21,800 related to the acquisition of certain
information and other services that were no longer used by the Company.
This 1995 non-recurring charge evolved from D&B's annual budget and
strategic planning process, which included a review of D&B's underlying cost
structure, products and services and assets used in the business. Based upon
such analysis, management, having the authority to approve such business
decisions, committed in December 1995 to a plan to discontinue certain product
lines and dispose of certain other assets, resulting in the charge. These
decisions were not reversed or modified as a result of D&B's reorganization plan
relating to the D&B Distribution, which was reviewed and, subject to certain
conditions, approved by the Board of Directors of D&B on January 9, 1996.
NOTE 7. RESTRUCTURING
In 1995, the Company recorded a $12,800 restructuring provision primarily to
write-off software for product lines that were discontinued at Sales
Technologies. All restructuring actions were completed in 1996.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CATEGORY 1995 CASH ITEMS 1996
- --------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Real Estate Cost Reductions.............................. $ 1,059 $ (1,059) $ --
Discontinued Production and Data Collection Systems and
Products................................................ 4,400 (4,400)
Other.................................................... 6,056 (6,056) --
------------ ---------- ------------
Total.................................................... $ 11,515 $ (11,515) $ --
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
NOTE 8. ACQUISITIONS
In 1996 and 1995, the Company acquired various companies in separate
transactions that were accounted for as purchases.
The aggregate cash purchase price of such acquisitions totaled $24,386 in
1996. The largest acquisition during 1996 was Gartner's acquisition of J3
Learning Corporation ("J3"), a leading provider of software educational
materials for corporate and individual training. Gartner acquired all of the
outstanding shares of J3 for consideration of $8,000 in cash, approximately
$35,400 in Gartner Group Class A Common Stock, and options to purchase Gartner
Group Class A Common Stock, which had a value of $1,300. Operating
F-12
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 8. ACQUISITIONS (CONTINUED)
costs and selling and administrative expenses in 1996 include a one-time
acquisition related charge of $33,233 for in-process research and development
costs associated with J3.
The aggregate purchase price of such acquisitions totaled $10,916 in 1995.
The results of operations of all purchases are included in the Consolidated
Statements of Income from the date of acquisition. Had the acquisitions made in
1995 and 1996 been consummated on January 1 of the year preceding the year of
acquisition, the results of these acquired operations would not have had a
significant impact on the Company's consolidated results of operations for any
of the years presented.
NOTE 9. MARKETABLE SECURITIES AND OTHER INVESTMENTS
Amounts included below are classified in the consolidated statements of
financial position as marketable securities and other investments. Cash
equivalents have been excluded from these disclosures.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
-------------------- --------------------
FAIR FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Debt Securities of States and Other Subdivisions of the U.S.
Government........................................................... -- -- $ 23,317 $ 23,317
Equity Securities...................................................... $ 3,491 $ 48,463 4,357 58,320
--------- --------- --------- ---------
Total.................................................................. $ 3,491 $ 48,463 $ 27,674 $ 81,637
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 10. FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE RISK MANAGEMENT
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The Company's
objective is to reduce earnings and cash flow volatility associated with foreign
exchange rate changes to allow management to focus its attention on its core
business activities. Accordingly, the Company enters into various contracts
which change in value as foreign exchange rates change to protect the value of a
portion of committed and anticipated foreign currency revenues and
non-functional currency assets and liabilities. By policy, the Company maintains
hedge coverage between minimum and maximum percentages of its anticipated
foreign exchange exposures over the next year. The gains and losses on these
hedges offset changes in the value of the related exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent necessary to meet its objectives as stated above. The Company does
not enter into foreign currency transactions for speculative purposes.
The Company uses forward contracts and purchased currency options to hedge
committed and anticipated foreign currency denominated revenues, respectively.
The principal currencies hedged are the Japanese yen, Swiss franc, German mark
and Italian lira. The Company also uses forward contracts to hedge
non-functional currency assets and liabilities.
F-13
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 10. FINANCIAL INSTRUMENTS (CONTINUED)
Gains and losses on contracts hedging anticipated and committed foreign
currency revenues are deferred until such revenues are recognized, and offset
changes in the value of such revenues. At December 31, 1997, the Company had
unrealized deferred gains of $2,768 related to foreign currency hedge
transactions. Deferred amounts to be recognized can change with market
conditions and will substantially be offset by changes in the value of the
related hedged transactions. The impact of foreign exchange risk management
activities on operating income in 1997 was a net gain of $15,617. Gains and
losses on contracts hedging non-functional currency assets and liabilities are
not deferred and are included in current income in other income/expense--net.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1997, the Company's financial instruments included cash,
cash equivalents, receivables, accounts payable and foreign exchange risk
management contracts. At December 31, 1997, the fair values of cash, cash
equivalents, receivables and accounts payable approximated carrying values due
to the short-term nature of these instruments. At December 31, 1997, the
notional amounts of the Company's risk management contracts were $212,000
(currency options $137,000; forward contracts $75,000) and all contracts will
mature in 1998. The estimated fair values of the foreign exchange risk
management contracts were determined based on quoted market prices, and
approximate carrying value.
CREDIT CONCENTRATIONS
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its financial
instruments and does not anticipate non-performance by the counterparties. The
Company would not realize a material loss as of December 31, 1997 in the event
of non-performance by any one counterparty. The Company enters into transactions
only with financial institution counterparties which have a credit rating of A
or better. In addition, the Company limits the amount of credit exposure with
any one institution.
IMS maintains accounts receivable balances ($228,284 and $237,279 at
December 31, 1997 and 1996, respectively), principally from customers in the
pharmaceutical industry. The Company's trade receivables do not represent
significant concentrations of credit risk at December 31, 1997 due to the high
quality of its customers and their dispersion across many geographic areas.
NOTE 11. PENSION AND POSTRETIREMENT BENEFITS
PENSION PLANS. The Company has a defined benefit pension plan covering all
employees in the United States in certain of the Company's businesses. The plan
is a cash balance pension plan under which 6% of creditable compensation plus
interest is credited to eligible employee retirement accounts on a monthly
basis. At the time of retirement, the vested employee's account balance is
actuarially converted into an annuity. Pension costs are determined actuarially
and are funded to the extent allowable under the Internal Revenue Code.
Supplemental plans in the United States are maintained to provide retirement
benefits in excess of levels allowed by ERISA. The Company's non-U.S.
subsidiaries provide retirement benefits for employees consistent with local
practices, primarily using defined benefit or termination indemnity plans.
F-14
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 11. PENSION AND POSTRETIREMENT BENEFITS (CONTINUED)
Consolidated pension costs are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
U.S. Plans--D&B Allocation....................................... $ -- $ 2,230 $ 1,241
U.S. Plans--Post Distribution.................................... 2,145 291 --
Non-U.S. Plans................................................... 4,837 4,364 4,078
--------- --------- ---------
Total Pension Cost............................................... $ 6,982 $ 6,885 $ 5,319
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of net periodic pension cost for 1997 (1996 and 1995 are
unavailable) are summarized as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Service Cost...................................................................... $ 9,959
Interest Cost..................................................................... 10,503
Actual Return on Plan Assets...................................................... (20,357)
Net Amortization and Deferral..................................................... 6,877
----------
Net Periodic Pension Cost......................................................... $ 6,982
----------
----------
</TABLE>
In addition, during 1996 the Company recognized a pension curtailment gain
of $1,895 relating to a reduced level of participation in the Company's
supplemental plan and workforce reductions.
The status of all defined benefit pension plans at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
FUNDED UNFUNDED
------------------------ ----------------------
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Fair Value of Plan Assets....................................... $ 157,643 $ 151,724 $ -- $ --
----------- ----------- ---------- ----------
Actuarial Present Value of Accumulated Benefit Obligation:
Vested........................................................ (112,663) (120,602) (5,607) (4,857)
Nonvested..................................................... (1,900) (1,611) -- (296)
----------- ----------- ---------- ----------
Accumulated Benefit Obligation.................................. (114,563) (122,213) (5,607) (5,153)
Effect of Projected Future Salary Increases..................... (11,650) (12,088) (9,534) (7,100)
----------- ----------- ---------- ----------
Projected Benefit Obligation.................................... (126,213) (134,301) (15,141) (12,253)
----------- ----------- ---------- ----------
Plan Assets in Excess of (Less Than) Projected Benefit
Obligation.................................................... 31,430 17,423 (15,141) (12,253)
Unrecognized Net (Gain) Loss.................................... (11,306) 3,652 3,135 478
Unrecognized Prior Service Cost (Credit)........................ (6,476) (6,547) 639 833
Unrecognized Net Transition (Asset) Obligation.................. (1,818) (1,226) 49 49
Adjustment to Recognize Minimum Liability....................... -- -- -- (123)
----------- ----------- ---------- ----------
Prepaid (Accrued) Pension Cost.................................. $ 11,830 $ 13,302 $ (11,318) $ (11,016)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
F-15
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 11. PENSION AND POSTRETIREMENT BENEFITS
The weighted average expected long-term rate of return on pension plan
assets was 9.28%, 9.31% and 9.82% for 1997, 1996 and 1995, respectively. At
December 31, 1997 and 1996, the projected benefit obligation was determined
using weighted average discount rates of 7.56% and 7.59%, respectively, and
weighted average rates of increase in future compensation levels of 4.66% and
4.59%, respectively. Plan assets are invested in diversified portfolios that
consist primarily of equity and debt securities.
Certain employees of the Company in the United States also are eligible to
participate in the Company-sponsored defined contribution plan. The Company's
businesses make a matching contribution of up to 50% of the employee's
contribution based on specified limits of the employee's salary. The Company's
expense related to this plan was $4,666, $4,075 and $3,178 for the years 1997,
1996 and 1995, respectively.
POSTRETIREMENT BENEFITS. In addition to providing pension benefits, the
Company provides various healthcare and life insurance benefits for retired
employees. Employees at certain businesses of the Company in the United States
become eligible for these benefits if they reach normal retirement age while
working for the Company. Certain of the Company's subsidiaries outside the
United States have postretirement benefit plans, although most participants are
covered by government-sponsored or administered plans. The cost of
Company-sponsored postretirement benefit plans outside the U.S. is not
significant.
The Company has recorded postretirement benefits costs totaling $1,200,
$2,619 and $3,447 for the years 1997, 1996 and 1995, respectively.
The status of postretirement benefit plans other than pensions at December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Active Employees--Eligible............................................ $ (8,110) $ (8,350)
Active Employees--Not Yet Eligible.................................... (6,830) (6,530)
---------- ----------
Accumulated Postretirement Benefit Obligation......................... (14,940) (14,880)
Unrecognized Net Loss................................................. 540 300
Unrecognized Prior Service Credit..................................... (2,110) (850)
---------- ----------
Accrued Postretirement Benefit Cost................................... $ (16,510) $ (15,430)
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997 and 1996 the accumulated postretirement benefit
obligation was determined using a discount rate of 7.0% and 7.5%, respectively.
The assumed rate of future increases in per capita cost of covered healthcare
benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and
remaining constant thereafter. Increasing the assumed healthcare cost trend rate
by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $2,007 and would increase annual aggregate
service and interest costs by $257.
NOTE 12. EMPLOYEE STOCK PLANS
The Company has a Key Employees Stock Incentive Plan which provides for the
grant of stock options and restricted stock to eligible employees. In addition
it provides an opportunity for the purchase of stock
F-16
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 12. EMPLOYEE STOCK PLANS (CONTINUED)
options with a prepayment equal to ten percent of the exercise price, with the
remaining payment due when the options are exercised. All options have a life of
ten years, vest proportionally over six years and have an exercise price equal
to the fair market value of the common stock on the grant date.
The Company adopted an Employee Stock Purchase Plan in 1997 which allows
eligible employees to purchase a limited amount of common stock at the end of
each quarter at a price equal to the lesser of 90% of fair market value on (a)
the first trading day of the quarter, or (b) the last trading day of the
quarter. Fair market value is defined as the average of the high and low prices
of the shares on the relevant day.
Gartner has several stock option and stock purchase plans. The exercise
price of options granted under the plans is equal to the fair market value at
the date of grant of Gartner stock. Options outstanding and exercisable were
15,496,068 and 6,670,813, respectively, at December 31, 1997, at prices ranging
from $0.02 to $35.38 per share.
In July 1997, CTS adopted a Key Employees Stock Option Plan which provides
for the grant of stock options to eligible employees. Options granted under this
plan may not be granted at an exercise price less than fair market value of the
underlying shares on the date of grant. All such options become exercisable in
April 2006 with certain acceleration provisions of the vesting period to 25% per
year over four years from the grant date should an initial public offering or
change in control occur. At December 31, 1997, 800,500 options were outstanding
at a weighted average exercise price of $2.50 per share. None were exercisable.
CTS also has a Key Employees' Restricted Stock Purchase Plan which allows
eligible employees to purchase a limited amount of restricted common stock at
the time of grant at a price equal to the fair market value on the effective
date of the award. At December 31, 1997, 175,000 shares have been purchased at
an average exercise price of $2.50. The restrictions lapse should an initial
public offering or change in control occur.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method had been applied.
The Company has chosen to continue applying Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, consistent with the
F-17
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 12. EMPLOYEE STOCK PLANS (CONTINUED)
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C> <C>
Net Income As reported........................................... $ 312,350 $ 195,451 $ 88,881
Pro forma............................................. $ 284,634 $ 188,705 $ 88,120
Earnings Per Share:
Basic As reported........................................... $ 1.89 $ 1.15 $ .52
Pro forma............................................. $ 1.72 $ 1.11 $ .52
Diluted As reported........................................... $ 1.86 $ 1.15 $ .52
Pro forma............................................. $ 1.70 $ 1.11 $ .52
</TABLE>
- ------------------------
Note: The pro forma disclosures shown above are not representative of the
effects on net income and earnings per share in future years.
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for 1997, 1996 and 1995: dividend yield
of 0.3%; expected volatility of 25%; a risk-free interest rate of 5.9%; and an
expected term of 4.5 years. The weighted average fair value of the Company's
stock options granted in 1997, 1996 and 1995 are $13.12, $9.76 and $7.61,
respectively.
The fair value of Gartner stock options used to compute the Company's pro
forma net income and earnings per share disclosures was computed in the same
manner with the following weighted-average assumptions for 1997, 1996 and 1995:
dividend yield of 0%; expected volatility of 40%; a risk-free interest rate of
6.0%; and an expected term of 3.5 years. The weighted average fair value of
Gartner stock options granted in 1997, 1996 and 1995 are $10.12, $11.80 and
$5.82, respectively.
Immediately following the D&B Distribution, outstanding awards under the D&B
Key Employees Stock Option Plans held by company employees were cancelled and
replaced by substitute awards under the Company's Key Employees Stock Incentive
Plan. The substitute awards had the same ratio of the exercise price per option
to the market value per share, the same aggregate difference between market
value and exercise price and the same vesting provisions, option periods and
other terms and conditions as the options they replaced.
At December 31, 1997, outstanding options for Cognizant common stock held by
Company employees, including the substitute awards mentioned above, totaled
21,922,390, of which 4,386,181 had vested and were exercisable. The option
prices range from $22.99 to $44.47 per share and are exercisable over periods
ending no later than 2007. At December 31, 1996, outstanding options for
Cognizant common
F-18
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 12. EMPLOYEE STOCK PLANS (CONTINUED)
stock held by Company employees totaled 20,226,749, of which 2,168,714 had
vested and were exercisable. The option prices ranged from $22.99 to $35.31 per
share.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------ -----------------
<S> <C> <C>
Options Outstanding,
November 1, 1996................................................................. 3,340,778 $ 31.13
Granted........................................................................... 14,209,500 $ 33.37
Purchased......................................................................... 2,702,700 $ 33.37
Exercised......................................................................... (18,467) $ 30.17
Expired........................................................................... (7,762) $ 33.75
------------ ------
Options Outstanding,
December 31, 1996................................................................ 20,226,749 $ 33.00
------------ ------
Granted........................................................................... 3,878,237 $ 42.35
Exercised......................................................................... (856,693) $ 30.78
Expired........................................................................... (1,325,903) $ 33.19
------------ ------
Options Outstanding,
December 31, 1997................................................................ 21,922,390 $ 34.75
------------ ------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
DECEMBER 31, 1997 -------------------------------------
------------------------ REMAINING OPTION EXERCISE PRICES
RANGE OF NUMBER NUMBER CONTRACTUAL ------------------------
EXERCISE PRICES OUTSTANDING EXERCISABLE LIFE OUTSTANDING EXERCISABLE
- ----------------------------------------------- ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$40.00 - $44.47................................ 3,095,250 0 9.8 years $ 44.25 $ 44.25
$37.56 - $38.88................................ 338,000 0 9.5 years $ 37.58 $ 37.58
$30.31 - $35.31................................ 17,285,856 3,368,490 7.7 years $ 33.43 $ 33.50
$22.99 - $29.91................................ 1,203,284 1,017,691 4.5 years $ 28.07 $ 27.75
------------ ----------
21,922,390 4,386,181
------------ ----------
------------ ----------
</TABLE>
NOTE 13. INCOME TAXES
Income before provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
U.S.......................................................................... $ 230,717 $ 162,128 $ 43,495
Non-U.S...................................................................... 199,518 186,893 119,062
---------- ---------- ----------
$ 430,235 $ 349,021 $ 162,557
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-19
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 13. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Federal and State:
Current....................................................................... $ 55,647 $ 53,489 $ 57,596
Deferred...................................................................... (8,437) 31,178 (23,871)
---------- ---------- ----------
47,210 84,667 33,725
---------- ---------- ----------
Non-U.S.:
Current....................................................................... 57,949 61,880 33,632
Deferred...................................................................... 12,726 7,023 6,319
---------- ---------- ----------
70,675 68,903 39,951
---------- ---------- ----------
Total......................................................................... $ 117,885 $ 153,570 $ 73,676
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Tax Expense at Statutory Rate.................................................. $ 150,582 $ 122,157 $ 56,895
State and Local Income Taxes, net of Federal Tax Benefit....................... 13,704 12,729 13,079
Non-U.S. Taxes................................................................. (623) 2,939 (3,684)
Purchased In-Process R&D Costs................................................. -- 11,632 --
Goodwill....................................................................... 1,396 3,709 4,457
Amortization of Intangibles.................................................... (48,612) -- --
Other.......................................................................... 1,438 404 2,929
---------- ---------- ---------
Total Taxes.................................................................... $ 117,885 $ 153,570 $ 73,676
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-20
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 13. INCOME TAXES (CONTINUED)
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Operating Losses...................................................................... $ 23,236 $ 34,225
Intangibles........................................................................... 31,552 --
Postretirement Benefits............................................................... 6,009 5,274
Non-Recurring Charges................................................................. 4,073 5,440
Postemployment Benefits............................................................... 3,923 4,969
Bad Debts............................................................................. 1,599 2,488
Other................................................................................. 4,706 9,006
----------- -----------
75,098 61,402
Valuation Allowance..................................................................... (21,826) (29,784)
----------- -----------
53,272 31,618
----------- -----------
Deferred Tax Liabilities:
Intangibles........................................................................... (66,322) (67,818)
Deferred Revenue...................................................................... (37,274) (16,966)
Marketable Securities................................................................. (20,522) (17,268)
Depreciation.......................................................................... (17,522) (12,223)
Other................................................................................. (14,535) (7,442)
----------- -----------
(156,175) (121,717)
----------- -----------
Net Deferred Tax Liability.............................................................. $ (102,903) $ (90,099)
----------- -----------
----------- -----------
</TABLE>
The 1997 net deferred tax liability consists of a non-current deferred tax
liability of $113,749, offset by a current deferred tax asset of $10,846
included in Other Current Assets. (See Note 18 to the Cognizant Consolidated
Financial Statements.)
The Company has established a valuation allowance attributable to deferred
tax assets in certain U.S. state and non-U.S. tax jurisdictions where, based on
available evidence, it is more likely than not that such assets will not be
realized.
Undistributed earnings of non-U.S. subsidiaries aggregated approximately
$479,960 at December 31, 1997. Deferred tax liabilities have not been recognized
for these undistributed earnings because it is the Company's intention to
permanently reinvest such undistributed earnings outside the U.S. If such
earnings are repatriated in the future, or are no longer deemed to be
permanently reinvested, applicable taxes will be provided for on such amounts.
It is not currently practicable to determine the amount of applicable taxes.
F-21
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 14. COMMITMENTS
Certain of the Company's operations are conducted from leased facilities,
which are under operating leases. Rental expense under real estate operating
leases for the years 1997, 1996 and 1995 was $28,298, $37,805, and $34,997,
respectively. The totals include $387 and $446 in 1996, and 1995 respectively,
for facilities usage charged by D&B or an affiliate. The minimum annual rental
expense for real estate operating leases that have remaining noncancelable lease
terms in excess of one year, net of sublease rentals, at December 31, 1997 was:
1998--$27,896; 1999--$26,849; 2000--$25,901; 2001--$24,522; 2002-- $18,639 and
an aggregate of $24,411 thereafter.
The Company also leases or participates in leases of certain computer and
other equipment under operating leases. These leases are frequently renegotiated
or otherwise changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental expense under
computer and other equipment leases was $30,286, $25,304, and $21,864 for 1997,
1996 and 1995, respectively. At December 31, 1997, the minimum annual rental
expense for computer and other equipment under operating leases that have
remaining noncancelable lease terms in excess of one year was: 1998--$27,069;
1999--$24,977; 2000--$13,425; 2001--$6,836 and 2002--$5,898.
The Company has agreements with various third parties to purchase certain
data processing and telecommunications services, extending beyond one year. At
December 31, 1997, the purchases covered by these agreements aggregated:
1998--$13,578; 1999--$13,638; and 2000--$5,880.
NOTE 15. OTHER TRANSACTIONS WITH AFFILIATES
Prior to the D&B Distribution, D&B provided certain centralized services
(see Note 1 to the Cognizant Consolidated Financial Statements) to the Company.
Expenses related to these services were allocated to the Company based on
utilization of specific services or, where not estimable, based on assets
employed by the Company in proportion to D&B's total assets. Management believes
these allocation methods are reasonable. These allocations (including data
service charges beginning in 1995) were $107,200 and $116,900 in 1996 and 1995,
respectively, and are included in operating costs and selling and administrative
expenses in the Consolidated Statements of Income. Amounts due to D&B for these
expenses are included in Divisional Equity.
Net transfers to or from D&B, included in Divisional Equity, include
advances and loans from affiliates, net cash transfers to or from D&B,
third-party liabilities paid on behalf of the Company by D&B, amounts due to or
from D&B for services and other charges, and income taxes paid on behalf of the
Company by D&B. No interest has been charged on these transactions. The weighted
average balance due from D&B was $466,938, and $452,693 for 1996 and 1995,
respectively.
The activity in the net transfers from (to) D&B account for the periods
through the D&B Distribution Date included in Divisional Equity in the Cognizant
Consolidated Statements of Shareholders' Equity is summarized as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
D&B Services and Other Charges........................................................ $ 111,806 $ 121,673
Loans and Advances--Net............................................................... 137,639 44,917
U.S. Income Taxes..................................................................... 35,434 57,596
Cash Transfers--Net................................................................... (239,999) (337,237)
----------- ------------
Net Transfers from (to) D&B........................................................... $ 44,880 $(113,051)
----------- ------------
----------- ------------
</TABLE>
F-22
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 15. OTHER TRANSACTIONS WITH AFFILIATES
In connection with the D&B Distribution, the Company received 800,000 shares
of new D&B common stock and 266,666 shares of ACNielsen Corporation
("ACNielsen") common stock. In December 1996 the Company sold such shares to D&B
and ACNielsen, at fair market value, for $18,560 and $3,967, respectively. In
addition, the Company assumed $69,000 of liabilities (included in Other
Liabilities) which are subject to adjustment in accordance with the D&B
Distribution Agreement, related to certain prior business transactions, and
$50,000 of short-term debt, which was repaid in December 1996.
For purposes of governing certain of the ongoing relationships between the
Company, D&B and ACNielsen after the D&B Distribution and to provide for an
orderly transition, the Company, D&B and ACNielsen entered into various
agreements including a Distribution Agreement, Tax Allocation Agreement,
Employee Benefits Agreement, Indemnity and Joint Defense Agreement, Television
Audience Measurement Master Agreement, Intellectual Property Agreement, Shared
Transaction Services Agreement, Data Services Agreement and Transition Services
Agreement. Among other things, the agreements set forth principles to be applied
in allocating certain D&B Distribution-related costs and specify portions of
contingent liabilities to be shared if certain amounts are exceeded.
NOTE 16. CAPITAL STOCK
On February 18, 1997 the Company announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 8,500,000 shares
of the Company's outstanding common stock. The stock purchases are held in
Treasury and reissued upon exercise of employee stock options. This program was
completed on September 5, 1997 at a total cost of $299,737.
On October 21, 1997 the Company announced that its board of directors had
authorized a second systematic stock repurchase program to buy up to 10,000,000
shares of the Company's outstanding common stock. A portion of this program is
intended to cover option exercises. Through December 31, 1997, 574,600 shares
have been acquired at a total cost of $22,756.
Under a Shareholder Rights Plan adopted by the Board of Directors, each
certificate for a share of the Company's common stock also represents one
Preferred Share Purchase Right (a "Right"). In the event a person or group (an
"Acquiring Person") acquires beneficial ownership of, or commences or announces
an intention to make a tender offer for more than 15% of the outstanding shares
of common stock, each Right entitles the holder to purchase one one-thousandth
of a share of Series A Junior Participating Preferred Stock at $210 per each one
one-thousandth of a share (the "Purchase Price"). In the event a person or group
becomes an Acquiring Person, or the Company is acquired in a merger or other
business combination or 50% or more of its assets or earning power are sold,
each holder of a Right (other than an Acquiring Person) has the right to receive
common stock of the Company or the entity that engaged in such transaction, as
applicable, which has a market value of two times the Purchase Price. The
Rights, which do not have voting rights and are subject to adjustment in certain
circumstances, expire on October 23, 2006 and are redeemable by the Company at a
price of $.01 per Right under certain circumstances.
NOTE 17. LITIGATION
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings
F-23
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 17. LITIGATION (CONTINUED)
and litigation, if decided adversely, could have a material effect on quarterly
or annual operating results or cash flows when resolved in a future period.
However, in the opinion of management, these matters will not materially affect
the Company's consolidated financial position.
In addition, on July 29, 1996, Information Resources, Inc. ("IRI") filed a
complaint in the United States District Court for the Southern District of New
York, naming as defendants D&B, A.C. Nielsen Company and IMS (the"IRI Action").
The complaint alleges various violations of the United States antitrust
laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
latter claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by defendants and that the defendants induced SRG
to breach that agreement.
IRI's complaint alleges damages in excess of $350,000, which amount IRI has
asked to be trebled under the antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in
the complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an amended and restated
complaint repleading its alleged claim of attempted monopolization in the United
States and realleging its other claims. On August 18, 1997, defendants moved for
an order dismissing the amended claims. On December 1, 1997, the court denied
the motion and, on December 16, 1997, defendants filed a supplemental answer
denying the remaining material allegations of the amended complaint.
In connection with the IRI Action, D&B, ACNielsen Corporation ("ACNielsen")
(the parent company of A.C. Nielsen Company) and the Company have entered into
an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which they agree (i) to certain arrangements allocating
potential liabilities ("IRI Liabilities") that may arise out of or in connection
with the IRI Action, and (ii) to conduct a joint defense of such action. In
particular, the Indemnity and Joint Defense Agreement provides that ACNielsen
will assume exclusive liability for IRI Liabilities up to a maximum amount to be
calculated at the time such liabilities, if any, become payable (the "ACN
Maximum Amount"), and that the Company and D&B will share liability equally for
any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
is able to pay after giving effect to (i) any plan submitted by such investment
bank which is designed to maximize the claims paying ability of ACNielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring shareholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of ACNielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due
F-24
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 17. LITIGATION (CONTINUED)
and to finance the current and anticipated operating and capital requirements of
its business, as reconstituted by such plan, for two years from the date any
such plan is expected to be implemented.
Management of the Company is unable to predict at this time the final
outcome of this matter or whether the resolution of this matter could materially
affect the Company's results of operations, cash flows or financial position.
NOTE 18. SUPPLEMENTAL FINANCIAL DATA
ACCOUNTS RECEIVABLE--NET:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Trade..................................................................................... $ 250,899 $ 401,224
Less: Allowance for Doubtful Accounts..................................................... (7,199) (15,470)
Unbilled Receivables...................................................................... 41,291 35,383
Other..................................................................................... 18,618 32,654
---------- ----------
$ 303,609 $ 453,791
---------- ----------
---------- ----------
</TABLE>
OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Deferred Income Taxes...................................................................... $ 10,846 $ 14,975
Prepaid Expenses........................................................................... 35,059 48,531
Inventories................................................................................ 26,463 26,369
Marketable Securities...................................................................... -- 22,276
--------- ----------
$ 72,368 $ 112,151
--------- ----------
--------- ----------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT--NET, CARRIED AT COST, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Buildings............................................................................... $ 113,845 $ 118,122
Machinery and Equipment................................................................. 355,624 402,424
Less: Accumulated Depreciation.......................................................... (260,400) (287,200)
Leasehold Improvements, less: Accumulated Amortization of $14,095 and $20,199........... 16,879 23,282
Land.................................................................................... 7,635 12,260
----------- -----------
$ 233,583 $ 268,888
----------- -----------
----------- -----------
</TABLE>
F-25
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 18. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
COMPUTER SOFTWARE AND GOODWILL:
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE GOODWILL
---------- -----------
<S> <C> <C>
January 1, 1996.......................................................................... $ 137,700 $ 230,888
Additions at Cost........................................................................ 49,395 60,484
Amortization............................................................................. (39,802) (17,094)
Other Deductions, Additions and Reclassifications........................................ (8,253) (22,795)
---------- -----------
December 31, 1996........................................................................ 139,040 251,483
Additions at Cost........................................................................ 58,707 1,554
Amortization............................................................................. (42,426) (8,810)
Other Deductions and Reclassifications (1)............................................... (13,053) (156,797)
---------- -----------
DECEMBER 31, 1997........................................................................ $ 142,268 $ 87,430
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The significant decrease in Goodwill during 1997 is primarily related to the
deconsolidation of Gartner.
Accumulated amortization of Computer Software was $180,106 and $150,481 at
December 31, 1997 and 1996, respectively. Accumulated amortization of Goodwill
was $40,399 and $67,366 at December 31, 1997 and 1996, respectively.
ACCOUNTS AND NOTES PAYABLE:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Trade....................................................................................... $ 33,708 $ 25,763
Taxes Other Than Income Taxes............................................................... 16,377 15,587
Notes....................................................................................... 458 464
Other....................................................................................... 8,253 5,109
--------- ---------
$ 58,796 $ 46,923
--------- ---------
--------- ---------
</TABLE>
The Company has short-term borrowing arrangements with several banks to
provide up to $39,400 of borrowings at December 31, 1997. None of these
arrangements had material commitment fees or compensating balance requirements.
ACCRUED AND OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Salaries, Wages, Bonuses and Other Compensation........................................... $ 68,717 $ 78,676
Postemployment Benefits................................................................... 4,073 7,995
Other..................................................................................... 140,154 180,261
---------- ----------
$ 212,944 $ 266,932
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 19. OPERATIONS BY BUSINESS SEGMENT
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". The Company has adopted SFAS No. 131 for
the year ended December 31, 1997, and as required has restated the prior years
in order to conform to the 1997 presentation. The Company, operating globally in
approximately 80 countries, delivers information, software and related services
principally through these strategic business segments referenced below.
IMS is the leading global provider of market information and
decision-support services to the pharmaceutical and healthcare industries.
Nielsen Media Research is the leading provider of television audience
measurement services, both nationally and locally, in the United States and
Canada.
Gartner is the world's leading independent provider of research and analysis
on the computer hardware, software, communications and related information
technology (IT) industries. The company's subscribers receive research and
analysis about significant IT industry development and trends.
Emerging Markets includes Erisco, the premier supplier of software-based
administrative and analytical solutions to the managed care industry; CTS, a
provider of software application development and maintenance services
specializing in Year 2000 and Eurocurrency compliance services; Super Systems
Japan, a marketer of financial application software products to the Japanese
market; Enterprises, the Company's venture capital unit, focused on investments
in emerging healthcare businesses; and Pilot, which was sold on July 31, 1997.
The accounting policies of these reportable segments are the same as those
described for the consolidated entity. The Company evaluates the performance of
its operating segments based on revenue and income from operations.
<TABLE>
<CAPTION>
NIELSEN MEDIA EMERGING
IMS RESEARCH MARKETS (2) TOTAL
---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
OPERATING REVENUE.......................................... $ 223,401 $ 96,064 $ 17,567 $ 337,032
SEGMENT OPERATING INCOME................................... $ 30,926 $ 25,749 $ 902 $ 57,577
General Corporate Expenses (2) (8)......................... $ (13,100)
Interest Income (3)........................................ $ 2,060 -- $ 32 $ 2,092
Interest Expense (4)....................................... $ (184) -- -- $ (184)
Non-Operating Income--Net..................................
Gartner Equity Income.................................... $ 15,574
Gain on Gartner Stock (SAB 51)........................... $ 7,987
Gains from Dispositions--Net............................. $ 3,185 $ 7,555 $ 13,600
Other--Net............................................... $ (782)
----------
Income Before Provision for Income Taxes................... $ 82,764
Provision for Income Taxes................................. $ (22,677)
----------
Net Income................................................. $ 60,087
----------
----------
</TABLE>
F-27
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 19. OPERATIONS BY BUSINESS SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
NIELSEN MEDIA EMERGING
IMS RESEARCH MARKETS (2) TOTAL
---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
OPERATING REVENUE.......................................... $ 209,822 $ 86,271 $ 19,483 $ 315,576
SEGMENT OPERATING INCOME................................... $ 37,316 $ 26,279 $ (8,808) $ 54,787
General Corporate Expenses................................. $ (6,900)
Interest Income (3)........................................ $ 1,097 -- $ 61 $ 1,158
Interest Expense........................................... $ (221) -- $ (229) $ (450)
Non-Operating Income--Net..................................
Gartner Equity Income.................................... $ 15,534
Gains from Dispositions--Net............................. $ 5,436 $ 5,436
Other--Net............................................... $ 1,695
----------
Income Before Provision for Income Taxes................... $ 71,260
Provision for Income Taxes................................. $ (18,355)
----------
Net Income................................................. $ 52,905
----------
----------
</TABLE>
<TABLE>
<CAPTION>
NIELSEN EMERGING
IMS MEDIA RESEARCH GARTNER(1) MARKETS(2) TOTAL
---------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUE.................................... $ 980,521 $ 358,594 $ 79,038 $ 1,418,153
SEGMENT OPERATING INCOME............................. $ 265,351 $ 107,732 $ (9,752) $ 363,331
General Corporate Expenses........................... (27,989)
Interest Income (3).................................. 4,441 140 4,581
Interest Expense (4)................................. (679) (109) (788)
Non-Operating Income--Net
Gartner Equity Income (1).......................... 65,120
Gains from Dispositions--Net....................... 9,391 9,391
Other--Net......................................... 16,589
---------- --------------- ----------- ----------- ------------
Income Before Provision for Income Taxes............. $ 430,235
Provision for Income Taxes........................... $ (117,885)
Net Income........................................... $ 312,350
Segment Depreciation and Amortization................ $ 76,375 $ 28,663 $ 11,139 $ 116,177
Segment Capital Expenditures......................... $ 41,932 $ 24,874 $ 4,304 $ 71,110
IDENTIFIABLE ASSETS AT DECEMBER 31, 1997 (5)......... $ 855,789 $ 182,642 $ 147,628 $ 1,186,059
---------- --------------- ----------- ----------- ------------
---------- --------------- ----------- ----------- ------------
</TABLE>
F-28
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
NIELSEN EMERGING
IMS MEDIA RESEARCH GARTNER(1) MARKETS(2) TOTAL
---------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUE.................................... $ 904,444 $ 319,404 $ 424,382 $ 82,366 $ 1,730,596
Write-Off of Purchased In Process Research &
Development........................................ $ 33,233 $ 33,233
SEGMENT OPERATING INCOME............................. $ 232,827 $ 99,461 $ 60,114 $ (12,903) $ 379,499
General Corporate Expenses........................... (36,331)
Interest Income (3).................................. 3,597 3,982 221 7,800
Interest Expense (4)................................. (1,043) (295) (1,338)
Non-Operating Expense--Other--Net.................... (809)
Gains from Dispositions--Net......................... 200 200
---------- --------------- ----------- ----------- ------------
Income Before Provision for Income Taxes............. $ 349,021
Provision for Income Taxes........................... $ (153,570)
Net Income........................................... $ 195,451
Segment Depreciation and Amortization................ $ 80,313 $ 25,229 $ 15,934 $ 12,181 $ 133,657
Segment Capital Expenditures......................... $ 37,862 $ 17,929 $ 15,918 $ 3,254 $ 74,963
IDENTIFIABLE ASSETS AT DECEMBER 31, 1996 (5)......... $ 756,966 $ 152,307 $ 497,242 $ 206,825 $ 1,613,340
---------- --------------- ----------- ----------- ------------
---------- --------------- ----------- ----------- ------------
YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUE.................................... $ 835,442 $ 288,652 $ 337,639 $ 80,607 $ 1,542,340
Restructuring Expense................................ $ 12,800 $ 12,800
Post-Employment Benefit Expense (6).................. $ 24,300 $ 8,200 $ 32,500
Non-Recurring Charge (7)............................. $ 53,630 $ 2,300 $ 16,940 $ 72,870
SEGMENT OPERATING INCOME............................. $ 89,335 $ 87,068 $ 51,180 $ (18,366) $ 209,217
General Corporate Expenses........................... (54,540)
Interest Income (3).................................. 6,005 2,761 330 9,096
Interest Expense (4)................................. (499) (41) (540)
Non-Operating Expense--Other--Net.................... (15,800)
Gains from Dispositions--Net......................... 4,524 10,600 15,124
---------- --------------- ----------- ----------- ------------
Income Before Provision for Income Taxes............. $ 162,557
Provision for Income Taxes........................... $ (73,676)
Net Income........................................... $ 88,881
Segment Depreciation and Amortization................ $ 84,641 $ 24,343 $ 11,987 $ 11,561 $ 132,532
Segment Capital Expenditures......................... $ 29,935 $ 13,508 $ 19,657 $ 2,532 $ 65,632
IDENTIFIABLE ASSETS AT DECEMBER 31, 1995 (5)......... $ 768,684 $ 124,535 $ 355,088 $ 132,568 $ 1,380,875
---------- --------------- ----------- ----------- ------------
---------- --------------- ----------- ----------- ------------
</TABLE>
- ------------------------------
(1) Cognizant maintained a majority interest in Gartner during 1995 and 1996
and, accordingly, reflected Gartner on a consolidated basis. During 1997,
Cognizant's voting interest in Gartner fell below 50%. Gartner's results for
1997 are therefore reflected as Gartner Equity Income and included in
Non-Operating Income--Net.
(2) Intersegment sales of $3,734, $2,385, $11,092, $8,877 and $7,929 in March
31, 1998 and 1997 and December 31, 1997, 1996 and 1995, respectively,
consisting primarily of sales from CTS to IMS and Nielsen Media Research,
have been excluded. These sales are accounted for on a time and materials
basis and recognized as the service is performed.
(3) Interest income excludes amounts recorded at corporate of $2,006, $2,458,
$8,194, $1,656 and $1,229 for March 31, 1998 and 1997 and December 31, 1997,
1996 and 1995, respectively.
(4) Interest expense excludes amounts recorded at corporate of $16 and $1,505
for March 31, 1998 and December 31, 1997, respectively.
F-29
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
(5) Assets of $393,461, $261,642 and $61,215 at December 31, 1997, 1996 and
1995, respectively, include cash and cash equivalents, investment in Gartner
and Property, Plant and Equipment not identified with business segments and
represent the reconciling items between total identifiable assets shown and
the Cognizant's total assets.
(6) Post-employment benefit expense excludes amounts recorded at corporate of
$666 and $5,132 for 1996 and 1995, respectively.
(7) Non-recurring charge expense excludes amounts recorded at corporate of
$17,200 for 1995.
(8) General corporate expenses in 1998 include $4,900 of one-time spin-related
charges.
FINANCIAL INFORMATION BY COUNTRY:
<TABLE>
<CAPTION>
UNITED STATES(1) ALL OTHER TOTAL
---------------- ---------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUE (2)................................................. $ 759,070 $ 659,083 $ 1,418,153
LONG-LIVED ASSETS..................................................... $ 363,478 $ 190,657 $ 554,135
-------- ---------- ------------
Year Ended December 31, 1996..........................................
-------- ---------- ------------
Operating Revenue (2)................................................. $ 950,526 $ 780,070 $ 1,730,596
Long-Lived Assets..................................................... $ 554,795 $ 192,472 $ 747,267
-------- ---------- ------------
Year Ended December 31, 1995..........................................
-------- ---------- ------------
Operating Revenue (2)................................................. $ 834,786 $ 707,554 $ 1,542,340
Long-Lived Assets..................................................... $ 488,730 $ 198,554 $ 687,284
-------- ---------- ------------
-------- ---------- ------------
</TABLE>
- ------------------------
(1) The above table reflects the deconsolidation of Gartner and the sale of
Pilot, in 1997.
(2) Revenue relates to external customers and is primarily attributable to the
country of domicile.
NOTE 20. REORGANIZATION PLAN
On January 15, 1998, the Company announced a plan to separate into two
independent, publicly traded companies--IMS HEALTH and Nielsen Media Research
(the "Cognizant Distribution"). The transaction, which has been structured as a
tax-free dividend of one share of IMS HEALTH common stock for each share of
Cognizant common stock, is targeted for completion by the middle of 1998.
Concurrent with the transaction, Cognizant Corporation will change its name to
Nielsen Media Research, Inc. The separation would create IMS HEALTH as the
premier global provider of information solutions to the pharmaceutical and
healthcare industries, and establish an independent Nielsen Media Research, the
leader in television audience measurement services. Because of the significance
to Cognizant of the IMS HEALTH business to be distributed to Cognizant
stockholders in the Cognizant Distribution, IMS HEALTH will be the successor to
Cognizant from a financial reporting perspective. The Cognizant Distribution is
subject to, and requires the final approval of, the Company's board of directors
of the plan of the Cognizant Distribution as well as of the material terms of
any distribution, tax sharing, employee benefits and other similar agreements
pursuant to which assets and liabilities are allocated as part of the Cognizant
Distribution.
F-30
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31 (1) JUNE 30 (1) SEPTEMBER 30 DECEMBER 31 FULL YEAR
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
OPERATING REVENUE.......................... $ 315,576 $ 338,260 $ 341,041 $ 423,276 $ 1,418,153
OPERATING INCOME........................... $ 47,887 $ 66,701 $ 87,163 $ 133,591 $ 335,342
NET INCOME................................. $ 52,905 $ 60,055 $ 77,066 $ 122,324 $ 312,350
BASIC EARNINGS PER SHARE OF COMMON STOCK... $ 0.31 $ 0.36 $ 0.47 $ 0.75 $ 1.89
DILUTED EARNINGS PER SHARE OF COMMON
STOCK.................................... $ 0.31 $ 0.36 $ 0.46 $ 0.73 $ 1.86
------------ ----------- ------------ ------------ ------------
1996
Operating Revenue.......................... $ 370,019 $ 415,703 $ 424,188 $ 520,686 $ 1,730,596
Operating Income (2)....................... $ 58,978 $ 81,912 $ 60,195 $ 142,083 $ 343,168
Net Income................................. $ 33,277 $ 42,875 $ 39,858 $ 79,441 $ 195,451
Basic Earnings Per Share of Common Stock... $ 0.20 $ 0.25 $ 0.23 $ 0.47 $ 1.15
Diluted Earnings Per Share of Common
Stock.................................... $ 0.20 $ 0.25 $ 0.23 $ 0.47 $ 1.15
------------ ----------- ------------ ------------ ------------
</TABLE>
- ------------------------
(1) 1997 quarterly results have been restated to reflect the deconsolidation of
Gartner.
(2) Includes a one-time acquisition-related charge of $33,233 related to
Gartner's acquisition of J3 Learning Corporation in the third quarter.
NOTE 22. SUBSEQUENT EVENT (UNAUDITED)
On March 23, 1998 the Company announced it has signed two definitive
agreements to acquire Walsh International Inc. ("Walsh") and Pharmaceutical
Marketing Services Inc. ("PMSI"), subject to regulatory approval. These
acquisitions are separate transactions and will be accounted for as purchases.
The transactions have been independently authorized by the Cognizant, Walsh and
PMSI boards of directors, and are subject to approval by Walsh and PMSI
shareholders. Under terms of the agreements, Walsh shareholders will receive
.3041 shares of Cognizant Corporation common stock per Walsh share (or, based on
a Cognizant share price of $51.792, consideration of approximately $167,000),
and PMSI shareholders will receive .2800 shares of Cognizant Corporation common
stock per PMSI share (or, based on a Cognizant share price of $51.792,
consideration of approximately $180,000). The number of shares of Cognizant
Corporation common stock to be issued in connection with each of the
acquisitions is subject to a collar adjustment based on the price of Cognizant
Corporation common stock during a period prior to the closing of the
acquisitions. A one-time, non-cash charge to write-off in-process research and
development is expected, in the range of $110,000 to $125,000 for both
acquisitions combined. The Company expects to issue approximately 6,700,000
shares from treasury stock to consummate these transactions. In connection with
the Cognizant Distribution, Walsh and PMSI will become part of IMS HEALTH.
During the first quarter, the Company acquired ChinaMetrik, Inc., a
privately held company that measures the pharmaceutical market in China. As part
of the consideration, 25,751 shares of Cognizant Common Stock were issued. This
acquisition is not material to Cognizant.
F-31
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 23. GAIN ON SALE OF SUBSIDIARY STOCK (UNAUDITED)
During the first quarter of 1998, the proceeds from the issuance of shares
to Gartner employees, including associated tax benefits, increased Gartner's
equity and reduced the Company's ownership interest from 48.0% to 47.2%. In
connection with the exercise of stock options and the purchase of stock by
Gartner employees, Gartner issued 1,549,156 shares of stock at a weighted
average price per share of $6.16 for total cash proceeds of $9,547.
Consequently, the Company recognized a SAB 51 gain of $7,987 corresponding to
the net increase in the underlying value of the investment in Gartner. Deferred
taxes on the SAB 51 gain have been provided in the provision for income taxes.
F-32
<PAGE>
COGNIZANT CORPORATION
FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FOR YEARS ENDED AND AS OF DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Operating Revenue.................. $ 1,418,153 $ 1,730,596 $ 1,542,340 $ 1,257,415 $ 1,039,259
Costs and Expenses(1)(2)........... 1,082,811 1,387,428 1,387,663 1,030,780 897,909
-------------- -------------- -------------- -------------- ------------
Operating Income(1)(2)............. 335,342 343,168 154,677 226,635 141,350
Non-Operating Income--Net(3)....... 94,893 5,853 7,880 18,853 25,982
-------------- -------------- -------------- -------------- ------------
Income Before Provision for Income
Tax.............................. 430,235 349,021 162,557 245,488 167,332
Provision For Income Taxes......... (117,885) (153,570) (73,676) (99,083) (58,475)
-------------- -------------- -------------- -------------- ------------
Income Before Cumulative Effect of
Accounting Changes................. 312,350 195,451 88,881 146,405 108,857
Cumulative Effect of Accounting
Changes, Net of Income Taxes(4).... -- -- -- -- (41,143)
-------------- -------------- -------------- -------------- ------------
Net Income........................... $ 312,350 $ 195,451 $ 88,881 $ 146,405 $ 67,714
-------------- -------------- -------------- -------------- ------------
-------------- -------------- -------------- -------------- ------------
Basic Earnings Per Share of Common
Stock.............................. $ 1.89 $ 1.15 $ 0.52 $ 0.86 $ --
-------------- -------------- -------------- -------------- ------------
Basic Average Number of Shares
Outstanding........................ 165,163,000 169,944,000 169,522,000 169,946,000 --
-------------- -------------- -------------- -------------- ------------
Diluted Earnings Per Share of Common
Stock.............................. $ 1.86 $ 1.15 $ 0.52 $ 0.85 $ --
-------------- -------------- -------------- -------------- ------------
Diluted Average Number of Shares
Outstanding........................ 167,490,000 170,500,000 171,608,000 171,700,000 $ --
-------------- -------------- -------------- -------------- ------------
As a % of Operating Revenue:
Operating Income................... 23.6% 19.8% 10.0% 18.0% 13.6%
Income Before Cumulative Effect of
Accounting Changes............... 22.0% 11.3% 5.8% 11.6% 10.5%
-------------- -------------- -------------- -------------- ------------
SHAREHOLDERS' EQUITY................. $ 801,570 $ 872,613 $ 604,588 $ 606,483 $ 540,833
-------------- -------------- -------------- -------------- ------------
TOTAL ASSETS......................... $ 1,579,520 $ 1,874,982 $ 1,442,090 $ 1,331,038 $ 1,158,764
-------------- -------------- -------------- -------------- ------------
</TABLE>
- ------------------------
(1) 1996 includes a one-time acquisition-related charge of $33,233 related to
Gartner's acquisition of J3 Learning Corporation.
(2) 1995 includes a non-recurring charge of $90,070 (see Note 6 to the Cognizant
Consolidated Financial Statements) and an incremental provision for
postemployment benefits of $32,500. Also includes restructuring expense of
$12,800, $7,957, and $46,408 in 1995, 1994 and 1993, respectively (See Note
7 to the Cognizant Consolidated Financial Statements).
(3) Non-Operating Income in 1997 includes Gartner equity income of $65,120, SAB
51 gains of $14,689, and gains from dispositions--net of $9,391. Results for
prior years include gains from dispositions--net of $200, $15,124, $21,473
and $21,022 in non-operating income in 1996, 1995, 1994 and 1993,
respectively.
(4) 1993 includes the impact of $28,303 for the adoption of SFAS No. 112 and
$12,840 for the adoption of SFAS No. 106.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of Cognizant Corporation:
Our report on the consolidated financial statements of Cognizant Corporation
as of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, is included on page F-2 of Annex IV of this Proxy
Statement/Prospectus. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule set
forth below.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
February 17, 1998
F-34
<PAGE>
COGNIZANT CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COL. A COL. B COL. C COL. D COL. E
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(A) OF PERIOD
- -------------------------------------------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1997.......... $ 15,470 $ 790 $ 9,061 $ 7,199
----------- ----------- ------ -----------
----------- ----------- ------ -----------
For the Year Ended December 31, 1996.......... $ 11,446 $ 4,993 $ 969 $ 15,470
----------- ----------- ------ -----------
----------- ----------- ------ -----------
For the Year Ended December 31, 1995.......... $ 10,839 $ 3,310 $ 2,703 $ 11,446
----------- ----------- ------ -----------
----------- ----------- ------ -----------
</TABLE>
NOTE:
(a) Primarily represents the deconsolidation of Gartner and the recovery of
accounts in 1997; and the charge-off of uncollectible accounts for which a
reserve was provided in 1996 and 1995.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of IMS Health Incorporated:
We have audited the accompanying statement of financial position of IMS
Health Incorporated, a wholly-owned subsidiary of Cognizant Corporation, as of
March 31, 1998. This financial statement is the responsibility of the management
of IMS Health Incorporated. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial position. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit of the statement of financial
position provides a reasonable basis for our opinion.
In our opinion, the statement of financial position referred to above
presents fairly, in all material respects, the financial position of IMS Health
Incorporated as of March 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
April 1, 1998
F-36
<PAGE>
IMS HEALTH INCORPORATED
STATEMENT OF FINANCIAL POSITION
MARCH 31, 1998
ASSETS
<TABLE>
<S> <C>
Cash............................................................................... $ 10,000
---------
Total Assets....................................................................... $ 10,000
---------
---------
</TABLE>
LIABILITIES AND SHAREHOLDER EQUITY
<TABLE>
<S> <C>
Common Stock, par value $0.01 per share; authorized--100 shares; issued and
outstanding-- 100 shares......................................................... $ 1
Capital Surplus.................................................................... $ 9,999
---------
Total Liabilities and Shareholder Equity........................................... $ 10,000
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-37
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO FINANCIAL STATEMENT
NOTE 1. ORGANIZATION
On February 3, 1998, IMS Health Incorporated (the "Company") was
incorporated under the General Corporation Law of the State of Delaware. The
Company has the authority under its Certificate of Incorporation to issue 100
shares of common stock, par value $0.01 per share (the "Common Stock"), one
hundred shares of which were issued to Cognizant Corporation ("Cognizant") for
$10,000 on February 4, 1998. The Company has no assets other than cash and has
not commenced operations. The Company's activities to date have been solely
related to its incorporation.
NOTE 2. PROPOSED REORGANIZATION
On January 15, 1998, the Board of Directors of Cognizant approved in
principle a plan to distribute the Common Stock of IMS Health Incorporated to
all holders of outstanding shares of common stock of Cognizant (the
"Distribution"). The Distribution is subject to final approval by Cognizant's
Board of Directors and obtaining a ruling from the Internal Revenue Service with
respect to the tax-free treatment of the transaction. After the Distribution,
the Company will operate as an independent company that will focus on
information solutions to the pharmaceutical and healthcare industries. The
Company's principal businesses will include those of I.M.S. International, Inc.,
Erisco, Inc., Cognizant Enterprises, Inc., Cognizant Technology Solutions
Corporation, SSJ K.K. and an equity investment in Gartner Group, Inc. In
connection with the Distribution, application will be made by the Company to
list its Common Stock on the New York Stock Exchange.
NOTE 3. RESTATED CERTIFICATE OF INCORPORATION
Prior to the date of the Distribution, the Company will file a Restated
Certificate of Incorporation which will authorize the issuance of 420,000,000
shares of all classes of stock of which 10,000,000 shares will represent shares
of preferred stock, par value $.01 per share ("Preferred Stock"), 400,000,000
shares will represent shares of Common Stock, and 10,000,000 shares will
represent shares of Series Common Stock, par value $.01 per share ("Series
Common Stock").
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Nielsen Media Research, Inc.:
We have audited the accompanying consolidated statements of financial
position of Nielsen Media Research, Inc. (a wholly-owned subsidiary of Cognizant
Corporation) as of December 31, 1997 and 1996, and the related consolidated
statements of income, divisional equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nielsen Media
Research, Inc. as of December 31, 1997 and 1996, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
March 30, 1998
F-39
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE.............. $ 96,064 $ 86,271 $ 358,594 $ 319,404 $ 288,652
-------------- -------------- -------------- -------------- --------------
Operating Costs................ 47,194 39,253 164,516 146,981 133,059
Selling and Administrative
Expenses..................... 20,431 18,475 75,154 65,233 61,682
Depreciation and
Amortization................. 7,122 6,633 28,663 25,229 24,343
-------------- -------------- -------------- -------------- --------------
Operating Income............... 21,317 21,910 90,261 81,961 69,568
-------------- -------------- -------------- -------------- --------------
Other Income................... 3,185 -- -- -- --
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE PROVISION FOR
INCOME TAXES................. 24,502 21,910 90,261 81,961 69,568
-------------- -------------- -------------- -------------- --------------
Provision for Income Taxes..... (10,256) (9,180) (37,786) (34,356) (29,156)
-------------- -------------- -------------- -------------- --------------
NET INCOME..................... $ 14,246 $ 12,730 $ 52,475 $ 47,605 $ 40,412
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
BASIC EARNINGS PER SHARE OF
COMMON STOCK................. $ 0.09 $ 0.07 $ .32 $ .28 $ .24
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
DILUTED EARNINGS PER SHARE OF
COMMON STOCK................. $ 0.09 $ 0.07 $ .32 $ .28 $ .24
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Average Number of Shares
Outstanding--Basic........... 162,406,000 169,770,000 165,163,000 169,944,000 169,522,00
Dilutive Effect of Shares
Issuable as of Balance Sheet
Date Under Stock Option
Plans........................ 721,084 10,792 287,323 59,170 --
Adjustment of Shares Applicable
to Exercise of Stock
Options...................... 194,758 10,053 214,667 -- --
-------------- -------------- -------------- -------------- --------------
Average Number of Shares
Outstanding--Diluted......... 163,321,842 169,790,845 165,664,990 170,003,170 169,522,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents.................................................. $ 4,004 $ 5,993 $ 5,557
Accounts Receivable--Net................................................... 52,966 51,986 44,773
Other Current Assets....................................................... 5,115 4,551 5,145
---------- ------------ ----------
Total Current Assets................................................... 62,085 62,530 55,475
---------- ------------ ----------
PROPERTY, PLANT AND EQUIPMENT--NET......................................... 58,023 55,050 44,310
COMPUTER SOFTWARE.......................................................... 45,724 43,093 35,653
INTANGIBLES................................................................ 12,085 10,649 11,686
OTHER ASSETS............................................................... 21,728 21,112 23,207
---------- ------------ ----------
TOTAL ASSETS............................................................... $ 199,645 $ 192,434 $ 170,331
---------- ------------ ----------
---------- ------------ ----------
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts Payable........................................................... $ 18,165 $ 14,355 $ 6,876
Accrued and Other Current Liabilities...................................... 18,690 23,629 20,398
Accrued Income Taxes....................................................... 5,455 5,475 4,810
Deferred Revenues.......................................................... 1,229 1,153 1,254
---------- ------------ ----------
Total Current Liabilities.............................................. 43,539 44,612 33,338
---------- ------------ ----------
POSTRETIREMENT BENEFITS.................................................... 11,916 11,845 8,261
DEFERRED INCOME TAXES...................................................... 37,053 34,394 29,379
---------- ------------ ----------
TOTAL LIABILITIES.......................................................... 92,508 90,851 70,978
---------- ------------ ----------
COMMITMENTS AND CONTINGENCIES
TOTAL DIVISIONAL EQUITY.................................................... 107,137 101,583 99,353
---------- ------------ ----------
TOTAL LIABILITIES AND DIVISIONAL EQUITY.................................... $ 199,645 $ 192,434 $ 170,331
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................... $ 14,246 $ 12,730 $ 52,475 $ 47,605 $ 40,412
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization.................. 7,122 6,633 28,663 25,229 24,343
(Increase) Decrease in Accounts Receivable..... (980) 526 (7,213) (14,022) 13,597
Increase in Accounts Payable................... 3,810 1,714 7,479 896 2,201
Increase (Decrease) in Postretirement
Benefits..................................... 72 1,292 3,543 (6,183) 9,380
Deferred Income Taxes.......................... 2,859 4,410 5,585 10,473 (4,058)
Increase (Decrease) in Accrued Income Taxes.... (20) 1,073 665 728 1,029
(Increase) Decrease in Other Working Capital
Items........................................ (5,628) (83) 3,195 (59) 3,369
----------- ----------- ---------- ---------- ----------
Net Cash Provided by Operating Activities.......... 21,481 28,295 94,392 64,667 90,273
----------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures............................... (6,719) (6,500) (24,874) (17,929) (13,508)
Additions to Computer Software..................... (5,151) (3,594) (17,121) (14,356) (14,298)
Additions to Intangibles........................... (2,356) (1,931) (7,681) (6,266) (3,011)
Other.............................................. (718) 2,340 6,834 (2,234) (82)
----------- ----------- ---------- ---------- ----------
Net Cash Used in Investing Activities.............. (14,944) (9,685) (42,842) (40,785) (30,899)
----------- ----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Transfers to Cognizant/D&B..................... (8,530) (14,061) (51,107) (19,069) (58,755)
----------- ----------- ---------- ---------- ----------
Net Cash Used in Financing Activities.............. (8,530) (14,061) (51,107) (19,069) (58,755)
----------- ----------- ---------- ---------- ----------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents...................................... 4 (25) (7) (11) --
----------- ----------- ---------- ---------- ----------
(Decrease) Increase in Cash and Cash Equivalents... (1,989) 4,524 436 4,802 619
Cash and Cash Equivalents, Beginning of Period..... 5,993 5,557 5,557 755 136
----------- ----------- ---------- ---------- ----------
Cash and Cash Equivalents, End of Period........... $ 4,004 $ 10,081 $ 5,993 $ 5,557 $ 755
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
CONSOLIDATED STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------
1998 1997 1996 1995
----------- --------- --------- ---------
(UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD..................... $ 101,583 $ 99,353 $ 70,874 $ 87,893
Net Income....................................... 14,246 52,475 47,605 40,412
Net Transfers to Cognizant/D&B................... (8,530) (51,107) (19,069) (58,755)
Change in Unrealized Gains on Investments........ -- -- -- 1,324
Change in Cumulative Translation Adjustment...... (162) 862 (57) --
----------- --------- --------- ---------
BALANCE, END OF PERIOD........................... $ 107,137 $ 101,583 $ 99,353 $ 70,874
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 1. BASIS OF PRESENTATION
On January 15, 1998, Cognizant Corporation ("Cognizant") announced a plan to
separate into two independent, publicly traded companies--Nielsen Media
Research, Inc. ("Nielsen Media Research"), and IMS Health Incorporated ("IMS
HEALTH") (the "Cognizant Distribution"). The transaction, which has been
structured as a tax-free dividend of one share of IMS HEALTH common stock for
each share of Cognizant Corporation common stock, is targeted for completion by
mid-1998. Concurrent with the transaction, Cognizant Corporation will change its
name to Nielsen Media Research, Inc. Although Nielsen Media Research, Inc. will
be the same corporate legal entity as Cognizant Corporation, except as
specifically included or disclosed in these consolidated financial statements,
or specified in agreements between Nielsen Media Research and IMS HEALTH,
Nielsen Media Research will be indemnified by IMS Health for liabilities of
Cognizant incurred before the date of the Cognizant Distribution.
The separation will create IMS HEALTH as the premier global provider of
information solutions to the pharmaceutical and healthcare industries, and
establish an independent Nielsen Media Research, the leader in television
audience measurement services. The Cognizant Distribution is subject to final
approval by Cognizant's Board of Directors and obtaining a ruling from the
Internal Revenue Service with respect to the tax-free treatment of the
transaction.
As used in the accompanying consolidated financial statements, the term
"Nielsen Media Research" or "the Company" refers to the operations of the
television audience measurement business, the term "IMS HEALTH" refers to the
operations of the pharmaceutical and healthcare information business, and the
term "Cognizant" refers to the pre-Cognizant Distribution consolidated entity
which operates both businesses. The term "D&B" refers to Cognizant's former
parent.
On November 1, 1996 (the "D&B Distribution Date"), The Dun Bradstreet
Corporation ("D&B") distributed to its shareholders all of the outstanding
shares of common stock of Cognizant, then a wholly-owned subsidiary of D&B (the
"D&B Distribution"). In the D&B Distribution, holders of D&B common stock
received one share of Cognizant common stock for every share of D&B common stock
held.
The consolidated financial statements have been prepared using Cognizant's
historical basis in the assets and liabilities and historical results of
operations related to the Company's business.
The consolidated financial statements generally reflect the financial
position, results of operations, and cash flows of the Company as if it were a
separate entity for all periods presented. The consolidated financial statements
include allocations of certain Cognizant corporate headquarters assets
(including prepaid pension assets) and liabilities (including pension and
postretirement benefits) and an allocation of Cognizant corporate and other
expenses (including cash management, legal, accounting, tax, employee benefits,
insurance services, data services and other corporate overhead) relating to the
Company's business for the year ended December 31, 1997 and for the two months
ended December 31, 1996 and corresponding D&B corporate and other expenses for
the ten months ended October 31, 1996 and for the year ended December 31, 1995
(the "Respective Periods"). Management believes these allocations are
reasonable. However, the financial information included herein may not
necessarily reflect the consolidated financial position, results of operations,
and cash flows of the Company in the future or what they would have been if the
Company had been a separate entity during the periods presented.
For purposes of governing certain of the ongoing relationships between the
Company and IMS HEALTH after the Cognizant Distribution and to provide for
orderly transition, the Company and IMS
F-44
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 1. BASIS OF PRESENTATION (CONTINUED)
HEALTH will enter into various agreements including a Distribution Agreement,
Tax Allocation Agreement, Employee Benefits Agreement, Intellectual Property
Agreement, Shared Transaction Services Agreement, Data Services Agreement and
Transition Services Agreement. Summaries of these agreements are set forth
elsewhere in this Information Statement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements of the Company include
the accounts of the Company and its subsidiaries after elimination of all
material intercompany accounts and transactions.
UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying interim
consolidated balance sheet as of March 31, 1998 and the consolidated statements
of operations and cash flows for the three months ended March 31, 1997 and 1998
together with the related disclosures and amounts set forth in the notes are
unaudited but include all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly, in all
material respects, the consolidated financial position, the consolidated results
of operations and cash flows for the three months ended March 31, 1997 and 1998.
Results for the three months ended March 31, 1997 and 1998 are not necessarily
indicative of results for the entire year.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of 90 days or less at the time of purchase to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT. Buildings and machinery and equipment are
depreciated over their estimated useful lives of 40 and 3 to 5 years,
respectively, using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the lease or
the estimated useful life of the improvement.
COMPUTER SOFTWARE. Certain direct costs incurred in the development of
computer software for external use or to meet the internal needs of the Company
are capitalized. Computer software costs incurred to establish technological
feasibility or in the preliminary project stage of development are expensed in
the periods in which they are incurred. Capitalization ceases and amortization
starts when a computer software product is available for general release to
customers or when the computer software project is placed in service.
Amortization on a computer software product is computed using the greater of (a)
the ratio of a product's current gross revenues to the total of current and
expected gross revenues or (b) the straight-line method computed by dividing the
capitalized costs by the estimated economic life of a product over three to five
years. The costs of computer software developed for internal use are amortized
on a straight-line basis over three to five years. At each balance sheet date
the Company reviews the recoverability of the unamortized capitalized costs of
computer software by comparing the carrying value of computer software with the
estimated net realizable value.
INTANGIBLES. Intangibles primarily result from the deferral of direct costs
related to the installation of meters in markets in which customer contracts
preexist. Intangibles are amortized, using the straight-line method, over the
life of the contracts, which are generally five years.
LONG-LIVED ASSETS. Long-lived assets and certain identifiable intangibles
held and used by an entity are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
F-45
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount of an asset may not be recoverable. Recognition of an impairment loss is
recognized when the sum of undiscounted expected future cash flows is less than
the carrying amount of such assets. The measurement for such impairment loss is
then based on the fair value of the asset.
REVENUE RECOGNITION. The Company recognizes subscription revenue as earned,
which is generally pro rata over a one-year period, or as the information is
delivered or related services are performed. For certain metered market
contracts with fixed payment terms, revenue is recognized on a straight-line
basis over the contract period, which is generally five years. The difference
between the amount recognized as revenue and the amount billed for service is
recorded as unbilled receivables.
FOREIGN CURRENCY TRANSLATION. The Company has operations in Canada. Changes
in the value of the Canadian dollar (the functional currency) affect the
Company's consolidated financial statements when translated into U.S. dollars.
For operations in Canada, assets and liabilities are translated using
end-of-period exchange rates; revenues and expenses are translated using average
rates of exchange. Currency translation adjustments are accumulated in a
separate component of Divisional Equity, whereas realized transaction gains and
losses are recognized in current income.
INCOME TAXES. The Company has been included in the Federal and certain
state and Canadian income tax returns of Cognizant and D&B for the Respective
Periods. The provision for income taxes in the Company's consolidated financial
statements has been calculated on a separate-company basis. Income taxes paid on
behalf of the Company by Cognizant and D&B for the Respective Periods are
included in Divisional Equity. Effective after the Cognizant Distribution, the
Company will file separate income tax returns.
DIVISIONAL EQUITY. Divisional Equity includes historical investments and
advances from Cognizant and D&B, including net transfers to/from Cognizant and
D&B, third-party liabilities paid on behalf of the Company by Cognizant and D&B
and amounts due to/from Cognizant and D&B for services and other charges, as
well as current-period income through the Respective Periods.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates. Estimates are used for, but
not limited to, the accounting for: allowance for uncollectible accounts
receivable, depreciation and amortization, capitalized software costs, employee
benefit plans, taxes and contingencies.
EARNINGS PER SHARE. In 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic earnings per
share are calculated by dividing net income by weighted average common shares.
Diluted earnings per share are calculated by dividing net income by dilutive
potential common shares. Dilutive potential common shares are calculated in
accordance with the treasury stock method, which assumes that proceeds from the
exercise of all Nielsen Media Research employee options are used to repurchase
common stock at market value. The amount of shares remaining after the proceeds
are exhausted represent the potentially dilutive effect of the options. In 1997,
the computation represents the weighted average number of shares of Cognizant.
The computation in 1996
F-46
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and 1995 includes the weighted average number of D&B shares outstanding,
reflecting the one-for-one distribution ratio and the weighted average number of
shares of Cognizant common stock outstanding during the Respective Periods.
CONCENTRATIONS OF CREDIT RISK. The Company maintains trade accounts
receivable and unbilled receivable balances ($66,207 and $62,266 at December 31,
1997 and 1996, respectively), principally from customers in the television media
industry.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for periods beginning
after December 15, 1997. The Company is in the process of evaluating the
disclosure requirements under this standard.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
periods beginning after December 15, 1997. The Company is in the process of
evaluating the disclosure requirements under this standard.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions And Other Postretirement Benefits", which changes current
financial statement disclosure requirements from those required under SFAS No.
87, "Employers' Accounting for Pensions"; SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits"; and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The statement does not change the
existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106, and
is effective for periods beginning after December 15, 1997. The Company is in
the process of evaluating the disclosure requirements under this standard.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance on
costs to be capitalized and when capitalization of such costs should commence.
Nielsen Media Research is evaluating the impact of this SOP on its financial
position and results of operations and will be required to implement SOP 98-1
for the fiscal year ended December 31, 1999.
NOTE 3. FINANCIAL INSTRUMENTS
At December 31, 1997, the Company's financial instruments included cash,
cash equivalents, receivables, and accounts payable. At December 31, 1997, the
fair values of cash, cash equivalents, trade receivables and accounts payable
approximated carrying values because of the short-term nature of these
instruments.
The Company's trade receivables do not represent significant concentrations
of credit risk at December 31, 1997 due to the high quality of its customers.
F-47
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 4. PENSION AND POSTRETIREMENT BENEFITS
At the date of the Cognizant Distribution (the "Cognizant Distribution
Date"), the Company will assume responsibility for pension and postretirement
benefits for active employees and retirees of the Company. An allocation of
assets and liabilities for such benefits has been included in the consolidated
financial statements.
U.S. BENEFIT PLANS. The Company participates in Cognizant's defined benefit
pension plan covering all eligible employees in the United States. The plan is a
cash balance pension plan under which 6% of creditable compensation plus
interest is credited to eligible employee's retirement accounts on a monthly
basis. At the time of retirement, the vested employee's account balance is
actuarially converted into an annuity. Prior to the D&B Distribution, the
Company participated in the D&B defined benefit pension plan. Accordingly, the
Company has recorded pension expense, as allocated in the Respective Periods by
Cognizant and D&B, totaling $1,571, $2,397, and $2,397 for the years 1997, 1996,
and 1995, respectively.
Certain employees of the Company in the United States also have been
eligible to participate in the Cognizant and D&B-sponsored defined contribution
plans during the Respective Periods. The Company makes a matching contribution
of up to 50% of the employee's contribution based on specified limits of the
employee's salary. The Company's expense related to these plans was $2,021,
$1,797 and $2,340 for the years 1997, 1996 and 1995, respectively.
NON-U.S. BENEFIT PLANS. The Company's subsidiary in Canada provides
retirement benefits for eligible employees through defined benefit plans. The
projected benefit obligations and accrued pension cost for these funded and
unfunded plans at December 31, 1997 and 1996 and the pension costs for these
plans for the years 1997, 1996 and 1995, respectively, were not significant.
POSTRETIREMENT BENEFITS. In addition to providing pension benefits,
Cognizant and D&B provide various healthcare and life insurance benefits for
retired Company employees. Employees in the United States become eligible for
these benefits if they reach normal retirement age while working for the
Company. The Company accounts for the plans as multi-employer plans. The cost of
postretirement benefit plans as allocated by Cognizant and D&B during the
respective periods was not significant.
NOTE 5. EMPLOYEE STOCK PLANS
Under Cognizant's Key Employees Stock Incentive Plan (the ``Plan") certain
employees of the Company are eligible for the grant of stock options and
restricted stock. These awards are granted at the market value on the date of
grant. Immediately following the D&B Distribution, outstanding stock option
awards under the D&B Key Employee Stock Option Plans held by Company employees
were canceled and replaced by substitute awards under the Plan. At December 31,
1997 outstanding options for Cognizant
F-48
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 5. EMPLOYEE STOCK PLANS (CONTINUED)
common stock held by Company employees totaled 4,107,012, of which 1,006,740 had
vested and were exercisable. The option prices range from $22.99 to $44.47 per
share.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Options Outstanding
November 1, 1996.................................................................. 687,231 $ 31.35
Granted............................................................................ 3,602,800 $ 33.38
Exercised.......................................................................... --
Expired............................................................................ --
Options Outstanding
December 31, 1996 4,290,031 $ 33.05
Granted............................................................................ 231,487 $ 36.03
Exercised.......................................................................... (139,932) $ 30.29
Expired............................................................................ (274,574) $ 32.98
Options Outstanding
December 31, 1997................................................................. 4,107,012 $ 33.32
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
DECEMBER 31, 1997 -----------------------------------------
----------------------- REMAINING OPTION EXERCISE PRICES
RANGE OF NUMBER NUMBER CONTRACTUAL ------------------------
EXERCISE PRICES OUTSTANDING EXERCISABLE LIFE OUTSTANDING EXERCISABLE
- ----------------------------------------------- ----------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$42.4375-$44.4687.............................. 70,000 0 10 $ 42.805 --
$34.4837-$37.5625.............................. 234,333 152,477 8 $ 35.185 $ 34.807
$31.4369-$33.3750.............................. 3,593,442 675,688 9 $ 33.309 $ 33.082
$22.9891-$29.9135.............................. 209,237 178,575 6 $ 28.195 $ 27.900
----------- ----------
4,107,012 1,006,740
</TABLE>
Immediately following the Cognizant Distribution Date, outstanding awards
under the Plan held by Company employees will be adjusted or replaced by
substitute awards in accordance with the Plan. The adjusted or substitute awards
will have the same ratio of the exercise price per option to the market value
per share, the same aggregate difference between market value and exercise
price, and the same vesting provisions, option periods and other terms and
conditions as the options they replace.
In October 1995, the FASB issued SFAS No. 123, ``Accounting for Stock-Based
Compensation", which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method had been applied.
The Company has chosen to continue applying Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards to Company
employees under those plans,
F-49
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 5. EMPLOYEE STOCK PLANS (CONTINUED)
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net Income
As reported....................................................................... $ 52,475 $ 47,605 $ 40,412
Pro forma......................................................................... $ 49,059 $ 46,660 $ 40,408
Earnings Per Share:
Basic/Diluted
As reported....................................................................... $ .32 $ .28 $ .24
Pro forma......................................................................... $ .30 $ .27 $ .24
</TABLE>
- ------------------------
Note: The pro forma disclosures shown above are not representative of the
effects on net income and earnings per share in future years.
The fair value of the stock options used to compute the Company's pro forma
net income and earnings per share disclosures is based on an allocation of the
estimated value of the Cognizant and D&B stock options at grant date using the
Black-Scholes option pricing model. The following assumptions were used for
Cognizant options granted in 1997 and 1996: dividend yield of 0.3%; expected
volatility of 25%; a weighted average risk-free interest rate of 5.9%; and an
expected term of 4.5 years. The following assumptions were used for D&B options
granted in 1995: dividend yield of 4.7%; expected volatility of 15%; expected
term of 5 years and a weighted average risk-free interest rate of 6.1%. The
weighted average fair value of the Cognizant and D&B stock options granted in
1997, 1996 and 1995 are $11.46, $10.31 and $6.68, respectively.
NOTE 6. INCOME TAXES
Income before provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Pretax Income.................................................................... $ 90,261 $ 81,961 $ 69,568
</TABLE>
F-50
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
U.S. Federal
Current.......................................................................... $ 23,600 $ 16,735 $ 23,984
Deferred......................................................................... 4,674 8,764 (3,397)
--------- --------- ---------
28,274 25,499 20,587
--------- --------- ---------
U.S. State & Local and Other
Current.......................................................................... 8,601 7,148 9,231
Deferred......................................................................... 911 1,709 (662)
--------- --------- ---------
9,512 8,857 8,569
--------- --------- ---------
Total............................................................................ $ 37,786 $ 34,356 $ 29,156
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax Expense at Statutory Rate.................................................... $ 31,591 $ 28,686 $ 24,349
State and Local Income Taxes, net of Federal Tax Benefit......................... 6,053 5,355 4,563
Other............................................................................ 142 315 244
--------- --------- ---------
Total Taxes...................................................................... $ 37,786 $ 34,356 $ 29,156
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-51
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 6. INCOME TAXES
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Postretirement Benefits................................................................. $ 4,428 $ 3,177
Bad Debts............................................................................... 1,735 1,743
Other................................................................................... 151 285
---------- ----------
6,314 5,205
Deferred Tax Liabilities:
Computer Software and Intangibles....................................................... (25,524) (20,498)
Unbilled Revenue........................................................................ (3,952) (2,858)
Postretirement Benefits................................................................. (3,418) (3,064)
Depreciation............................................................................ (5,879) (6,136)
Other................................................................................... (477) 0
---------- ----------
(39,250) (32,556)
---------- ----------
Net Deferred Tax Liability.............................................................. $ (32,936) $ (27,351)
---------- ----------
---------- ----------
</TABLE>
NOTE 7. LEASE COMMITMENTS
Certain of the Company's operations are conducted from leased facilities
under operating leases. Rental expense under real estate operating leases for
the years 1997, 1996 and 1995 was $8,866, $8,842, and $8,938, respectively. The
approximate minimum annual rental expense for real estate operating leases that
have remaining noncancelable lease terms in excess of one year, net of sublease
rentals, at December 31, 1997 was: 1998 -- $7,787; 1999 -- $6,816; 2000 --
$6,621; 2001 -- $4,141; 2002 -- $1,505 and an aggregate of $4,848 thereafter.
The Company also leases or participates in leases of certain computer and
other equipment under operating leases. These leases are frequently renegotiated
or otherwise changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental expense under
computer and other equipment leases was $2,045, $1,932, and $2,599 for 1997,
1996 and 1995, respectively. At December 31, 1997, the minimum annual rental
expense for computer and other equipment under operating leases that have
remaining noncancelable lease terms in excess of one year was: 1998 -- $1,333;
1999 -- $863; 2000 -- $479 and 2001 -- $6.
Prior to the Cognizant Distribution Date, the Company will assume certain
Cognizant leases or enter into sublease agreements with IMS HEALTH, an affiliate
or third parties for certain leased facilities, computer and other equipment,
which principally are a continuation of existing lease commitments at market
rates. These commitments are included in the amounts disclosed above.
NOTE 8. OTHER TRANSACTIONS WITH AFFILIATES
Cognizant and D&B (pre-D&B Distribution) have used a centralized cash
management system to finance their operations. Cash deposits from most of the
Company's businesses are transferred to Cognizant and were transferred to D&B
(pre-D&B Distribution) on a daily basis. Cognizant and D&B (pre-D&B
Distribution) funded the Company's disbursement bank accounts as required. No
interest has
F-52
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 8. OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
been charged on these transactions. Cash and cash equivalents in the
accompanying consolidated financial statements represent remaining balances in
the Company's accounts.
Cognizant and D&B provided certain centralized services (see Note 1 to the
Consolidated Financial Statements) to the Company. Expenses related to these
services were allocated to the Company based on utilization of specific services
or, where not estimable, based on revenue of the Company in proportion to
Cognizant's and D&B's consolidated revenue. Management believes these allocation
methods are reasonable. These allocations were $34,146, $34,676 and $30,353 in
1997, 1996 and 1995, respectively, and are included in operating costs and
selling and administrative expenses in the Consolidated Statements of Income.
Amounts due to Cognizant and D&B for these allocated expenses are included in
Divisional Equity.
Net transfers to or from Cognizant and D&B, included in Divisional Equity,
include advances and loans from affiliates, net cash transfers to or from
Cognizant and D&B, third-party liabilities paid on behalf of the Company by
Cognizant and D&B, amounts due to or from Cognizant and D&B for services and
other charges, and income taxes paid on behalf of the Company by Cognizant and
D&B during the Respective Periods. No interest has been charged on these
transactions. The weighted average balance due from Cognizant and D&B was
$334,329, $342,319 and $275,471 for 1997, 1996 and 1995, respectively.
The activity in the net transfers to Cognizant and D&B account for the
periods through the respective Distribution Dates included in Divisional Equity
in the Consolidated Statements of Divisional Equity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cognizant/D&B Services and Other Charges.............................. $ (37,738) $ (38,870) $ (35,090)
Loans and Advances--Net............................................... 12,151 (28,980) (6,683)
U.S. Income Taxes..................................................... (23,600) (16,735) (23,984)
Cash Transfers--Net................................................... 100,294 103,654 124,512
------------ ------------ ------------
Net Transfers to Cognizant/D&B........................................ $ 51,107 $ 19,069 $ 58,755
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
For purposes of governing certain of the ongoing relationships between the
Company and IMS HEALTH after the Cognizant Distribution and to provide for an
orderly transition, the Company and IMS HEALTH will enter into various
agreements including a Distribution Agreement, Tax Allocation Agreement,
Employee Benefits Agreement, Intellectual Property Agreement, Shared Transaction
Services Agreement, Data Services Agreement and Transition Services Agreement.
Among other things, the agreements will set forth principles to be applied in
allocating certain Cognizant Distribution-related costs and specify portions of
contingent liabilities (including certain contingent liabilities arising from
the D&B Distribution) to be shared if certain amounts are exceeded.
NOTE 9. CAPITAL STOCK
Under a Shareholder Rights Plan (the "Rights Plan") adopted by the Cognizant
Board of Directors, each certificate for a share of Cognizant's common stock
also represents one Preferred Share Purchase Right (a ``Right"). In the event a
person or group (an ``Acquiring Person") acquires beneficial ownership
F-53
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 9. CAPITAL STOCK (CONTINUED)
of, or commences or announces an intention to make a tender offer for more than
15% of the outstanding shares of common stock, each Right entitles the holder to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at $210 per each one one-thousandth of a share (the ``Purchase
Price"). In the event a person or group becomes an Acquiring Person, or
Cognizant is acquired in a merger or other business combination or 50% or more
of its assets or earning power are sold, each holder of a Right (other than an
Acquiring Person) has the right to receive common stock of Cognizant or the
entity that engaged in such transaction, as applicable, which has a market value
of two times the Purchase Price. The Rights, which do not have voting rights and
are subject to adjustment in certain circumstances, expire on October 23, 2006
and are redeemable by Cognizant at a price of $0.01 per Right under certain
circumstances. The Company intends to continue this Rights Plan.
NOTE 10. LITIGATION
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings and litigation, if
decided adversely, could have a material adverse effect on quarterly or annual
operating results or cash flows when resolved in a future period. However, in
the opinion of management, these matters will not materially affect the
Company's consolidated financial position.
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS, a unit of Cognizant (the "IRI
Action"). The complaint alleges, among other things, various violations of the
antitrust laws and damages in excess of $350,000, which amount IRI has asked to
be trebled under the antitrust laws. IRI also seeks punitive damages in an
unspecified amount. In connection with the D&B Distribution, D&B, ACNielsen
Corporation ("ACNielsen") and Cognizant entered into an Indemnity and Joint
Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to
which ACNielsen agreed to be responsible for any potential liabilities which may
ultimately be incurred by D&B or Cognizant as a result of such action, up to a
minimum amount to be determined by an independent investment bank if and when
any such liabilities are incurred. The determination of such maximum amount will
be based on ACNielsen's ability to satisfy such liabilities and remain
financially viable, subject to certain assumptions and limitations. However,
Cognizant and D&B agreed that to the extent that ACNielsen is unable to satisfy
any such liabilities in full and remain financially viable, Cognizant and D&B
will each be responsible for 50% of the difference between the amount, if any,
which may be payable as a result of such litigation and the maximum amount which
ACNielsen is then able to pay as determined by such investment bank. Under the
terms of the D&B Distribution Agreement, dated October 28, 1996, among
Cognizant, D&B and ACNielsen (the "1996 Distribution Agreement"), pursuant to
which shares of Cognizant and ACNielsen were distributed to the stockholders of
D&B as a condition to the Cognizant Distribution, Nielsen Media Research and IMS
HEALTH are required to undertake to be jointly and severally liable to D&B and
ACNielsen. However, pursuant to the Distribution Agreement, IMS HEALTH and
Nielsen Media Research have agreed that, as between themselves, IMS HEALTH will
assume 75%, and Nielsen Media Research will assume 25%, of any payments to be
made in respect of the IRI Action under the Indemnity and Joint Defense
Agreement or otherwise, including any ongoing legal fees and expenses related
thereto incurred in 1999 or thereafter. IMS HEALTH has agreed to be fully
responsible for any legal fees and expenses incurred during 1998. Nielsen Media
Research's aggregate liability to IMS HEALTH for payments in respect of the IRI
Action and certain other contingent liabilities shall not
F-54
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 10. LITIGATION (CONTINUED)
exceed $125 million. Management is unable to predict at this time the final
outcome of the IRI Action or whether the resolution of such matter could
materially affect Nielsen Media Research's results of operations, cash flows or
financial position.
NOTE 11. SUPPLEMENTAL FINANCIAL DATA
ACCOUNTS RECEIVABLE--NET:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Trade....................................................................................... $ 53,641 $ 46,719
Less: Allowance for Doubtful Accounts....................................................... (3,294) (3,773)
Other....................................................................................... 1,639 1,827
--------- ---------
$ 51,986 $ 44,773
--------- ---------
--------- ---------
</TABLE>
OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred Income Taxes.......................................................................... $ 1,458 $ 2,028
Prepaid Expenses............................................................................... 3,093 3,117
--------- ---------
$ 4,551 $ 5,145
--------- ---------
--------- ---------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT--NET, CARRIED AT COST, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Buildings................................................................................. $ 13,413 $ 13,360
Machinery and Equipment................................................................... 134,155 111,372
Less: Accumulated Depreciation............................................................ (98,325) (85,506)
Leasehold Improvements, less: Accumulated Amortization of $2,597 and $1,886............... 4,243 4,059
Land...................................................................................... 1,564 1,025
---------- ----------
$ 55,050 $ 44,310
---------- ----------
---------- ----------
</TABLE>
F-55
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 11. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
COMPUTER SOFTWARE AND INTANGIBLES
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE INTANGIBLES
----------- -----------
<S> <C> <C>
January 1, 1996........................................................................... $ 27,601 $ 12,299
Additions at Cost......................................................................... 14,356 6,266
Amortization.............................................................................. (7,021) (4,599)
Other Deductions and Reclassifications.................................................... 717 (2,280)
----------- -----------
December 31, 1996......................................................................... 35,653 11,686
Additions at Cost......................................................................... 17,121 7,681
Amortization.............................................................................. (9,641) (4,934)
Other Deductions and Reclassifications.................................................... (40) (3,784)
----------- -----------
December 31, 1997......................................................................... $ 43,093 $ 10,649
----------- -----------
----------- -----------
</TABLE>
Accumulated Amortization of Computer Software was $32,605 and $23,019 at
December 31, 1997 and 1996, respectively.
Accumulated Amortization of Intangibles was $22,773 and $34,309 at December
31, 1997 and 1996, respectively.
OTHER ASSETS:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Unbilled Receivables........................................................................ $ 12,566 $ 15,547
Pension Assets.............................................................................. 8,546 7,660
--------- ---------
$ 21,112 $ 23,207
--------- ---------
--------- ---------
</TABLE>
ACCOUNTS PAYABLE:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Trade........................................................................................ $ 11,714 $ 5,003
Taxes Other Than Income Taxes................................................................ 2,641 1,873
--------- ---------
$ 14,355 $ 6,876
--------- ---------
--------- ---------
</TABLE>
ACCRUED AND OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Salaries, Wages, Bonuses and Other Compensation............................................. $ 13,386 $ 4,820
Other....................................................................................... 10,243 15,578
--------- ---------
$ 23,629 $ 20,398
--------- ---------
--------- ---------
</TABLE>
F-56
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
SEPTEMBER DECEMBER
MARCH 31, JUNE 30, 30, 31, FULL YEAR
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1997
OPERATING REVENUE...................... $ 86,271 $ 87,184 $ 89,911 $ 95,228 $ 358,594
OPERATING INCOME....................... $ 21,910 $ 22,980 $ 24,267 $ 21,104 $ 90,261
NET INCOME............................. $ 12,730 $ 13,351 $ 14,099 $ 12,295 $ 52,475
BASIC EARNINGS PER SHARE OF
COMMON STOCK......................... $ 0.07 $ 0.08 $ 0.09 $ 0.08 $ 0.32
DILUTED EARNINGS PER SHARE OF
COMMON STOCK......................... $ 0.07 $ 0.08 $ 0.09 $ 0.08 $ 0.32
1996
Operating Revenue...................... $ 76,821 $ 78,194 $ 79,823 $ 84,566 $ 319,404
Operating Income....................... $ 19,164 $ 20,246 $ 21,322 $ 21,229 $ 81,961
Net Income............................. $ 11,134 $ 11,763 $ 12,387 $ 12,321 $ 47,605
Basic Earnings Per Share of Common
Stock................................ $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
Diluted Earnings Per Share of Common
Stock................................ $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
</TABLE>
NOTE 13. INVESTMENTS (UNAUDITED)
In the first quarter of 1998, the Company realized a gain of $3,185 (which
is included in the caption "Other Income" for the three months ended March 31,
1998) on the sale of an investment in Aspect Development, Inc. The proceeds on
the sale were $3,339.
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Nielsen Media Research, Inc.
Our report on the consolidated financial statements of Nielsen Media
Research, Inc. as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, is included in this Form 10 on page F-36
of the Information Statement. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule set
forth on page F-58 of this Form 10.
In our opinion, the financial statement schedule referred to above when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
March 30, 1998
F-58
<PAGE>
NIELSEN MEDIA RESEARCH, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------- ----------- ----------- ----------- -----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1997............... $ 3,773 $ 328 $ 807 $ 3,294
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
For the Year Ended December 31, 1996............... $ 3,311 $ 900 $ 438 $ 3,773
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
For the Year Ended December 31, 1995............... $ 2,644 $ 664 $ (3) $ 3,311
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Gartner Group, Inc.:
We have audited the accompanying consolidated balance sheets of Gartner
Group, Inc. and its subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The consolidated financial statements of Gartner Group, Inc. and its
subsidiaries for the year ended September 30, 1995 were audited by other
auditors whose report, dated November 1, 1995, except as to the Dataquest
acquisition discussed in Note 3, which is as of January 25, 1996 and the stock
split discussed in Note 10, which is as of March 29, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Gartner Group, Inc. and its subsidiaries as of September 30, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Stamford, Connecticut
October 31, 1997
F-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GARTNER GROUP, INC.:
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended September 30, 1995
present fairly, in all material respects, the results of operations and cash
flows of Gartner Group, Inc. and its subsidiaries, for the year ended September
30, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Gartner
Group, Inc. for any period subsequent to September 30, 1995.
PRICE WATERHOUSE LLP
Stamford, Connecticut
November 1, 1995, except as to the Dataquest
acquisition discussed in Note 3, which is as of
January 25, 1996 and the stock split discussed
in Note 10, which is as of March 29, 1996
F-61
<PAGE>
GARTNER GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 142,415 $ 96,755
Marketable securities................................................................... 28,639 30,054
Fees receivable, net of allowances of $5,340 and $4,460................................. 205,760 143,762
Deferred commissions.................................................................... 23,019 17,539
Prepaid expenses and other current assets............................................... 25,775 22,040
---------- ----------
Total current assets.................................................................. 425,608 310,150
Long-term marketable securities......................................................... 17,691 3,047
Property, equipment and leasehold improvements, net..................................... 44,102 32,818
Intangible assets, net.................................................................. 132,195 93,144
Other assets............................................................................ 25,716 4,949
---------- ----------
Total assets.......................................................................... $ 645,312 $ 444,108
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ 85,411 $ 60,527
Commissions payable..................................................................... 16,979 15,148
Accrued bonuses payable................................................................. 15,722 16,781
Deferred revenues....................................................................... 254,071 198,952
---------- ----------
Total current liabilities............................................................. 372,183 291,408
---------- ----------
Long-term deferred revenues............................................................. 3,259 2,465
Commitments and contingencies
Stockholders' equity:
Preferred stock:
$.01 par value, authorized 2,500,000 shares; none issued or outstanding............... -- --
Common stock:
$.0005 par value, authorized 200,000,000 shares of Class A Common Stock and 1,600,000
shares of Class B Common Stock; issued 108,334,601 shares of Class A Common
(102,697,739 in 1996) and 0 shares of Class B Common Stock (1,600,000 in 1996)........ 54 52
Additional paid-in capital.............................................................. 179,017 134,711
Cumulative translation adjustment....................................................... (1,098) (2,965)
Accumulated earnings.................................................................... 105,138 32,008
Treasury stock, at cost, 11,624,805 and 11,370,594 shares............................... (13,241) (13,571)
---------- ----------
Total stockholders' equity............................................................ 269,870 150,235
---------- ----------
Total liabilities and stockholders' equity............................................ $ 645,312 $ 444,108
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
F-62
<PAGE>
GARTNER GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
REVENUES:
Advisory and measurement................................................... $ 396,219 $ 306,542 $ 235,867
Learning................................................................... 21,314 12,219 1,301
Other, principally consulting and conferences.............................. 93,706 75,911 57,978
---------- ---------- ----------
Total revenues........................................................... 511,239 394,672 295,146
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of services and product development................................... 202,815 152,982 112,675
Selling, general and administrative........................................ 173,610 144,473 119,626
Acquisition-related charges................................................ -- 34,898 --
Depreciation............................................................... 11,758 9,064 6,399
Amortization of intangibles................................................ 6,443 3,815 3,906
Nonrecurring charges....................................................... -- -- 8,800
---------- ---------- ----------
Total costs and expenses................................................. 394,626 345,232 251,406
---------- ---------- ----------
Operating income............................................................. 116,613 49,440 43,740
Minority interest............................................................ -- 25 98
Interest income, net......................................................... 7,260 3,665 2,271
---------- ---------- ----------
Income before provision for income taxes..................................... 123,873 53,130 46,109
Provision for income taxes................................................... 50,743 36,692 20,948
---------- ---------- ----------
Net income............................................................... $ 73,130 $ 16,438 $ 25,161
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE:
Primary.................................................................... $ .71 $ .17 $ .27
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............................................................. $ .71 $ .17 $ .26
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.................................................................... 102,459 98,612 94,762
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.............................................................. 102,751 98,854 95,212
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
F-63
<PAGE>
GARTNER GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
PREFERRED COMMON PAID-IN TRANSLATION ACCUMULATED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
----------- ----------- ----------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at September 30, 1994......... $ 0 $ 50 $ 59,709 $ 250 $ 7,699 $ (13,821) $ 53,887
Net income............................ -- -- -- -- 25,161 -- 25,161
Issuance of 1,838,902 shares of Class
A Common Stock upon exercise of
stock options....................... -- 1 1,259 -- -- -- 1,260
Issuance of 345,644 shares of Class A
Common Stock from purchases by
employees........................... -- 0 1,659 -- -- -- 1,659
Issuance from treasury stock of
172,594 shares of Class A Common
Stock............................... -- -- 1,410 -- -- 3 1,413
Purchase of 152,624 of Class A Common
Stock............................... -- -- -- -- -- (17) (17)
Tax benefits of stock transactions
with employees...................... -- -- 9,241 -- -- -- 9,241
Net transfers to D&B by Dataquest..... -- -- -- -- (15,603) -- (15,603)
Cumulative translation adjustment..... -- -- -- (2,750) -- -- (2,750)
----------- ----------- ----------- ----------- ------------ --------- ------------
Balance at September 30, 1995......... 0 51 73,278 (2,500) 17,257 (13,835) 74,251
Net income............................ -- -- -- -- 16,438 -- 16,438
Issuance of 3,036,403 shares of Class
A Common Stock upon exercise of
stock options....................... -- 1 5,752 -- -- -- 5,753
Issuance of 199,648 shares of Class A
Common Stock from purchases by
employees........................... -- 0 2,407 -- -- -- 2,407
Issuance from treasury stock of
117,470 shares of Class A Common
Stock from purchases by employees... -- -- 2,140 -- -- 264 2,404
Tax benefits of stock transactions
with employees...................... -- -- 29,415 -- -- -- 29,415
Net transfers to D&B by Dataquest..... -- -- -- -- (1,687) -- (1,687)
Cumulative translation adjustment..... -- -- -- (465) -- -- (465)
Acquisition of Dataquest, Inc......... -- -- (15,000) -- -- -- (15,000)
Acquisition of J3 Learning, Inc....... -- 0 36,719 -- -- -- 36,719
----------- ----------- ----------- ----------- ------------ --------- ------------
Balance at September 30, 1996......... 0 52 134,711 (2,965) 32,008 (13,571) 150,235
Net income............................ -- -- -- -- 73,130 -- 73,130
Issuance of 4,036,862 shares of Class
A Common Stock upon exercise of
stock options....................... -- 2 13,594 -- -- -- 13,596
Issuance from treasury stock of
195,721 shares of Class A Common
Stock from purchases by employees... -- -- 5,883 -- -- 330 6,213
Conversion of 1,600,000 shares of
Class B Common Stock into Class A
Common Stock........................ -- 0 -- -- -- -- 0
Tax benefits of stock transactions
with employees...................... -- -- 36,833 -- -- -- 36,833
Net share settlement of 449,932 shares
of Class A Common Stock received on
forward purchase agreement.......... -- -- -- -- -- 0 0
Net cash settlement paid on forward
purchase agreement.................. -- -- (12,004) -- -- -- (12,004)
Cumulative translation adjustment..... -- -- -- 1,867 -- -- 1,867
----------- ----------- ----------- ----------- ------------ --------- ------------
Balance at September 30, 1997......... $ 0 $ 54 $ 179,017 $ (1,098) $ 105,138 $ (13,241) $ 269,870
----------- ----------- ----------- ----------- ------------ --------- ------------
----------- ----------- ----------- ----------- ------------ --------- ------------
</TABLE>
See notes to consolidated financial statements
F-64
<PAGE>
GARTNER GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................................... $ 73,130 $ 16,438 $ 25,161
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of intangibles.................................... 18,201 12,879 9,703
Acquisition-related charges..................................................... -- 34,898 --
Provision for doubtful accounts................................................. 3,421 3,295 1,862
Equity in losses of minority owned company...................................... 202 -- --
Deferred revenues............................................................... 41,750 35,800 25,479
Deferred tax expense (benefit).................................................. 1,554 (1,394) (2,690)
Pre-acquisition tax benefit applied to reduce goodwill.......................... 275 517 1,257
Minority interest............................................................... -- (25) (98)
Provision for nonrecurring charges.............................................. -- -- 8,800
Payments for nonrecurring charges............................................... (724) (7,691) (408)
Changes in assets and liabilities, net of effects of acquisitions:
Increase in fees receivable..................................................... (60,378) (31,779) (10,136)
Increase in deferred commissions................................................ (4,262) (1,154) (4,216)
Increase in prepaid expenses and other current assets........................... (7,915) (1,995) (1,138)
(Increase) decrease in other assets............................................. (2,707) 116 (242)
Increase in accounts payable and accrued liabilities............................ 23,782 2,277 10,001
Increase in commissions payable................................................. 1,785 2,160 1,248
(Decrease) increase in accrued bonuses payable.................................. (957) 1,347 2,383
--------- --------- ---------
Cash provided by operating activities............................................. 87,157 65,689 66,966
--------- --------- ---------
INVESTING ACTIVITIES:
Payment for businesses acquired (excluding cash acquired)....................... (33,306) (46,176) (9,749)
Investments in unconsolidated subsidiaries...................................... (9,089) (750) (180)
Addition of property, equipment and leasehold improvements...................... (21,513) (15,614) (18,183)
Proceeds from disposal of property, equipment and leasehold improvements........ -- -- 11,826
Marketable securities purchased, net............................................ (13,229) (4,268) (24,783)
Loans to Officers............................................................... (7,163) -- --
Other investing................................................................. -- -- (341)
--------- --------- ---------
Cash used for investing activities................................................ (84,300) (66,808) (41,410)
--------- --------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations.............. -- (6,725) (5,825)
Issuance of common stock and warrants........................................... 13,596 5,753 1,260
Proceeds from Employee Stock Purchase Plan offering............................. 5,883 4,547 3,069
Tax benefits of stock transactions with employees............................... 36,833 29,415 9,241
Distributions of capital between Dataquest and its former parent................ -- (1,687) (15,731)
Net cash settlement on forward purchase agreement............................... (12,004) -- --
Sale (purchase) of treasury stock............................................... 330 264 (14)
--------- --------- ---------
Cash provided by (used for) financing activities.................................. 44,638 31,567 (8,000)
--------- --------- ---------
Net increase in cash and cash equivalents......................................... 47,495 30,448 17,556
Effect of exchange rates on cash and cash equivalents............................. (1,835) (274) 220
Cash and cash equivalents, beginning of period.................................... 96,755 66,581 48,805
--------- --------- ---------
Cash and cash equivalents, end of period.......................................... $ 142,415 $ 96,755 $ 66,581
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................................ -- $ 437 $ 225
Income taxes.................................................................... $ 6,597 $ 8,463 $ 7,265
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock and options issued in connection with J3 acquisition...................... -- $ 36,719 --
</TABLE>
See notes to consolidated financial statements
F-65
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Gartner Group, Inc. ("GGI" or the "Company") and its
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Minority interest represents the minority
shareholder's proportionate share of the equity in businesses owned less than
100%. The results of operations for acquisitions of companies accounted for
using the purchase method have been included in the Consolidated Statements of
Operations beginning on the effective date of acquisition. The Company's
investments in 20% to 50% owned companies in which it has the ability to
exercise significant influence over operating and financial policies are
accounted for on the equity method. Investments of less than 20% are carried at
cost.
REVENUE AND COMMISSION EXPENSE RECOGNITION. Revenues from advisory,
measurement and learning ("AML") contracts are recognized as services and
products are delivered, and as the Company's obligation to the client is
completed over the contract period, generally twelve months. The Company's
policy is to record at the time of signing of an AML contract the fees
receivable and related deferred revenues, for the full amount of the contract
billable on that date. All such contracts are non-cancelable and non-refundable,
except for government contracts which have a 30-day cancellation clause, but
have not produced material cancellations to date. All contracts are billable
upon signing, absent special terms granted on a limited basis from time to time.
The Company also records the related commission obligation upon the signing of
the contract and amortizes the corresponding deferred commission expense over
the contract period in which the related revenues are earned and amortized to
income. Other revenues consist principally of revenues recognized as earned from
consulting services and conferences.
CASH EQUIVALENTS AND MARKETABLE SECURITIES. Marketable securities that
mature within three months of purchase are considered cash equivalents.
Investments with maturities of more than three months are classified as
marketable securities. Marketable securities are considered "held-to-maturity"
and valued at amortized cost, which approximates market. It is management's
intent to hold all investments to maturity.
INVENTORIES. Inventories, which consist primarily of finished goods
relating to the Company's learning business (technology-based training
products), are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Inventories consist primarily of material costs, and
are included in the balance sheet caption "Prepaid and other current assets."
Inventories were $2.1 million and $1.3 million at September 30, 1997 and 1996,
respectively.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the estimated
useful lives of the asset or the remaining term of the related leases.
SOFTWARE DEVELOPMENT COSTS. Under Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," capitalization of computer software development
costs is to begin upon the establishment of technological feasibility, limited
to the net realizable value of the software product, and cease when the software
product is available for general release to clients. Until these products reach
technological feasibility, all costs related to development efforts are charged
to expense. Software development costs, subsequent to technological feasibility
and prior to general release, were not material and have been expensed.
F-66
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS. Intangible assets include goodwill, non-compete
agreements, tradenames and other intangibles. Goodwill represents the excess of
the purchase price of acquired businesses over the estimated fair value of the
tangible and identifiable intangible net assets acquired. Amortization is
recorded using the straight-line method over periods ranging from seven to
thirty years. These amounts have been and are subject to adjustment in
accordance with the provisions of the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109") (see Note 9. Income
Taxes). Non-compete agreements are being amortized on a straight-line basis over
the period of the agreement ranging from three to five years. Tradenames and
other intangibles are amortized using the straight-line method over their
estimated useful lives ranging from four to thirty years. At the end of each
quarter, the Company reviews the recoverability of all intangibles based on
estimated undiscounted future cash flows from operating activities compared with
the carrying value of the intangible asset. Should the aggregate of such future
cash flows be less than the carrying value, a writedown would be required,
measured by the difference between the discounted future cash flows (or another
acceptable method for determining fair value) and the carrying value of the
intangible.
FOREIGN CURRENCY TRANSLATION. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates.
Income and expense items are translated at average exchange rates prevailing
during the fiscal year. The resulting translation adjustments are recorded as a
component of stockholders' equity.
INCOME TAXES. Income taxes are provided using the asset and liability
method in accordance with FAS 109. Deferred tax assets and liabilities are
recognized based on differences between the book and tax bases of assets and
liabilities using presently enacted tax rates. The provision for income taxes is
the sum of the amount of income tax paid or payable for the year as determined
by applying the provisions of enacted tax laws to taxable income for that year
and the net changes during the year in the Company's deferred tax assets and
liabilities.
Undistributed earnings of subsidiaries outside of the U.S. amounted to
approximately $4.2 million and will either be indefinitely reinvested or
remitted substantially free of tax. Accordingly, no material provision has been
made for taxes that may be payable upon remittance of such earnings, nor is it
practicable to determine the amount of this liability. The Company credits
Additional paid-in capital for realized tax benefits arising from stock
transactions with employees. The tax benefit on a non-qualified stock option is
equal to the tax effect of the difference between the market price of a share of
the Company's common stock on the exercise and grant dates. To the extent the
Company incurs employment taxes as a direct result of the exercise of such stock
options, this cost is charged to Additional paid-in capital.
COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK. Primary and fully
diluted net income per share of common stock is computed by dividing net income
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. The computation includes the weighted
average number of shares issued in connection with the Dataquest, Inc.
("Dataquest") acquisition (see Note 3. Acquisitions), on December 1, 1995, as if
they had been issued at the beginning of fiscal 1996 and fiscal 1995. The
warrant issued in connection with the Dataquest acquisition has been excluded
from primary and fully diluted weighted average shares outstanding for fiscal
1995 due to its anti-dilutive effect.
F-67
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION. In October 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS
123") was issued. This statement defines a fair value based method of accounting
for an employee stock option. Companies may, however, elect to adopt this new
accounting rule through a pro forma disclosure option, while continuing to use
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." As permitted by FAS 123, the Company has adopted the disclosure
provisions and continues accounting for its employee stock compensation plans
under APB 25 (see Note 12 for the fair value disclosures required under FAS
123).
RECENTLY ISSUED ACCOUNTING STANDARDS. In February 1997, Statement of
Financial Accounting Standard No. 128, "Earnings per Share", was issued. The
statement sets forth guidance on the presentation of earnings per share and
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if all common stock equivalents were
exercised (similar to fully diluted earnings per share under APB Opinion No.
15). If the new standard was in effect during fiscal 1997, basic net income per
common share for the fiscal year ended September 30, 1997 would have been $0.77
and diluted net income per common share would have been $0.71. The Company is
required to adopt the new standard in the first quarter of fiscal 1998.
In June 1997, Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income ("FAS 130") and "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"), were issued. FAS 130
establishes standards for reporting and disclosure of comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders which is currently not required. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is required to adopt both new standards in the first
quarter of fiscal 1999.
EXPENSE ALLOCATIONS. Prior to the Company's acquisition of Dataquest,
Dataquest was a wholly-
owned subsidiary of The Dun and Bradstreet Corporation ("D&B"). D&B provided
certain services to and incurred certain costs on behalf of its wholly-owned
subsidiaries and divisions. These costs, which included employee benefit and
executive compensation programs, payroll processing and administration, general
treasury services and various business insurance coverages, were allocated on a
pro rata basis to Dataquest when it was a wholly-owned subsidiary of D&B and
were $0.3 and $1.9 million during the fiscal years 1996 and 1995, respectively.
The costs of D&B's general corporate overheads were not allocated, as such costs
related to Dataquest were deemed to be immaterial.
DISTRIBUTIONS OF CAPITAL BETWEEN DATAQUEST AND ITS FORMER PARENT. Dataquest
transfers to D&B included historical investments and advances from D&B, as well
as current period income or losses, net transfers to/ from D&B, and current
income taxes payable or receivable.
F-68
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS. Most of the Company's financial
instruments, including cash, marketable securities, trade receivables and
payables and accruals, are short-term in nature. Accordingly, the carrying
amount of the Company's financial instruments approximates its fair value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash,
marketable securities and fees receivable. The Company invests its cash
primarily in a diversified portfolio of highly-rated municipal and government
bonds. Concentrations of credit risk with respect to fees receivables are
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many different industries and geographic
regions.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures, if any, of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
RECLASSIFICATIONS. Certain reclassifications have been made in the prior
years financial statements to conform with the fiscal 1997 presentation.
2. RELATED PARTIES
D&B, an investor in Information Partners Capital Fund, L.P. ("the Fund"),
provided a portion of the financing in connection with the acquisition of the
Company in October 1990. In April 1993, D&B acquired a majority of the
outstanding voting securities of the Company in transactions among the Company,
D&B and persons and entities associated with the Fund. On November 1, 1996, D&B
transferred ownership of its Class A and Class B Common Stock of the Company to
Cognizant Corporation ("Cognizant"), a spin-off of D&B and an independent public
company. At the date of transfer, these shares represented approximately 51% of
the Company's outstanding common stock. During fiscal 1997, Cognizant's
ownership of the Company's outstanding common stock fell below 50%.
On June 4, 1997, with the Board of Directors approval, the Company provided
loans totaling $7.2 million to certain Officers to facilitate the purchase of
common stock arising out of the exercise of stock options. The loan proceeds
were not used to fund the option exercise price of the common stock acquired.
The loans are full recourse obligations to the Officers and are also secured by
shares of the Company's common stock held by the Officers. The loans bear
interest at an annual rate of 6.14% and mature on June 3, 1999. The principal
amount of the loans totaling $7.2 million are included in Other assets on the
September 30, 1997 Consolidated Balance Sheet.
3. ACQUISITIONS
On December 1, 1995, the Company acquired all the outstanding shares of
Dataquest, a wholly-owned subsidiary of D&B, for consideration of $15.0 million
in cash, 3,000,000 shares of Class A Common Stock with an approximate fair
market value of $60.0 million, and a five year warrant to purchase 600,000
shares of Class A Common Stock at $16.42 per share. Dataquest is a provider of
information technology ("IT") market research and consulting for the IT vendor
manufacturer and financial communities which complements the Company's end user
focus. The Company has accounted for the acquisition as a transfer and
F-69
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
exchange between companies under common control and the 3,000,000 shares have
been assumed to be outstanding for all periods presented. Accordingly, the
accounts of Dataquest have been combined with the Company's at historical cost
in a manner similar to a pooling of interests. Transaction costs of $1.7 million
relating to the acquisition have been included in acquisition-related charges in
the Consolidated Statement of Operations for fiscal 1996.
Combined and separate results of GGI and Dataquest during the periods
preceding the merger were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1995
-----------------------------------
<S> <C> <C> <C>
GGI DATAQUEST COMBINED
---------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Total revenues................................................................ $ 76,005 $ 20,469 $ 96,474
Net income.................................................................... $ 10,570 $ 923 $ 11,493
---------- ----------- ----------
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
1995
-----------------------------------
GGI
----------
DATAQUEST COMBINED
---------- -----------
<S> <C> <C> <C>
Total revenues................................................................ $ 229,152 $ 65,994 $ 295,146
Net income (loss)............................................................. $ 25,539 $ (378) $ 25,161
</TABLE>
There were no intercompany transactions between the two companies for the
periods presented.
On July 31, 1996, the Company acquired all of the outstanding shares of J3
Learning Corporation ("J3") for consideration of approximately $8.0 million in
cash, 1,065,290 shares of Class A Common Stock which had an approximate fair
market value of $35.4 million and options to purchase Class A Common Stock which
had a value of $1.3 million. J3 publishes, markets and distributes software
educational materials for corporate and individual training. The acquisition was
accounted for by the purchase method, and the purchase price has been allocated
to the assets acquired and liabilities assumed, based upon the estimated fair
values at the date of acquisition. The excess purchase price over the fair value
of amounts assigned to the net tangible assets acquired was $51.1 million. Of
such amount, $32.2 million was expensed at acquisition as purchased in-process
research and development costs and is included in acquisition-related charges in
the Consolidated Statement of Operations for fiscal 1996, and the remaining
excess purchase price was allocated as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD
(YEARS) AMOUNT
------------- ---------
<S> <C> <C>
Existing title library.................................................................. 4 $ 1,900
Tradename............................................................................... 12 4,200
Goodwill................................................................................ 12 12,787
---------
$ 18,887
---------
---------
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of J3 had occurred at the
beginning of fiscal 1995 and does not purport to be
F-70
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
indicative of what would have occurred had the acquisition been made as of that
date or of results which may occur in the future (in thousands, except per share
data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Total revenues............................................................................ $ 401,329 $ 310,150
Net income................................................................................ $ 11,749 $ 16,360
Net income per common share............................................................... $ 0.12 $ 0.17
</TABLE>
On August 1, 1997, the Company acquired all of the outstanding shares of
Datapro Information Services, Inc. ("Datapro"), a unit of the McGraw-Hill
Companies for consideration of approximately $25 million in cash. Datapro is a
provider of information on product specifications and pricing, product
comparisons, technology reports, market overviews, case studies and user ratings
surveys. Datapro's services and products provide feature and side-by-side
comparisons of computer hardware, software and communications products. The
acquisition was accounted for by the purchase method, and the purchase price has
been allocated to the assets acquired and liabilities assumed, based upon the
estimated fair values at the date of acquisition. The excess purchase price over
the fair value of amounts assigned to the net tangible assets acquired was $33.5
million and has been recorded as goodwill which is being amortized over 30
years. In addition, $2.5 million of the purchase price was allocated to a
non-compete agreement which is being amortized over 4 years. If the acquisition
of Datapro had occurred at the beginning of fiscal 1996, consolidated total
revenues would have been $536.6 million and $431.4 for fiscal 1997 and 1996,
respectively. This revenue does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or of total revenues
which may occur in the future. The pro forma effect on the Company's fiscal 1997
and 1996 net income and net income per common share is not material.
During fiscal 1997 and 1996, the Company completed additional acquisitions
for consideration of $8.1 and $23.2 million in cash, respectively. These
acquisitions have been accounted for under the purchase method and substantially
all of the purchase price has been assigned to goodwill. The results of these
acquired operations individually and collectively, had they occurred at the
beginning of fiscal 1997, 1996 or 1995 are not material.
During fiscal 1997 and 1996 the Company made several investments totaling
$7.1 million and $0.9 million, respectively, that are accounted for on the cost
method. The Company also made an investment totaling $1.9 million in 1997 that
is accounted for on the equity method. These investments totaled $9.4 million
and $0.9 million and are included in Other assets on the Consolidated Balance
Sheets as of September 30, 1997 and 1996, respectively.
In October 1997, the Company acquired a 32% membership interest in Jupiter
Communications, LLC ("Jupiter") for $8.0 million in cash. Jupiter is a provider
of analyst-based research and strategic planning services to the consumer
Internet and interactive industry.
F-71
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NONRECURRING CHARGES
During fiscal 1995, Dataquest closed certain operations of its subsidiary in
Japan for a $0.6 million pre-tax charge, and initiated workforce reduction
actions resulting in a pre-tax charge of $8.2 million. These charges were
recorded as a nonrecurring charge in the Consolidated Statement of Operations.
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, are carried at cost less
accumulated depreciation and amortization, and consist of the following (in
thousands):
<TABLE>
<CAPTION>
USEFUL SEPTEMBER 30,
LIFE --------------------
(YEARS) 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Furniture and equipment........................................................ 3-8 $ 25,568 $ 19,801
Computer equipment............................................................. 2-3 56,979 34,843
Leasehold improvements......................................................... 2-15 19,257 14,293
--------- ---------
101,804 68,937
Less--accumulated depreciation and amortization................................ (57,702) (36,119)
--------- ---------
$ 44,102 $ 32,818
--------- ---------
--------- ---------
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets, net, are carried at cost less accumulated amortization,
and consist of the following (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION SEPTEMBER 30,
PERIOD ---------------------
(YEARS) 1997 1996
------------- ---------- ---------
<S> <C> <C> <C>
Goodwill.................................................................... 7-30 $ 138,537 $ 97,535
Non-compete agreements...................................................... 3-5 3,462 --
Tradenames.................................................................. 12 6,978 6,200
Title library............................................................... 4 1,900 1,900
---------- ---------
150,877 105,635
Less--accumulated amortization.............................................. (18,682) (12,491)
---------- ---------
$ 132,195 $ 93,144
---------- ---------
---------- ---------
</TABLE>
7. COMMITMENTS
The Company leases various facilities, furniture and computer equipment
under lease arrangements expiring between fiscal 1998 and 2010.
F-72
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS (CONTINUED)
Future minimum annual payments under operating lease agreements as of
September 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------------
<S> <C>
1998................................................................................................... $ 12,346
1999................................................................................................... 10,326
2000................................................................................................... 9,312
2001................................................................................................... 7,743
2002................................................................................................... 6,220
Thereafter............................................................................................. 52,350
---------
Total minimum lease payments........................................................................... $ 98,297
---------
---------
</TABLE>
Rental expense for operating leases, net of sublease income, was $16.8,
$11.0 and $10.4 million for the fiscal years ended September 30, 1997, 1996 and
1995, respectively. The Company has commitments with two facilities management
companies for printing, copying, mail room and other related services. The
minimum annual obligations under these service agreements are $3.8 million for
fiscal 1998 and 1999, $1.3 million for fiscal 2000, and $0.4 million for fiscal
2001.
The Company is involved in legal proceedings and litigation arising in the
ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
8. LONG-TERM OBLIGATIONS
The Company has available two unsecured credit lines with The Bank of New
York and Chase Manhattan Bank for $5.0 million and $25.0 million, respectively.
Borrowings under The Bank of New York line accrue interest charges at LIBOR plus
2%. Alternatively, the rate shall be the higher of the prime commercial lending
rate of the bank or the Federal Funds Rate plus 1/2 of 1% in the event LIBOR is
unavailable. The Chase Manhattan Bank line carries an interest rate equal to
either the prime rate of Chase Manhattan Bank, LIBOR plus 2.5% for periods of
30, 60 or 90 days as the Company may choose, or a "fixed option" rate. There are
no commitment fees associated with these lines. These lines may be canceled by
the banks at any time without prior notice or penalty. No borrowings were
outstanding under either line at September 30, 1997 and 1996.
Letters of credit are issued by the Company in the ordinary course of
business. The Company had outstanding letters of credit with Chase Manhattan
Bank of $4.0 million and $2.0 million with The Bank of New York at September 30,
1997.
F-73
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
Following is a summary of the components of income before provision for
income taxes (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
U.S............................................................................. $ 93,758 $ 40,650 $ 38,588
Non-U.S......................................................................... 30,115 12,480 7,521
---------- --------- ---------
Consolidated.................................................................... $ 123,873 $ 53,130 $ 46,109
---------- --------- ---------
---------- --------- ---------
</TABLE>
The provision for income taxes on the above income consists of the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current tax expense:
U.S. federal................................................................... $ 797 $ 1,775 $ 9,282
State and local................................................................ 1,872 2,178 2,051
Foreign........................................................................ 8,208 3,164 1,807
--------- --------- ---------
Total current.................................................................... 10,877 7,117 13,140
--------- --------- ---------
Deferred tax expense (benefit):
U.S. federal................................................................... 434 58 (1,967)
State and local................................................................ 912 (1,347) (678)
Foreign........................................................................ 208 (105) (45)
--------- --------- ---------
Total deferred................................................................... 1,554 (1,394) (2,690)
--------- --------- ---------
Total current and deferred....................................................... 12,431 5,723 10,450
--------- --------- ---------
Benefit of stock transactions with employees credited to additional paid-in
capital........................................................................ 38,037 30,452 9,241
Benefit of purchased tax benefits credited to goodwill........................... 275 517 1,257
--------- --------- ---------
Total provision for income taxes................................................. $ 50,743 $ 36,692 $ 20,948
--------- --------- ---------
--------- --------- ---------
</TABLE>
Current and long-term deferred tax assets and liabilities are comprised of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Depreciation................................................................................. $ 895 $ 749
Expense accruals for book purposes........................................................... 6,992 8,528
Loss and credit carryforwards................................................................ 9,380 9,698
Other........................................................................................ 1,706 1,767
--------- ---------
Gross deferred tax asset..................................................................... 18,973 20,742
--------- ---------
Intangible assets............................................................................ (3,383) (1,919)
Other........................................................................................ (858) (895)
--------- ---------
Gross deferred tax liability................................................................. (4,241) (2,814)
--------- ---------
Valuation allowance.......................................................................... (4,962) (6,580)
--------- ---------
Net deferred tax asset....................................................................... $ 9,770 $ 11,348
--------- ---------
--------- ---------
</TABLE>
F-74
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Current and long-term net deferred tax assets are $5.1 million and $4.7
million as of September 30, 1997 and $8.8 million and $2.5 million as of
September 30, 1996, respectively, and are included in Prepaid and other current
assets and Other assets, respectively, in the Consolidated Balance Sheets.
The valuation allowance relates to domestic and foreign tax loss
carryforwards. The net decrease in the valuation allowance of approximately $1.6
million in the current year results primarily from the utilization of foreign
tax loss carryforwards. The tax benefit from such tax loss carryforwards was
$1.7, $1.0 and $1.7 million for fiscal years 1997, 1996 and 1995, respectively.
Approximately $1.8 million and $1.4 million of the valuation allowance would
reduce goodwill and additional paid-in capital, respectively, upon subsequent
recognition of any related tax benefits.
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Statutory tax rate........................................................................ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................................................ 4.5 5.3 5.4
Foreign income taxed at a different rate.................................................. 0.6 1.5 (0.7)
Non-deductible goodwill and direct acquisition costs...................................... 0.9 0.9 2.1
Non-taxable interest income............................................................... (0.9) (1.3) (1.7)
Exempt foreign trading gross receipts..................................................... (1.0) -- --
Other items............................................................................... 1.9 1.6 5.4
--- --- ---
Effective rate without write-off of purchased in-process research and development costs... 41.0 43.0 45.5
Non-deductible write-off of purchased in-process research and development costs........... -- 26.1 --
--- --- ---
Effective tax rate........................................................................ 41.0% 69.1% 45.5%
--- --- ---
--- --- ---
</TABLE>
As of September 30, 1997, the Company had U.S. federal tax loss
carryforwards of $10.0 million which will expire in eleven to fifteen years and
state and local tax loss carryforwards of $35.4 million the majority of which
will expire in four to five years. The U.S. federal tax loss carryforwards are
subject to limitations on their use under the Internal Revenue Code. In
addition, the Company has foreign tax loss carryforwards of $6.6 million, of
which $1.1 million will expire within three to four years, and $5.5 million can
be carried forward indefinitely.
10. CAPITAL STOCK AND STOCK REPURCHASE PROGRAM
The Company effected two-for-one stock splits of its Class A and Class B
Common Stock by means of stock dividends in March 1996, June 1995 and August
1994. All earnings per share and share data presented herein have been restated
retroactively to reflect such splits. As of September 30, 1997, the Company has
recorded the conversion of all Class B Common Stock into Class A Common Stock on
a one for one basis, pursuant to a provision of the Articles of Incorporation
which requires conversion when the Class B Common Stockholder's voting equity
falls below a certain ownership percentage after considering all exercisable
options and warrants outstanding. Class A Common Stock stockholders are entitled
to one vote per share on all matters to be voted by stockholders, other than the
election of directors. Prior to the
F-75
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCK REPURCHASE PROGRAM (CONTINUED)
conversion of the Class B Common Stock, Class B Common stockholders had certain
preferential voting rights with respect to the election of members of the Board
of Directors.
During fiscal 1997, the Company entered into a series of forward purchase
agreements on its common stock. These agreements are settled at the Company's
option on a net basis in either shares of its own common stock or in cash. To
the extent that the market price of the Company's common stock on a settlement
date is higher (lower) than the forward purchase price, the net differential is
received (paid) by the Company. As of September 30, 1997, an agreement in place
cover approximately $36.9 million or 1,350,068 shares of the Company's stock
having forward purchase prices established at $27.31 per share. If the market
priced portion of this agreement was settled based on the September 30, 1997
market price of the Company's common stock ($30.00 per share), the Company would
be entitled to receive approximately 100,081 shares. During fiscal 1997, two
settlements resulted in the Company receiving 449,932 shares of common stock
(recorded in Treasury stock at no cost) and paying approximately $12.0 million
in cash (recorded as a reduction of Additional paid-in capital).
11. EMPLOYEE STOCK PURCHASE PLANS
In January 1993, the Company adopted an employee stock purchase plan (the
"1993 Employee Stock Purchase Plan"), and reserved an aggregate of 4,000,000
shares of Class A Common Stock for issuance under this plan. The plan permits
eligible employees to purchase Class A Common Stock through payroll deductions,
which may not exceed 10% of an employee's compensation (or $21,250 in any
calendar year), at a price equal to 85% of Class A Common Stock price as
reported by NASDAQ at the beginning or end of each offering period, whichever is
lower. During fiscal 1997, 195,721 shares were issued from treasury stock at an
average purchase price of $31.76 per share in connection with this plan. At
September 30, 1997, 2,272,316 shares were available for offering under the plan.
12. STOCK OPTIONS AND WARRANTS
Under the terms of the 1991 Stock Option Plan, (the "Option Plan"), the
Board of Directors may grant non-qualified and incentive stock options,
entitling employees to purchase shares of the Company's common stock at the fair
market value determined by the Board on the date of grant. The Board can
determine the date on which options vest and become exercisable. A total of
22,800,000 shares of Class A Common Stock were reserved for issuance under the
plan. At September 30, 1997 and 1996 2,955,416 and 4,152,381 options were
available for grant, respectively.
In January 1993, the Company adopted a stock option plan for directors (the
"1993 Director Option Plan") and reserved an aggregate of 1,200,000 shares of
Class A Common Stock for issuance under this plan. The plan provided for the
automatic grant of 120,000 options to purchase shares of Class A Common Stock to
each non-employee director upon first becoming a director on or after February
1, 1993, and the automatic grant of an option to purchase an additional 24,000
options to purchase shares of Class A Common Stock annually based on continuous
service as a director. In January 1996, the plan was amended to provide for the
automatic grant of 15,000 options to purchase shares of Class A Common Stock to
each non-employee director upon first becoming a director and the automatic
grant of an option to purchase an additional 3,000 options to purchase shares of
Class A Common Stock annually based on continuous service as a director. The
exercise price of each option granted under the plan is equal to the fair value
of the Class A Common Stock at the date of grant. Options granted are subject to
cumulative yearly vesting over a three year period after the date of grant and
the number of shares to be granted under the amended
F-76
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND WARRANTS (CONTINUED)
terms will not be adjusted for any future stock splits. At September 30, 1997
and 1996, 621,000 and 648,000 options were available for grant, respectively.
In October 1994, the Board of Directors and stockholders of the Company
approved the adoption of a Long-Term Stock Option Plan ("the 1994 Long-Term
Plan") and the reservation of an aggregate of 7,200,000 shares of Class A Common
Stock for issuance thereunder. The purpose of the plan is to provide senior
personnel long-term equity participation in the Company as an incentive to
promote the long-term success of the Company. The exercise price of each option
granted under the plan is equal to the fair value of the Class A Common Stock at
the date of grant. All options granted under the plan vest and become fully
exercisable five years following the date of grant, based on continued
employment, and have a term of ten years from the date of grant assuming
continued employment. Vesting and exercisability accelerates upon achievement of
certain financial performance targets determined by the Board of Directors. If
all financial performance targets are met in accordance with parameters as set
by the Board in its sole discretion, 25% of the shares granted become
exercisable on the first anniversary date following the date of grant and, if
subsequent financial performance targets are met for both the first and second
fiscal years following the date of grant, a second 25% become exercisable three
years following the date of grant. If financial performance targets are met
consecutively for all three fiscal years following the date of grant, a third
25% become exercisable on the fourth anniversary date following the date of
grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Failure to achieve the specified target or targets for any
one fiscal year or consecutive fiscal years can be remedied by achievement of
the cumulative target in a succeeding fiscal year or years. Based on fiscal year
1995, 1996 and 1997 performance, 1,597,500 options were exercisable on September
30, 1997. An additional 1,543,750 options became exercisable on October 10,
1997. At September 30, 1997 and 1996, 810,000 and 750,000 shares were available
for grant, respectively.
In October 1996, the Company adopted the 1996 Long-Term Stock Option Plan
("the 1996 Long-Term Plan"). Under the terms of the plan, the Board of Directors
may grant non-qualified and incentive options, entitling employees to purchase
shares of the Company's common stock at the fair market value at the date of
option grant. An aggregate of 1,800,000 shares of Class A Common Stock were
reserved for issuance under this plan. All options granted under the plan vest
and become fully exercisable six years following the date of grant, based on
continued employment, and have a term of ten years from the date of grant
assuming continued employment. Vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If all financial performance targets are met in accordance with
parameters as set by the Board in its sole discretion, 25% of the shares granted
become exercisable on the third anniversary date following the date of grant
and, if subsequent financial performance targets are met for both the first and
second years following the date of grant, a second 25% become exercisable four
years following the date of grant. If financial performance targets are met
consecutively for all three years following the date of grant, a third 25%
become exercisable on the fifth anniversary date following the date of grant and
the final 25% become exercisable on the sixth anniversary following the date of
grant. Based on fiscal year 1997 performance, 451,250 options will be
exercisable on February 24, 2000. At September 30, 1997, 25,000 options to
purchase common stock were available for grant.
On April 4, 1997, the Company repriced certain stock options granted from
October 1995 through January 1997 under the 1991 Option Plan and the 1994
Long-Term Plan. In total, options to purchase 1,647,000 shares of common stock
were repriced at an exercise price of $23.875 per share. The original vesting
schedules and expiration dates associated with these stock options were also
amended to coincide
F-77
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND WARRANTS (CONTINUED)
with the stock option repricing date. These amounts have been included as
granted and canceled options during fiscal 1997 in the summary activity table
shown below.
A summary of stock option activity under the plans and agreement through
September 30, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER AVERAGE
OPTION PRICE
------------ ---------
<S> <C> <C>
Outstanding at September 30, 1994........................................................ 12,806,072 $ 1.540
Granted................................................................................ 8,707,672 $ 7.860
Exercised.............................................................................. (1,838,902) $ 0.811
Canceled............................................................................... (548,688) $ 3.653
------------ ---------
Outstanding at September 30, 1995........................................................ 19,126,154 $ 4.439
Granted................................................................................ 3,665,506 $ 21.943
Exercised.............................................................................. (3,036,403) $ 1.994
Canceled............................................................................... (968,660) $ 9.809
------------ ---------
Outstanding at September 30, 1996........................................................ 18,786,597 $ 6.922
Granted................................................................................ 5,694,814 $ 23.023
Exercised.............................................................................. (4,036,862) $ 3.385
Canceled............................................................................... (2,623,199) $ 26.416
------------ ---------
Outstanding at September 30, 1997........................................................ 17,821,350 $ 11.462
------------ ---------
------------ ---------
</TABLE>
Options for the purchase of 3,492,390 and 4,295,277 shares were exercisable
at September 30, 1997 and 1996, respectively.
Shares purchased under the terms of the plans are subject to repurchase by
the Company at the fair market value of the shares as determined by the Board of
Directors at the repurchase date based on the circumstances as outlined in the
option agreements.
The following table summarizes information about stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
RANGE OF NUMBER NUMBER EXERCISE CONTRACTUAL
EXERCISE PRICES OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
- --------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
$ 0.02--.94 1,299,751 965,191 $ 0.57 1.9
$ 1.13--4.83 2,495,746 1,066,786 $ 2.87 3.3
$ 5.03--9.50 7,130,592 522,312 $ 7.25 6.9
$10.28--13.88... 564,268 342,650 $ 12.27 7.7
$16.63--21.09... 5,059,046 545,796 $ 19.93 9.0
$25.15--35.38... 1,271,947 49,655 $ 28.91 9.5
</TABLE>
A warrant expiring December 1, 2000 to purchase 600,000 shares of Class A
Common Stock at $16.42 per share is held by Cognizant. The warrant was issued in
connection with the acquisition of Dataquest.
The Company has chosen to continue applying APB No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined
F-78
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND WARRANTS (CONTINUED)
based on the fair value at the grant dates under those plans, consistent with
the method prescribed under FAS 123, the Company's net income and net income per
common share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
<S> <C> <C> <C>
1997 1996
--------- ---------
Net income......................................................... As reported $ 73,130 $ 16,438
Pro forma $ 62,497 $ 10,616
Net income per common share........................................ As reported $ 0.71 $ 0.17
Pro forma..... $ 0.61 $ 0.11
</TABLE>
The pro forma disclosures shown above reflect options granted after fiscal
1995 and are not likely to be representative of the effects on net income and
net income per common share in future years.
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated fair value at grant
date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for stock options granted or modified:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-----------------------
<S> <C> <C>
1997 1996
------------ ---------
Expected life (in years)................................................................. 2.4-6.4 2.4-6.4
Expected volatility...................................................................... .40 .38
Risk free interest rate.................................................................. 6.00%-6.09% 6.00%
Expected dividend yield.................................................................. 0.00% 0.00%
</TABLE>
The weighted average fair values of the Company's stock options granted in
1997 and 1996 are $12.32 and $5.56, respectively.
13. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
The Company has a savings and investment plan covering substantially all
domestic employees. The Company contributes amounts to this plan based upon the
level of employee contributions.
In addition, the Company also contributes fixed and discretionary amounts
based on employee participation and attainment of operating margins specified by
the Board. Amounts expensed in connection with the plan totaled $4.6, $3.2, and
$2.0 million for the years ended September 30, 1997, 1996 and 1995,
respectively.
14. GEOGRAPHIC DATA
The Company's consolidated total revenues are generated primarily through
direct sales to clients by domestic and international sales forces, a network of
independent international distributors, and to a lesser extent by international
joint venture partners. The Company defines "Europe Revenues" as revenues
attributable to clients located in England and the European region and "Other
International Revenues" as revenues attributable to all other areas located
outside of the United States.
European identifiable tangible assets consist primarily of the assets of the
European subsidiaries and include the accounts receivable balances carried
directly by the subsidiaries located in England, France and Germany. All other
European customer receivables are maintained by and therefore are included as
identifiable assets of the U.S. operations.
F-79
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. GEOGRAPHIC DATA (CONTINUED)
Summarized information by geographic location is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
United States:
Revenues................................................................... $ 333,038 $ 253,451 $ 184,615
Operating income........................................................... $ 62,884 $ 26,359 $ 33,600
Identifiable tangible assets............................................... $ 407,262 $ 282,201 $ 222,262
Europe:
Revenues................................................................... $ 121,971 $ 98,789 $ 71,946
Operating income........................................................... $ 36,800 $ 15,968 $ 5,330
Identifiable tangible assets............................................... $ 73,974 $ 50,564 $ 36,474
Other International:
Revenues................................................................... $ 56,230 $ 42,432 $ 38,585
Operating income........................................................... $ 16,929 $ 7,113 $ 4,810
Identifiable tangible assets............................................... $ 27,654 $ 18,199 $ 8,481
</TABLE>
Excluding acquisition-related and nonrecurring charges, operating income in
the United States was $61.3, and $41.8 million for the fiscal years ended
September 30, 1996 and 1995, respectively.
F-80
<PAGE>
GARTNER GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SELECTED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS DATA
A summary of Selected Consolidated Balance Sheets and Statements of
Operations data is set forth below (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEETS DATA STATEMENTS OF OPERATIONS DATA
----------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL
GROSS FEES DEFERRED AML OTHER FISCAL YEAR
RECEIVABLE REVENUES REVENUE REVENUES REVENUES
----------- ---------- ---------- --------- -----------
Balance at September 30, 1994........................ $ 105,940 $ 136,911
Billings............................................. 322,169 234,065 $ 36,163 $ 52,211
Acquisition balances................................. 997 243 --
Cash collections..................................... (313,257) -- -- --
AML revenue amortization............................. -- (201,005) 201,005 --
Other service revenue amortization................... -- (5,767) -- 5,767
----------- ---------- ---------- --------- -----------
Balance at September 30, 1995........................ 115,849 164,447 $ 237,168 $ 57,978 $ 295,146
----------- ---------- ---------- --------- -----------
----------- ---------- ---------- --------- -----------
Billings............................................. 420,037 340,476 $ 22,071 $ 67,432
Acquisition balances................................. 3,976 1,663 -- --
Cash collections..................................... (391,640) -- -- --
AML revenue amortization............................. -- (296,690) 296,690 --
Other service revenue amortization................... -- (8,479) -- 8,479
----------- ---------- ---------- --------- -----------
Balance at September 30, 1996........................ 148,222 201,417 $ 318,761 $ 75,911 $ 394,672
----------- ---------- ---------- --------- -----------
----------- ---------- ---------- --------- -----------
Billings............................................. 574,588 452,271 $ 18,160 $ 80,723
Acquisition balances................................. 4,297 15,998 -- --
Cash collections..................................... (516,007) -- -- --
AML revenue amortization............................. -- (399,373) 399,373 --
Other service revenue amortization................... -- (12,983) -- 12,983
----------- ---------- ---------- --------- -----------
Balance at September 30, 1997........................ $ 211,100 $ 257,330 $ 417,533 $ 93,706 $ 511,239
----------- ---------- ---------- --------- -----------
----------- ---------- ---------- --------- -----------
</TABLE>
For a description of the Company's revenue recognition policies, see Note
1--Significant Accounting Policies. AML revenues shown above of $417.5, $318.8,
and $237.2 million for fiscal years 1997, 1996 and 1995, respectively, are
recognized as services and products are delivered, and as the Company's
obligation to the client is completed over the contract period. Included in AML
revenues are catch-up adjustments also shown above for the fiscal years 1997,
1996 and 1995 of $18.2, $22.1, and $36.2 million, respectively, to account for
certain renewals. Catch-up adjustments occur when there is a lag between the
month that a contract expires and the month that it is renewed. The Company
continues to provide services for a certain period of time after expiration,
based on the Company's historical experience that most clients who do not renew
prior to expiration do so on a retroactive basis. The Company recognizes no
revenues, however, during this period. When a client renews the service on a
retroactive basis, the Company records the previously unrecognized revenue as a
catch-up adjustment.
F-81
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except to the extent indicated below, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of
Cognizant is insured or indemnified in any manner against any liability which he
or she may incur in his or her capacity as such.
Article Sixth of Cognizant's Restated Certificate of Incorporation contains
a provision, permitted by Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), limiting the personal monetary liability of directors for
breach of fiduciary duties as a director. The DGCL and Cognizant's Restated
Certificate of Incorporation provide that such provision does not eliminate or
limit liability (i) for any breach of the director's duty of loyalty to
Cognizant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Section 145 of the DGCL permits indemnification against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with actions, suits or proceedings in which an
officer, director, employee or agent is a party by reason of the fact that he is
or was such a director, officer, employee or agent, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
However, in connection with actions by or in the right of the corporation, such
indemnification is not permitted if such person has been adjudged liable to the
corporation unless the court determines that, under all of the circumstances,
such person is nonetheless fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. Section 145 also permits a corporation to
purchase and maintain insurance on behalf of its directors and officers against
any liability which may be asserted against, or incurred by, such persons in
their capacities as directors or officers of the corporation whether or not
Cognizant would have the power to indemnify such persons against such
liabilities under the provisions of such sections. Cognizant has purchased such
insurance. Section 145 further provides that the statutory provision is not
exclusive of any other right to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or independent directors, or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
Cognizant's Restated Certificate of Incorporation provides that Cognizant
shall indemnify directors and officers to the fullest extent permitted by the
laws of the State of Delaware. Cognizant's Restated Certificate of Incorporation
also provides that a director of Cognizant shall not be liable to Cognizant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may hereafter be
amended.
The indemnification rights conferred by Cognizant's Restated Certificate of
Incorporation are not exclusive of any other right to which a person seeking
indemnification may otherwise be entitled. Cognizant will also provide liability
insurance for the directors and officers for certain losses arising from claims
or charges made against them while acting in their capacities as directors or
officers.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of March 23, 1998, among Cognizant Corporation, WAC Inc.
and Walsh International Inc. (included as Annex I to this Proxy Statement/Prospectus).............
2.2 Stock Option Agreement, dated as of March 23, 1998, by and between Walsh International Inc. and
Cognizant Corporation (included as Annex II to this Proxy Statement/Prospectus)...................
3.1 Restated Certificate of Incorporation of Cognizant Corporation dated October 7, 1996 (incorporated
by reference to Exhibit 3.1 to Cognizant Corporation's Registration Statement on Form 10 filed
October 7, 1996, file number 001-12275)...........................................................
3.2 Amended and Restated By-laws of Cognizant Corporation (incorporated by reference to Exhibit 3.2 to
Cognizant Corporation's Registration Statement on Form 10 filed October 7, 1996, file number
001-12275)........................................................................................
4.1 Rights Agreement, dated as of October 15, 1996, between Cognizant Corporation and First Chicago
Trust Company of New York (incorporated by reference to Exhibit 1 to Cognizant Corporation's
Current Report on Form 8-K filed October 15, 1996, file number 001-12275).........................
5.1 Opinion of Simpson Thacher & Bartlett regarding the legality of securities being issued...........
8.1 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol regarding certain US tax consequences of
the Merger........................................................................................
23.1 Consent of Simpson Thacher & Bartlett (contained in Exhibit 5.1)..................................
23.2 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (contained in Exhibit 8.1)................
23.3 Consent of Coopers & Lybrand L.L.P., independent accountants of Cognizant Corporation.............
23.4 Consent of Coopers & Lybrand L.L.P., independent accountants of Walsh International Inc...........
23.5 Consent of Coopers & Lybrand L.L.P., independent accountants of Nielsen Media Research, Inc.......
23.6 Consent of Coopers & Lybrand L.L.P., independent accountants of IMS Health Incorporated...........
23.7 Consent of KMPG Peat Marwick LLP, independent accountants of Gartner Group, Inc...................
23.8 Consent of Price Waterhouse LLP, former independent accountants of Gartner Group, Inc.............
23.9 Consent of NationsBanc Montgomery Securities LLC..................................................
24.1 Power of Attorney.................................................................................
99.1 Opinion of NationsBanc Montgomery Securities LLC (included as Annex III to this Proxy
Statement/Prospectus).............................................................................
99.2 Notice of Special Meeting of Stockholders of Walsh International Inc..............................
99.3 Form of proxy for the Special Meeting of Stockholders of Walsh International Inc..................
99.4 Form of Letter of Chief Executive Officer of Walsh International Inc. to Stockholders.............
99.5 Walsh International Inc. and Subsidiaries Computation of Earnings (Loss) Per Share for the Years
Ended June 30, 1995, 1996 and 1997
</TABLE>
II-2
<PAGE>
(b) Financial Data Schedule.
Schedules are omitted because they either are not required or are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(5) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by this form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of this form;
(6) that every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment
II-3
<PAGE>
to this registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(7) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue;
(8) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request; and
(9) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement when
it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in New York, New York, on June 2, 1998.
<TABLE>
<S> <C> <C>
COGNIZANT CORPORATION
By: /s/ ROBERT E. WEISSMAN
-----------------------------------------
Name: Robert E. Weissman
Title: Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Director, Chairman, and
* Chief Executive Officer
- ------------------------------ (Principal Executive June 2, 1998
Robert E. Weissman Officer)
Executive Vice President
* and Chief Financial
- ------------------------------ Officer June 2, 1998
Victoria R. Fash (Principal Financial
Officer)
Senior Vice President--
* Finance & Controller
- ------------------------------ (Principal Accounting June 2, 1998
James C. Malone Officer)
*
- ------------------------------ Director June 2, 1998
Clifford L. Alexander, Jr.
*
- ------------------------------ Director June 2, 1998
John P. Imlay, Jr.
*
- ------------------------------ Director June 2, 1998
Robert Kamerschen
*
- ------------------------------ Director June 2, 1998
Robert J. Lanigan
*
- ------------------------------ Director June 2, 1998
H. Eugene Lockhart
*
- ------------------------------ Director June 2, 1998
M. Bernard Puckett
*
- ------------------------------ Director June 2, 1998
William C. Van Faasen
- ------------------------
* Victoria R. Fash hereby signs this Registration Statement on June 2, 1998,
on behalf of each of the above named Directors and Officers of the
registrant above whose typed names asterisks appear, pursuant to a power of
attorney duly executed by such Directors and Officers and filed with the
Securities and Exchange Commission as an exhibit to this Registration
Statement.
<TABLE>
<S> <C>
/s/ VICTORIA R. FASH
--------------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
[STB LETTERHEAD]
June 2, 1998
Cognizant Corporation
200 Nyala Farms
Westport, Connecticut 06880
Ladies and Gentlemen:
We have acted as counsel to Cognizant Corporation, a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form S-4 of
the Company (the "Registration Statement"), being filed on the date hereof with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to the proposed issuance of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") in connection with the
Agreement and Plan of Merger, dated as of March 23, 1998 (the "Merger
Agreement"), among the Company, WAC Inc., a Delaware corporation and a wholly
owned subsidiary of the Company ("Merger Sub"), and Walsh International Inc., a
Delaware corporation ("Walsh"). Subject to the satisfaction or waiver of the
conditions set forth in the Merger Agreement, Merger Sub will be merged with and
into Walsh (the "Merger") and each outstanding share of common stock, par value
.01 per share, of Walsh will be converted into shares of common stock (the
"Shares"), all as more fully described in the Registration Statement.
We have examined, and have relied as to matters of fact upon, originals or
copies, certified or otherwise identified to our satisfaction, of such corporate
records, agreements, documents and other instruments and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as duplicate or certified or conformed copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that the Shares have been duly authorized
and, when the Shares shall have been issued in accordance with the terms of the
Merger Agreement, the Shares will be validly issued, fully paid and
nonassessable.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York, the federal law of the United States and the Delaware General Corporation
Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm appearing in the
Registration Statement under the caption "Legal Opinions."
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 8.1
[RMHM&K LETTERHEAD]
JUNE 2, 1998
The Board of Directors
Walsh International Inc.
105 Terry Drive
Newtown, Pennsylvania 18940
Ladies and Gentlemen:
This opinion is delivered to you in connection with the Proxy Statement
dated June 2, 1998 of Walsh International Inc., which forms a part of the
Registration Statement on Form S-4 of Cognizant Corporation filed with the
Securities and Exchange Commission on June 2, 1998 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act").
In that connection, we have examined the Registration Statement and such
other documents, and we have made such other and further investigations, as we
have deemed necessary and appropriate for the purposes of this opinion. In such
examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, we hereby advise you that in our opinion the statements made in
the Registration Statement under the caption "United States Federal Income Tax
Consequences," accurately set forth the material United States federal income
tax consequences of the Merger to the stockholders of Walsh International, Inc.
under existing federal income tax law.
We are members of the bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York and the federal law of the United States.
We consent to the filing of this opinion as Exhibit 8.1 to the Registration
Statement and to the use of our name under the captions "United States Federal
Income Tax Consequences" and "Legal Opinions." By giving this consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/REBOUL, MACMURRAY, HEWITT,
MAYNARD & KRISTOL
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated February 17, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Cognizant Corporation and
subsidiaries ("Cognizant") as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, which report is included in
Cognizant's Annual Report on Form 10-K for the year ended December 31, 1997. We
also consent to the reference to our firm under the caption "Experts" in this
Registration Statement.
COOPERS & LYBRAND L.L.P.
New York, New York
June 1, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Cognizant
Corporation on Form S-4 of our reports dated August 20, 1997, on our audits of
the consolidated financial statements and financial statement schedule of Walsh
International Inc. and subsidiaries ("Walsh"). We also consent to the reference
to our firm, as it relates to Walsh, under the caption "Experts" in this
Registration Statement.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
June 1, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated March 30, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Nielsen Media Research, Inc. as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, which report is included in Annex IV to this
Registration Statement. We also consent to the reference to our firm under the
caption "Experts" in this Registration Statement.
COOPERS & LYBRAND L.L.P.
New York, New York
June 1, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated April 1, 1998, on our audit of the statement of financial
position of IMS Health Incorporated as of March 31, 1998, which report is
included in Annex IV to this Registration Statement. We also consent to the
reference to our firm under the caption "Experts" in this Registration
Statement.
COOPERS & LYBRAND L.L.P.
New York, New York
June 1, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Gartner Group, Inc.:
We consent to the use of our report dated October 31, 1997, with respect to the
consolidated balance sheets of Gartner Group, Inc. and subsidiaries as of
September 30, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended, which report appears in the September 30, 1997 Form 10-K of Gartner
Group, Inc., in this Registration Statement filed on Form S-4 by Cognizant
Corporation and to the reference to our firm under the heading "Experts" in the
Registration Statement.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
June 1, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
our report dated November 1, 1995, except as to the Dataquest acquisition
discussed in Note 3, which is as of January 25, 1996 and the stock split
discussed in Note 10, which is as of March 29, 1996, with respect to the
consolidated statement of operations, of changes in stockholders' equity and of
cash flows of Gartner Group, Inc. and its subsidiaries for the year ended
September 30, 1995. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PRICE WATERHOUSE LLP
Stamford, Connecticut
June 1, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF NATIONSBANC MONTGOMERY SECURITIES LLC
We hereby consent to the inclusion of our opinion letter dated March 23,
1998 to the Board of Directors of Walsh International Inc. (the "Company")
regarding the acquisition of the Company by Cognizant Corporation in the Proxy
Statement/Prospectus of the Company which is a part of this Registration
Statement on Form S-4 (the "Registration Statement") and to the references
herein to our firm and to our opinion under the heading "The Parties--Opinion of
Financial Advisor to Walsh". In giving the foregoing consent, we do not admit
(i) that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of the 1933, as amended (the "Securities Act"),
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, and (ii) that we are experts with respect to any part of
the Registration Statement within the meaning of the term "experts" as used in
the Securities Act and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Date: June 1, 1998
Very truly yours,
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his or her capacity
as an officer or director of Cognizant Corporation, a Delaware corporation (the
"Corporation"), hereby constitutes and appoints Robert E. Weissman, Director,
Chairman and Chief Executive Officer of the Corporation, and Victoria R. Fash,
Executive Vice President and Chief Financial Officer of the Corporation, and
each of them severally, his or her true and lawful attorneys-in-fact and agents,
with the power to act with or without the other and with full power of
substitution and resubstitution, for and on behalf of him or her in his or her
name, place and stead, in any and all capacities, to perform any and all acts
and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "Commission") thereunder in connection with the
preparation and filing of Registration Statements, on Form S-4 and/or such other
Form or Forms as shall be appropriate, for the registration under the Act of
securities of the Corporation issuable pursuant to the Agreement and Plan of
Merger, dated as of March 23, 1998, among the Corporation, WAC Inc., a Delaware
corporation, and Walsh International Inc., a Delaware corporation, as the same
may be amended, including without limiting the generality of the foregoing,
power and authority to sign each or any such registration statement, including
without limitation, the prospectuses and prospectus supplements contained
therein, and any and all amendments, including post-effective amendments, and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the Commission, and to sign any and all instruments or documents to be filed as
a part of or in connection with such Registration Statement, with the
Commission, to appear before the Commission in connection with any matter
relating to such Registration Statement; and to do any and all acts and all
things and to execute any and all instruments which said attorneys-in-fact and
agents and each of them may deem necessary or desirable to enable the
Corporation to comply with the Act and the Securities and Exchange Act of 1934,
as amended, and any rules, regulations and requirements of the Commission
thereunder, including specifically, but without limiting the generality of the
foregoing, power and authority to sign the name of each undersigned director or
officer in such capacity, to any application, report, instrument, certificate,
form or other documents, and any and all supplements and amendments thereto, to
be filed on behalf of said Corporation with the Commission, hereby granting to
such attorneys-in-fact and agents, and each of them, full power to do and
perform any and all acts and things requisite and necessary to be done as he or
she might or could do in person, and hereby ratifying and confirming all that
said attorneys-in-fact and agents and each of them may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- -------------------------------------------------- --------------
<C> <S> <C>
/s/ ROBERT E. WEISSMAN Director, Chairman, and Chief Executive Officer
------------------------------------ (Principal executive Officer) June 1, 1998
Robert E. Weissman
/s/ VICTORIA R. FASH Executive Vice President and Chief Financial
------------------------------------ Officer (Principal Financial Officer) June 1, 1998
Victoria R. Fash
/s/ JAMES C. MALONE Senior Vice President--Finance & Controller
------------------------------------ (Principal Accounting Officer) June 1, 1998
James C. Malone
/s/ CLIFFORD L. ALEXANDER, JR.
------------------------------------ Director June 1, 1998
Clifford L. Alexander, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- -------------------------------------------------- --------------
<C> <S> <C>
/s/ JOHN P. IMLAY, JR.
------------------------------------ Director June 1, 1998
John P. Imlay, Jr.
/s/ ROBERT KAMERSCHEN
------------------------------------ Director June 1, 1998
Robert Kamerschen
/s/ ROBERT LANIGAN
------------------------------------ Director June 1, 1998
Robert Lanigan
/s/ H. EUGENE LOCKHART
------------------------------------ Director June 1, 1998
H. Eugene Lockhart
/s/ M. BERNARD PUCKETT
------------------------------------ Director June 1, 1998
M. Bernard Puckett
/s/ WILLIAM C. VAN FAASEN
------------------------------------ Director June 1, 1998
William C. Van Faasen
</TABLE>
<PAGE>
EXHIBIT 99.2
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 24, 1998
TO THE STOCKHOLDERS OF WALSH INTERNATIONAL INC.:
A special meeting of the stockholders (the "Special Meeting") of Walsh
International Inc., a Delaware corporation ("Walsh"), will be held on June 24,
1998 at 10:00 a.m., local time, at the offices of Reboul, MacMurray, Hewitt,
Maynard & Kristol, 45 Rockefeller Plaza, 11th floor, New York, New York for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of March 23, 1998 (the "Merger Agreement"), among
Cognizant Corporation, a Delaware corporation ("Cognizant"), WAC Inc., a
Delaware corporation and a wholly owned subsidiary of Cognizant ("Merger Sub"),
and Walsh with respect to the merger of Merger Sub with and into Walsh upon the
terms and subject to the conditions thereof (the "Merger"). Pursuant to the
Merger Agreement, each share of common stock, par value $.01 per share, of Walsh
("Walsh Common Stock") issued and outstanding at the Effective Time of the
Merger (as defined in the accompanying Proxy Statement/ Prospectus), will be
converted into: (a) if the Effective Time of the Merger occurs prior to the
Cognizant Distribution Record Date (as defined in the accompanying Proxy
Statement/Prospectus), a fraction of a share of common stock, par value $.01 per
share, of Cognizant ("Cognizant Common Stock") determined by reference to the
average of the closing sale prices per share of Cognizant Common Stock on the
New York Stock Exchange Composite Transactions Tape on each of the 15
consecutive trading days immediately preceding the second trading day prior to
the Effective Time of the Merger; and (b) if the Effective Time of the Merger
occurs on or after the Cognizant Distribution Record Date, a fraction of a share
of common stock, par value $.01 per share ("IMS HEALTH Common Stock"), of IMS
Health Incorporated, a Delaware corporation ("IMS HEALTH"), determined by
reference to the average of the closing sale prices per share of IMS HEALTH
Common Stock on the New York Stock Exchange Composite Transactions Tape on each
of the 10 consecutive trading days immediately preceding the second trading day
prior to the Effective Time of the Merger. THE MERGER IS MORE COMPLETELY
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, AND A COPY OF THE
MERGER AGREEMENT IS ATTACHED AS ANNEX I THERETO.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Only holders of record of shares of Walsh Common Stock at the close of
business on May 14, 1998, the record date for the Special Meeting, are entitled
to notice of, and to vote at, the Special Meeting and any adjournments or
postponements thereof.
Each share of Walsh Common Stock will entitle the holder thereof to one vote
on each matter which may properly come before the Special Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of Walsh
Common Stock is necessary to approve and adopt the Merger Agreement.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND
RETURNING A LATER DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH
THE SECRETARY OF WALSH A WRITTEN REVOCATION BEARING A LATER DATE OR BY ATTENDING
AND VOTING AT THE SPECIAL MEETING.
By Order of the Board of Directors,
/s/ Leonard R. Benjamin
Leonard R. Benjamin
Secretary
Dated: June 2, 1998
<PAGE>
PROXY PROXY
WALSH INTERNATIONAL INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS SPECIAL MEETING OF
STOCKHOLDERS, WEDNESDAY, JUNE 24, 1998
The undersigned stockholder of WALSH INTERNATIONAL INC., a Delaware
corporation (the "Company"), hereby appoints Michael A. Hauck, Dennis M. J.
Turner and Leonard R. Benjamin, or any of them, voting singly in the absence of
the others, attorneys and proxies, with full power of substitution and
revocation, to vote, as designated below, all shares of Common Stock of Walsh
International Inc., which the undersigned is entitled to vote at the Special
Meeting of Stockholders of the Company to be held at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, 11th Floor, New
York, NY 10111, on June 24, 1998 at 10:00 a.m., local time) or any adjournment
thereof, in accordance with the instructions on the reverse side.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THE PROXY
WILL BE VOTED "FOR" PROPOSAL NO. 1. The proxies are authorized to vote as
they may determine in their discretion upon such other business as may
properly come before the Special Meeting.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY OR PROXIES HERETOFORE GIVEN TO
VOTE SUCH SHARES, AND ACKNOWLEDGES RECEIPT OF THE NOTICE OF THE SPECIAL MEETING
AND THE PROXY STATEMENT RELATING TO THE SPECIAL MEETING.
(Continued and to be signed on reverse side.)
WALSH INTERNATIONAL INC.
Please mark vote in oval in the following manner using dark ink only
<TABLE>
<S> <C> <C>
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR PROPOSAL NO. 1.
For Against Abstain 2. The proxies are authorized to vote as
they may determine in their discretion
1. Approval and adoption of the Agreement and / / / / / / upon such other business as may come
Plan of Merger, dated as of March 23, 1998 before the meeting.
by and among Cognizant Corporation, WAC Inc.
("Merger Sub") and the Company pursuant to
which, among other things, Merger Sub will merge
with and into the Company.
Dated: _______________________________________________________, 1998
(Signature)_________________________________________________________
(Signature if held jointly)_________________________________________
Please sign exactly as name appears hereon. When shares are in name of
joint holders, each should sign. When signing as executor, trustee,
guardian, etc. please so indicate. If a corporation, please sign in
full corporate name by an authorized officer. If a partnership, please
sign in partnership name by an authorized partner.
</TABLE>
PLEASE FOLD AND DETACH HERE AND READ THE REVERSE SIDE
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE RETURN ENVELOPE WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING.
YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND.
<PAGE>
EXHIBIT 99.4
[LOGO]
SWAN HOUSE, 24 BRIDGE STREET, LEATHERHEAD, SURREY, KT22 8BZ, ENGLAND
TELEPHONE 44 (0)1372 389300. FAX 44 (0)1372 389303
WEBSITE www.walsh-international.com
June 2, 1998
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders (the
"Special Meeting") of Walsh International Inc. ("Walsh"), which will be held on
June 24, 1998, at 10:00 a.m., local time, at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, 11th floor, New York, New York.
At the Special Meeting, holders of shares of Common Stock, par value $.01
per share, of Walsh ("Walsh Common Stock") will be asked to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger (the
"Merger Agreement") among Cognizant Corporation ("Cognizant"), WAC Inc. ("Merger
Sub"), a subsidiary of Cognizant, and Walsh, with respect to the merger of
Merger Sub into Walsh as provided for in the Merger Agreement (the "Merger"). In
the Merger, each outstanding share of Walsh Common Stock is expected to be
converted into a fraction of a share of common stock, par value $.01 per share,
of Cognizant ("Cognizant Common Stock") on the basis of an exchange ratio
determined by reference to the average of the closing sale prices per share of
Cognizant Common Stock on the New York Stock Exchange Composite Transactions
Tape on each of the 15 consecutive trading days immediately preceding the second
trading day prior to the effective time of the Merger. The application of the
exchange ratio is more fully described under the caption "The Merger--Merger
Consideration" in the accompanying Proxy Statement/Prospectus. The closing sale
price of Cognizant Common Stock on May 27, 1998 was $50 1/2 per share and, if
this price were used to set the exchange ratio, the exchange ratio would be
0.3041 shares of Cognizant Common Stock for each share of Walsh Common Stock.
As more fully discussed in the accompanying Proxy Statement/Prospectus,
Cognizant has announced a planned spin-off distribution (the "Cognizant
Distribution") that will result in its reorganization into two separately-owned,
publicly-traded corporations: IMS Health Incorporated, a Delaware corporation
("IMS HEALTH"), and Nielsen Media Research, Inc., a Delaware corporation
("NMR"). The Cognizant Distribution is subject to, among other things, final
approval by Cognizant's Board of Directors. The Cognizant Distribution is
expected to be made on or about June 30, 1998 to holders of record of Cognizant
Common Stock as of a date approximately five days prior to the Cognizant
Distribution (the "Cognizant Distribution Record Date"). Additional information
with respect to the Cognizant Distribution, IMS HEALTH and NMR is included in
Annex IV to the accompanying Proxy Statement/Prospectus.
Cognizant and Walsh currently expect that the Merger will be completed prior
to the Cognizant Distribution Record Date. In that event, the Merger will be
completed as described above, and holders of Walsh Common Stock thereafter will
participate in the Cognizant Distribution on the same terms and conditions as
other holders of Cognizant Common Stock. However, the Merger Agreement makes
provision for the possibility that the Merger will not be completed prior to the
Cognizant Distribution Record Date. In that event, subject to the other
conditions to the Merger (which will remain in effect): (1) the Merger will be
deferred until no earlier than the date that is 18 trading days following the
commencement of "regular way" trading in the common stock, par value $.01 per
share, of IMS HEALTH ("IMS HEALTH Common Stock") on the New York Stock Exchange;
and (2) in lieu of Cognizant Common Stock, each outstanding share of Walsh
Common Stock will be converted into a fraction of a
<PAGE>
share of IMS HEALTH Common Stock on the basis of an exchange ratio determined by
reference to the average of the closing sale prices per share of IMS HEALTH
Common Stock on the New York Stock Exchange Composite Transactions Tape on each
of the 10 consecutive trading days immediately preceding the second trading day
prior to the effective time of the Merger, as more fully described under the
caption "The Merger--Merger Consideration" in the accompanying Proxy
Statement/Prospectus. As of the date hereof, there is no established trading
market for the IMS HEALTH Common Stock, although "when issued" trading on the
New York Stock Exchange is expected to commence on the trading day following the
Cognizant Distribution Record Date and "regular way" trading on the New York
Stock Exchange is expected to commence following the Cognizant Distribution. The
terms of the exchange ratio applicable to IMS HEALTH Common Stock are designed
to reset the exchange ratio to take into account the relative market prices of
IMS HEALTH Common Stock and NMR Common Stock for a period following the
Cognizant Distribution. The actual value of the IMS HEALTH Common Stock so
received necessarily will be dependent, in certain respects, upon facts and
circumstances existing at the time of the Merger. See "Risk Factors--Risks
Relating to IMS HEALTH--Relative Market Values of IMS HEALTH and NMR Following
Cognizant Distribution."
In either case, Walsh stockholders will receive cash in lieu of fractional
shares that otherwise would be issued in the Merger. As a result of the Merger,
Walsh will become a wholly owned subsidiary of either Cognizant or IMS HEALTH.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus for details of the Merger, the
Cognizant Distribution and additional related information.
THE BOARD OF DIRECTORS OF WALSH HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF WALSH AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT THE STOCKHOLDERS OF WALSH VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
I look forward to meeting with those stockholders who are able to be present
at the Special Meeting; however, whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-paid envelope. If you attend the Special
Meeting, you may vote in person if you wish, even though you previously have
returned your proxy card. Your prompt cooperation will be greatly appreciated.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. If the
Merger Agreement is approved and adopted by the Walsh stockholders and the
Merger is consummated, you will receive a transmittal form and instructions for
the surrender and exchange of your shares.
Thank you for your cooperation.
Sincerely,
/s/ Michael A. Hauck
Michael A. Hauck
Chief Executive Officer
2
<PAGE>
EXHIBIT 99.5
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding.............................. 5,806,661 6,783,837 10,505,245
Assumed exercise of certain stock options and other common stock
equivalents........................................................... 1,539,613 1,413,959 152,675
------------ ------------ ------------
------------ ------------ ------------
7,346,274 8,197,796 10,657,920
------------ ------------ ------------
------------ ------------ ------------
Income (loss) from continuing operations................................ $ (2,957) $ 2,085 $ 4,790
Loss from discontinued operations, net.................................. $ (1,554) $ (1,755) $ --
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss)....................................................... $ (4,511) $ 330 $ 4,790
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per share from continuing operations...................... $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net........................ $ (0.21) $ (0.21) $ --
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share............................................. $ (0.61) $ 0.04 $ 0.45
------------ ------------ ------------
------------ ------------ ------------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding.............................. 5,806,661 6,783,837 10,505,245
Assumed exercise of certain stock options and other common stock
equivalents........................................................... 1,539,613 1,413,959 152,281
------------ ------------ ------------
------------ ------------ ------------
7,346,274 8,197,796 10,657,526
------------ ------------ ------------
------------ ------------ ------------
Income (loss) from continuing operations................................ $ (2,957) $ 2,085 $ 4,790
Loss from discontinued operations, net.................................. $ (1,554) $ (1,755) $ --
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss)....................................................... $ (4,511) $ 330 $ 4,790
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per share from continuing operations...................... $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net........................ $ (0.21) $ (0.21) $ --
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss) per share........................................... $ (0.61) $ 0.04 $ 0.45
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
