<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 1-14049
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
IMS HEALTH INCORPORATED
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
DELAWARE 06-1506026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880
(Address of principal executive offices) (Zip Code)
</TABLE>
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 222-4200
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, par value $0.01 per share New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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<PAGE>
ITEM 1. BUSINESS.
The information required by this item is contained under the sections "IMS
HEALTH Business", "IMS HEALTH (Accounting Successor to Cognizant) Management's
Discussion and Analysis of Financial Condition and Results of Operations", "Risk
Factors--Risks Relating to IMS HEALTH and Nielsen Media Research" and "--Risks
Relating to IMS HEALTH" and "Forward-Looking Statements" of, and in the
Cognizant Corporation Consolidated Financial Statements in, the Information
Statement dated June 12, 1998 included herewith as Exhibit 99.1 (the
"Information Statement") and such sections are incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections "IMS
HEALTH (Accounting Successor to Cognizant) Selected Financial Data", "IMS HEALTH
(Accounting Successor to Cognizant) Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Risk Factors--Risks Relating to
IMS HEALTH and Nielsen Media Research" and "--Risks Relating to IMS HEALTH" and
"Forward-Looking Statements" of the Information Statement and such sections are
incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section "IMS
HEALTH Business-- Properties" of the Information Statement and such section is
incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the section "IMS
HEALTH Security Ownership by Certain Beneficial Owners and Management" of the
Information Statement and such section is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the sections "IMS
HEALTH Management and Executive Compensation--IMS HEALTH Board of Directors" and
"--IMS HEALTH Executive Officers" of the Information Statement and such sections
are incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section "IMS
HEALTH Management and Executive Compensation" of the Information Statement and
such section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the section
"Relationship Between IMS HEALTH and Nielsen Media Research After the
Distribution" of the Information Statement and such section is incorporated
herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the section "IMS
HEALTH Business-- Legal Proceedings", "Risk Factors--Risks Relating to IMS
HEALTH and Nielsen Media Research" and "--Risks Relating to IMS HEALTH" and
"Forward-Looking Statements" of the Information Statement and such section is
incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections "The
Distribution--Listing and Trading of IMS HEALTH Common Stock and Nielsen Media
Research Common Stock", "Relationship
2
<PAGE>
Between IMS HEALTH and Nielsen Media Research After the Distribution--Employee
Benefits Agreement", "Dividend Policies", "IMS HEALTH Management and Executive
Compensation" and "Description of IMS HEALTH Capital Stock" of the Information
Statement and such sections are incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On February 4, 1998, as part of its original incorporation, the Registrant
issued 100 shares of its common stock, for a total consideration of $10,000, to
Cognizant Corporation, which is and will be the Registrant's sole stockholder
until the Distribution Date as defined and described in the section "The
Distribution" of the Information Statement, and such section is incorporated
herein by reference. Subsequent to the Distribution, Cognizant Corporation
(which will change its name to Nielsen Media Research, Inc.) will hold no
capital stock of the Registrant.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section
"Description of IMS HEALTH Capital Stock" of the Information Statement and such
section is incorporated herein by reference, except for the information under
the caption "IMS HEALTH Rights Plan", which is not incorporated by reference
herein as the IMS HEALTH preferred share purchase rights and shares of Series A
Junior Participating Preferred Stock described under such caption will be
registered separately on a Registration Statement on Form 8-A.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Description of IMS HEALTH Capital Stock-- Indemnification and Limitation of
Liability for Directors and Officers" of the Information Statement and such
section is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is identified in the sections "Index
to Financial Statements-- Cognizant Corporation", "--IMS Health Incorporated"
and "--Gartner Group, Inc." and contained in the sections "Financial
Statements--Cognizant Corporation", "--IMS Health Incorporated" and "--Gartner
Group, Inc." of the Information Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The information required by this item is contained in (i) the "Index to
Financial Statements" on page F-1 of the Information Statement and such
information is incorporated herein by reference, and (ii) Schedule II--
"Valuation and Qualifying Accounts" to this Registration Statement.
3
<PAGE>
(b) Exhibits
The following documents are filed as exhibits hereto:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of IMS Health Incorporated
3.2 Amended and Restated By-laws of IMS Health Incorporated
4.1 Specimen Common Stock certificate
10.1 Form of Distribution Agreement between Cognizant Corporation and IMS Health Incorporated
10.2 Form of Tax Allocation Agreement between Cognizant Corporation and IMS Health Incorporated
10.3 Form of Employee Benefits Agreement between Cognizant Corporation and IMS Health Incorporated
10.4 Form of Amended and Restated Transition Services Agreement between The Dun & Bradstreet Corporation, The
New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation
and Gartner Group, Inc.
10.5 Form of Undertaking of IMS Health Incorporated
21 List of Subsidiaries of IMS Health Incorporated
27 Financial Data Schedule of IMS Health Incorporated
99.1 Information Statement dated June 12, 1998
99.2 Chairman's Letter to Stockholders of Cognizant Corporation
99.3 Form of Rights Agreement between IMS Health Incorporated and First Chicago Trust Company of New York, as
Rights Agent
</TABLE>
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
IMS Health Incorporated
By: /s/ Kenneth S. Siegel
------------------------------------------
Name: Kenneth S. Siegel
Title: Senior Vice President,
General Counsel and Secretary
</TABLE>
Date: June 12, 1998
5
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
IMS HEALTH INCORPORATED
The name of the corporation is IMS Health Incorporated, and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on February 3, 1998. The original
Certificate of Incorporation of the corporation is hereby amended and restated
to read in its entirety as follows:
"FIRST: The name of the corporation is IMS Health Incorporated.
SECOND: The registered office of the corporation in the State of Delaware
is located at No. 1209 Orange Street, in the City of Wilmington, County of New
Castle; and the name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purposes of the corporation are 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: (1) The total number of shares of all classes of stock which the
corporation shall have authority to issue is 420,000,000, consisting of (1)
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), (2) 400,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), and (3) 10,000,000 shares of Series Common Stock, par value
$.01 per share ("Series Common Stock"). The number of authorized shares of any
of the Preferred Stock, the Common Stock or the Series Common Stock 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 the stock of the corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the State
of Delaware (or any successor provision thereto), and no vote of the holders of
any of the Preferred Stock, the Common Stock or the Series Common Stock voting
separately as a class shall be required therefor.
(2) The Board of Directors is hereby expressly authorized, by resolution
or resolutions, to provide, out of the unissued shares of Preferred Stock, for
series of Preferred Stock and, with respect to each such series, to fix the
number of shares constituting such series and the designation of such series,
the voting powers (if any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
<PAGE>
2
(3) The Board of Directors is hereby expressly authorized, by resolution
or resolutions, to provide, out of the unissued shares of Series Common Stock,
for series of Series Common Stock and, with respect to each such series, to fix
the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the shares
of such series. The powers, preferences and relative, participating, optional
and other special rights of each series of Series Common Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
(4) (a) Each holder of Common Stock, as such, shall be entitled to one
vote for each share of Common Stock held of record by such holder on all matters
on which stockholders generally are entitled to vote; provided, however, that,
except as otherwise required by law, holders of Common Stock, as such, shall not
be entitled to vote on any amendment to this Restated Certificate of
Incorporation (including any certificate of designations relating to any series
of Preferred Stock or Series Common Stock) that relates solely to the terms of
one or more outstanding series of Preferred Stock or Series Common Stock if the
holders of such affected series are entitled, either separately or together with
the holders of one or more other such series, to vote thereon pursuant to this
Restated Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock or Series Common Stock) or pursuant to
the General Corporation Law of the State of Delaware.
(b) Except as otherwise required by law, holders of a series of Preferred
Stock or Series Common Stock, as such, shall be entitled only to such voting
rights, if any, as shall expressly be granted thereto by this Restated
Certificate of Incorporation (including any certificate of designations relating
to such series).
(c) Subject to applicable law and the rights, if any, of the holders of
any outstanding series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over or the right to participate with the
Common Stock with respect to the payment of dividends, dividends may be declared
and paid on the Common Stock at such times and in such amounts as the Board of
Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock or Series Common Stock or any class or series of stock having a
preference over or the right to participate with the Common Stock with respect
to the distribution of assets of the corporation upon such dissolution,
liquidation or winding up of the corporation, the holders of the Common Stock,
as such, shall be entitled to receive the assets of the corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them.
<PAGE>
3
FIFTH: The Board of Directors shall be authorized to make, amend, alter,
change, add to or repeal the By-Laws of the corporation in any manner not
inconsistent with the laws of the State of Delaware, subject to the power of the
stockholders to amend, alter, change, add to or repeal the By-Laws made by the
Board of Directors. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent in voting power of all the shares of the
corporation 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 By-laws which is to the same effect
as Article Fifth, Article Seventh, and Article Eighth of this Restated
Certificate of Incorporation or to adopt any provision inconsistent therewith.
SIXTH: (1) To the fullest extent permitted by the laws of the State of
Delaware:
(a) The corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including
appeals, by reason of the fact that such person is or was a director or officer
of the corporation or, while a director or officer of the corporation, is or
was serving at the request of the corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise, for and against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals. Notwithstanding the preceding sentence, the corporation
shall be required to indemnify a person described in such sentence in connection
with any action, suit or proceeding (or part thereof) commenced by such person
only if the commencement of such action, suit or proceeding (or part thereof) by
such person was authorized by the Board of Directors of the corporation. The
corporation may indemnify any person (and such person's heirs, executors or
administrators) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (brought in the
right of the corporation or otherwise), whether civil, criminal, administrative
or investigative, and whether formal or informal, including appeals, by reason
of the fact that such person is or was an employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, for and against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals.
(b) The corporation shall promptly pay expenses incurred by any person
described in the first sentence of subsection (a) of this Article Sixth, Section
(1) in defending any action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding, including appeals, upon
presentation of appropriate documentation.
<PAGE>
4
(c) The corporation may purchase and maintain insurance on behalf of any
person described in subsection (a) of this Article Sixth, Section (1) against
any liability asserted against such person, whether or not the corporation would
have the power to indemnify such person against such liability under the
provisions of this Article Sixth, Section (1) or otherwise.
(d) The provisions of this Article Sixth, Section (1) shall be applicable
to all actions, claims, suits or proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions to act occurring before
or after its adoption. The provisions of this Article Sixth, Section (1) shall
be deemed to be a contract between the corporation and each director or officer
who serves in such capacity at any time while this Article Sixth, Section (1)
and the relevant provisions of the laws of the State of Delaware and other
applicable law, if any, are in effect, and any repeal or modification hereof
shall not affect any rights or obligations then existing with respect to any
state of facts or any action, suit or proceeding then or theretofore existing,
or any action, suit or proceeding thereafter brought or threatened based in
whole or in part on any such state of facts. If any provision of this Article
Sixth, Section (1) shall be found to be invalid or limited in application by
reason of any law or regulation, it shall not affect the validity of the
remaining provisions hereof. The rights of indemnification provided in this
Article Sixth, Section (1) shall neither be exclusive of, nor be deemed in
limitation of, any rights to which an officer, director, employee or agent may
otherwise be entitled or permitted by contract, this Restated Certificate of
Incorporation, vote of stockholders or directors or otherwise, or as a matter of
law, both as to actions in such person's official capacity and actions in any
other capacity while holding such office, it being the policy of the corporation
that indemnification of any person whom the corporation is obligated to
indemnify pursuant to the first sentence of subsection (a) of this Article
Sixth, Section (1) shall be made to the fullest extent permitted by law.
(e) For purposes of this Article Sixth, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries.
(2) A director of the corporation 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 General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
<PAGE>
5
SEVENTH: (1) The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors consisting of not less than
three directors, the exact number of directors to be determined from time to
time by resolution adopted by affirmative vote of a majority of the Board of
Directors. The directors shall be divided into three classes designated Class
I, Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire Board of
Directors. Class I directors shall be originally elected for a term expiring at
the succeeding annual meeting of stockholders, Class II directors shall be
originally elected for a term expiring at the second succeeding annual meeting
of stockholders, and Class III directors shall be originally elected for a term
expiring at the third succeeding annual meeting of stockholders. At each
succeeding annual meeting of stockholders following 1998, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a newly
created directorship resulting from an increase in such class shall hold office
for a term that shall coincide with the remaining term of that class, but in no
case shall a decrease in the number of directors remove or shorten the term of
any incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any newly created directorship on the
Board of Directors that results from an increase in the number of directors and
any vacancy occurring in the Board of Directors shall be filled only by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If any applicable provision of the General Corporation
Law of the State of Delaware 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
percent of the voting power of all shares of the corporation entitled to vote
generally in the election of directors voting as a single class. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.
Directors may be removed only for cause, and only by the affirmative vote of at
least 80 percent in voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting as a single class.
(2) Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock or Series Common Stock issued by the corporation shall
have the right, voting separately as a series or separately as a class with one
or more such other series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, removal, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock or Series Common Stock) applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article Seventh unless expressly provided by such terms.
<PAGE>
6
EIGHTH: Any action required or permitted to be taken by the holders
of the Common Stock of the corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law
and subject to the rights of the holders of any series of Preferred Stock
or Series Common Stock, special meetings of stockholders of the corporation
may be called only by the Chief Executive Officer of the corporation or by
the Board of Directors pursuant to a resolution approved by the Board of
Directors.
NINTH: Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent in voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend or repeal
Article Fifth, Article Seventh, Article Eighth or this Article Ninth or to
adopt any provision inconsistent therewith."
IMS Health Incorporated does hereby further certify that this Restated
Certificate of Incorporation was duly adopted by the Board of Directors and by
unanimous written consent of the stockholders in accordance with the provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
<PAGE>
7
IN WITNESS WHEREOF, IMS HEALTH INCORPORATED has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Kenneth S.
Siegel, its Senior Vice President, General Counsel and Secretary, this 29th
day of May, 1998.
IMS HEALTH INCORPORATED
By: /s/ Kenneth S. Siegel
------------------------------
Name: Kenneth S. Siegel
Title: Senior Vice President,
General Counsel and
Secretary
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
IMS HEALTH INCORPORATED
-------------
ARTICLE I.
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the corporation
for the purpose of electing directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such
date, and at such time and place within or without the State of Delaware as may
be designated from time to time by the Board of Directors.
Section 2. Special meetings of the stockholders shall be called at
any time by the Secretary or any other officer, whenever directed by the Board
of Directors or by the Chief Executive Officer. The purpose or purposes of the
proposed meeting shall be included in the notice setting forth such call.
Section 3. Except as otherwise provided by law, notice of the time,
place and, in the case of a special meeting, the purpose or purposes of the
meeting of stockholders shall be delivered personally or mailed not earlier than
sixty, nor less than ten days previous thereto, to each stockholder of record
entitled to vote at the meeting at such address as appears on the records of the
corporation.
Section 4. The holders of a majority in voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the Restated Certificate of Incorporation; but if at any regularly
called meeting of stockholders there be less than a quorum present, the
stockholders present may adjourn the meeting from time to time without further
notice other than announcement at the meeting until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than 30 days, or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 5. The Chairman of the Board, or in the Chairman's absence or
at the Chairman's direction, the President, or in the President's absence or at
the President's direction, any officer of the corporation shall call all
meetings of the stockholders to order and shall act as Chairman of such meeting.
The Secretary of the corporation or, in such officer's absence, an Assistant
Secretary shall act as secretary of the meeting. If neither the Secretary nor
an Assistant
<PAGE>
2
Secretary is present, the Chairman of the meeting shall appoint a secretary of
the meeting. Unless otherwise determined by the Board of Directors prior to the
meeting, the Chairman of the meeting shall determine the order of business and
shall have the authority in his or her discretion to regulate the conduct of any
such meeting, including, without limitation, by imposing restrictions on the
persons (other than stockholders of the corporation or their duly appointed
proxies) who may attend any such meeting, whether any stockholder or
stockholders' proxy may be excluded from any meeting of stockholders based upon
any determination by the Chairman, in his or her sole discretion, that any such
person has unduly disrupted or is likely to disrupt the proceedings thereat, and
the circumstances in which any person may make a statement or ask questions at
any meeting of stockholders. The Chairman of the meeting shall have authority
to adjourn any meeting of stockholders.
Section 6. At all meetings of stockholders, any stockholder entitled
to vote thereat shall be entitled to vote in person or by proxy, but no proxy
shall be voted after three years from its date, unless such proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for the stockholder as proxy pursuant to the
General Corporation Law of the State of Delaware, the following shall constitute
a valid means by which a stockholder may grant such authority: (1) a stockholder
may execute a writing authorizing another person or persons to act for the
stockholder as proxy, and execution of the writing may be accomplished by the
stockholder or the stockholder's authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature; or (2) a stockholder may authorize another person or persons to act
for the stockholder as proxy by transmitting or authorizing the transmission of
a telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that any
such telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the judge or judges of stockholder votes or,
if there are no such judges, such other persons making that determination shall
specify the information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission created pursuant to the preceding paragraph of
this Section 6 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Proxies shall be filed with the Secretary of the meeting prior to or
at the commencement of the meeting to which they relate.
Section 7. When a quorum is present at any meeting, the vote of the
holders of a majority in voting power of the stock present in person or
represented by proxy and entitled
<PAGE>
3
to vote on the matter shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute or of the
Restated Certificate of Incorporation or these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 8. In order that the corporation may determine the
stockholders (a) entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or (b) entitled to consent to corporate action in
writing without a meeting, or (c) entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date (i) in the case of
clause (a) above, shall not be more than sixty nor less than ten days before the
date of such meeting, (ii) in the case of clause (b) above, shall not be more
than ten days after the date upon which the resolution fixing the record date is
adopted by the board of directors, and (iii) in the case of clause (c) above,
shall not be more than sixty days prior to such action. If for any reason the
Board of Directors shall not have fixed a record date for any such purpose, the
record date for such purpose shall be determined as provided by law. Only those
stockholders of record on the date so fixed or determined shall be entitled to
any of the foregoing rights, notwithstanding the transfer of any such stock on
the books of the corporation after any such record date so fixed or determined.
Section 9. The officer who has charge of the stock ledger of the
corporation shall prepare and make at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not so specified, at the place where the meeting is to be held. The list
shall also be produced at the time and kept at the place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
Section 10. The Board of Directors, in advance of all meetings of the
stockholders, shall appoint one or more judges of stockholder votes, who may be
stockholders or their proxies, but not directors of the corporation or
candidates for office. In the event that the Board of Directors fails to so
appoint judges of stockholder votes or, in the event that one or more judges of
stockholder votes previously designated by the Board of Directors fails to
appear or act at the meeting of stockholders, the Chairman of the meeting may
appoint one or more judges of stockholder votes to fill such vacancy or
vacancies. Judges of stockholder votes appointed to act at any meeting of the
stockholders, before entering upon the discharge of their duties, shall be sworn
faithfully to execute the duties of judge of stockholder votes with strict
impartiality and according to the best of their ability and the oath so taken
shall be subscribed by them. Judges of stockholder votes shall, subject to the
power of the Chairman of the meeting to open and close the polls, take charge of
the polls, and, after the voting, shall make a certificate of the result of the
vote taken.
<PAGE>
4
Section 11. (A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of
persons for election to the Board of Directors of the corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the corporation's notice of
meeting delivered pursuant to Article 1, Section 3 of these By-Laws, (b) by or
at the direction of the Chairman of the Board or (c) by any stockholder of the
corporation who is entitled to vote at the meeting, who complied with the notice
procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this
By-Law and who was a stockholder of record at the time such notice is delivered
to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, and, in the case of business other than
nominations, such other business must be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than seventy days nor
more than ninety 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 twenty days, or delayed by more than seventy
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. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least eighty days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this By-Law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
<PAGE>
5
business on the tenth day following the day on which such public announcement is
first made by the corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting pursuant to Article
I, Section 2 of these By-Laws. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-Law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the corporation 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.
(C) GENERAL. (1) Only persons who are nominated in accordance with
the procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Restated Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-Law and, if any proposed nomination or business is not in compliance
with this By-Law, to declare that such defective nomination shall be disregarded
or that such proposed business shall not be transacted.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) For purposes of this By-Law, no adjournment nor notice of
adjournment of any meeting shall be deemed to constitute a new notice of such
meeting for purposes of this Section 11, and in order for any notification
required to be delivered by a stockholder pursuant to this Section 11 to be
timely, such notification must be delivered within the periods set forth above
with respect to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall
<PAGE>
6
be deemed to affect any rights of stockholders to request inclusion of proposals
in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. The Board of Directors of the corporation shall consist of
such number of directors, not less than three , as shall from time to time be
fixed exclusively by resolution of the Board of Directors. The directors shall
be divided into three classes in the manner set forth in the Restated
Certificate of Incorporation of the corporation, each class to be elected for
the term set forth therein. Directors shall (except as hereinafter provided for
the filling of vacancies and newly created directorships) be elected by the
holders of a plurality of the voting power present in person or represented by
proxy and entitled to vote. A majority of the total number of directors then in
office (but not less than one-third of the number of directors constituting the
entire Board of Directors) shall constitute a quorum for the transaction of
business and, except as otherwise provided by law or by the corporation's
Restated Certificate of Incorporation, the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. Directors need not be stockholders.
Section 2. Newly created directorships in the Board of Directors that
result from an increase in the number of directors and any vacancy occurring in
the Board of Directors shall be filled only by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director;
and the directors so chosen shall hold office for a term as set forth in the
Restated Certificate of Incorporation of the corporation. If any applicable
provision of the General Corporation Law of the State of Delaware 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 percent in voting power of all shares of the
corporation entitled to vote generally in the election of directors, voting as a
single class.
Section 3. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by resolution of the Board or as may be specified in the notice of any meeting.
Regular meetings of the Board of Directors shall be held at such times as may
from time to time be fixed by resolution of the Board and special meetings may
be held at any time upon the call of the Chairman of the Board or the President,
by oral, or written notice including, telegraph, telex or transmission of a
telecopy, e-mail or other means of transmission, duly served on or sent or
mailed to each director to such director's address or telecopy number as shown
on the books of the corporation not less than one day before the meeting. The
notice of any meeting need not specify the purposes thereof. A meeting of the
Board may be held without notice immediately after the annual meeting of
stockholders at the same place at which such meeting is held. Notice need not
be given of regular meetings of the Board held at times fixed by resolution of
the Board. Notice of any meeting need not be given to any director who shall
attend such meeting in person (except when the director attends a meeting for
the express purpose of objecting at the beginning of the
<PAGE>
7
meeting, to the transaction of any business because the meeting is not lawfully
called or convened), or who shall waive notice thereof, before or after such
meeting, in writing.
Section 4. Notwithstanding the foregoing, whenever the holders of any
one or more series of Preferred Stock or Series Common Stock issued by the
corporation shall have the right, voting separately by series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, removal, filling of vacancies and other features of such directorships
shall be governed by the terms of the Restated Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to Article SEVENTH of the Restated Certificate of Incorporation
unless expressly provided by such terms. The number of directors that may be
elected by the holders of any such series of Preferred Stock or Series Common
Stock shall be in addition to the number fixed by or pursuant to the By-Laws.
Except as otherwise expressly provided in the terms of such series, the number
of directors that may be so elected by the holders of any such series of stock
shall be elected for terms expiring at the next annual meeting of stockholders
and without regard to the classification of the members of the Board of
Directors as set forth in Section 1 hereof, and vacancies among directors so
elected by the separate vote of the holders of any such series of Preferred
Stock or Series Common Stock shall be filled by the affirmative vote of a
majority of the remaining directors elected by such series, or, if there are no
such remaining directors, by the holders of such series in the same manner in
which such series initially elected a director.
Section 5. If at any meeting for the election of directors, the
corporation has outstanding more than one class of stock, and one or more such
classes or series thereof are entitled to vote separately as a class, and there
shall be a quorum of only one such class or series of stock, that class or
series of stock shall be entitled to elect its quota of directors
notwithstanding absence of a quorum of the other class or series of stock.
Section 6. The Board of Directors may designate three or more
directors to constitute an executive committee, one of whom shall be designated
Chairman of such committee. The members of such committee shall hold such
office until the next election of the Board of Directors and until their
successors are elected and qualify. Any vacancy occurring in the committee
shall be filled by the Board of Directors. Regular meetings of the committee
shall be held at such times and on such notice and at such places as it may from
time to time determine. The committee shall act, advise with and aid the
officers of the corporation in all matters concerning its interest and the
management of its business, and shall generally perform such duties and exercise
such powers as may from time to time be delegated to it by the Board of
Directors, and shall have authority to exercise all the powers of the Board of
Directors, so far as may be permitted by law, in the management of the business
and the affairs of the corporation whenever the Board of Directors is not in
session or whenever a quorum of the Board of Directors fails to attend any
regular or special meeting of such Board. The committee shall have power to
authorize the seal of the corporation to be affixed to all papers which are
required by the Delaware General Corporation Law to have the seal affixed
thereto. The fact that the executive committee has acted shall be conclusive
evidence that the Board of Directors was not in session at such time or that a
quorum of the Board had failed to attend the regular or special meeting thereof.
<PAGE>
8
The executive committee shall keep regular minutes of its transactions
and shall cause them to be recorded in a book kept in the office of the
corporation designated for that purpose, and shall report the same to the Board
of Directors at their regular meeting. The committee shall make and adopt its
own rules for the government thereof and shall elect its own officers.
Section 7. The Board of Directors may from time to time establish
such other committees to serve at the pleasure of the Board which shall be
comprised of such members of the Board and have such duties as the Board shall
from time to time establish. Any director may belong to any number of
committees of the Board. The Board may also establish such other committees
with such members (whether or not directors) and such duties as the Board may
from time to time determine.
Section 8. Unless otherwise restricted by the Restated Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
Section 9. The members of the Board of Directors or any committee
thereof may participate in a meeting of such Board or committee, as the case may
be, by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this subsection shall constitute presence
in person at such a meeting.
Section 10. The Board of Directors may establish policies for the
compensation of directors and for the reimbursement of the expenses of
directors, in each case, in connection with services provided by directors to
the corporation.
ARTICLE III.
OFFICERS
Section 1. The Board of Directors, as soon as may be after each
annual meeting of the stockholders, shall elect officers of the corporation,
including a Chairman of the Board or President and a Secretary. The Board of
Directors may also from time to time elect such other officers (including one or
more Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or
more Assistant Secretaries and one or more Assistant Treasurers) as it may deem
proper or may delegate to any elected officer of the corporation the power to
appoint and remove any such other officers and to prescribe their respective
terms of office, authorities and duties. Any Vice President may be designated
Executive, Senior or Corporate, or may be given such other designation or
combination of designations as the Board of Directors may determine. Any two or
more offices may be held by the same person.
<PAGE>
9
Section 2. All officers of the corporation elected by the Board of
Directors shall hold office for such term as may be determined by the Board of
Directors or until their respective successors are chosen and qualified. Any
officer may be removed from office at any time either with or without cause by
the affirmative vote of a majority of the members of the Board then in office,
or, in the case of appointed officers, by any elected officer upon whom such
power of removal shall have been conferred by the Board of Directors.
Section 3. Each of the officers of the corporation elected by the
Board of Directors or appointed by an officer in accordance with these By-laws
shall have the powers and duties prescribed by law, by the By-Laws or by the
Board of Directors and, in the case of appointed officers, the powers and duties
prescribed by the appointing officer, and, unless otherwise prescribed by the
By-Laws or by the Board of Directors or such appointing officer, shall have such
further powers and duties as ordinarily pertain to that office. The Chairman of
the Board or the President, as determined by the Board of Directors, shall be
the Chief Executive Officer and shall have the general direction of the affairs
of the corporation.
Section 4. Unless otherwise provided in these By-Laws, in the absence
or disability of any officer of the corporation, the Board of Directors may,
during such period, delegate such officer's powers and duties to any other
officer or to any director and the person to whom such powers and duties are
delegated shall, for the time being, hold such office.
ARTICLE IV.
CERTIFICATES OF STOCK
Section 1. The shares of stock of the corporation shall be
represented by certificates, provided that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the corporation's stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the corporation, or as otherwise permitted by law, representing
the number of shares registered in certificate form. Any or all the signatures
on the certificate may be a facsimile.
Section 2. Transfers of stock shall be made on the books of the
corporation by the holder of the shares in person or by such holder's attorney
upon surrender and cancellation of certificates for a like number of shares, or
as otherwise provided by law with respect to uncertificated shares.
Section 3. No certificate for shares of stock in the corporation
shall be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of such loss, theft or
destruction and upon delivery to the corporation of a bond
<PAGE>
10
of indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors in its discretion may require.
ARTICLE V.
CORPORATE BOOKS
The books of the corporation may be kept outside of the State of
Delaware at such place or places as the Board of Directors may from time to time
determine.
ARTICLE VI.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the corporation's bank accounts and all bills
of exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be hereunto authorized from time to time by
the Board of Directors. Proxies to vote and consents with respect to securities
of other corporations owned by or standing in the name of the corporation may be
executed and delivered from time to time on behalf of the corporation by the
Chairman of the Board, the President, or by such officers as the Board of
Directors may from time to time determine.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January in each year and shall end on the thirty-first day of December
following.
ARTICLE VIII.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation. In lieu of the corporate seal, when so authorized by the Board of
Directors or a duly empowered committee thereof, a facsimile thereof may be
impressed or affixed or reproduced.
<PAGE>
11
ARTICLE IX.
AMENDMENTS
These By-Laws may be amended, added to, rescinded or repealed at any
meeting of the Board of Directors or of the stockholders, provided notice of the
proposed change was given in the notice of the meeting of the stockholders or,
in the case of a meeting of the Board of Directors, in a notice given not less
than two days prior to the meeting; provided, however, that, notwithstanding
any other provisions of these By-Laws or any provision of law which might
otherwise permit a lesser vote of the stockholders, the affirmative vote of the
holders of at least 80 percent in voting power of all shares of the corporation
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 Section 2 and Section 11 of Article I, Sections 1 and 2 of Article II or
this proviso to this Article IX of these By-Laws or to adopt any provision
inconsistent with any of such Sections or with this proviso.
<PAGE>
CERTIFICATE OF STOCK
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
- --------------------- ---------------------
NUMBER SHARES
IMS
- --------------------- ---------------------
CUSIP 449934 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
[GRAPHIC]
IMS HEALTH INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
IMS HEALTH INCORPORATED (THE "CORPORATION"), TRANSFERABLE ON THE BOOKS OF THE
CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY
UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND
THE SHARES REPRESENTED HEREBY ARE ISSUED AND SHALL BE HELD SUBJECT TO ALL THE
PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AS AMENDED, TO ALL OF WHICH
THE HOLDER OF THIS CERTIFICATE BY THE ACCEPTANCE HEREOF EXPRESSLY ASSENTS.
THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
[IMS CORPORATE SEAL]
DATED:
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY /s/ Illegible
CHAIRMAN
TRANSFER AGENT
AND REGISTRAR,
/s/ Illegible /s/ Illegible
AUTHORIZED SIGNATURE SENIOR VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
<PAGE>
IMS HEALTH INCORPORATED
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND
WITHOUT CHARGE, A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST
MAY BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN THE CORPORATION
AND FIRST CHICAGO TRUST COMPANY OF NEW YORK (THE "RIGHTS AGENT"), DATED ON OR
ABOUT JUNE 30, 1998, AS MAY BE AMENDED FROM TIME TO TIME (THE "RIGHTS
AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE
AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH
RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE
EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF
THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF
MAILING, WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED
TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT-- Custodian
--------------------
TEN ENT--as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN--as joint tenants with right
of survivorship and not as Act
tenants in common --------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY TO
TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
------------------------
------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
BY
---------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.1
DISTRIBUTION AGREEMENT
between
COGNIZANT CORPORATION
and
IMS HEALTH INCORPORATED
Dated as of June __, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS................................................... 2
SECTION 1.1. General.................................................. 2
SECTION 1.2. References; Interpretation............................... 13
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN
COVENANTS..................................................... 14
SECTION 2.1. The Distribution and Other Transactions.................. 14
SECTION 2.2. Intercompany Accounts.................................... 18
SECTION 2.3. Cash balances............................................ 18
SECTION 2.4. Assumption and Satisfaction of Liabilities............... 18
SECTION 2.5. Resignations............................................. 19
SECTION 2.6. Further Assurances....................................... 19
SECTION 2.7. Limited Representations or Warranties.................... 19
SECTION 2.8. Guarantees............................................... 19
SECTION 2.9. Witness Services......................................... 20
SECTION 2.10. Certain Post-Distribution Transactions................... 20
SECTION 2.11. Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date... 21
SECTION 2.12. Conveyancing and Assumption Instruments.................. 22
SECTION 2.13. Ancillary Agreements..................................... 22
SECTION 2.14. Corporate Names.......................................... 22
ARTICLE III. INDEMNIFICATION.............................................. 24
SECTION 3.1. Indemnification by the Corporation....................... 24
SECTION 3.2. Indemnification by IMS HEALTH............................ 24
SECTION 3.3. Procedures for Indemnification........................... 25
SECTION 3.4. Indemnification Payments................................. 26
ARTICLE IV. ACCESS TO INFORMATION......................................... 27
SECTION 4.1. Provision of Corporate Records........................... 27
SECTION 4.2. Access to Information.................................... 27
SECTION 4.3. Reimbursement; Other Matters............................. 27
SECTION 4.4. Confidentiality.......................................... 28
SECTION 4.5. Privileged Matters....................................... 28
SECTION 4.6. Ownership of Information................................. 30
SECTION 4.7. Limitation of Liability.................................. 30
SECTION 4.8. Other Agreements Providing for Exchange of Information... 30
ARTICLE V. ADMINISTRATIVE SERVICES........................................ 30
SECTION 5.1. Performance of Services.................................. 30
SECTION 5.2. Independence............................................. 30
SECTION 5.3. Non-exclusivity.......................................... 31
i
<PAGE>
ARTICLE VI. DISPUTE RESOLUTION............................................ 31
SECTION 6.1. Negotiation.............................................. 31
SECTION 6.2. Arbitration.............................................. 31
SECTION 6.3. Continuity of Service and Performance.................... 32
ARTICLE VII. INSURANCE.................................................... 32
SECTION 7.1. Policies and Rights Included Within Assets;
Assignment of Policies .................................. 32
SECTION 7.2. Post-Distribution Date Claims............................ 33
SECTION 7.3. Administration; Other Matters............................ 33
SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense...... 34
SECTION 7.5. Cooperation.............................................. 35
ARTICLE VIII. MISCELLANEOUS............................................... 35
SECTION 8.1. Complete Agreement; Construction......................... 35
SECTION 8.2. Ancillary Agreements..................................... 35
SECTION 8.3. Counterparts............................................. 35
SECTION 8.4. Survival of Agreements................................... 35
SECTION 8.5. Expenses................................................. 35
SECTION 8.6. Notices.................................................. 36
SECTION 8.7. Waivers.................................................. 36
SECTION 8.8. Amendments............................................... 36
SECTION 8.9. Assignment............................................... 36
SECTION 8.10. Successors and Assigns................................... 37
SECTION 8.11. Termination.............................................. 37
SECTION 8.12. Subsidiaries............................................. 37
SECTION 8.13. Third Party Beneficiaries................................ 37
SECTION 8.14. Title and Headings....................................... 37
SECTION 8.15. Exhibits and Schedules................................... 37
SECTION 8.16. GOVERNING LAW............................................ 38
SECTION 8.17. Consent to Jurisdiction.................................. 38
SECTION 8.18. Severability............................................. 38
Exhibits
Exhibit 2.1(m)Undertaking of IMS Health Incorporated
ii
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of June __, 1998, between COGNIZANT
CORPORATION, a Delaware corporation (the "Corporation") and IMS HEALTH
INCORPORATED, a Delaware corporation ("IMS HEALTH").
WHEREAS, the Corporation acting through its direct and indirect
subsidiaries, currently conducts a number of businesses, including, without
limitation, (i) providing television audience measurement services (the "Nielsen
Media Research Business"), (ii) providing information and decision support
services to the pharmaceutical and healthcare industries (the "IMS Business"),
(iii) providing software-based administrative and analytical solutions to the
managed care industry (the "ERISCO Business"), (iv) making venture capital
investments in emerging healthcare businesses (the "Enterprises Business") and
(v) providing software application and development services specializing in Year
2000 conversion services (the "Technology Solutions Business").
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $0.01 per share, of the Corporation (the
"Cognizant Common Stock"), as well as of the Corporation and its businesses, to
reorganize the Corporation to separate from the Corporation all businesses
currently conducted by the Corporation other than the Nielsen Media Research
Business and to cause such businesses to be owned and conducted, directly or
indirectly, by IMS HEALTH;
WHEREAS, in order to effect the separation, the Board of Directors
of the Corporation has determined that it is appropriate, desirable and in the
best interests of the holders of Cognizant Common Stock, as well as of the
Corporation and its businesses, for the Corporation (i) to take certain steps to
reorganize the Corporation's Subsidiaries (as defined herein) and businesses,
including prior to the Distribution (as defined herein) merging I.M.S.
International, Inc. and IMS America, Ltd. with and into IMS HEALTH and (ii) upon
the completion of such reorganization to distribute to the holders of the
Cognizant Common Stock all the outstanding shares of common stock of IMS HEALTH
(the "IMS HEALTH Common Shares"), together with the associated Rights (as
defined herein), as set forth herein;
WHEREAS, each of the Corporation and IMS HEALTH has determined that
it is necessary and desirable, on or prior to the Distribution Date (as defined
herein), to allocate and transfer those assets and to allocate and assign
responsibility for those liabilities in respect of the activities of the
businesses of such entities and those assets and liabilities in respect of other
businesses and activities of the Corporation and its current and former
Subsidiaries and other matters; and
WHEREAS, each of the Corporation and IMS HEALTH has determined that
it is necessary and desirable to set forth the principal corporate transactions
required to effect such Distribution and to set forth other agreements that will
govern certain other matters following the Distribution.
<PAGE>
2
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1. General. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
(b) "Affiliate" shall mean, when used with respect to a specified
person, another person that controls, is controlled by, or is under common
control with the person specified. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or other interests, by contract or otherwise.
(c) "Agent" shall have the meaning set forth in Section 2.1(b).
(d) "Agreement Disputes" shall have the meaning set forth in Section
6.1.
(e) "Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other arrangements (other than this Agreement)
entered into in connection with the transactions contemplated hereby, including,
without limitation, the Conveyancing and Assumption Instruments, the Employee
Benefits Agreement, the Tax Allocation Agreement and the Transition Services
Agreement.
(f) "Assets" shall mean assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or other
third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any person, including, without limitation, the following:
(i) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic
tape or any other form;
(ii) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, aircraft and other
transportation equipment, special and general tools, test
devices, prototypes and models and other tangible personal
property;
<PAGE>
3
(iii) all inventories of materials, parts, raw materials, supplies,
work-in-process and finished goods and products;
(iv) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security
Interest in real property, lessor, sublessor, lessee,
sublessee or otherwise;
(v) all interests in any capital stock or other equity interests
of any Subsidiary or any other person, all bonds, notes,
debentures or other securities issued by any Subsidiary or any
other person, all loans, advances or other extensions of
credit or capital contributions to any Subsidiary or any other
person and all other investments in securities of any person;
(vi) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or
services, unfilled orders for the manufacture and sale of
products and other contracts, agreements or commitments;
(vii) all deposits, letters of credit and performance and surety
bonds;
(viii) all written technical information, data, specifications,
research and development information, engineering drawings,
operating and maintenance manuals, and materials and analyses
prepared by consultants and other third parties;
(ix) all domestic and foreign patents, copyrights, trade names,
trademarks, service marks and registrations and applications
for any of the foregoing, mask works, trade secrets,
inventions, data bases, other proprietary information and
licenses from third persons granting the right to use any of
the foregoing;
(x) all computer applications, programs and other software,
including operating software, network software, firmware,
middleware, design software, design tools, systems
documentation and instructions;
(xi) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists,
customer and vendor data, correspondence and lists, product
literature, artwork, design, development and manufacturing
files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books,
records, studies, surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and
notes receivable;
<PAGE>
4
(xiii) all rights under contracts or agreements, all claims or
rights against any person arising from the ownership of any
asset, all rights in connection with any bids or offers and
all claims, choses in action or similar rights, whether
accrued or contingent;
(xiv) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(xv) all licenses, permits, approvals and authorizations which have
been issued by any Governmental Authority;
(xvi) cash or cash equivalents, bank accounts, lock boxes and other
deposit arrangements; and
(xvii) interest rate, currency, commodity or other swap, collar, cap
or other hedging or similar agreements or arrangements.
(g) "Assignee" shall have the meaning set forth in Section 2.1(f).
(h) "Business Entity" shall mean any corporation, partnership,
limited liability company or other entity which may legally hold title to
Assets.
(i) "Claims Administration" shall mean the processing of claims made
under the Shared Policies, including, without limitation, the reporting of
claims to the insurance carriers and the management of the defense of claims.
(j) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any successor
legislation.
(k) "Cognizant Common Stock" shall have the meaning set forth in the
recitals hereto.
(l) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(m) "Conveyancing and Assumption Instruments" shall mean,
collectively, the various agreements, instruments and other documents heretofore
entered into and to be entered into to effect the transfer of Assets and the
assumption of Liabilities in the manner contemplated by this Agreement, or
otherwise arising out of or relating to the transactions contemplated by this
Agreement, which shall be in substantially the forms attached hereto as Schedule
1.1(m) for transfers to be effected pursuant to New York law or the laws of one
of the other states of the United States, or, if not appropriate for a given
transfer, and for transfers to be effected pursuant to non-U.S. laws, shall be
in such other form or forms as the parties agree and as may be required by the
laws of such non-U.S. jurisdictions.
<PAGE>
5
(n) the "Corporation" or "Cognizant" shall mean Cognizant
Corporation, a Delaware corporation, which will change its name in connection
with the Distribution to "Nielsen Media Research, Inc.".
(o) "Corporation Debt" shall mean have the meaning set forth in
Section 2.1(n).
(p) "Distribution" shall mean the distribution on the Distribution
Date to holders of record of shares of Cognizant Common Stock as of the
Distribution Record Date of the IMS HEALTH Common Shares owned by the
Corporation on the basis of one IMS HEALTH Common Share for each outstanding
share of Cognizant Common Stock.
(q) "Distribution Date" shall mean June 30, 1998.
(r) "Distribution Record Date" shall mean as of the close of
business of such date as may be determined by the Corporation's Board of
Directors as the record date for the Distribution.
(s) "Effective Time" shall mean immediately prior to the midnight,
New York time, ending the 24-hour period comprising June 30, 1998.
(t) "Employee Benefits Agreement" shall mean the Employee Benefits
Agreement between the Corporation and IMS HEALTH.
(u) "Enterprises Business" shall have the meaning set forth in the
recitals hereto.
(v) "ERISCO Business" shall have the meaning set forth in the
recitals hereto.
(w) "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
(x) "IMS Business" shall have the meaning set forth in the recitals
hereto.
(y) "IMS HEALTH Assets" shall mean, collectively, all the rights and
Assets owned or held by the Corporation or any Subsidiary of the Corporation
immediately prior to the Effective Time, except the NMR Assets.
(z) "IMS HEALTH Business" shall mean each and every business
conducted at any time by the Corporation or any Subsidiary of the Corporation
prior to the Effective Time (including, without limitation, the IMS Business,
the ERISCO Business, the Enterprises Business and the Technology Solutions
Business), except an NMR Business.
(aa) "IMS HEALTH Common Shares" shall have the meaning set forth in
the recitals hereto.
<PAGE>
6
(ab) "IMS HEALTH Contracts" shall mean all the contracts and
agreements to which the Corporation or any of its Affiliates is a party or by
which it or any of its Affiliates is bound immediately prior to the Effective
Time, except the NMR Contracts.
(ac) "IMS HEALTH Group" shall mean IMS HEALTH and each person (other
than any member of the NMR Group) that is a Subsidiary of the Corporation
immediately prior to the Effective Time.
(ad) "IMS HEALTH Indemnitees" shall mean IMS HEALTH, each member of
the IMS HEALTH Group, each of their respective present and former directors,
officers, employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing, except the NMR Indemnitees, as well as any
present and former directors, officers, employees and agents of the Corporation
prior to the Effective Time and each of their heirs, executors, successors and
assigns.
(ae) "IMS HEALTH Liabilities" shall mean collectively, all
obligations and Liabilities of the Corporation or any Subsidiary of the
Corporation immediately prior to the Effective Time, except the NMR Liabilities.
(af) "IMS HEALTH Policies" shall mean all Policies, current or past,
which are owned or maintained by or on behalf of the Corporation or any
Subsidiary of the Corporation immediately prior to the Effective Time which do
not relate to the NMR Business and which Policies are either maintained by IMS
HEALTH or a member of the IMS HEALTH Group or are assignable to IMS HEALTH or a
member of the IMS HEALTH Group.
(ag) "Indemnifiable Losses" shall mean any and all losses,
liabilities, claims, damages, demands, costs or expenses (including, without
limitation, reasonable attorneys' fees and any and all out-of-pocket expenses)
reasonably incurred in investigating, preparing for or defending against any
Actions or potential Actions or in settling any Action or potential Action or in
satisfying any judgment, fine or penalty rendered in or resulting from any
Action.
(ah) "Indemnifying Party" shall have the meaning set forth in
Section 3.3.
(ai) "Indemnitee" shall have the meaning set forth in Section 3.3.
(aj) "Indemnity and Joint Defense Agreement" shall mean the
Indemnity and Joint Defense Agreement dated as of October 28, 1996 by and among
the Corporation, The Dun & Bradstreet Corporation and ACNielsen Corporation.
(ak) "Information Statement" shall mean the Information Statement
sent to the holders of shares of Cognizant Common Stock in connection with the
Distribution, including any amendment or supplement thereto.
(al) "Insurance Administration" shall mean, with respect to each
Shared Policy, the accounting for premiums, retrospectively-rated premiums,
defense costs, indemnity payments, deductibles and retentions, as appropriate,
under the terms and conditions of each of the Shared
<PAGE>
7
Policies; and the reporting to excess insurance carriers of any losses or claims
which may cause the per-occurrence, per claim or aggregate limits of any Shared
Policy to be exceeded, and the distribution of Insurance Proceeds as
contemplated by this Agreement.
(am) "Insurance Proceeds" shall mean those monies (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of an insured, in either case net of any applicable premium adjustment,
retrospectively-rated premium, deductible, retention, or cost of reserve paid or
held by or for the benefit of such insured.
(an) "Insured Claims" shall mean those Liabilities that,
individually or in the aggregate, are covered within the terms and conditions of
any of the Shared Policies, whether or not subject to deductibles, co-insurance,
uncollectibility or retrospectively-rated premium adjustments.
(ao) "IRI Action" shall mean the complaint filed in the United
States District Court for the Southern District of New York on July 29, 1996 by
Information Resources, Inc. naming as defendants The Dun & Bradstreet
Corporation, A. C. Nielsen Company and IMS International, Inc.
(ap) "Liabilities" shall mean any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions, variances,
guarantees, make whole agreements and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses, whatsoever reasonably incurred in investigating, preparing or
defending against any such Actions or threatened or contemplated Actions), order
or consent decree of any governmental or other regulatory or administrative
agency, body or commission or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking, including
those arising under this Agreement or any Ancillary Agreement, in each case,
whether or not recorded or reflected or required to be recorded or reflected on
the books and records or financial statements of any person.
(aq) "Nielsen Media Research Business" shall have the meaning set
forth in the recitals hereto.
(ar) "1996 Distribution" shall mean the Distribution described in
the 1996 Distribution Agreement.
(as) "1996 Distribution Agreement" shall mean the Distribution
Agreement among the Corporation, The Dun & Bradstreet Corporation and ACNielsen
Corporation dated as of October 28, 1996.
<PAGE>
8
(at) "NMR" shall mean Nielsen Media Research, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Corporation.
(au) "NMR Assets" shall mean:
(i) the ownership interests in those Business Entities
listed on Schedule 1.1(au)(i);
(ii) any and all Assets that are expressly contemplated by
this Agreement, including those on the list of
pre-Distribution reorganization transactions attached as
Schedule 1.1(au)(ii) hereto, or any Ancillary Agreement
(or included on any Schedule hereto or thereto) as
Assets which have been or are to be transferred to the
Corporation, NMR or any other member of the NMR Group
prior to the Effective Time or are to remain with the
Corporation, NMR or any member of the NMR Group
subsequent to the Effective Time;
(iii) any Assets reflected on the NMR Balance Sheet or the
accounting records supporting such balance sheet and any
Assets acquired by or for NMR or any member of the NMR
Group subsequent to the date of such balance sheet
which, had they been so acquired on or before such date
and owned as of such date, would have been reflected on
such balance sheet if prepared on a consistent basis,
subject to any dispositions of any of such Assets
subsequent to the date of such balance sheet;
(iv) subject to Article VII, any rights of any member of the
NMR Group under any of the Policies, including any
rights thereunder arising from and after the Effective
Time in respect of any Policies that are occurrence
policies;
(v) any NMR Contracts, any rights or claims arising
thereunder, and any other rights or claims or contingent
rights or claims primarily relating to or arising from
any NMR Asset or the NMR Business; and
(vi) any and all Assets of the Corporation from and after the
Effective Time.
Notwithstanding the foregoing, the NMR Assets
shall not in any event include:
(v) the Corporation's rights arising from or related
to the Corporation's agreements to acquire Walsh
International Inc. ("Walsh") or Pharmaceutical
Marketing Services Inc. ("PMSI"), or any of the
assets of Walsh or PMSI; or
(w) any rights of the Corporation under (i) the 1996
Distribution Agreement or (ii) the Tax Allocation
Agreement, Employee
<PAGE>
9
Benefits Agreement or any Ancillary Agreement
referred to in the 1996 Distribution Agreement; or
(x) the Corporation's interest in the capital stock of
the Gartner Group, Inc. and any other Assets
listed or described on Schedule 1.1(au)(x); or
(y) any Assets primarily relating to or used in any
terminated or divested Business Entity, business
or operation formerly owned or managed by or
associated with the Corporation, NMR or any NMR
Business, except for those Assets primarily
relating to or used in those Business Entities,
businesses or operations listed on Schedule
1.1(au)(y); or
(z) any and all Assets that are expressly contemplated
by this Agreement or any Ancillary Agreement (or
the Schedules hereto or thereto) as Assets to be
transferred or conveyed to any member of the IMS
HEALTH Group.
In the event of any inconsistency or conflict which may
arise in the application or interpretation of any of the
foregoing provisions, for the purpose of determining
what is and is not an NMR Asset, any item explicitly
included on a Schedule referred to in this Section
1.1(au) shall take priority over any provision of the
text hereof, and clause (ii) shall take priority over
clause (iii) hereof of this Section 1.1(au).
(av) "NMR Balance Sheet" shall mean the combined balance sheet of
the NMR Group, including the notes thereto, as of March 31, 1998, set forth as
Schedule 1.1(av) hereto.
(aw) "NMR Business" shall mean (i) the Nielsen Media Research
Business, (ii) the businesses of the members of the NMR Group, (iii) any other
business conducted by the Corporation or any Subsidiary of the Corporation
primarily through the use of the NMR Assets, (iv) the businesses of Business
Entities acquired or established by or for NMR or any of its Subsidiaries after
the date of this Agreement and (v) the business of the Corporation from and
after the Effective Time.
(ax) "NMR Contracts" shall mean the following contracts and
agreements to which the Corporation or any of its Affiliates is a party or by
which it or any of its Affiliates or any of their respective Assets is bound,
whether or not in writing, except for any such contract or agreement that is not
expressly contemplated to be transferred or assigned to the Corporation, NMR or
any other member of the NMR Group prior to the Effective Time, or to remain with
the Corporation, NMR or any other member of the NMR Group subsequent to the
Effective Time, pursuant to any provision of this Agreement or any Ancillary
Agreement:
(i) the TAM Master Agreement (as defined herein) and any
contracts or agreements listed or described on Schedule
1.1(ax)(i);
<PAGE>
10
(ii) any contract or agreement entered into in the name of,
or expressly on behalf of, any division, business unit
or member of the NMR Group;
(iii) any contract or agreement that relates primarily to the
NMR Business;
(iv) federal, state and local government and other contracts
and agreements that are listed or described on Schedule
1.1(ax)(iv) and any other government contracts or
agreements entered into after the date hereof and prior
to the Effective Time that relate primarily to the NMR
Business;
(v) any contract or agreement representing capital or
operating equipment lease obligations reflected on the
NMR Balance Sheet, including obligations as lessee under
those contracts or agreements listed on Schedule
1.1(ax)(v);
(vi) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the
Ancillary Agreements to be transferred or assigned to
the Corporation or any member of the NMR Group prior to
the Effective Time or to remain with the Corporation or
any member of the NMR Group subsequent to the Effective
Time; and
(vii) any guarantee, indemnity, representation or warranty of
any member of the NMR Group.
(ay) "NMR Group" shall mean (i) NMR, (ii) each Business Entity which
is contemplated to become a Subsidiary of the Corporation or NMR hereunder prior
to the Effective Time or to remain a Subsidiary of the Corporation or NMR
hereunder subsequent to the Effective Time, which shall include those identified
as such on Schedule 1.1(au)(i) hereto, which Schedule shall also indicate the
amount of the Corporation's or NMR's direct or indirect ownership interest
therein, and (iii) the Corporation from and after the Effective Time.
(az) "NMR Indemnitees" shall mean NMR, each member of the NMR Group,
each of their respective present and former directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing.
(ba) "NMR Liabilities" shall mean:
(i) any and all Liabilities that are expressly contemplated
by this Agreement or any Ancillary Agreement (or the
Schedules hereto or thereto, including Schedule 1.1(ba)
hereto) as Liabilities to be assumed by the Corporation
or any member of the NMR Group prior to the Effective
Time or to remain with the Corporation or any member of
the NMR Group subsequent to the Effective Time, and all
agreements, obligations and Liabilities of the
Corporation or any member of the NMR Group under this
Agreement or any of the Ancillary Agreements;
<PAGE>
11
(ii) all Liabilities (other than Taxes and any
employee-related Liabilities subject to the provisions
of the Tax Allocation Agreement and the Employee
Benefits Agreement, respectively), primarily relating
to, arising out of or resulting from:
(A) the operation of the NMR Business, as conducted at
any time prior to, on or after the Effective Time (including
any Liability relating to, arising out of or resulting from
any act or failure to act by any director, officer, employee,
agent or representative (whether or not such act or failure to
act is or was within such person's authority));
(B) the operation of any business conducted by the
Corporation or any Subsidiary of the Corporation at any time
from and after the Effective Time (including any Liability
relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or
representative (whether or not such act or failure to act is
or was within such person's authority)); or
(C) any NMR Assets;
whether arising before, on or after the Effective Time;
(iii) all Liabilities reflected as liabilities or obligations on the
NMR Balance Sheet or the accounting records supporting such
balance sheet, and all Liabilities arising or assumed after
the date of such balance sheet which, had they arisen or been
assumed on or before such date and been retained as of such
date, would have been reflected on such balance sheet, subject
to any discharge of such Liabilities subsequent to the date of
the NMR Balance Sheet; and
(iv) the Corporation Debt.
Notwithstanding the foregoing, the NMR Liabilities shall not
include:
(x) any Liabilities that are expressly contemplated by this
Agreement or any Ancillary Agreement (or the Schedules hereto
or thereto) as Liabilities to be assumed by IMS HEALTH or any
member of the IMS HEALTH Group, including any Liabilities set
forth in Schedule 1.1(ba)(x);
(y) any Liabilities primarily relating to, arising out of or
resulting from any terminated or divested Business Entity,
business or operation formerly owned or managed by or
associated with the Corporation or any NMR Business except for
Liabilities primarily relating to, arising out of or resulting
from those Business Entities, businesses or operations listed
in Schedule 1.1(ba)(y); or
<PAGE>
12
(z) all agreements and obligations of any member of the IMS HEALTH
Group under this Agreement or any of the Ancillary Agreements.
(bb) "NMR Policies" shall mean all Policies, current or past, which
are owned or maintained by or on behalf of the Corporation or any Subsidiary of
the Corporation immediately prior to the Effective Time, which do not relate to
the IMS HEALTH Business.
(bc) "person" shall mean any natural person, Business Entity,
corporation, business trust, joint venture, association, company, partnership,
other entity or government, or any agency or political subdivision thereof.
(bd) "Policies" shall mean insurance policies and insurance
contracts of any kind (other than life and benefits policies or contracts),
including, without limitation, primary, excess and umbrella policies,
comprehensive general liability policies, director and officer liability,
fiduciary liability, automobile, aircraft, property and casualty, workers'
compensation and employee dishonesty insurance policies, bonds and
self-insurance and captive insurance company arrangements, together with the
rights, benefits and privileges thereunder.
(be) "Provider" shall have the meaning set forth in Section 5.1.
(bf) "Recipient" shall have the meaning set forth in Section 5.1.
(bg) "Records" shall have the meaning set forth in Section 4.1.
(bh) "Rights" shall have the meaning set forth in Section 2.1(c).
(bi) "Rules" shall have the meaning set forth in Section 6.2.
(bj) "Security Interest" shall mean any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
(bk) "Shared Policies" shall mean all Policies, current or past,
which are owned or maintained by or on behalf of the Corporation or any
Subsidiary of the Corporation immediately prior to the Effective Time which
relate to the IMS HEALTH Business and the NMR Business.
(bl) "Subsidiary" shall mean any corporation, partnership or other
entity of which another entity (i) owns, directly or indirectly, ownership
interests sufficient to elect a majority of the Board of Directors (or persons
performing similar functions) (irrespective of whether at the time any other
class or classes of ownership interests of such corporation, partnership or
other entity shall or might have such voting power upon the occurrence of any
contingency) or (ii) is a general partner or an entity performing similar
functions (e.g., a trustee).
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13
(bm) "TAM Master Agreement" shall mean the master agreement between
the Corporation and ACNielsen Corporation, including any agreements ancillary
thereto, relating to the conduct of the television audience measurement business
after the 1996 Distribution.
(bn) "Tax" shall have the meaning set forth in the Tax Allocation
Agreement.
(bo) "Tax Allocation Agreement" shall mean the Tax Allocation
Agreement between the Corporation and IMS HEALTH.
(bp) "Technology Solutions Business" shall have the meaning set
forth in the recitals hereto.
(bq) "Third Party Claim" shall have the meaning set forth in Section
3.3.
(br) "Transition Services Agreement" shall mean the Amended and
Restated Transition Services Agreement among the Corporation, IMS HEALTH, The
Dun & Bradstreet Corporation, The New Dun & Bradstreet Corporation, ACNielsen
Corporation and Gartner Group, Inc.
SECTION 1.2. References; Interpretation. References in this
Agreement to any gender include references to all genders, and references to the
singular include references to the plural and vice versa. The words "include",
"includes" and "including" when used in this Agreement shall be deemed to be
followed by the phrase "without limitation". Unless the context otherwise
requires, references in this Agreement to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, such Agreement. Unless the context otherwise requires, the
words "hereof", "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision of this Agreement.
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS
SECTION 2.1. The Distribution and Other Transactions.
(a) Certain Transactions. On or prior to the Distribution Date:
(i) the Corporation shall, on behalf of itself and its
Subsidiaries, transfer or cause to be transferred to IMS HEALTH or another
member of the IMS HEALTH Group, effective prior to or as of the Effective
Time, all of the Corporation's and its Subsidiaries' right, title and
interest in the IMS HEALTH Assets.
(ii) IMS HEALTH shall to the extent not already held by the
Corporation or a member of the NMR Group, on behalf of itself and its
Subsidiaries, transfer or cause to be transferred to the Corporation or a
member of the NMR Group, effective prior to
<PAGE>
14
or as of the Effective Time, all of IMS HEALTH's and its Subsidiaries'
right, title and interest in the NMR Assets.
(iii) the Corporation or IMS HEALTH, as applicable, shall be
entitled to designate the Business Entity within the NMR Group or the IMS
HEALTH Group, as applicable, to which any Assets are to be transferred
pursuant to this Section 2.1(a).
(b) Stock Dividend to the Corporation. On or prior to the
Distribution Date, IMS HEALTH shall issue to the Corporation as a stock dividend
(i) such number of IMS HEALTH Common Shares as will be required to effect the
Distribution, as certified by the Corporation's stock transfer agent (the
"Agent"). In connection therewith the Corporation shall deliver to IMS HEALTH
for cancellation the share certificate held by it representing IMS HEALTH Common
Shares and shall receive a new certificate or certificates representing the
total number of IMS HEALTH Common Shares to be owned by the Corporation after
giving effect to such stock dividend.
(c) Charters; By-laws; Rights Plans. On or prior to the Distribution
Date, all necessary actions shall have been taken to provide for the adoption of
the form of Certificate of Incorporation and By-laws and the execution and
delivery of the form of Rights Agreement, relating to the preferred share
purchase rights relating to the IMS HEALTH Common Shares (the "Rights"), filed
by IMS HEALTH with the Commission as exhibits to IMS HEALTH's Registration
Statement on Form 10/A-__ (the "Form 10").
(d) Directors. On or prior to the Distribution Date, the Corporation
as the sole stockholder of IMS HEALTH, shall have taken all necessary action on
or prior to the Distribution Date to cause the Board of Directors of IMS HEALTH
to consist of the individuals identified in the Information Statement as
directors of IMS HEALTH.
(e) Certain Licenses and Permits. Without limiting the generality of
the obligations set forth in Section 2.1(a), on or prior to the Distribution
Date or as soon as reasonably practicable thereafter:
(i) all transferable licenses, permits and authorizations
issued by any Governmental Authority which do not relate primarily to the
NMR Business but which are held in the name of the Corporation or any
member of the NMR Group, or in the name of any employee, officer,
director, stockholder or agent of the Corporation or any such member, or
otherwise, on behalf of a member of the IMS HEALTH Group shall be duly and
validly transferred or caused to be transferred by the Corporation to the
appropriate member of the IMS HEALTH Group; and
(ii) all transferable licenses, permits and authorizations
issued by Governmental Authorities which relate primarily to the NMR
Business but which are held in the name of any member of the IMS HEALTH
Group, or in the name of any employee, officer, director, stockholder, or
agent of any such member, or otherwise, on behalf of a member of the NMR
Group shall be duly and validly transferred or caused
<PAGE>
15
to be transferred by IMS HEALTH to the Corporation or the appropriate
member of the NMR Group.
(f) Transfer of Agreements. Without limiting the generality of the
obligations set forth in Section 2.1(a):
(i) the Corporation hereby agrees that on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, subject
to the limitations set forth in this Section 2.1(f), it will, and it will
cause each member of the NMR Group to, assign, transfer and convey to the
appropriate member of the IMS HEALTH Group all of the Corporation's or
such member of the NMR Group's respective right, title and interest in and
to any and all IMS HEALTH Contracts;
(ii) IMS HEALTH hereby agrees that on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, subject
to the limitations set forth in this Section 2.1(f), it will, and it will
cause each member of the IMS HEALTH Group to, assign, transfer and convey
to the Corporation or the appropriate member of the NMR Group all of IMS
HEALTH's or such member of the IMS HEALTH Group's respective right, title
and interest in and to any and all NMR Contracts;
(iii) subject to the provisions of this Section 2.1(f), any
agreement to which any of the parties hereto or any of their Subsidiaries
is a party that inures to the benefit of both the NMR Business and the IMS
HEALTH Business shall be assigned in part so that each party shall be
entitled to the rights and benefits inuring to its business under such
agreement;
(iv) the assignee of any agreement assigned, in whole or in
part, hereunder (an "Assignee") shall assume and agree to pay, perform,
and fully discharge all obligations of the assignor under such agreement
or, in the case of a partial assignment under paragraph (f)(iii), such
Assignee's related portion of such obligations as determined in accordance
with the terms of the relevant agreement, where determinable on the face
thereof, and otherwise as determined in accordance with the practice of
the parties prior to the Distribution; and
(v) notwithstanding anything in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any
agreement, in whole or in part, or any rights thereunder if the agreement
to assign or attempt to assign, without the consent of a third party,
would constitute a breach thereof or in any way adversely affect the
rights of the assignor or Assignee thereof. Until such consent is
obtained, or if an attempted assignment thereof would be ineffective or
would adversely affect the rights of any party hereto so that the intended
Assignee would not, in fact, receive all such rights, the parties will
cooperate with each other in any arrangement designed to provide for the
intended Assignee the benefits of, and to permit the intended Assignee to
assume liabilities under, any such agreement.
<PAGE>
16
(g) Consents. The parties hereto shall use their commercially
reasonable efforts to obtain required consents to transfer and/or assignment of
licenses, permits and authorizations of Governmental Authorities and of
agreements hereunder.
(h) Delivery of Shares to Agent. The Corporation shall deliver to
the Agent the share certificates representing the IMS HEALTH Common Shares
issued to the Corporation by IMS HEALTH pursuant to Section 2.1(b) which are to
be distributed to the holders of Cognizant Common Stock in the Distribution and
shall instruct the Agent to distribute, on or as soon as practicable following
the Distribution Date, certificates representing such IMS HEALTH Common Shares
to holders of record of shares of Cognizant Common Stock on the Distribution
Record Date as further contemplated by the Information Statement and herein. IMS
HEALTH shall provide all share certificates that the Agent shall require in
order to effect the Distribution.
(i) Certain Liabilities. For purposes of this Agreement, including
Article III hereof, IMS HEALTH agrees with the Corporation that:
(i) any and all Liabilities arising from or related to
Cognizant's agreements to acquire Walsh and PMSI or any filings with the
Commission or any other governmental or regulatory authority related
thereto shall be deemed to be IMS HEALTH Liabilities and not NMR
Liabilities;
(ii) any and all Liabilities arising from or based upon
"controlling person" liability relating to the Form 10 filed by IMS HEALTH
shall be deemed to be IMS HEALTH Liabilities and not NMR Liabilities; and
(iii) notwithstanding Section 2.1(m) below, any and all
Liabilities arising from or related to the spin-off of the Corporation and
ACNielsen Corporation from The Dun & Bradstreet Corporation pursuant to
the 1996 Distribution Agreement, other than those set forth on Schedule
2.1(i) or allocated to NMR pursuant to Section 2.1(j), shall be deemed to
be IMS HEALTH Liabilities and not NMR Liabilities.
(j) Certain Contingencies. For purposes of this Agreement, including
Article III hereof, each of IMS HEALTH and the Corporation agrees that:
(i) notwithstanding anything to the contrary herein or in the
Tax Allocation Agreement, each of the Corporation and IMS HEALTH shall be
liable for a portion of the liabilities related to certain prior business
transactions to the extent and in the circumstances described in Schedule
2.1(j)(i);
(ii) any and all Liabilities of Cognizant under the Indemnity
and Joint Defense Agreement or otherwise related to the IRI Action,
including legal fees and expenses related thereto, shall be allocated 75%
to the IMS HEALTH Group (and thereby become IMS HEALTH Liabilities
hereunder) and 25% to the NMR Group (and thereby become NMR Liabilities
hereunder); provided that any such legal fees and expenses incurred prior
to January 1, 1999 shall be IMS HEALTH Liabilities and not NMR
Liabilities; and provided further that the aggregate amount of NMR
Liabilities under
<PAGE>
17
Section 2.1(j)(i) and this Section 2.1(j)(ii) shall be limited to $125
million, and any amounts in excess of $125 million shall be IMS HEALTH
Liabilities; and
(iii) notwithstanding anything to the contrary herein or in
the Tax Allocation Agreement, each of the Corporation and IMS HEALTH agree
that the Corporation's interests in certain prior business transactions
described on Schedule 2.1(j)(i) of the 1996 Distribution Agreement shall
be held by IMS HEALTH or a member of the IMS HEALTH Group and not by NMR
or any member of the NMR Group and any rights or Liabilities arising in
connection with such interests and any transactions relating thereto shall
be IMS HEALTH rights and Liabilities and not NMR rights and Liabilities.
(k) Matters Relating to Certain Partnerships. Each of the
Corporation and IMS HEALTH agrees that the interests in Cognizant Licensing
Associates, L.P. held by members of the NMR Group will be retired prior to the
Distribution.
(l) Certain Acquisitions. The Corporation shall contribute to IMS
HEALTH any Assets relating to Walsh and PMSI which the Corporation acquires
pursuant to its agreements to acquire such companies.
(m) Undertaking of IMS HEALTH. On or prior to the Distribution Date,
IMS HEALTH will undertake to each of The Dun & Bradstreet Corporation and
ACNielsen Corporation to be jointly and severally liable for all "Cognizant
Liabilities" (as defined in the 1996 Distribution Agreement) under the 1996
Distribution Agreement pursuant to an undertaking substantially in the form of
Exhibit 2.1(m) hereto.
(n) Corporation Debt. In connection with the Distribution, the
Corporation shall borrow up to an aggregate of $300 million, the proceeds of
which will be used to repay existing intercompany indebtedness to certain
members of the IMS HEALTH Group. This borrowing shall be an obligation of the
Corporation after the Distribution.
(o) Cognizant Common Stock Held by IMSA. IMS HEALTH agrees that
promptly after the Distribution Date IMS HEALTH will sell the 800,000 shares of
Cognizant Common Stock which IMS HEALTH will own as a result of Cognizant Common
Stock currently held by IMS America, Ltd.
(p) 1996 Distribution. The Corporation agrees that it will not take
any action it is required or permitted to take pursuant to the terms of (i) the
1996 Distribution Agreement or (ii) the Indemnity and Joint Defense Agreement,
the Tax Allocation Agreement, the Employee Benefits Agreement or any Ancillary
Agreement referred to in the 1996 Distribution Agreement, in each such case
without the prior written consent of IMS HEALTH.
(q) Cognizant Restricted Stock. At the time of the Distribution, the
Corporation shall contribute to IMS HEALTH any IMS HEALTH Common Shares received
by the Corporation as a result of the forfeiture of restricted Cognizant Common
Stock by employees of the Corporation in connection with the Distribution.
<PAGE>
18
(r) Other Transactions. On or prior to the Distribution Date, each
of the Corporation and IMS HEALTH shall consummate those other transactions in
connection with the Distribution that are contemplated by the ruling request
submissions by the Corporation to the Internal Revenue Service in respect of the
ruling granted on May 21, 1998, and not specifically referred to in
subparagraphs (a)-(q) above. After the Distribution Date, each of the
Corporation and IMS HEALTH will exercise good faith commercially reasonable
efforts to consummate as promptly as practicable all other transactions which
must be consummated in order fully to complete the Distribution and any of the
transactions contemplated hereby or by any of the Ancillary Agreements.
SECTION 2.2. Intercompany Accounts.
All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for hereunder or
under any Ancillary Agreement, including payables created or required hereby or
by any Ancillary Agreement), including, without limitation, in respect of any
cash balances, any cash balances representing deposited checks or drafts for
which only a provisional credit has been allowed or any cash held in any
centralized cash management system between any member of the IMS HEALTH Group,
on the one hand, and the Corporation or any member of the NMR Group, on the
other hand, which exist and are reflected in the accounting records of the
relevant parties as of ______ __, 1998 or which arise on or after ______ __,
1998 shall be paid or settled in the ordinary course of business in a manner
consistent with the payment or settlement of similar accounts arising from
transactions with third parties.
SECTION 2.3. Cash balances. In addition to any other obligations
hereunder or under any Ancillary Agreement or otherwise, on the Distribution
Date, the Corporation shall contribute to IMS HEALTH all cash in the
Corporation's accounts other than (i) cash required by the Corporation to
satisfy the obligations set forth on Schedule 2.3 and (ii) such additional cash
as is necessary for the Corporation's net debt (excluding the items referred to
in clause (i)) to be $300 million as of the Distribution Date.
SECTION 2.4. Assumption and Satisfaction of Liabilities. Except as
otherwise specifically set forth in any Ancillary Agreement, and subject to
Section 2.3 hereof, from and after the Effective Time, (i) the Corporation
shall, and shall cause each member of the NMR Group to, assume, pay, perform and
discharge all NMR Liabilities and (ii) IMS HEALTH shall, and shall cause each
member of the IMS HEALTH Group to, assume, pay, perform and discharge all IMS
HEALTH Liabilities. To the extent reasonably requested to do so by another party
hereto, each party hereto agrees to sign such documents, in a form reasonably
satisfactory to such party, as may be reasonably necessary to evidence the
assumption of any Liabilities hereunder.
SECTION 2.5. Resignations. (a) Subject to Section 2.5(b), the
Corporation and NMR shall cause all their employees to resign, effective as of
the Distribution Date, from all positions as officers or directors of any member
of the IMS HEALTH Group in which they serve, and IMS HEALTH shall cause all its
employees to resign, effective as of the Effective Time,
<PAGE>
19
from all positions as officers or directors of the Corporation or any members of
the NMR Group in which they serve.
(b) No person shall be required by any party hereto to resign from
any position or office with another party hereto if such person is disclosed in
the Information Statement as the person who is to hold such position or office
following the Distribution.
SECTION 2.6. Further Assurances. In case at any time after the
Effective Time any further action is reasonably necessary or desirable to carry
out the purposes of this Agreement and the Ancillary Agreements, the proper
officers of each party to this Agreement shall take all such necessary action.
Without limiting the foregoing, the Corporation and IMS HEALTH shall use their
commercially reasonable efforts promptly to obtain all consents and approvals,
to enter into all amendatory agreements and to make all filings and applications
that may be required for the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements, including, without limitation, all
applicable governmental and regulatory filings.
SECTION 2.7. Limited Representations or Warranties. Each of the
parties hereto agrees that no party hereto is, in this Agreement or in any other
agreement or document contemplated by this Agreement or otherwise, making any
representation or warranty whatsoever, as to title or value of Assets being
transferred. It is also agreed that, notwithstanding anything to the contrary
otherwise expressly provided in the relevant Conveyancing and Assumption
Instrument, all Assets either transferred to or retained by the parties, as the
case may be, shall be "as is, where is" and that (subject to Section 2.6) the
party to which such Assets are to be transferred hereunder shall bear the
economic and legal risk that such party's or any of the Subsidiaries' title to
any such Assets shall be other than good and marketable and free from
encumbrances. Similarly, each party hereto agrees that, except as otherwise
expressly provided in the relevant Conveyancing and Assumption Instrument, no
party hereto is representing or warranting in any way that the obtaining of any
consents or approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement
will satisfy the provisions of any or all applicable agreements or the
requirements of any or all applicable laws or judgments, it being agreed that
the party to which any Assets are transferred shall bear the economic and legal
risk that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with.
SECTION 2.8. Guarantees. (a) Except as otherwise specified in any
Ancillary Agreement, the Corporation and IMS HEALTH shall use their commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, the Corporation and any member of the NMR Group removed
as guarantor of or obligor for any IMS HEALTH Liability, including, without
limitation, in respect of those guarantees set forth on Schedule 2.8(a) to the
extent that they relate to IMS HEALTH Liabilities.
(b) Except as otherwise specified in any Ancillary Agreement, the
Corporation and IMS HEALTH shall use their commercially reasonable efforts to
have, on or prior to the Distribution Date, or as soon as practicable
thereafter, any member of the IMS HEALTH Group removed as guarantor of or
obligor for any NMR Liability, including, without limitation, in
<PAGE>
20
respect of those guarantees set forth on Schedule 2.8(b) to the extent that they
relate to NMR Liabilities.
(c) If the Corporation or IMS HEALTH is unable to obtain, or to
cause to be obtained, any such required removal as set forth in clauses (a) or
(b) of this Section 2.8, the applicable guarantor or obligor shall continue to
be bound as such and, unless not permitted by law or the terms thereof, the
relevant beneficiary shall or shall cause one of its Subsidiaries, as agent or
subcontractor for such guarantor or obligor to pay, perform and discharge fully
all the obligations or other liabilities of such guarantor or obligor thereunder
from and after the date hereof.
SECTION 2.9. Witness Services. At all times from and after the
Distribution Date, each of the Corporation and IMS HEALTH shall use their
commercially reasonable efforts to make available to the other, upon reasonable
written request, its and its Subsidiaries' officers, directors, employees and
agents as witnesses to the extent that (i) such persons may reasonably be
required in connection with the prosecution or defense of any Action in which
the requesting party may from time to time be involved and (ii) there is no
conflict in the Action between the requesting party and the Corporation or IMS
HEALTH as applicable. A party providing witness services to the other party
under this Section shall be entitled to receive from the recipient of such
services, upon the presentation of invoices therefor, payments for such amounts,
relating to disbursements and other out-of-pocket expenses (which shall be
deemed to exclude the costs of salaries and benefits of employees who are
witnesses), as may be reasonably incurred in providing such witness services.
SECTION 2.10. Certain Post-Distribution Transactions. (a)(i) The
Corporation shall comply and shall cause its Subsidiaries to comply with and
otherwise not take action inconsistent with each representation and statement
made to the Internal Revenue Service in connection with the request by the
Corporation for a ruling letter in respect of the Distribution as to certain tax
aspects of the Distribution and (ii) until two years after the Distribution
Date, the Corporation will maintain its status as a company engaged in the
active conduct of a trade or business, as defined in Section 355(b) of the Code.
(b)(i) IMS HEALTH shall comply and shall cause its Subsidiaries to
comply with and otherwise not take action inconsistent with each representation
and statement made to the Internal Revenue Service in connection with the
request by the Corporation for a ruling letter in respect of the Distribution as
to certain tax aspects of the Distribution and (ii) until two years after the
Distribution Date, IMS HEALTH will maintain its status as a company engaged in
the active conduct of a trade or business, as defined in Section 355(b) of the
Code.
(c) The Corporation agrees that until two years after the
Distribution Date, it will not (i) merge or consolidate with or into any other
corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all
or substantially all of its assets (within the meaning of Rev. Proc. 77-37, 1977
- - 2 C.B. 568) in a single transaction or series of related transactions, (iv)
redeem or otherwise repurchase any Cognizant Common Stock (other than as
described in Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (v)
take any other action or actions which in the aggregate would have the effect of
causing or permitting one or more persons to acquire directly
<PAGE>
21
or indirectly stock representing a 50 percent or greater interest (within the
meaning of Section 355(e) of the Code) in the Corporation, unless prior to
taking such action the Corporation has obtained (and provided to IMS HEALTH) a
written opinion of a law firm reasonably acceptable to IMS HEALTH, or a
supplemental ruling from the Internal Revenue Service, that such action or
actions will not result in (i) the Distribution failing to qualify under Section
355(a) of the Code or (ii) the IMS HEALTH Common Shares failing to qualify as
qualified property for purposes of Section 355(c)(2) of the Code by reason of
Section 355(e) of the Code.
(d) Notwithstanding anything to the contrary herein or in the Tax
Allocation Agreement, if the Corporation or IMS HEALTH (or any of their
respective Subsidiaries) fails to comply with any of its obligations under
Sections 2.10(a), 2.10(b) and 2.10(c) above or takes or fails to take any action
on or after the Distribution Date, and such failure to comply, action or
omission contributes to a determination that (i) the Distribution fails to
qualify under Section 355(a) of the Code or (ii) the IMS HEALTH Common Shares
fail to qualify as qualified property for purposes of Section 355(c)(2) of the
Code by reason of Section 355(e) of the Code, then such party shall indemnify
and hold harmless the other party and each member of the consolidated group of
which the other party is a member from and against any and all federal, state
and local taxes, including any interest, penalties or additions to tax, imposed
upon or incurred by such other party, any member of its group or any stockholder
of either party as a result of the failure of the Distribution to qualify under
Section 355(a) of the Code or the application of Section 355(e). The obligation
of the Corporation to indemnify IMS HEALTH pursuant to the preceding sentence
shall not be affected by the delivery of any legal opinion or supplemental
ruling under Section 2.10(c).
SECTION 2.11. Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers contemplated by this Article II shall not have been consummated on or
prior to the Distribution Date, the parties shall cooperate to effect such
transfers as promptly following the Distribution Date as shall be practicable.
Nothing herein shall be deemed to require the transfer of any Assets or the
assumption of any Liabilities which by their terms or operation of law cannot be
transferred; provided, however, that the parties hereto and their respective
Subsidiaries shall cooperate to seek to obtain any necessary consents or
approvals for the transfer of all Assets and Liabilities contemplated to be
transferred pursuant to this Article II. In the event that any such transfer of
Assets or Liabilities has not been consummated, from and after the Distribution
Date the party retaining such Asset or Liability shall hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto) or retain such Liability for the account of the party by
whom such Liability is to be assumed pursuant hereto, as the case may be, and
take such other action as may be reasonably requested by the party to whom such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, insofar as is reasonably possible, in
the same position as would have existed had such Asset or Liability been
transferred as contemplated hereby. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith. The parties
agree that, as of the Distribution Date, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all of the Assets,
together with all rights, powers and privileges incident thereto, and shall be
deemed to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities
<PAGE>
22
incident thereto, which such party is entitled to acquire or required to assume
pursuant to the terms of this Agreement.
SECTION 2.12. Conveyancing and Assumption Instruments. In connection
with the transfers of Assets and the assumptions of Liabilities contemplated by
this Agreement, the parties shall execute or cause to be executed by the
appropriate entities the Conveyancing and Assumption Instruments in
substantially the form contemplated hereby for transfers to be effected pursuant
to New York law or the laws of one of the other states of the United States or,
if not appropriate for a given transfer, and for transfers to be effected
pursuant to non-U.S. laws, in such other form as the parties shall reasonably
agree, including the transfer of real property with deeds as may be appropriate.
The transfer of capital stock shall be effected by means of delivery of stock
certificates and executed stock powers and notation on the stock record books of
the corporation or other legal entities involved, or by such other means as may
be required in any non-U.S. jurisdiction to transfer title to stock and, to the
extent required by applicable law, by notation on public registries.
SECTION 2.13. Ancillary Agreements. Prior to the Distribution Date,
each of the Corporation and IMS HEALTH shall enter into, and/or (where
applicable) shall cause members of the NMR Group or the IMS HEALTH Group, as
applicable, to enter into, the Ancillary Agreements and any other agreements in
respect of the Distribution reasonably necessary or appropriate in connection
with the transactions contemplated hereby and thereby.
SECTION 2.14. Corporate Names. (a) Except as otherwise specifically
provided in any Ancillary Agreement:
(i) on or prior to the Distribution Date, the Corporation
shall change its name to remove any reference to "Cognizant" therein;
(ii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, the Corporation will,
at its own expense, remove (or, if necessary, on an interim basis, cover
up) any and all exterior signs and other identifiers located on any of its
property or premises or on the property or premises used by it or its
Subsidiaries (except property or premises to be shared with IMS HEALTH or
its Subsidiaries after the Distribution) which refer or pertain to
Cognizant or which include the Cognizant name, logo or other trademark or
other intellectual property utilizing Cognizant;
(iii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, the Corporation will,
and will cause its Subsidiaries to, remove from all letterhead, envelopes,
invoices and other communications media of any kind, all references to
Cognizant, including the "Cognizant" name, logo and any other trademark or
other intellectual property utilizing Cognizant (except that the
Corporation shall not be required to take any such action with respect to
materials in the possession of customers), and neither the Corporation nor
its Subsidiaries shall use or display the "Cognizant" name, logo or other
trademarks or intellectual property utilizing Cognizant without the prior
written consent of IMS HEALTH;
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23
(iv) as soon as reasonably practicable after the Distribution
Date, but in any event within six months thereafter, the Corporation will
cause its Subsidiaries to change their corporate names to the extent
necessary to remove and eliminate any reference to Cognizant, including
the "Cognizant" name; provided, however, that notwithstanding the
foregoing requirements of this Section 2.14(a), if the Corporation has
exercised good faith efforts to comply with this clause (iv) but is
unable, due to regulatory or other circumstance beyond its control, to
effect a corporate name change in compliance with applicable law, then the
Corporation or its Subsidiary will not be deemed to be in breach hereof if
it continues to exercise good faith efforts to effectuate such name change
and does effectuate such name change within nine months after the
Distribution Date, and, in such circumstances, such party may continue to
include in exterior signs and other identifiers and in letterhead,
envelopes, invoices and other communications references to the name which
includes references to Cognizant, but only to the extent necessary to
identify such party and only until such party's corporate name can be
changed to remove and eliminate such references; and
(v) notwithstanding the foregoing clauses (i) through (iv),
nothing herein or in any Ancillary Agreement shall require the Corporation
to take any action to remove any reference to Cognizant, including the
"Cognizant" name, from any stock certificate relating to shares of
Cognizant Common Stock outstanding on or prior to the Effective Time;
provided that from and after the Effective Time, any newly issued stock
certificates representing Cognizant Common Stock (which at the Effective
Time will become NMR Common Stock) shall not have any reference to
Cognizant, including the "Cognizant" name.
(b) Except as otherwise specifically provided in any Ancillary
Agreement:
(i) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, IMS HEALTH will, at
its own expense, remove (or, if necessary, on an interim basis, cover up)
any and all exterior signs and other identifiers located on any of their
respective property or premises owned or used by them or their respective
Subsidiaries (except property or premises to be shared with the
Corporation or its Subsidiaries after the Distribution) which refer or
pertain to NMR or which include the "Nielsen Media Research" or "Nielsen"
name, logo or other trademark or other NMR intellectual property;
(ii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, IMS HEALTH will, and
will cause its respective Subsidiaries to, remove from all letterhead,
envelopes, invoices and other communications media of any kind, all
references to NMR, including the "Nielsen Media Research" or "Nielsen"
name, logo and any other trademark or other NMR intellectual property
(except that IMS HEALTH shall not be required to take any such action with
respect to materials in the possession of customers), and neither IMS
HEALTH nor any of its Subsidiaries shall use or display the "Nielsen Media
Research" or "Nielsen" name, logo or other trademarks or NMR intellectual
property without the prior written consent of the Corporation; and
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24
(iii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, IMS HEALTH will, and
will cause its Subsidiaries to, change their corporate names to the extent
necessary to remove and eliminate any reference to NMR, including the
"Nielsen Media Research" or "Nielsen" name; provided, however, that
notwithstanding the foregoing requirements of this Section 2.14(b), if IMS
HEALTH has exercised good faith efforts to comply with this clause (iii)
but is unable, due to regulatory or other circumstance beyond its control,
to effect a corporate name change in compliance with applicable law, then
IMS HEALTH or its Subsidiary will not be deemed to be in breach hereof if
it continues to exercise good faith efforts to effectuate such name change
and does effectuate such name change within nine months after the
Distribution Date, and, in such circumstances, such party may continue to
include in exterior signs and other identifiers and in letterhead,
envelopes, invoices and other communications references to the name which
includes references to NMR but only to the extent necessary to identify
such party and only until such party's corporate name can be changed to
remove and eliminate such references.
ARTICLE III. INDEMNIFICATION
SECTION 3.1. Indemnification by the Corporation. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, the Corporation shall indemnify, defend and hold harmless the IMS
HEALTH Indemnitees from and against any and all Indemnifiable Losses of the IMS
HEALTH Indemnitees arising out of, by reason of or otherwise in connection with
the NMR Liabilities or alleged NMR Liabilities, including any breach by the
Corporation of any provision of this Agreement or any Ancillary Agreement.
SECTION 3.2. Indemnification by IMS HEALTH. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, IMS HEALTH shall indemnify, defend and hold harmless the NMR
Indemnitees from and against any and all Indemnifiable Losses of the NMR
Indemnitees arising out of, by reason of or otherwise in connection with the IMS
HEALTH Liabilities or alleged IMS HEALTH Liabilities, including any breach by
IMS HEALTH of any provision of this Agreement or any Ancillary Agreement.
SECTION 3.3. Procedures for Indemnification.
(a) Third Party Claims. If a claim or demand is made against an NMR
Indemnitee or a IMS HEALTH Indemnitee (each, an "Indemnitee") by any person who
is not a party to this Agreement (a "Third Party Claim") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the party which is or may be required pursuant to
Section 3.1 or Section 3.2 hereof to make such indemnification (the
"Indemnifying Party") in writing, and in reasonable detail, of the Third Party
Claim promptly (and in any event within 15 business days) after receipt by such
Indemnitee of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure (except that the Indemnifying Party shall
not
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25
be liable for any expenses incurred during the period in which the Indemnitee
failed to give such notice). Thereafter, the Indemnitee shall deliver to the
Indemnifying Party, promptly (and in any event within five business days) after
the Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges in writing its obligation to indemnify the
Indemnitee therefor, to assume the defense thereof with counsel selected by the
Indemnifying Party; provided that such counsel is not reasonably objected to by
the Indemnitee. Should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party shall, within 30 days (or sooner if
the nature of the Third Party Claim so requires), notify the Indemnitee of its
intent to do so, and the Indemnifying Party shall thereafter not be liable to
the Indemnitee for legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided, that such
Indemnitee shall have the right to employ counsel to represent such Indemnitee
if, in such Indemnitee's reasonable judgment, a conflict of interest between
such Indemnitee and such Indemnifying Party exists in respect of such claim
which would make representation of both such parties by one counsel
inappropriate, and in such event the fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, subject to the proviso of the preceding sentence,
at its own expense, separate from the counsel employed by the Indemnifying
Party, it being understood that the Indemnifying Party shall control such
defense. The Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during the period
prior to the time the Indemnitee shall have given notice of the Third Party
Claim as provided above). If the Indemnifying Party so elects to assume the
defense of any Third Party Claim, all of the Indemnitees shall cooperate with
the Indemnifying Party in the defense or prosecution thereof, including by
providing or causing to be provided, Records and witnesses as soon as reasonably
practicable after receiving any request therefor from or on behalf of the
Indemnifying Party.
If the Indemnifying Party acknowledges in writing responsibility for
a Third Party Claim, then in no event will the Indemnitee admit any liability
with respect to, or settle, compromise or discharge, any Third Party Claim
without the Indemnifying Party's prior written consent; provided, however, that
the Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification obligation
hereunder with respect to such Third Party Claim and such settlement, compromise
or discharge would not otherwise adversely affect the Indemnifying Party. If the
Indemnifying Party acknowledges in writing liability for a Third Party Claim,
the Indemnitee will agree to any settlement, compromise or discharge of a Third
Party Claim that the Indemnifying Party may recommend and that by its terms
obligates the Indemnifying Party to pay the full amount of the liability in
connection with such Third Party Claim and releases the Indemnitee completely in
connection with such Third Party Claim and that would not otherwise adversely
affect the Indemnitee; provided, however, that the Indemnitee may refuse to
agree to any such settlement, compromise or discharge if the Indemnitee agrees
that the Indemnifying Party's indemnification obligation with respect to such
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26
Third Party Claim shall not exceed the amount that would be required to be paid
by or on behalf of the Indemnifying Party in connection with such settlement,
compromise or discharge. If an Indemnifying Party elects not to assume the
defense of a Third Party Claim, or fails to notify an Indemnitee of its election
to do so as provided herein, such Indemnitee may compromise, settle or defend
such Third Party Claim.
Notwithstanding the foregoing, the Indemnifying Party shall not be
entitled to assume the defense of any Third Party Claim (and shall be liable for
the fees and expenses of counsel incurred by the Indemnitee in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnitee
which the Indemnitee reasonably determines, after conferring with its counsel,
cannot be separated from any related claim for money damages. If such equitable
relief or other relief portion of the Third Party Claim can be so separated from
that for money damages, the Indemnifying Party shall be entitled to assume the
defense of the portion relating to money damages.
(b) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(c) The remedies provided in this Article III shall be cumulative
and shall not preclude assertion by any Indemnitee of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
SECTION 3.4. Indemnification Payments. Indemnification required by
this Article III shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred.
ARTICLE IV. ACCESS TO INFORMATION
SECTION 4.1. Provision of Corporate Records.
(a) Other than in circumstances in which indemnification is sought
pursuant to Article III (in which event the provisions of such Article will
govern), after the Distribution Date, upon the prior written request by IMS
HEALTH for specific and identified agreements, documents, books, records or
files (collectively, "Records") which relate to (x) IMS HEALTH or the conduct of
the IMS HEALTH Business up to the Effective Time, or (y) any Ancillary Agreement
to which the Corporation and IMS HEALTH are parties, as applicable, the
Corporation shall arrange, as soon as reasonably practicable following the
receipt of such request, for the provision of appropriate copies of such Records
(or the originals thereof if the party
<PAGE>
27
making the request has a reasonable need for such originals) in the possession
or control of the Corporation or any of its Subsidiaries, but only to the extent
such items are not already in the possession or control of the requesting party.
(b) Other than in circumstances in which indemnification is sought
pursuant to Article III (in which event the provisions of such Article will
govern), after the Distribution Date, upon the prior written request by the
Corporation for specific and identified Records which relate to (x) the
Corporation, NMR or the conduct of the NMR Business up to the Effective Time, or
(y) any Ancillary Agreement to which IMS HEALTH and the Corporation are parties,
as applicable, IMS HEALTH shall arrange, as soon as reasonably practicable
following the receipt of such request, for the provision of appropriate copies
of such Records (or the originals thereof if the party making the request has a
reasonable need for such originals) in the possession or control of IMS HEALTH
or any of its Subsidiaries, but only to the extent such items are not already in
the possession or control of the requesting party.
SECTION 4.2. Access to Information. Other than in circumstances in
which indemnification is sought pursuant to Article III (in which event the
provisions of such Article will govern), from and after the Distribution Date,
each of the Corporation and IMS HEALTH shall afford to the other and its
authorized accountants, counsel and other designated representatives reasonable
access during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, books and records of such party and its Subsidiaries insofar as such
access is reasonably required by the other party and relates to (x) such other
party or the conduct of its business prior to the Effective Time or (y) any
Ancillary Agreement to which each of the party requesting such access and the
party requested to grant such access are parties.
SECTION 4.3. Reimbursement; Other Matters. Except to the extent
otherwise contemplated by any Ancillary Agreement, a party providing Records or
access to information to the other party under this Article IV shall be entitled
to receive from the recipient, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses, as may be reasonably incurred in providing such Records
or access to information.
SECTION 4.4. Confidentiality. Each of (i) the Corporation and its
Subsidiaries and (ii) IMS HEALTH and its Subsidiaries shall not use or permit
the use of (without the prior written consent of the other) and shall keep, and
shall cause its consultants and advisors to keep, confidential all information
concerning the other parties in its possession, its custody or under its control
(except to the extent that (A) such information has been in the public domain
through no fault of such party or (B) such information has been later lawfully
acquired from other sources by such party or (C) this Agreement or any other
Ancillary Agreement or any other agreement entered into pursuant hereto permits
the use or disclosure of such information) to the extent such information (w)
relates to or was acquired during the period up to the Effective Time, (x)
relates to any Ancillary Agreement, (y) is obtained in the course of performing
services for the other party pursuant to any Ancillary Agreement, or (z) is
based upon or is derived from information described in the preceding clauses
(w), (x) or (y), and each party shall not (without the prior written consent of
the other) otherwise release or disclose such information to any other person,
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28
except such party's auditors and attorneys, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure.
SECTION 4.5. Privileged Matters. The parties hereto recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of each
of the Corporation, the members of the NMR Group and the members of the IMS
HEALTH Group, and that each of the Corporation, the members of the NMR Group and
the members of the IMS HEALTH Group should be deemed to be the client for the
purposes of asserting all privileges which may be asserted under applicable law.
To allocate the interests of each party in the information as to which any party
is entitled to assert a privilege, the parties agree as follows:
(a) The Corporation shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the NMR Business, whether or not the privileged
information is in the possession of or under the control of the Corporation or
IMS HEALTH. The Corporation shall also be entitled, in perpetuity, to control
the assertion or waiver of all privileges in connection with privileged
information that relates solely to the subject matter of any claims constituting
NMR Liabilities, now pending or which may be asserted in the future, in any
lawsuits or other proceedings initiated against or by the Corporation, whether
or not the privileged information is in the possession of or under the control
of the Corporation or IMS HEALTH.
(b) IMS HEALTH shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the IMS HEALTH Business, whether or not the privileged
information is in the possession of or under the control of the Corporation or
IMS HEALTH. IMS HEALTH shall also be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the subject matter of any claims constituting IMS HEALTH
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by IMS HEALTH whether or not the
privileged information is in the possession of or under the control of the
Corporation or IMS HEALTH.
(c) The parties hereto agree that they shall have a shared
privilege, with equal right to assert or waive, subject to the restrictions in
this Section 4.5, with respect to all privileges not allocated pursuant to the
terms of Sections 4.5(a) and (b). All privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both the
Corporation and IMS HEALTH in respect of which both parties retain any
responsibility or liability under this Agreement, shall be subject to a shared
privilege among them.
(d) No party hereto may waive any privilege which could be asserted
under any applicable law, and in which any other party hereto has a shared
privilege, without the consent of the other party, except to the extent
reasonably required in connection with any litigation with third-parties or as
provided in subsection (e) below. Consent shall be in writing, or shall be
<PAGE>
29
deemed to be granted unless written objection is made within twenty (20) days
after notice upon the other party requesting such consent.
(e) In the event of any litigation or dispute between or among any
of the parties hereto, any party and a Subsidiary of another party hereto, or a
Subsidiary of one party hereto and a Subsidiary of another party hereto, either
such party may waive a privilege in which the other party has a shared
privilege, without obtaining the consent of the other party, provided that such
waiver of a shared privilege shall be effective only as to the use of
information with respect to the litigation or dispute between the parties and/or
their Subsidiaries, and shall not operate as a waiver of the shared privilege
with respect to third parties.
(f) If a dispute arises between or among the parties hereto or their
respective Subsidiaries regarding whether a privilege should be waived to
protect or advance the interest of any party, each party agrees that it shall
negotiate in good faith, shall endeavor to minimize any prejudice to the rights
of the other parties, and shall not unreasonably withhold consent to any request
for waiver by another party. Each party hereto specifically agrees that it will
not withhold consent to waiver for any purpose except to protect its own
legitimate interests.
(g) Upon receipt by any party hereto or by any Subsidiary thereof of
any subpoena, discovery or other request which arguably calls for the production
or disclosure of information subject to a shared privilege or as to which
another party has the sole right hereunder to assert a privilege, or if any
party obtains knowledge that any of its or any of its Subsidiaries' current or
former directors, officers, agents or employees have received any subpoena,
discovery or other requests which arguably calls for the production or
disclosure of such privileged information, such party shall promptly notify the
other party or parties of the existence of the request and shall provide the
other party or parties a reasonable opportunity to review the information and to
assert any rights it or they may have under this Section 4.5 or otherwise to
prevent the production or disclosure of such privileged information.
(h) The transfer of all Records and other information pursuant to
this Agreement is made in reliance on the agreement of the Corporation and IMS
HEALTH, as set forth in Sections 4.4 and 4.5, to maintain the confidentiality of
privileged information and to assert and maintain all applicable privileges. The
access to information being granted pursuant to Sections 4.1 and 4.2 hereof, the
agreement to provide witnesses and individuals pursuant to Sections 2.9 and 3.3
hereof, the furnishing of notices and documents and other cooperative efforts
contemplated by Section 3.3 hereof, and the transfer of privileged information
between and among the parties and their respective Subsidiaries pursuant to this
Agreement shall not be deemed a waiver of any privilege that has been or may be
asserted under this Agreement or otherwise.
SECTION 4.6. Ownership of Information. Any information owned by one
party or any of its Subsidiaries that is provided to a requesting party pursuant
to Article III or this Article IV shall be deemed to remain the property of the
providing party. Unless specifically set forth herein, nothing contained in this
Agreement shall be construed as granting or conferring rights of license or
otherwise in any such information.
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30
SECTION 4.7. Limitation of Liability. (a) No party shall have any
liability to any other party in the event that any information exchanged or
provided pursuant to this Agreement which is an estimate or forecast, or which
is based on an estimate or forecast, is found to be inaccurate.
(b) Other than in connection with Section 2.2, no party or any
Subsidiary thereof shall have any liability or claim against any other party or
any Subsidiary of any other party based upon, arising out of or resulting from
any agreement, arrangement, course of dealing or understanding existing on or
prior to the Distribution Date (other than this Agreement or any Ancillary
Agreement or any agreement entered into in connection herewith or in order to
consummate the transactions contemplated hereby or thereby), unless such
agreement, arrangement, course of dealing or understanding is listed on Schedule
4.7(b) hereto, and any such liability or claim, whether or not in writing, which
is not reflected on such Schedule, is hereby irrevocably cancelled, released and
waived.
SECTION 4.8. Other Agreements Providing for Exchange of Information.
The rights and obligations granted under this Article IV are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of information set forth in any Ancillary
Agreement.
ARTICLE V. ADMINISTRATIVE SERVICES
SECTION 5.1. Performance of Services. Beginning on the Distribution
Date, each party will provide, or cause one or more of its Subsidiaries to
provide, to the other party and its Subsidiaries such services on such terms as
may be set forth in the Transition Services Agreement. Except as otherwise set
forth in the Transition Services Agreement or any Schedule thereto, the party
that is to provide the services (the "Provider") will use (and will cause its
Subsidiaries to use) commercially reasonable efforts to provide such services to
the other party (the "Recipient") and its Subsidiaries in a satisfactory and
timely manner and as further specified in such Transition Services Agreement.
SECTION 5.2. Independence. Unless otherwise agreed in writing, all
employees and representatives of the Provider providing the scheduled services
to the Recipient will be deemed for purposes of all compensation and employee
benefits matters to be employees or representatives of the Provider and not
employees or representatives of the Recipient. In performing such services, such
employees and representatives will be under the direction, control and
supervision of the Provider (and not the Recipient) and the Provider will have
the sole right to exercise all authority with respect to the employment
(including, without limitation, termination of employment), assignment and
compensation of such employees and representatives.
SECTION 5.3. Non-exclusivity. Nothing in this Agreement precludes
any party from obtaining, in whole or in part, services of any nature that may
be obtainable from the other party from its own employees or from providers
other than the other party.
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31
ARTICLE VI. DISPUTE RESOLUTION
SECTION 6.1. Negotiation. In the event of a controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement or the transactions
contemplated hereby, including, without limitation, any claim based on contract,
tort, statute or constitution (but excluding any controversy, dispute or claim
arising out of any agreement relating to the use or lease of real property if
any third party is a party to such controversy, dispute or claim) (collectively,
"Agreement Disputes"), the general counsels of the parties shall negotiate in
good faith for a reasonable period of time to settle such Agreement Dispute,
provided such reasonable period shall not, unless otherwise agreed by the
parties in writing, exceed 30 days from the time the parties began such
negotiations; provided further that in the event of any arbitration in
accordance with Section 6.2 hereof, the parties shall not assert the defenses of
statute of limitations and laches arising for the period beginning after the
date the parties began negotiations hereunder, and any contractual time period
or deadline under this Agreement or any Ancillary Agreement to which such
Agreement Dispute relates shall not be deemed to have passed until such
Agreement Dispute has been resolved.
SECTION 6.2. Arbitration. If after such reasonable period such
general counsels are unable to settle such Agreement Dispute (and in any event,
unless otherwise agreed in writing by the parties, after 60 days have elapsed
from the time the parties began such negotiations), such Agreement Dispute shall
be determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing International Arbitration
Rules of the American Arbitration Association (the "Rules"). In any dispute
between the parties hereto, the number of arbitrators shall be one. Any judgment
or award rendered by the arbitrator shall be final, binding and nonappealable
(except upon grounds specified in 9 U.S.C. ss.10(a) as in effect on the date
hereof). If the parties are unable to agree on the arbitrator, the arbitrator
shall be selected in accordance with the Rules; provided that the arbitrator
shall be a U.S. national. Any controversy concerning whether an Agreement
Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived,
whether an assignee of this Agreement is bound to arbitrate, or as to the
interpretation of enforceability of this Article VI shall be determined by the
arbitrator. In resolving any dispute, the parties intend that the arbitrator
apply the substantive laws of the State of New York, without regard to the
choice of law principles thereof. The parties intend that the provisions to
arbitrate set forth herein be valid, enforceable and irrevocable. The parties
agree to comply with any award made in any such arbitration proceeding that has
become final in accordance with the Rules and agree to enforcement of or entry
of judgment upon such award, by any court of competent jurisdiction, including
(a) the Supreme Court of the State of New York, New York County, or (b) the
United States District Court for the Southern District of New York, in
accordance with Section 8.17 hereof. The arbitrator shall be entitled, if
appropriate, to award any remedy in such proceedings, including, without
limitation, monetary damages, specific performance and all other forms of legal
and equitable relief; provided, however, the arbitrator shall not be entitled to
award punitive damages. Without limiting the provisions of the Rules, unless
otherwise agreed in writing by or among the parties or permitted by this
Agreement, the parties shall keep confidential all matters relating to the
arbitration or the award, provided such matters may be disclosed (i) to the
extent reasonably
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32
necessary in any proceeding brought to enforce the award or for entry of a
judgment upon the award and (ii) to the extent otherwise required by law.
Notwithstanding Article 32 of the Rules, the party other than the prevailing
party in the arbitration shall be responsible for all of the costs of the
arbitration, including legal fees and other costs specified by such Article 32.
Nothing contained herein is intended to or shall be construed to prevent any
party, in accordance with Article 22(3) of the Rules or otherwise, from applying
to any court of competent jurisdiction for interim measures or other provisional
relief in connection with the subject matter of any Agreement Disputes.
SECTION 6.3. Continuity of Service and Performance. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article VI with
respect to all matters not subject to such dispute, controversy or claim.
ARTICLE VII. INSURANCE
SECTION 7.1. Policies and Rights Included Within Assets; Assignment
of Policies. (a) Policy Rights. The IMS HEALTH Assets shall include (i) any and
all rights of an insured party under each of the Shared Policies, subject to the
terms of such Shared Policies and any limitations or obligations of IMS HEALTH
contemplated by this Article VII, specifically including rights of indemnity and
the right to be defended by or at the expense of the insurer, with respect to
all claims, suits, actions, proceedings, injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred prior to the Distribution
Date by any party in or in connection with the conduct of the IMS HEALTH
Business or, to the extent any claim is made against IMS HEALTH or any of its
Subsidiaries, the conduct of the NMR Business, and which claims, suits, actions,
proceedings, injuries, losses, liabilities, damages and expenses may arise out
of an insured or insurable occurrence under one or more of such Shared Policies.
(b) Assignment of Shared Policies. Subject to the terms and
conditions hereof, the Corporation hereby assigns, transfers and conveys to IMS
HEALTH all of the Corporation's right, title and interest in and to any and all
of the Shared Policies, including, without limitation, the right of indemnity,
the right to be defended by or at the expense of the insurer and the right to
any applicable Insurance Proceeds thereunder; and the Corporation and IMS HEALTH
shall use their commercially reasonable efforts to obtain any required consents
of insurers to the assignment contemplated by this paragraph.
SECTION 7.2. Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person shall assert a claim against IMS HEALTH or any of
its Subsidiaries (including, without limitation, where IMS HEALTH or its
Subsidiaries are joint defendants with other persons) with respect to any claim,
suit, action, proceeding, injury, loss, liability, damage or expense incurred or
claimed to have been incurred prior to the Distribution Date in or in connection
with the conduct of the IMS HEALTH Business or, to the extent any claim is made
against IMS HEALTH or any of its Subsidiaries (including, without limitation,
where IMS HEALTH or its Subsidiaries are joint defendants with other persons),
in connection with the
<PAGE>
33
conduct of the NMR Business, and which claim, suit, action, proceeding, injury,
loss, liability, damage or expense may arise out of an insured or insurable
occurrence under one or more of the Shared Policies, the Corporation shall, at
the time such claim is asserted, to the extent any such Policy may require that
Insurance Proceeds thereunder be collected directly by the named insured or
anyone other than the party against whom the Insured Claim is asserted, be
deemed to designate, without need of further documentation, IMS HEALTH as the
agent and attorney-in-fact to assert and to collect any related Insurance
Proceeds under such Shared Policy.
SECTION 7.3. Administration; Other Matters. (a) Administration. From
and after the Distribution Date, IMS HEALTH shall be responsible for (i)
Insurance Administration of the Shared Policies and (ii) Claims Administration
under such Shared Policies with respect to NMR Liabilities and IMS HEALTH
Liabilities; provided that the assumption of such responsibilities by IMS HEALTH
is in no way intended to limit, inhibit or preclude any right to insurance
coverage for any Insured Claim of a named insured under such Policies as
contemplated by the terms of this Agreement; provided further that IMS HEALTH's
assumption of the administrative responsibilities for the Shared Policies shall
not relieve the party submitting any Insured Claim of the primary responsibility
for reporting such Insured Claim accurately, completely and in a timely manner
or of such party's authority to settle any such Insured Claim within any period
permitted or required by the relevant Policy; and provided further that all
direct or indirect communication with insurers relating to the Shared Policies
shall be conducted by IMS HEALTH. IMS HEALTH may discharge its administrative
responsibilities under this Section 7.3 by contracting for the provision of
services by independent parties. Each of the parties hereto shall administer and
pay any costs relating to defending its respective Insured Claims under Shared
Policies to the extent such defense costs are not covered under such Policies
and shall be responsible for obtaining or reviewing the appropriateness of
releases upon settlement of its respective Insured Claims under Shared Policies.
The disbursements, out-of-pocket expenses and direct and indirect costs of
employees or agents of IMS HEALTH relating to Claims Administration and
Insurance Administration contemplated by this Section 7.3(a) shall be treated in
accordance with the terms of the Transition Services Agreement, if still in
effect with respect to insurance and risk management, or, if the Transition
Services Agreement shall no longer be in effect with respect to insurance and
risk management, then each of the Corporation and IMS HEALTH shall be
responsible for its own Claims Administration and Insurance Administration.
(b) Exceeding Policy Limits. Except as set forth in this Section
7.3(b), the Corporation and IMS HEALTH shall not be liable to one another for
claims not reimbursed by insurers for any reason not within the control of the
Corporation or IMS HEALTH, as the case may be, including, without limitation,
coinsurance provisions, deductibles, quota share deductibles, self-insured
retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy
limitations or restrictions, any coverage disputes, any failure to timely claim
by the Corporation or IMS HEALTH or any defect in such claim or its processing,
provided that IMS HEALTH shall be responsible for the amount of the difference,
if any, between the deductible set forth in any Shared Policy and the deductible
allocable to the Corporation as set forth in Schedule 7.3(b) hereto.
<PAGE>
34
(c) Allocation of Insurance Proceeds. Insurance Proceeds received
with respect to claims, costs and expenses under the Shared Policies shall be
paid to IMS HEALTH, which shall thereafter administer the Shared Policies by
paying the Insurance Proceeds, as appropriate, to the Corporation with respect
to NMR Liabilities and to IMS HEALTH with respect to IMS HEALTH Liabilities.
Payment of the allocable portions of indemnity costs of Insurance Proceeds
resulting from such Policies will be made by IMS HEALTH to the appropriate party
upon receipt from the insurance carrier. In the event that the aggregate limits
on any Shared Policies are exceeded by the aggregate of outstanding Insured
Claims by both of the parties hereto, the parties agree to allocate the
Insurance Proceeds received thereunder based upon their respective percentage of
the total of their bona fide claims which were covered under such Shared Policy
(their "allocable portion of Insurance Proceeds"), and any party who has
received Insurance Proceeds in excess of such party's allocable portion of
Insurance Proceeds shall pay to the other party the appropriate amount so that
each party will have received its allocable portion of Insurance Proceeds
pursuant hereto. Each of the parties agrees to use commercially reasonable
efforts to maximize available coverage under those Shared Policies applicable to
it, and to take all commercially reasonable steps to recover from all other
responsible parties in respect of an Insured Claim to the extent coverage limits
under a Shared Policy have been exceeded or would be exceeded as a result of
such Insured Claim.
(d) Allocation of Deductibles. In the event that both parties have
bona fide claims under any Shared Policy for which a deductible is payable, the
parties agree that the aggregate amount of the deductible paid shall be borne by
the parties in the same proportion which the Insurance Proceeds received by each
such party bears to the total Insurance Proceeds received under the applicable
Shared Policy (their "allocable share of the deductible"), and any party who has
paid more than such share of the deductible shall be entitled to receive from
the other party an appropriate amount so that each party has borne its allocable
share of the deductible pursuant hereto. For purposes of this Section 7.3(d),
the amount of the relevant deductible under any Shared Policy shall be that set
forth in Schedule 7.3(b) hereto.
(e) Effective as of the Distribution Date, each of IMS HEALTH and
the Corporation shall be responsible for its applicable deductible for workers'
compensation, general liability and automobile liability claims as set forth in
Schedule 7.3(e).
SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense. In
the event that Insured Claims of both of the parties hereto exist relating to
the same occurrence, the parties shall jointly defend and waive any conflict of
interest necessary to the conduct of the joint defense. Nothing in this Article
VII shall be construed to limit or otherwise alter in any way the obligations of
the parties to this Agreement, including those created by this Agreement, by
operation of law or otherwise.
SECTION 7.5. Cooperation. The parties agree to use their
commercially reasonable efforts to cooperate with respect to the various
insurance matters contemplated by this Agreement.
<PAGE>
35
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. In the event of any inconsistency
between this Agreement and any Schedule hereto, the Schedule shall prevail.
Other than Section 2.1(j), Section 2.7, Section 4.5 and Article VI, which shall
prevail over any inconsistent or conflicting provisions in any Ancillary
Agreement, notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of any Ancillary Agreement,
such Ancillary Agreement shall control.
SECTION 8.2. Ancillary Agreements. Subject to the last sentence of
Section 8.1, this Agreement is not intended to address, and should not be
interpreted to address, the matters specifically and expressly covered by the
Ancillary Agreements.
SECTION 8.3. 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 such counterparts have been signed
by each of the parties and delivered to the other parties.
SECTION 8.4. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
SECTION 8.5. Expenses. Except as set forth on Schedule 8.5 or as
otherwise set forth in this Agreement or any Ancillary Agreement, all costs and
expenses incurred and for which invoices have been submitted on or prior to the
Distribution Date in connection with the preparation, execution, delivery and
required implementation of this Agreement and any Ancillary Agreement, the
Information Statement (including any registration statement on Form 10 of which
such Information Statement may be a part) and the Distribution and the
consummation of the transactions contemplated thereby shall be charged to and
paid by the Corporation. Except as set forth on Schedule 8.5 or as otherwise set
forth in this Agreement or any Ancillary Agreement, all costs and expenses
incurred or for which invoices are submitted after the Distribution Date in
connection with the required implementation of this Agreement or any Ancillary
Agreement, the consummation of the Distribution or the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement shall be
charged to and paid by IMS HEALTH. Except as set forth on Schedule 8.5 or as
otherwise set forth in this Agreement or any Ancillary Agreement, each party
shall bear its own costs and expenses incurred after the Distribution Date. Any
amount or expense to be paid or reimbursed by any party hereto to any other
party hereto shall be so paid or reimbursed promptly after the existence and
amount of such obligation is determined and demand therefor is made.
SECTION 8.6. Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt
<PAGE>
36
requested) or sent by any means of electronic message transmission with delivery
confirmed (by voice or otherwise) to the parties at the following addresses (or
at such other addresses for a party as shall be specified by like notice) and
will be deemed given on the date on which such notice is received:
To the Corporation:
Nielsen Media Research, Inc.
299 Park Avenue
New York, NY 10171
Telecopy:
Attn: Chief Legal Officer
To IMS HEALTH:
IMS HEALTH Incorporated
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
Attn: General Counsel
SECTION 8.7. Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 8.8. Amendments. Subject to the terms of Section 8.11
hereof, this Agreement may not be modified or amended except by an agreement in
writing signed by each of the parties hereto.
SECTION 8.9. Assignment. (a) This Agreement shall not be assignable,
in whole or in part, directly or indirectly, by any party hereto without the
prior written consent of the other parties hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
(b) The Corporation will not distribute to its stockholders any
interest in any NMR Business Entity, by way of a spin-off distribution,
split-off or exchange of interests in a NMR Business Entity for any interest in
the Corporation held by NMR stockholders, or any similar transaction or
transactions, unless the distributed NMR Business Entity undertakes to IMS
HEALTH to be jointly and severally liable for all NMR Liabilities hereunder.
(c) IMS HEALTH will not distribute to its stockholders any interest
in any IMS HEALTH Business Entity, by way of a spin-off distribution, split-off
or exchange of interests in a IMS HEALTH Business Entity for any interest in IMS
HEALTH held by IMS HEALTH stockholders, or any similar transaction or
transactions, unless the distributed IMS HEALTH
<PAGE>
37
Business Entity undertakes to the Corporation to be jointly and severally liable
for all IMS HEALTH Liabilities hereunder.
SECTION 8.10. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
SECTION 8.11. Termination. This Agreement (including, without
limitation, Article III hereof) may be terminated and the Distribution may be
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of the Corporation without the approval of IMS HEALTH or the
shareholders of the Corporation. In the event of such termination, no party
shall have any liability of any kind to any other party or any other person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the parties; provided, however, that Article III
shall not be terminated or amended after the Distribution in respect of the
third party beneficiaries thereto without the consent of such persons.
SECTION 8.12. Subsidiaries. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party or by any entity that is contemplated to be a Subsidiary of such
party on and after the Distribution Date.
SECTION 8.13. Third Party Beneficiaries. Except as provided in
Article III relating to Indemnitees, this Agreement is solely for the benefit of
the parties hereto and their respective Subsidiaries and Affiliates and should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.14. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION 8.15. Exhibits and Schedules. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
SECTION 8.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 8.17. Consent to Jurisdiction. Without limiting the
provisions of Article VI hereof, each of the parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
<PAGE>
38
parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the parties further agrees that service of any process, summons,
notice or document by U.S. registered mail to such party's respective address
set forth above shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 8.17. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
SECTION 8.18. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
<PAGE>
39
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COGNIZANT CORPORATION
By:
--------------------------------
Name:
Title:
IMS HEALTH INCORPORATED
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 2.1(m)
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
June ___, 1998
Nancy Henry, Esq.
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, NJ 07974
Earl Doppelt, Esq.
ACNielsen Corporation
177 Broad Street
Stamford, CT 06901
Dear Ms. Henry and Mr. Doppelt:
Reference is made to the Distribution Agreement (the "1996 Distribution
Agreement"), dated as of October 28, 1996, among Cognizant Corporation
("Cognizant"), The Dun & Bradstreet Corporation ("D&B") and ACNielsen
Corporation ("ACNielsen"). Cognizant has announced its intention to separate
into two separate companies through a distribution (the "IMS HEALTH
Distribution") to its stockholders of all of the shares of common stock of its
subsidiary IMS Health Incorporated ("IMS HEALTH"). In Section 8.9(c) of the 1996
Distribution Agreement, Cognizant agreed not to make a distribution such as the
IMS HEALTH Distribution unless it caused the distributed entity to undertake to
both D&B and ACNielsen to be jointly and severally liable for all Cognizant
Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in
accordance with Section 8.9(c) of the 1996 Distribution Agreement and intending
to be legally bound hereby, from and after the effective time of the IMS HEALTH
Distribution, IMS HEALTH undertakes to each of D&B and ACNielsen to be jointly
and severally liable with Cognizant for all Cognizant Liabilities under the 1996
Distribution Agreement.
Very truly yours,
IMS HEALTH INCORPORATED
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 10.2
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT is dated as of June __, 1998, between
COGNIZANT CORPORATION, a Delaware corporation (the "Corporation") and IMS HEALTH
INCORPORATED, a Delaware corporation ("IMS HEALTH") (collectively, the
"Parties").
WHEREAS, the Corporation acting through its direct and indirect
subsidiaries, currently conducts a number of businesses, including, without
limitation, providing television audience measurement services (the "Nielsen
Media Research Business");
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $0.01 per share, of the Corporation (the
"Cognizant Common Stock"), as well as of the Corporation and its businesses, to
reorganize the Corporation to separate from the Corporation all businesses
currently conducted by the Corporation other than the Nielsen Media Research
Business and to cause such businesses to be owned and conducted, directly or
indirectly, by IMS HEALTH;
WHEREAS, in order to effect the separation, the Board of Directors
of the Corporation has determined that it is appropriate, desirable and in the
best interests of the holders of Cognizant Common Stock, as well as of the
Corporation and its businesses, for the Corporation (i) to take certain steps to
reorganize the Corporation's Subsidiaries (as defined herein) and businesses,
including prior to the Distribution (as defined herein) merging I.M.S.
International, Inc. and IMS America, Inc. with and into IMS HEALTH and (ii) upon
the completion of such reorganization to distribute to the holders of the
Cognizant Common Stock all the outstanding shares of common stock of IMS HEALTH
(the "IMS HEALTH Common Shares"), together with the associated Rights;
WHEREAS, as of the date hereof, the Corporation is the common parent
of an affiliated group of domestic corporations within the meaning of Section
1504(a) of the Code (as defined herein), including members of the IMS HEALTH
Group (as defined herein), and the members of the affiliated group have
heretofore joined in filing consolidated federal Income Tax Returns (as defined
herein);
WHEREAS, as a result of the Distribution, the IMS HEALTH Group will
not be included in the consolidated federal Income Tax Return of the Corporation
for the portion of the year following the Distribution and in future years; and
WHEREAS, the Corporation and IMS HEALTH desire to allocate the Tax
(as defined herein) burdens and benefits of transactions which occurred on or
prior to the Distribution Date (as defined herein) and to provide for certain
other Tax matters, including the assignment of responsibility for the
preparation
<PAGE>
2
and filing of Tax Returns (as defined herein), the payment of Taxes, and the
prosecution and defense of any Tax controversies.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the Parties hereby agree
as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1. General. Capitalized terms used in this Agreement and
not defined herein shall have the meanings that such terms have in the
Distribution Agreement. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any successor
legislation.
(b) "Combined Returns" shall mean all state Income Tax Returns with
respect to which the Corporation files on a combined or unitary basis with some
or all of its Subsidiaries for taxable periods beginning November 1, 1996,
January 1, 1997 and January 1, 1998.
(c) "Consolidated Returns" shall mean all consolidated federal
Income Tax Returns of the affiliated group of which the Corporation is the
common parent for taxable periods beginning November 1, 1996, January 1, 1997
and January 1, 1998.
(d) "Controlled Entity" shall mean any corporation, partnership or
other entity of which another entity (i) owns, directly or indirectly, ownership
interests sufficient to elect a majority of the Board of Directors (or persons
performing similar functions) (irrespective of whether at the time any other
class or classes of ownership interests of such corporation, partnership or
other entity shall or might have such voting power upon the occurrence of any
contingency) or (ii) is a general partner or an entity performing similar
functions (e.g., a trustee).
(e) "D&B Tax Allocation Agreement" shall mean the Tax Allocation
Agreement dated October 28, 1996 among The Dun & Bradstreet Corporation, the
Corporation and ACNielsen Corporation.
(f) "Deferred Compensation Deduction" shall mean a deduction with
respect to compensation payments and/or the exercise of stock options in IMS
HEALTH by any former employee of the Pre-Distribution Cognizant Group if such
deduction is disallowed for any member of the IMS HEALTH Group and may be
claimed by any member of the NMR Group.
(g) "Distribution" shall mean the distribution on the Distribution
Date to holders of record of shares of Cognizant
<PAGE>
3
Common Stock as of the Distribution Record Date of the IMS HEALTH Common Shares
owned by the Corporation on the basis of one IMS HEALTH Common Share for each
outstanding share of Cognizant Common Stock.
(h) "Distribution Agreement" shall mean the distribution agreement,
dated as of June __, 1998, between the Corporation and IMS HEALTH.
(i) "Distribution Date" shall mean June 30, 1998.
(j) "Final Determination" shall mean the final resolution of
liability for any Tax for any taxable period, including any related interest or
penalties, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order by any court of competent jurisdiction; (ii) a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreement under the laws of other jurisdictions which
resolves the entire Tax liability for any taxable period; (iii) any allowance of
a refund or credit in respect of an overpayment of Tax, but only after the
expiration of all periods during which such refund may be recovered by the
jurisdiction imposing the Tax; or (iv) any other final disposition, including by
reason of the expiration of the applicable statute of limitations.
(k) "Franchise Tax Returns" shall mean all franchise Tax Returns of
the Pre-Distribution Cognizant Group or any member thereof for taxable periods
beginning November 1, 1996, January 1, 1997, January 1, 1998 and, solely for
purposes of Sections 2.1(a) and 2.2(a), on or the day after the Distribution
Date.
(l) "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
(m) "IMS HEALTH Business" shall mean each and every business
conducted at any time by the Corporation or any Subsidiary of the Corporation
prior to the Effective Time, including, without limitation, (i) providing
information and decision support services to the pharmaceutical and healthcare
industries (the "IMS Business"), (ii) providing software-based administrative
and analytical solutions to the managed care industry (the "ERISCO Business"),
(iii) making venture capital investments in emerging healthcare businesses (the
"Enterprises Business"), (iv) supplying research and analysis to the information
technology industry (the "Gartner Business") and (v) providing software
applications and development services specializing in Year 2000 conversion
services (the "Technology Solutions Business"), but excluding the NMR Business.
(n) "IMS HEALTH Group" shall mean IMS HEALTH and each person (other
than any member of the NMR Group) that is a
<PAGE>
4
Subsidiary of the Corporation immediately prior to the Effective Time.
(o) "Included Party" shall have the meaning as defined in Section
2.3.
(p) "Income Tax Return" shall mean any Tax Return relating to Income
Taxes.
(q) "Income Taxes" shall mean any federal, state or local Taxes
determined by reference to income or imposed in lieu of income Taxes, such as
Taxes based on net worth or gross receipts.
(r) "Indemnifying Party" shall have the meaning as defined in
Section 3.5(c).
(s) "Indemnitee" shall have the meaning as defined in Section
3.5(c).
(t) "IRS" shall mean the Internal Revenue Service.
(u) "NMR" shall mean Nielsen Media Research, Inc., a Delaware
corporation.
(v) "NMR Assets" shall have the same meaning as such term has in the
Distribution Agreement.
(w) "NMR Business" shall mean (i) the Nielsen Media Research
Business, (ii) the businesses of the members of the NMR Group, (iii) any other
business conducted by the Corporation or any Subsidiary of the Corporation
primarily through the use of the NMR Assets, (iv) the businesses of any Business
Entity acquired or established by or for NMR or any of its Subsidiaries after
the date of this Agreement and (v) the business of the Corporation from and
after the Effective Time.
(x) "NMR Group" shall mean NMR, each Business Entity which is
contemplated to remain or become a Subsidiary of the Corporation or NMR
hereunder, which shall include those identified as such on Schedule 1.1(au)(i)
to the Distribution Agreement, and the Corporation from and after the Effective
Time.
(y) "Non-Combined Returns" shall mean all state and local Income Tax
Returns (other than Combined Returns and any foreign Tax Returns), of the
Pre-Distribution Cognizant Group or any member thereof for taxable periods
beginning November 1, 1996, January 1, 1997, January 1, 1998 and, solely for
purposes of Sections 2.1(a) and 2.2(a), on or the day after the Distribution
Date.
(z) "Nonperforming Party" shall have the meaning as defined in
Section 5.2.
<PAGE>
5
(aa) "Other Taxes" shall mean all Taxes other than Taxes covered by
a Consolidated Return, a Combined Return, a Non- Combined State or Local Income
Tax Return or a Franchise Tax Return.
(ab) "Parties" shall have the meaning as defined in the recitals
hereto.
(ac) "Person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
(ad) "Post-Distribution Expense Deduction" shall mean any deduction
with respect to an expense paid by a member of the IMS HEALTH Group after the
Distribution Date if such deduction is disallowed for any member of the IMS
HEALTH Group and may be claimed by any member of the NMR Group.
(ae) "Pre-Distribution Cognizant Group" shall mean the Corporation
and all of its Subsidiaries (direct and indirect, domestic and foreign) prior to
the Distribution.
(af) "Preparing Party" shall have the meaning as defined in Section
2.3.
(ag) "Reorganization Tax Payment" shall mean the payment of any Tax
for which IMS HEALTH is liable pursuant to Section 3.3(a) of this Agreement.
(ah) "Reorganizations" shall mean the series of contributions and
distributions of Controlled Entities and assets, transfers and assumptions of
liabilities, and other transactions whereby the NMR Group and the IMS HEALTH
Group are formed and all other Controlled Entities of the Corporation prior to
the Distribution are placed under the control of the appropriate parent
corporation(s) in preparation for the Distribution.
(ai) "Subsidiary" shall mean any entity of which another entity's
ownership satisfies the 80-percent voting and value test defined in Section
1504(a)(2) of the Code, whether directly or indirectly.
(aj) "Tax" or "Taxes" whether used in the form of a noun or
adjective, shall mean taxes on or measured by income, franchise, gross receipts,
sales, use, excise, payroll, personal property, real property, ad-valorem,
value-added, leasing, leasing use or other taxes, levies, imposts, duties,
charges or withholdings of any nature. Whenever the term "Tax" or "Taxes" is
used (including, without limitation, regarding any duty to reimburse another
Party for indemnified taxes or refunds or credits of taxes) it shall include
penalties, fines, additions to tax and interest thereon.
<PAGE>
6
(ak) "Tax Benefit" shall mean the sum of the amount by which the Tax
liability (after giving effect to any alternative minimum or similar Tax) of a
corporation or group of affiliated corporations to the appropriate taxing
authority is reduced (including, without limitation, by deduction, entitlement
to refund, credit or otherwise, whether available in the current taxable year,
as an adjustment to taxable income in any other taxable year or as a
carryforward or carryback, as applicable) plus any interest from such government
or jurisdiction relating to such Tax liability.
(al) "Tax Item" shall mean any item of income, capital gain, net
operating loss, capital loss, deduction, credit or other Tax attribute relevant
to the calculation of a Tax liability.
(am) "Tax Matters Partner" shall mean the tax matters partner as
defined in section 6231(a)(7) of the Code.
(an) "Tax Returns" shall mean all reports or returns (including
information returns) required to be filed or that may be filed for any period
with any taxing authority (whether domestic or foreign) in connection with any
Tax or Taxes (whether domestic or foreign).
SECTION 1.2. References; Interpretation. References in this
Agreement to any gender include references to all genders, and references to the
singular include references to the plural and vice versa. The words "include",
"includes" and "including" when used in this Agreement shall be deemed to be
followed by the phrase "without limitation". Unless the context otherwise
requires, references in this Agreement to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, such Agreement. Unless the context otherwise requires, the
words "hereof", "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision of this Agreement.
ARTICLE II. PREPARATION AND FILING OF TAX RETURNS
SECTION 2.1. Predistribution Tax Returns.
(a) IMS HEALTH (or its relevant Controlled Entity) shall prepare,
and the Corporation (or its relevant Controlled Entity) shall file, (i) all
Consolidated Returns, Combined Returns, Non-Combined Returns, and Franchise Tax
Returns that are not filed prior to the Distribution Date and (ii) any Tax
Returns of any partnership (other than NMR Licensing Associates LP) of which the
Corporation or any Subsidiary is the Tax Matters Partner if a distributive share
of partnership income or loss is included in any such Return.
<PAGE>
7
(b) All Tax Returns for Other Taxes for periods beginning prior to
the Distribution Date that are not subject to the D&B Tax Allocation Agreement
shall be prepared and filed by IMS HEALTH if they relate to any member of the
IMS HEALTH Group and, otherwise, by the Corporation.
SECTION 2.2. Post-Distribution Tax Returns.
(a) The filing of all Tax Returns for periods beginning on or after
the Distribution Date (other than Non-Combined Returns and Franchise Tax
Returns covered by Section 2.1(a)) shall be the responsibility of the
Corporation if they relate to the NMR Group or any member thereof and shall be
the responsibility of IMS HEALTH if they relate to the IMS HEALTH Group or any
member thereof.
(b) In the case of any partnership in which a member of the
Pre-Distribution Cognizant Group is the designated Tax Matters Partner, such
entity shall continue to be responsible for the preparation and filing of such
partnership's Tax Returns.
SECTION 2.3. Manner of Preparation.
(a) To the extent any Tax Return includes Taxes relating to a Party
(or any of its Subsidiaries) other than the Party preparing such Tax Return (the
"Preparing Party"), the Party not responsible for preparing the Tax Return (the
"Included Party"), shall prepare and deliver to the Preparing Party, at least
120 days prior to the due date (including extensions) of such Tax Return, a true
and correct accounting of all relevant Tax Items relating to the Included Party
(and any of its Subsidiaries) for the taxable period.
(b) All Tax Returns filed on or after the Distribution Date shall be
prepared on a basis that is consistent with the rulings obtained from the IRS or
any other Governmental Authority in connection with the Reorganizations or
Distribution (in the absence of a controlling change in law or circumstances)
and shall be filed on a timely basis (including pursuant to extensions) by the
Party responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances and unless deviation from past
practice would have no adverse effect on the other Party, all Tax Returns filed
within three years after the Distribution Date shall be prepared on a basis
consistent with the elections, accounting methods, conventions, assumptions and
principles of taxation used for the most recent taxable periods for which Tax
Returns involving similar Tax Items have been filed; provided, however, that a
Party preparing any Tax Return that does not conform to such past practices
shall not be liable for any additional Tax liability imposed, in whole or in
part, as a result of such deviation from past practice if: (i) 30 days prior to
the filing of such Tax Return, the Party preparing such Tax Return notifies the
other Party if such other Party may be adversely affected; and (ii) the
<PAGE>
8
Party preparing such Tax Return establishes that conformity with past practice
involves a significant risk of the imposition of a penalty. Subject to the
provisions of this Agreement, all decisions relating to the preparation of Tax
Returns shall be made in the sole discretion of the Party responsible under this
Agreement for its preparation; provided, however, that the "Included Party"
shall have the right to review and comment on such Tax Return prior to the
filing thereof in the following manner:
The Preparing Party shall submit any part of such Tax Return
relating to the Included Party (or any of its Subsidiaries) to the Included
Party at least 28 days prior to the date on which such Tax Return is due
(including extensions). The Included Party shall submit its comments to the
Preparing Party within 14 days of receipt of the relevant portions of such Tax
Return. The Preparing Party shall alter such Tax Return to reflect the
reasonable comments of the Included Party unless the Preparing Party reasonably
believes that such alteration would have an adverse impact upon the Preparing
Party.
(c) Unless otherwise required by the IRS, any Governmental Authority
or a court, the Parties hereby agree to file all Tax Returns, and to take all
other actions, in a manner consistent with the position that the Distribution
Date is the last day on which any member of the IMS HEALTH Group was included in
the Pre-Distribution Cognizant Group. For any period that includes but does not
end on the Distribution Date, to the extent permitted by law or administrative
practice, the taxable year of each member of the Pre-Distribution Cognizant
Group and any group of such members shall be treated as ending on the
Distribution Date.
ARTICLE III. PAYMENT OF TAXES
SECTION 3.1. Predistribution Taxes
(a) The Party responsible for the filing of any Tax Return pursuant
to Sections 2.1 and 2.2 shall pay to the relevant taxing authority all Taxes due
or payable in connection therewith; provided, that if, pursuant to this Article
III, one Party is liable for any Taxes relating to a Tax Return filed by the
other Party, such non-filing Party shall pay the filing Party the amount of such
Taxes at least 5 days prior to the due date (including extensions) of such Tax
Return.
(b) With respect to any Consolidated Return, Combined Return,
Non-Combined Return or Franchise Tax Return for a taxable period ending before
January 1, 1998 that is not filed prior to the Distribution Date, IMS HEALTH
shall be liable for all Taxes payable with such Return and shall be entitled to
any refund or credit for an overpayment of Taxes shown on such Return. With
respect to any Consolidated Return, Combined Return, Non-Combined Return or
Franchise Tax Return for a taxable period beginning on
<PAGE>
9
or after January 1, 1998, IMS HEALTH (i) shall only be liable for Taxes payable
with such Return that are attributable to the portion of such taxable period up
to and including the Distribution Date and that exceed the amount of Taxes paid
in respect of such taxable period (as estimated Taxes or otherwise) on or prior
to the Distribution Date and (ii) shall be entitled to any refund or credit of
Taxes to the extent Taxes paid in respect of such taxable period (as estimated
Taxes or otherwise) on or prior to the Distribution Date exceed the amount of
Taxes attributable to the portion of the period up to and including the
Distribution Date. The determination of the amount of Taxes attributable to the
portion of such taxable period up to and including the Distribution Date shall
be done on a closing of the books basis, except that Tax Items calculated on an
annual basis shall be apportioned on a time basis.
(c) In the event of any Final Determination adjusting the amount of
any Taxes that are the subject of a Consolidated Return, Combined Return,
Non-Combined Return or Franchise Tax Return, IMS HEALTH shall be liable for its
share of any increases in Taxes and shall be entitled to its share of any
refunds or credits of Taxes, and the Corporation shall be liable for all other
increases in Taxes and shall be entitled to all other refunds or credits of
Taxes. IMS HEALTH's share of any Taxes, credits or refunds shall be determined
in accordance with the following principles:
(i) IMS HEALTH shall be liable for any increase in Taxes, and shall
be entitled to all refunds or credits of Taxes, that are attributable to a Tax
Return that relates solely to the IMS HEALTH Business; and
(ii) In the case of any Tax Return that relates to both the IMS
HEALTH Business and the NMR Business, IMS HEALTH's share of any increase in
Taxes, or refunds or credits of Taxes, shall be determined on a pro forma basis
as if IMS HEALTH filed a separate Tax Return for the taxable period that (i)
included only (x) the Tax Items attributable to the IMS HEALTH Business
otherwise included in the Tax Return and (y) an appropriate allocation of Tax
Items not specifically attributable to either the IMS HEALTH Business or the NMR
Business (including, without limitation, corporate overhead) and (ii) credits
IMS HEALTH with its share of Taxes previously paid by the Corporation or IMS
HEALTH with respect to such taxable period;
provided, that, in the case of a Consolidated Return, Combined Return,
Non-Combined Return or Franchise Tax Return, IMS HEALTH shall be liable for and
shall pay all increases in Taxes, and shall be entitled to receive all refunds
or credits of Taxes, that result from a Tax Item or position determined by the
Corporation's corporate office.
(d) The Corporation shall be liable for all Other Taxes that are
attributable to the NMR Business and IMS HEALTH
<PAGE>
10
shall be liable for all Other Taxes that are attributable to the IMS HEALTH
Business.
(e) In the case of any Consolidated Return, Combined Return,
Non-Combined Return or Franchise Tax Return with respect to which IMS HEALTH has
responsibility for any Taxes or is entitled to any refunds or credits of Taxes
pursuant to Section 3.1(c) above, IMS HEALTH shall have the right to prepare an
amended Tax Return. The Corporation shall have the right to review any such
amended Tax Return and shall be required to sign and file any such amended Tax
Return unless it reasonably determines that the filing of such amended Tax
Return would create a significant risk of a material increase in the Taxes
payable by the NMR Group or any member thereof for any taxable period beginning
on or after the Distribution Date. IMS HEALTH shall be entitled to any refunds
or credits of Taxes relating to any such amended Tax Return.
(f) If the Corporation is liable for any Taxes or entitled to any
refunds or credits of Taxes pursuant to the D&B Tax Allocation Agreement, such
Taxes, refunds or credits shall be allocated between the Corporation and IMS
HEALTH in accordance with the principles of this Section 3.1.
(g) Notwithstanding any statement herein to the contrary, any Taxes
covered by Section 2.1(j)(i) of the Distribution Agreement shall be governed by
Schedule 2.1(j)(i) to the Distribution Agreement.
SECTION 3.2. Post-Distribution Taxes. Unless otherwise provided in
this Agreement:
(a) The Corporation shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes attributable to the NMR Group or any
member thereof:
(i) with respect to a Consolidated Return, Combined Return,
Non-Combined Return or Franchise Tax Return for a taxable period that begins
prior to the Distribution Date and includes but does not end on the Distribution
Date to the extent such Taxes or refunds are attributable to the portion of such
period after the Distribution Date; and
(ii) with respect to periods beginning on or after the
Distribution Date.
(b) IMS HEALTH shall pay all Taxes and shall be entitled to receive
and retain all refunds of Taxes with respect to periods beginning on or after
the Distribution Date that are attributable to the IMS HEALTH Group or any
member thereof.
SECTION 3.3. Restructuring Taxes.
<PAGE>
11
(a) Notwithstanding any statement to the contrary in this Agreement
and except as otherwise provided in the Distribution Agreement, to the extent
that any Taxes are found to arise out of the Reorganizations, then any such Tax
liability incurred by the Parties (or any of their Subsidiaries) shall be the
responsibility of IMS HEALTH; provided, however, that to the extent specific
cash allocations for such Taxes are made in connection with the Distribution,
IMS HEALTH shall be relieved of its liability for such Taxes to the extent
covered by such cash.
(b) Notwithstanding any statement herein to the contrary, any Taxes
relating to or arising out of the Distribution shall be governed by Section 2.10
of the Distribution Agreement.
SECTION 3.4. Gain Recognition Agreements. In the event that the IMS
HEALTH Group transfers, liquidates or otherwise disposes of the stock or assets
of any entity listed on Schedule 3.4(a) and such transfer, liquidation or
disposition results in the Corporation recognizing gain pursuant to a gain
recognition agreement under Section 367(a) of the Code, then IMS HEALTH shall be
liable for any resulting Taxes, including interest, that the Corporation is
required to pay.
SECTION 3.5. Indemnification.
(a) Indemnification by the Corporation. The Corporation shall
indemnify, defend and hold harmless IMS HEALTH (and its affiliates) from and
against any and all Tax liabilities allocated to the Corporation by this
Agreement.
(b) Indemnification by IMS HEALTH. IMS HEALTH shall indemnify,
defend and hold harmless the Corporation (and its affiliates) from and against
any and all Tax liabilities allocated to IMS HEALTH by this Agreement.
(c) Indemnity Payments.
(i) To the extent that one Party (the "Indemnifying Party") owes
money to another Party (the "Indemnitee") pursuant to this Section 3.5, the
Party (the "Notifying Party") having knowledge of such obligation shall notify
the other Party and shall provide such other Party with its calculations of such
obligation (as specified in Article II and Article III). The other Party, within
14 days after receiving the Notifying Party's calculations, shall submit to the
Notifying Party such other Party's calculations of the amount required to be
paid pursuant to this Section 3.5, showing such calculations in sufficient
detail so as to permit the Notifying Party to understand the calculations. The
Indemnifying Party shall pay the Indemnitee, no later than the later of 5 days
prior to the due date (including extensions) of the relevant Tax Returns and 14
days after the Notifying Party receives the other Party's calculations, the
amount for which the Indemnifying Party is
<PAGE>
12
required to pay or indemnify the Indemnitee under this Section 3.5. The
Indemnifying Party shall have the right to disagree with the Indemnitee's
calculations. Any dispute regarding such calculations shall be resolved in
accordance with Section 5.4 of this Agreement.
(ii) All indemnity payments shall be calculated on a pre-Tax basis
and shall be treated as contributions to capital and/or dividends immediately
prior to the Distribution.
ARTICLE IV. TAX ATTRIBUTES AND REORGANIZATION TAX PAYMENTS
SECTION 4.1. Carrybacks. In the event of the realization of any
deduction, loss or credit by a Party for any taxable period beginning on or
after the Distribution Date, the Party realizing such deduction, loss or credit
may, in its sole discretion, and to the extent permitted under applicable Tax
law, elect to either carry back or carry forward such deduction, loss or credit.
Any refund attributable to such carryback shall be allocable to such Party. In
the event both Parties elect to carry back an amount to the same taxable period
beginning prior to the Distribution Date, any refund shall be apportioned
between the Parties based on the relative carryback amounts.
SECTION 4.2. Reorganization Tax Payments, Deferred Compensation
Deductions and Post-Distribution Expense Deductions.
(a) If an audit or other examination of any federal, state or local
Tax Return for any taxable period shall result (by settlement or otherwise) in a
Deferred Compensation Deduction or Post-Distribution Expense Deduction in favor
of the NMR Group or any member thereof or if any Reorganization Tax Payment in
favor of the NMR Group or any member thereof is made by IMS HEALTH, then:
(i) If necessary, IMS HEALTH shall notify the Corporation and shall
provide the Corporation with adequate information so that it can reflect on the
appropriate Tax Returns any resulting increases in deductions, losses or Tax
credits or decreases in income, gains or recapture of Tax credits;
(ii) The Corporation shall pay IMS HEALTH the amount of any Tax
Benefit that results from any adjustments relating to such Reorganization Tax
Payment or from such Deferred Compensation Deduction or Post-Distribution
Expense Deduction within 30 days of the date such Tax Benefits are realized;
(iii) Notwithstanding the foregoing, the Corporation shall only be
required to take steps to obtain such Tax Benefit or to pay IMS HEALTH if, in
the opinion of the Corporation's Tax counsel, which counsel shall be reasonably
acceptable to IMS HEALTH, the reporting of such Tax Benefit shall not subject
the Corporation to the imposition of a penalty.
<PAGE>
13
(b) Realization of Tax Benefits.
(i) For purposes of this Section 4.3, a Tax Benefit shall be deemed
to have been realized at the time any refund of Taxes is received or applied
against other Taxes due, or at the time of filing of a Tax Return (including any
Tax Return relating to estimated Taxes) on which a loss, deduction or credit is
applied in reduction of Taxes which would otherwise be payable; provided,
however, that where the NMR Group or any member thereof has other losses,
deductions, credits or similar items available to it, such deductions, credits
or similar items may be applied prior to the use of any adjustments relating to
a Reorganization Tax Payment or any Deferred Compensation Deduction or Post-
Distribution Expense Deduction.
(ii) The Corporation may, at its election, pay the amount of any Tax
Benefit to IMS HEALTH rather than filing amended returns or otherwise reflecting
adjustments or taking positions on its Tax Returns. If such an election is made,
the Corporation will be treated as having realized a Tax Benefit at the time it
would have realized a Tax Benefit had it chosen to file amended returns or
otherwise to reflect adjustments or to take positions on its Tax Returns.
(c) Tax Benefits Subsequently Denied. If any Tax Benefit realized
pursuant to Section 4.3(b)(i) is subsequently denied, then IMS HEALTH shall
refund the amount of any payment for such Tax Benefit within 30 days of its
notification by the Corporation that a Final Determination has been reached
denying the claimed Tax Benefit.
SECTION 4.3. Competent Authority Relief. If as a result of any audit
of a taxable period beginning prior to the Distribution Date, a Party (or
Subsidiary) is required to adjust its income, deductions, credits or allowances
under Section 482 of the Code or under similar principles in a foreign
jurisdiction, and the payment of additional Taxes in accordance with such a
determination allows the other Party (or Subsidiary) to obtain competent
authority relief as a result thereof, then the Party eligible to obtain such
relief shall: (a) execute or cause to be executed any powers of attorney or
other documents necessary to enable the other Party to pursue such relief at its
own expense; and (b) cooperate with the other Party and the competent
authorities in seeking such relief.
ARTICLE V. TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
SECTION 5.1. Tax Audits and Controversies. In the case of any audit,
examination or other proceeding ("Proceeding") brought against a Party (or
Subsidiary) with respect to Taxes for which the other Party is or may be liable
pursuant to this Agreement, the Party subject to such Proceeding shall promptly
inform such other Party and shall execute or cause to be executed any powers of
attorney or other documents necessary to enable the
<PAGE>
14
other Party to take all actions desired with respect to such Proceeding to the
extent such Proceeding may affect the amount of Taxes for which the other Party
is liable pursuant to this Agreement. Each Party shall have the right to
control, at its own expense, the portion of any such Proceeding that relates to
Taxes for which such Party is or may be liable pursuant to this Agreement;
provided, however, that such Party shall consult with the other Party with
respect to any issue that may affect the other Party (or Subsidiary). The Party
in control of such Proceeding or any part thereof shall not enter into any final
settlement or closing agreement that may adversely affect the other Party (or
Subsidiary) without the consent of such other Party, which consent may not
unreasonably be withheld. Where consent to any final settlement or closing
agreement is withheld, the Party withholding consent shall continue or initiate
further proceedings, at its own expense, and the liability of the Party in
control of such Proceeding shall not exceed the liability that would have
resulted from the proposed closing agreement or final settlement (including
interest, additions to Tax and penalties which have accrued at that time).
SECTION 5.2. Cooperation. The Corporation and IMS HEALTH shall
cooperate with each other in the filing of any Tax Returns and the conduct of
any audit or other proceeding and each shall execute and deliver such powers of
attorney and other documents and make available such information and documents
as are necessary to carry out the intent of this Agreement. To the extent such
cooperation involves the services of officers, directors, employees, or agents
of a Party, such services shall be made available in accordance with Section 2.9
of the Distribution Agreement. Each Party agrees to notify the other Party of
any audit adjustment that does not result in Tax liability but can reasonably be
expected to affect Tax Returns of the other Party or any of its Subsidiaries.
Notwithstanding any other provision of this Agreement, if a Party (the
"Nonperforming Party") fails to give its full cooperation and use its best
efforts in the conduct of an audit or other proceeding as provided by this
Section 5.2, and such failure results in the imposition of additional Taxes for
the period or periods involved in the audit or other proceeding, the
Nonperforming Party shall be liable in full for such additional Taxes.
SECTION 5.3. Retention of Records; Access. Beginning on the
Distribution Date, the Corporation and IMS HEALTH shall, and shall cause each of
their Controlled Entities to:
(a) retain adequate records, documents, accounting data and other
information (including computer data) necessary for the preparation and filing
of all Tax Returns required to be filed by any member of the Pre-Distribution
Cognizant Group or any combination of such members and for any audits and
litigation relating to such Tax Returns or to any Taxes payable by any member of
the Pre-Distribution Cognizant Group or any combination of such members; and
<PAGE>
15
(b) give to the other Party reasonable access to such records,
documents, accounting data and other information (including computer data) and
to its personnel and premises, for the purpose of the review or audit of such
reports or returns to the extent relevant to an obligation or liability of a
Party under this Agreement and in accordance with the procedures provided in
Article IV of the Distribution Agreement. The obligations set forth in these
paragraphs 5.3(a) and 5.3(b) shall continue until the final conclusion of any
litigation to which the records and information relate or until expiration of
all applicable statutes of limitations, whichever is longer.
SECTION 5.4. Dispute Resolution. Any dispute or claim arising out
of, in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, shall be resolved in the manner set
forth in Article VI of the Distribution Agreement.
SECTION 5.5. Confidentiality; Ownership of Information; Privileged
Information. The provisions of Article IV of the Distribution Agreement relating
to confidentiality of information, ownership of information, privileged
information and related matters shall apply with equal force to any records and
information prepared and/or shared by and between the Parties in carrying out
the intent of this Agreement.
ARTICLE VI. MISCELLANEOUS
SECTION 6.1. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules, shall constitute the entire agreement
between the Parties with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter. In the event of any inconsistency between this Agreement
and any Schedule hereto, the Schedule shall prevail.
SECTION 6.2. 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 such counterparts have been signed
by each of the Parties and delivered to the other Party.
SECTION 6.3. Survival of Agreements. Except as otherwise provided by
this Agreement, all covenants and agreements of the Parties contained in this
Agreement shall survive the Distribution Date.
SECTION 6.4. Expenses. Except as otherwise set forth in this
Agreement, all costs and expenses in connection with the preparation, execution,
delivery and required implementation of this Agreement shall be charged to and
paid by the Parties in accordance with Section 8.5 of the Distribution
Agreement.
<PAGE>
16
SECTION 6.5. Notices. All notices and other communications hereunder shall
be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the Parties at
the following addresses (or at such other addresses for a Party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Corporation:
Nielsen Media Research, Inc.
299 Park Avenue
New York, NY 10171
Telecopy:
Attn: Chief Legal Officer
To IMS HEALTH:
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
Attn: General Counsel
and
Vice President - Taxes
SECTION 6.6. Waivers. The failure of any Party to require strict
performance by any other Party of any provision in this Agreement will not waive
or diminish that Party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 6.7. Amendments. This Agreement may not be modified or
amended except by an agreement in writing signed by each of the Parties hereto.
SECTION 6.8. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any Party hereto without the prior
written consent of the other Party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
SECTION 6.9. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Parties and their respective successors and permitted assigns.
SECTION 6.10. Termination. This Agreement may be terminated,
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of the Corporation without the approval of IMS HEALTH or the
stockholders of the Corporation. In the event of such termination, neither Party
<PAGE>
17
shall have any liability of any kind to the Party or any other person. After the
Distribution, this Agreement may not be terminated except by an agreement in
writing signed by the Parties.
SECTION 6.11. Controlled Entities. Each of the Parties hereto shall
cause to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Controlled
Entity of such Party or by any entity that is contemplated to be a Controlled
Entity of such Party on and after the Distribution Date.
SECTION 6.12. Third Party Beneficiaries. This Agreement is solely
for the benefit of the Parties hereto and their respective Subsidiaries and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 6.13. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION 6.14. Exhibits and Schedules. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
SECTION 6.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 6.16. Consent to Jurisdiction. Without limiting the
provisions of Section 5.4 hereof, each of the Parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
Parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the Parties further agrees that service of any process, summons,
notice or document by U.S. registered mail to such Party's respective address
set forth above shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 6.17. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or
<PAGE>
18
proceeding arising out of this Agreement or the transactions contemplated hereby
in (i) the Supreme Court of the State of New York, New York County, or (ii) the
United States District Court for the Southern District of New York, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 6.17. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day and year first above written.
COGNIZANT CORPORATION
By:
----------------------
Name:
Title:
IMS HEALTH INCORPORATED
By:
----------------------
Name:
Title:
<PAGE>
Exhibit 10.3
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT is dated as of June 30, 1998 (the
"Agreement"), between COGNIZANT CORPORATION, a Delaware corporation
("Corporation") and IMS HEALTH INCORPORATED, a Delaware corporation ("IMS
Health").
WHEREAS, the Board of Directors of Corporation has determined that
it is appropriate, desirable and in the best interests of the holders of shares
of common stock, par value $.01 per share, of Corporation (the "Corporation
Common Stock") to take certain steps to reorganize Corporation's Subsidiaries
(as defined herein) and businesses and then to distribute to the holders of the
Corporation Common Stock all the outstanding shares of common stock of IMS
Health (the "IMS Health Common Stock"); and
WHEREAS, Corporation and IMS Health have determined that it is
necessary and desirable to allocate and assign responsibility for certain
employee benefit matters in respect of such entities on and after the Effective
Time (as defined herein).
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, Corporation and IMS Health agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Capitalized terms used in this Agreement
shall have the following meanings:
"ACNielsen" shall mean ACNielsen Corporation, a Delaware
corporation.
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Affiliate" shall mean, when used with respect to a specified
person, another person that controls, is controlled by, or is under common
control with the person specified. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or other interests, by contract or otherwise.
"Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other written arrangements (other than this
Agreement and the Distribution Agreement) entered into in connection with the
transactions
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2
contemplated by this Agreement and the Distribution Agreement, including,
without limitation, the Conveyancing and Assumption Instruments, [the Data
Services Agreements], [the Intellectual Property Agreement], the Shared
Transaction Services Agreement, the Tax Allocation Agreement and the Transition
Services Agreement.
"Assets" shall have the meaning set forth in Section 1.1(f) of the
Distribution Agreement.
"Board of Directors" shall mean, when used with respect to a
specified corporation, the board of directors of the corporation so specified.
"Business Entity" shall mean any corporation, partnership, limited
liability company or other entity which may legally hold title to Assets.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and the regulations promulgated thereunder, including
any successor legislation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, including any successor legislation.
"Conveyancing and Assumption Instruments" shall mean, collectively,
the various agreements, instruments and other documents heretofore entered into
and to be entered into to effect the transfer of Assets and the assumption of
Liabilities in the manner contemplated by the Distribution Agreement, or
otherwise arising out of or relating to the transactions contemplated in the
Distribution Agreement.
"Cognizant" shall mean Cognizant Corporation, a Delaware
corporation.
"Corporate Staff Employees" shall mean Corporation Pre-Distribution
Employees who performed administrative functions generally for the Corporation
Group prior to the Effective Time and who were based at the Corporation
headquarters in Westport, CT, aviation department in Purchase, NY or STS
department in Allentown, PA.
"Corporation" shall mean Cognizant Corporation, a Delaware
corporation.
"Corporation Committee" shall mean the Compensation and Benefits
Committee of the Board of Directors of Corporation.
"Corporation Common Stock" shall have the meaning set forth in the
recitals hereto.
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3
"Corporation Disabled Employees" shall mean all employees of the
Corporation Group who are receiving benefits under the Corporation Long-Term
Disability Plan as of the Effective Time, as in effect from time to time.
"Corporation Employee Stock Purchase Plan" shall mean the 1997
Cognizant Corporation Employee Stock Purchase Plan, as in effect from time to
time.
"Corporation Executive Annual Incentive Plan" shall mean the
Cognizant Corporation Executive Annual Incentive Plan, as in effect from time to
time.
"Corporation Group" shall mean Cognizant Corporation and each
Business Entity that is a Subsidiary of Corporation, except that Corporation
Group shall not include Walsh International Inc. or Pharmaceutical Marketing
Services Inc. or any of their respective Subsidiaries.
"Corporation Long-Term Disability Plan" shall mean The Cognizant
Long Term Disability Plan or any other long-term disability plan sponsored by
Corporation or any Subsidiary of Corporation prior to the Effective Time.
"Corporation LSARs" shall have the meaning set forth in Section 6.2
of this Agreement.
"Corporation Nonqualified Plans" shall have the meaning as set forth
in Section 4.1 of this Agreement.
"Corporation Pension REP" shall mean the Cognizant Retirement Excess
Plan, as in effect from time to time.
"Corporation Post-Distribution Employees" shall mean persons who,
immediately after the Effective Time, are employed by the Corporation Group
(including persons who are absent from work by reason of layoff or leave of
absence and inactive employees treated as such by agreement therewith) other
than IMS Health Transitional Employees.
"Corporation Pre-Distribution Employees" shall mean persons who, at
any time prior to the Effective Time, were employed by the Corporation Group.
"Corporation Ratio" shall have the meaning set forth in Section
6.1(a) of this Agreement.
"Corporation Restricted Stock" shall have the meaning set forth in
Section 6.3 of this Agreement.
"Corporation Retirees" shall mean persons who (i) were Corporation
Pre-Distribution Employees, (ii) terminated employment from the Corporation
Group prior to the Effective Time or, with respect to Corporate Staff Employees,
terminated
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4
employment prior to or as a result of the Distribution, (iii) are not IMS Health
Employees or IMS Health Transitional Employees after the Effective Time and (iv)
would have been Corporation Post-Distribution Employees had they remained
employed, after the Distribution, by the same employer from which they
terminated employment or were Corporate Staff Employees.
"Corporation Retirement Plan" shall mean the Cognizant Retirement
Plan, as in effect from time to time.
"Corporation Savings BEP" shall mean the Cognizant Corporation
Savings Benefit Equalization Plan, as in effect from time to time.
"Corporation Savings Plan" shall mean the Cognizant Corporation
Savings Plan, as in effect from time to time.
"Corporation Stock Option" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Corporation Stock Option Plans" shall mean the 1996 Key Employees'
Stock Incentive Plan, the 1996 Replacement Plan for Certain Employees Holding
The Dun & Bradstreet Corporation Equity-Based Awards or any other stock option
plan established by the Corporation.
"Corporation SERP" shall mean the Cognizant Corporation Supplemental
Executive Retirement Plan, as in effect from time to time.
"Corporation Transition Plans" shall mean The Cognizant Corporation
Executive Transition Plan and The Cognizant Corporation Career Transition Plan.
"D&B" shall mean The Dun & Bradstreet Corporation, a Delaware
corporation.
["Data Services Agreements" shall mean the Data Services Agreements
to be entered into by Corporation and IMS Health.]
"Distribution" shall mean the distribution on the Distribution Date
to holders of record of shares of Corporation Common Stock as of the
Distribution Record Date of the IMS Health Common Stock owned by Corporation on
the basis of one IMS Health Common Share for each outstanding share of
Corporation Common Stock.
"Distribution Agreement" shall mean the Distribution Agreement
between Corporation and IMS Health, dated as of June __, 1998.
"Distribution Date" shall mean June 30, 1998.
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5
"Distribution Record Date" shall mean such date as may be determined
by Corporation's Board of Directors as the record date for the Distribution.
"Effective Time" shall mean immediately prior to the midnight, New
York time, ending the 24-hour period comprising June 30, 1998.
"Employee Benefit Dispute" shall include any controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement, including, without
limitation, any claim based on contract, tort, statute or constitution.
"Employee Benefit Litigation Liability" shall mean, with respect to
a Business Entity, a Liability relating to a controversy, dispute or claim
arising out of, in connection with or in relation to the interpretation,
performance, nonperformance, validity or breach of an Employee Benefit Plan of
such Business Entity or otherwise arising out of, or in any way related to such
Employee Benefit Plan, including, without limitation, any claim based on
contract, tort, statute or constitution.
"Employee Benefit Plans" shall mean, with respect to a Business
Entity, all "employee benefit plans" (within the meaning of Section 3(3) of
ERISA), "multiemployer plans" (within the meaning of Section 3(37) of ERISA),
retirement, pension, savings, profit-sharing, welfare, stock purchase, stock
option, equity-based, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation, worker's
compensation and all other employee benefit plans, agreements, programs,
policies or other arrangements (including any funding mechanisms therefor),
whether or not subject to ERISA, whether formal or informal, oral or written,
legally binding or not, under which (i) any past, present or future employee of
the Business Entity or its Subsidiaries has a right to benefits and (ii) the
Business Entity or its Subsidiaries has any Liability.
"Employee Benefit Records" shall mean all agreements, documents,
books, records or files relating to the Employee Benefit Plans of Corporation
and IMS Health.
"Employee Benefit Welfare Plans" shall mean, with respect to a
Business Entity, all Employee Benefit Plans that are "welfare plans" within the
meaning of Section 3(1) of ERISA.
"Employer Stock" shall mean, after the Distribution Date, IMS Health
Common Stock credited to the account of an IMS Health Employee and Corporation
Common Stock credited to the account of a Corporation Post-Distribution Employee
in the pooled
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6
stock fund of the respective savings plan in which such employee participates,
pursuant to Section 3.4.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder, including any
successor legislation.
"Final IMS Health Retirement Plan Transfer Date" shall have the
meaning set forth in Section 2.2(d) of this Agreement.
"IMS Health" shall mean IMS Health Incorporated, a Delaware
corporation.
"IMS Health Committee" shall mean the Compensation and Benefits
Committee of the Board of Directors of IMS Health.
"IMS Health Common Stock" shall have the meaning set forth in the
recitals hereto.
"IMS Health Disabled Employees" shall mean all employees of the IMS
Health Group who are receiving benefits or are in the waiting period to receive
benefits under the Corporation Long-Term Disability Plan immediately prior to
the Effective Time.
"IMS Health Employees" shall mean persons who, immediately after the
Effective Time, are employed by the IMS Health Group (including persons who are
absent from work by reason of layoff or leave of absence and inactive employees
treated as such by agreement therewith).
"IMS Health Employee Stock Purchase Plan" shall mean the Employee
Stock Purchase Plan to be adopted by IMS Health pursuant to Section 6.5.
"IMS Health Group" shall mean IMS Health and each Business Entity
which is contemplated to remain or become a Subsidiary of IMS Health pursuant to
the Distribution Agreement.
"IMS Health Nonqualified Plans" shall mean the nonqualified plans to
be adopted by IMS Health pursuant to Section 4.2.
"IMS Health Pension REP" shall mean the IMS Health Retirement Excess
Plan to be adopted by IMS Health pursuant to Section 4.2.
"IMS Health Ratio" shall have the meaning set forth in Section
6.1(b) of this Agreement.
"IMS Health Replacement Plans" shall mean the replacement plans to
be adopted by IMS Health pursuant to Section 6.1(b) of this Agreement.
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7
"IMS Health Restricted Stock" shall have the meaning set forth in
Section 6.3 of this Agreement.
"IMS Health Retirees" shall mean persons who (i) were Corporation
Pre-Distribution Employees, (ii) terminated employment from the IMS Health Group
prior to the Effective Time (iii) are not Corporation Post-Distribution
Employees after the Effective Time and (iv) would have been IMS Health Employees
had they remained employed, after the Distribution, by the same employer from
which they terminated employment but shall not include Corporate Staff Employees
included in the definition of Corporation Retirees.
"IMS Health Retirement Plan" shall mean the defined benefit plan to
be adopted by IMS Health pursuant to Section 2.2(a) of this Agreement.
"IMS Health Retirement Plan Effective Date" shall have the meaning
set forth in Section 2.2(a) of this Agreement.
"IMS Health Retirement Plan Segregation Ratio" shall equal a
fraction, the numerator of which is the Present Value of the accrued vested and
nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the IMS
Health Transferred Retirement Plan Employees under the Corporation Retirement
Plan at the Effective Time, and the denominator of which is the Present Value of
the accrued vested and nonvested benefits (as defined in ERISA Section
4044(a)(1)-(6)) of the Corporation Pre-Distribution Employees under the
Corporation Retirement Plan at the Effective Time.
"IMS Health Savings BEP" shall mean the IMS Health Savings Benefit
Equalization Plan to be adopted by IMS Health pursuant to Section 4.2.
"IMS Health Savings Plan" shall mean the defined contribution plan
to be adopted by IMS Health pursuant to Section 3.2(a) of this Agreement.
"IMS Health Savings Plan Transfer Date" shall have the meaning set
forth in Section 3.2(b) of this Agreement.
"IMS Health SERP" shall mean the IMS Health Supplemental Executive
Retirement Plan to be adopted by IMS Health pursuant to Section 4.2.
"IMS Health Transferred Retirement Plan Employees" shall have the
meaning set forth in Section 2.2(a) of this Agreement.
"IMS Health Transferred Savings Plan Employees" shall have the
meaning set forth in Section 3.2(a) of this Agreement.
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8
"IMS Health Transitional Employees" shall mean Corporate Staff
Employees who shall remain employed by the Corporation after the Effective Time
for a fixed period of time but shall perform services primarily for the IMS
Health Group.
"Information Statement" shall mean the Information Statement sent to
the holders of shares of Corporation Common Stock in connection with the
Distribution, including any amendment or supplement thereto.
"Initial IMS Health Retirement Plan Transfer Date" shall have the
meaning set forth in Section 2.2(a) of this Agreement.
"Initial Transferred Assets" shall have the meaning set forth in
Section 2.2(b) of this Agreement.
"Intellectual Property Agreement" shall mean the intellectual
property and licensing agreement between Corporation and IMS Health.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialties,
indemnities and similar obligations, exonerations, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising, and including those arising under any law, rule, regulation,
Action, threatened or contemplated Action (including the costs and expenses of
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all costs and expenses (including allocated
costs of in-house counsel and other personnel), whatsoever reasonably incurred
in investigating, preparing or defending against any such Actions or threatened
or contemplated Actions), order or consent decree of any governmental or other
regulatory or administrative agency, body or commission or any award of any
arbitrator or mediator of any kind, and those arising under any contract,
commitment or undertaking, including those arising under this Agreement, the
Distribution Agreement or any Ancillary Agreement, in each case, whether or not
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any person.
"Nonemployer Stock" shall mean, after the Distribution Date, IMS
Health Common Stock credited to the account of a Corporation Post-Distribution
Employee and Corporation Common Stock credited to an account of an IMS Health
Employee in the
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9
pooled stock fund of the respective savings plan in which such employee
participates, pursuant to Section 3.4.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity thereto.
"PBGC Assumptions" shall mean the actuarial assumptions set forth in
29 C.F.R. Part 2619, et seq.
"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Present Value" shall mean the single sum value of a series of
future payments, determined utilizing PBGC Assumptions in effect as of the
measurement date.
"Service" shall mean the Internal Revenue Service or any successor
entity thereto.
"Shared Transaction Services Agreements" shall mean the Shared
Transaction Services Agreements between Corporation and IMS Health.
"Subsidiary" shall mean any corporation, partnership or other entity
of which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement
between Corporation and IMS Health.
"Transition Services Agreement" shall mean the Transition Services
Agreement between Corporation and IMS Health.
ARTICLE II
CORPORATION RETIREMENT PLAN
SECTION 2.1. Corporation Retirement Plan. From and after the
Effective Time, Corporation shall continue to sponsor the Corporation Retirement
Plan. Active participation of IMS Health Transferred Retirement Plan Employees
in the Corporation Retirement Plan shall cease immediately after the Effective
Time. Nothing contained in this Article II shall have the effect of accelerating
the degree to which any individual has a vested interest in or eligibility for
the Corporation Retirement Plan or the IMS Health Retirement Plan.
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10
SECTION 2.2. IMS Health Retirement Plan. (a) As of the Effective
Time, (herein referred to as the "IMS Health Retirement Plan Effective Date"),
IMS Health shall establish the IMS Health Retirement Plan for the benefit of IMS
Health Employees, IMS Disabled Employees IMS Health Retirees and IMS Health
Transitional Employees who were participants in the Corporation Retirement Plan
immediately prior to the Effective Time (the "IMS Health Transferred Retirement
Plan Employees"). On the first business day after the Effective Time (the
"Initial IMS Health Retirement Plan Transfer Date"), Corporation shall cause the
trustee of the Corporation Retirement Plan to segregate, based on a good faith
estimate made in accordance with the spinoff provisions set forth under Section
414(l) of the Code, the assets of the Corporation Retirement Plan allocable to
IMS Health Transferred Retirement Plan Employees in an amount equal to the sum
of (i) and (ii), as follows:
(i) the amount allocable to IMS Health Transferred Retirement Plan
Employees under ERISA Section 4044 as of the Effective Time,
determined using PBGC Assumptions; and
(ii) the excess (if any) of the fair market value of assets of the
Corporation Retirement Plan over the Present Value of the vested and
nonvested benefits accrued thereunder for all the Corporation
Pre-Distribution Employees as of the Effective Time, multiplied by
the IMS Health Retirement Plan Segregation Ratio.
(b) On the Initial IMS Health Retirement Plan Transfer Date, 80% of
the segregated assets determined under Section 2.2(a) of this Agreement (the
"Initial Transferred Assets") shall be transferred to a separate trust
established under the IMS Health Retirement Plan.
(c) From the Effective Time until the Final IMS Health Retirement
Transfer Date (as defined below), the remaining 20% of the segregated assets
determined under Section 2.2(a) of this Agreement shall be invested by the
trustee of the Corporation Retirement Plan with the same investment managers and
in the same proportions as such assets were invested immediately prior to the
Effective Time, which are set forth in Exhibit 2.2 hereof.
(d) As soon as practicable after the Effective Time, the remaining
assets allocable to the IMS Health Transferred Retirement Plan Employees shall
be transferred to a separate trust established under the IMS Health Retirement
Plan (such date herein referred to as the "Final IMS Health Retirement Plan
Transfer Date"); provided, however, that in no event shall such transfer take
place until Corporation shall make all required amendments to the Corporation
Retirement Plan and related trust agreement necessary to provide for the
segregation and transfer of assets described in this Section 2.2. The value of
such assets to be transferred shall equal the value of segregated
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11
assets determined based on same methodology as in Section 2.2(a) of this
Agreement, reduced by an amount equal to the Initial Transferred Assets,
adjusted as follows:
(i) reduced by the amount of benefit payments made under the Corporation
Retirement Plan with respect to IMS Health Transferred Retirement
Plan Employees from the Effective Time to the Final IMS Health
Retirement Plan Transfer Date; and
(ii) increased (or decreased) by the share of the net investment income
(or loss) and expenses incurred or for which invoices are submitted
after the Effective Time to the IMS Health Retirement Plan Transfer
Date attributable to the value of such segregated assets.
(e) Unless otherwise agreed to by Corporation and IMS Health, the
form of the assets to be transferred shall consist of an undivided percentage
interest in each asset that is held by the Corporation Retirement Plan on the
IMS Health Retirement Plan Transfer Date, such undivided percentage interest
being equal to the value of assets allocable to the IMS Health Transferred
Retirement Plan Employees, divided by the fair market value of plan assets.
(f) If the amount of the Initial Transferred Assets exceeds the
value of the assets to be transferred as determined under Section 2.2(d) of this
Agreement, such excess amount shall promptly be transferred from the IMS Health
Retirement Plan trust to the Corporation Retirement Plan trust.
SECTION 2.3. Allocation of Liabilities. The IMS Health Group shall
assume all Liabilities relating to the participation of IMS Health Transferred
Retirement Plan Employees in the Corporation Retirement Plan. The Corporation
Group shall retain all other Liabilities relating to the Corporation Retirement
Plan.
ARTICLE III
CORPORATION SAVINGS PLAN
SECTION 3.1. Corporation Savings Plan. From and after the Effective
Time, Corporation shall continue to sponsor the Corporation Savings Plan. Active
participation of IMS Health Transferred Savings Plan Employees in the
Corporation Savings Plan shall cease immediately after the Effective Time.
Nothing contained in this Article III shall have the effect of accelerating the
degree to which any individual has a vested interest in the Corporation Savings
Plan or the IMS Health Savings Plan.
SECTION 3.2. IMS Health Savings Plan. (a) As of the Effective Time,
IMS Health shall adopt the IMS Health Savings
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Plan for the benefit of IMS Health Employees, IMS Health Disabled Employees, IMS
Health Transitional Employees and IMS Health Retirees who were participants in
the Corporation Savings Plan immediately prior to the Effective Time (the "IMS
Health Transferred Savings Plan Employees").
(b) Prior to the date on which the transfer of assets and
liabilities to the IMS Health Savings Plan shall occur (the " IMS Health Savings
Plan Transfer Date"), which date shall occur as promptly as practicable
following the Effective Time, Corporation shall (A) cause the trustee of the
Corporation Savings Plan to segregate, in accordance with the spinoff provisions
set forth under Section 414(l) of the Code, the assets of the Corporation
Savings Plan representing the full account balances of IMS Health Transferred
Savings Plan Employees for all periods of participation through the Effective
Time (including, as applicable, all contributions and all earnings attributable
thereto); (B) make all required filings and submissions to the appropriate
governmental agencies; and (C) make all required amendments to the Corporation
Savings Plan and related trust agreement necessary to provide for the
segregation and transfer of assets described in this Section 3.2.
(c) On the IMS Health Savings Plan Transfer Date, IMS Health shall
cause the trustee of the Corporation Savings Plan to transfer to the trustee of
the IMS Health Savings Plan the full account balances (inclusive of loans) of
IMS Health Transferred Savings Plan Employees in kind based on those investment
funds in which such account balances are then invested (including, but not
limited to, the pooled stock fund described in Section 3.4); provided, however,
that loans to IMS Health Transferred Savings Plan Employees shall be transferred
in the form of notes. In consideration of the segregation and transfer of assets
described herein, the IMS Health Savings Plan shall, as of the IMS Health
Savings Plan Transfer Date, assume all Liabilities attributable to such assets,
whether incurred prior to or after the Effective Time.
SECTION 3.3. Outstanding Loans. During their employment with
Corporation, IMS Health Transferred Savings Plan Employees who have outstanding
loans originally made from the Corporation Savings Plan shall be permitted to
repay such loans by way of regular deductions from their paychecks, and, prior
to the IMS Health Savings Plan Transfer Date, Corporation or IMS Health (as the
case may be) shall cause all such deductions to be forwarded to the Corporation
Savings Plan as promptly as practicable.
SECTION 3.4. Employer Stock Fund. (a) Participants in the
Corporation Savings Plan who, immediately prior to the Effective Time, have
balances in the Corporation Common Stock fund shall have such balances
converted, as of the Effective Time, to the extent applicable, to units in a
pooled stock fund consisting of Corporation Common Stock and IMS Health Common
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13
Stock. The initial ratio of stock in the pooled stock fund shall be one share of
Corporation Common Stock to one share of IMS Health Common Stock. The percentage
interest of each participant in the pooled stock fund as of the Effective Time
shall equal such participant's percentage interest in the Corporation Common
Stock fund immediately prior to the Effective Time. The IMS Health Savings Plan
shall maintain a pooled stock fund, to which the pooled stock fund assets of IMS
Health Transferred Savings Plan Employees in the Corporation Savings Plan shall
be transferred on the IMS Health Savings Plan Transfer Date. Notwithstanding the
foregoing, the Corporation Savings Plan shall transfer the units of Corporation
Common Stock from the pooled stock fund into the Corporation Common Stock fund
and the IMS Health Savings Plan shall transfer the units of IMS Health Common
Stock from the pooled stock fund into the IMS Health Common Stock fund.
(b) Within nine months after the Distribution Date, each participant
shall liquidate his or her units of Nonemployer Stock in the pooled stock fund
and invest the proceeds thereof in any other investment option available under
the applicable plan. If the participant does not liquidate such units, such
units shall be liquidated and invested in a fixed income investment option
available under the applicable plan.
(c) A participant may not acquire additional units in the pooled
stock fund from or after the Effective Time.
SECTION 3.5. Allocation of Liabilities. The IMS Health Group shall
assume all Liabilities relating to the participation of IMS Health Transferred
Savings Plan Employees in the Corporation Savings Plan. The Corporation Group
shall retain all other Liabilities relating to the Corporation Savings Plan.
ARTICLE IV
NONQUALIFIED PLANS
SECTION 4.1. Corporation Nonqualified Plans. From and after the
Effective Time, Corporation shall continue to sponsor the Corporation SERP, the
Corporation Pension REP and the Corporation Savings BEP (collectively, the
"Corporation Nonqualified Plans") for the benefit of Corporation
Post-Distribution Employees and Corporation Retirees who, prior to the Effective
Time, were participants thereunder.
SECTION 4.2. IMS Health Nonqualified Plans. As of the Effective
Time, IMS Health shall (i) adopt the IMS Health SERP, the IMS Health Pension REP
and the IMS Health Savings BEP (collectively, the "IMS Health Nonqualified
Plans") for the benefit of IMS Health Employees and IMS Health Retirees who were
participants in the Corporation Nonqualified Plans immediately
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14
prior to the Effective Time and (ii) assume the Liabilities for benefits under
the Corporation Nonqualified Plans with respect to such employees.
SECTION 4.3. Joint and Several Liability. Corporation and IMS Health
acknowledge joint and several liability under the Employee Benefits Agreement
dated as of October 28, 1996 among D&B, Corporation and ACNielsen with respect
to certain nonqualified plans maintained by D&B prior to such date. To the
extent such joint and several liability is imposed on Corporation in respect of
a liability assumed by IMS Health under this Agreement, Corporation shall be
entitled to contribution from IMS Health for the amount of such liability
imposed. To the extent joint and several liability is imposed on IMS Health in
respect of a liability assumed by Corporation under this Agreement, IMS Health
shall be entitled to contribution from Corporation for the amount of such
liability imposed.
ARTICLE V
WELFARE PLANS
SECTION 5.1. Employee Benefit Welfare Plans. Prior to the Effective
Time, the Corporation shall continue to sponsor its Employee Benefit Welfare
Plans for the benefit of Corporation Pre-Distribution Employees. Except as
provided in Section 5.4 and Section 5.5 below, from and after the Effective
Time, Corporation shall sponsor its Employee Benefit Welfare Plans solely for
the benefit of Corporation Post-Distribution Employees, Corporation Disabled
Employees and Corporation Retirees. From and after Effective Time, IMS Health
shall sponsor its Employee Benefit Welfare Plans solely for the benefit of IMS
Health Employees, IMS Health Retirees and IMS Health Disabled Employees.
Notwithstanding the foregoing, neither Corporation nor IMS Health shall have any
obligation to sponsor any Employee Benefit Welfare Plan from or after Effective
Time.
SECTION 5.2. Dollar Limits. With respect to any medical and dental
plan that may be sponsored by IMS Health after the Effective Time, IMS Health
shall give effect, in determining any deductible, maximum out-of-pocket
limitations and annual plan maximums, to claims incurred during 1998 prior to
the Effective Time by IMS Health Employees, IMS Health Retirees and IMS Health
Disabled Employees under similar plans maintained by Corporation (or any
Affiliate thereof) for their benefit immediately prior to the Effective Time.
SECTION 5.3. Severance Plans. The Corporation Group shall retain all
Liabilities with respect to severance payments made or to be made to Corporation
Retirees including any liabilities for severance payments under the Corporation
Transition Plans. The IMS Health Group shall retain all Liabilities with respect
to severance payments made or to be made
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to IMS Health Retirees including any liabilities for severance payments under
the Corporation Transition Plans. For purposes of this Section 5.3, the term
"severance payments" shall include any welfare benefit coverage provided under
severance plans.
SECTION 5.4. Flexible Spending Accounts. From the Effective Time
until December 31, 1998, Corporation shall continue to sponsor its flexible
spending accounts for all Corporation Pre-Distribution Employees; provided,
however, that IMS Health shall cause all deductions from participant paychecks
to be forwarded to Corporation within two business days thereafter; provided,
further, that IMS Health shall reimburse Corporation for the administrative
costs incurred with respect to IMS Health Employees.
SECTION 5.5. Allocation of Liabilities. (a) The IMS Health Group
shall retain responsibility for and continue to pay all claims and
administrative expenses relating to the Corporation self-insured Medical and
Dental Plans with respect to claims incurred prior to the Effective Time, but
which are paid after the Effective Time, by IMS Health Employees, IMS Health
Disabled Employees, IMS Health COBRA participants and IMS Health Retirees as
well as their covered dependents. Any claims and administrative expenses
relating to the Corporation self-insured Medical and Dental Plans with respect
to claims incurred prior to the Effective Time, but which are paid after the
Effective Time, by Corporation Pre-Distribution Employees who are not IMS Health
Employees will remain the responsibility of The Corporation Group.
(b) The Corporation Group shall retain responsibility for and
continue to pay all premiums, expenses and benefits relating to the Corporation
Employee Welfare Plans with respect to claims incurred (for self-insured plans)
or premiums due (for insured plans) from and after the Effective Time by
Corporation Post-Distribution Employees, Corporation Disabled Employees,
Corporation COBRA participants and Corporation Retirees as well as their covered
dependents.
(c) The IMS Health Group shall retain responsibility for and
continue to pay all premiums, expenses and benefits relating to the Employee
Welfare Plans with respect to claims incurred (for self-insured plans) or
premiums due (for insured plans) from and after the Effective Time by IMS Health
Employees, IMS Health Disabled Employees, IMS Health COBRA participants and IMS
Health Retirees as well as their covered dependents.
(d) For the purposes of this Section 5.5, a claim is deemed incurred
when the services that are the subject of the claim are performed; [in the case
of life insurance, when the death occurs]; in the case of long-term disability,
when the disability occurs; and, in the case of a hospital stay, when the
employee first enters the hospital. Notwithstanding the foregoing, claims
incurred by any employee of a pre-Distribution
<PAGE>
16
Subsidiary of Corporation or their covered dependents under any welfare plan
maintained by such Subsidiary solely for the benefit of its employees and their
dependents shall, whether incurred prior to, on or after the Effective Time, be
the sole responsibility and liability of that Subsidiary.
(e) The Corporation Group shall be responsible for all COBRA
coverage for any Corporation Retiree and his or her covered dependents who
participated in a Corporation Employee Benefit Welfare Plan and who had or have
a loss of health care coverage due to a qualifying event occurring prior to the
Effective Time. The IMS Health Group shall be responsible for all COBRA coverage
for any IMS Health Retiree and his or her covered dependents who participated in
a Corporation Employee Benefit Welfare Plan and who had or have a loss of health
care coverage due to a qualifying event occurring prior to the Effective Time.
Notwithstanding the foregoing, a pre-Distribution Subsidiary of Corporation
shall be responsible for all COBRA coverage for its former employees and covered
dependents who participated in a plan maintained solely for their benefit
whether the applicable event occurs prior to, on or after the Effective Time.
COBRA coverage to which a Corporation Post-Distribution Employee is entitled as
a result of a qualifying event occurring at or after the Effective Time shall be
the responsibility of the Corporation Group.
SECTION 5.6. Allocation of the Corporation's Self-Insured Medical
and Dental Plans Reserve for Claims Incurred But Not Yet Reported (IBNR). The
IBNR reserve of $2.8 million will be allocated between the Corporation Group and
IMS Health based on the following methodology:
(a) The IBNR reserve will be separated into its components by type
of coverage (i.e., indemnity medical, point-of-service medical and dental).
(b) The IBNR reserve by coverage type will be divided based on the
average number of Corporation Pre-Distribution Employees enrolled in the three
months prior to the Effective Time who were employees of the Corporation Group
(but not of IMS Health Group) and who were employees of the IMS Health Group.
SECTION 5.7. Retiree Welfare Plans. The Corporation Group shall be
responsible for providing retiree welfare benefits, where applicable, to
Corporation Retirees and Corporation Post-Distribution Employees. The IMS Health
Group shall be responsible for providing retiree welfare benefits, where
applicable, to IMS Health Retirees and IMS Health Employees.
<PAGE>
17
ARTICLE VI
EQUITY-BASED PLANS
SECTION 6.1. Corporation Stock Options. Stock options awarded under
the Corporation Stock Option Plans ("Corporation Stock Options") shall be
treated as follows:
(a) Corporation Post-Distribution Employees; and Corporation
Disabled Employees. From and after the Effective Time, each unexercised
Corporation Stock Option held by Corporation Post-Distribution Employees ,
Corporation Disabled Employees and the specified options held by the persons
listed on Schedule A shall remain outstanding pursuant to the terms of the award
agreements and the Corporation Stock Option Plans; provided , however, that from
and after such time, each unexercised Corporation Stock Option shall be adjusted
as follows: (i) the number of shares of Corporation Common Stock covered by the
adjusted stock option shall be determined by (A) multiplying the number of
shares of Corporation Common Stock covered by the Corporation Stock Option by a
fraction, the numerator of which equals the average of high and low trading
prices of a share of Corporation Common Stock for the five trading days
immediately preceding the ex-dividend date, and the denominator of which equals
the average of high and low trading prices of a share of Corporation Common
Stock for the five trading days starting on the ex-dividend trading Date
("Corporation Ratio") and (B) rounding down the result to a whole number of
shares and (ii) the exercise price of the adjusted stock option shall equal the
original exercise price divided by the Corporation Ratio.
(b) IMS Health Employees; IMS Health Transitional Employees; and IMS
Health Disabled Employees. As of the Effective Time, (i) each unexercised
Corporation Stock Option held by IMS Health Employees, IMS Health Transitional
Employees and IMS Health Disabled Employees shall be cancelled except as
provided in Schedule A and (ii) such individuals shall except as provided in
Schedule A receive replacement stock options awarded under the IMS Health
Replacement Plans, which shall be adopted by IMS Health prior to the Effective
Time. The number of IMS Health Common Stock covered by each replacement stock
option shall be determined by (i) multiplying the number of shares of
Corporation Common Stock covered by the cancelled Corporation Stock Option by a
fraction, the numerator of which equals the average of high and low trading
prices of a share of Corporation Common Stock for the five trading days
immediately preceding the ex-dividend date, and the denominator of which equals
the average of high and low trading prices of an IMS Health Common Share for the
five trading days starting on the regular way trading date (" IMS Health Ratio")
and (ii) rounding down the result to a whole number of shares. The exercise
price of each replacement stock option shall be determined by dividing the
exercise price of the cancelled Corporation Stock Option by the IMS Health
ratio. Except as otherwise provided in the IMS Health Replacement Plans, all
other terms of the replacement stock options shall remain
<PAGE>
18
substantially identical to the terms of the cancelled Corporation Stock Options.
(c) IMS Health Retirees; and Corporation Retirees. As of the
Effective Time, (i) each unexercised Corporation Stock Option held by IMS Health
Retirees and Corporation Retirees shall be adjusted in substantially the same
manner as employees of the Corporation Group and (ii) IMS Health may offer to
such IMS Health Retirees and Corporation Retirees, and the IMS Health Committee
shall determine, alternative adjustments or substitutions, provided such
Retirees agree to surrender their adjusted Corporation Stock Options.
SECTION 6.2. Corporation LSARs. All limited stock appreciation
rights awarded under the Corporation Stock Option Plans ("Corporation LSARs")
shall be adjusted or substituted (as the case may be) in substantially the same
manner as the Corporation Stock Options described in Section 6.1 above.
SECTION 6.3. Restricted Stock Plan. Restricted stock awarded under
the Corporation Stock Option Plans ("Corporation Restricted Stock") and
restricted stock received as a result of the Distribution ("IMS Health
Restricted Stock") shall be treated as follows:
(a) Corporation Post-Distribution Employees. As of Effective Time,
IMS Health Restricted Stock credited to Corporation Post-Distribution Employees
shall be adjusted pursuant to the Corporation Stock Option Plans and each such
individual shall receive a number of additional shares of Corporation Restricted
Stock, determined by multiplying the number of shares of forfeited IMS Health
Restricted Stock by the Corporation Ratio and the reciprocal of the IMS Health
Ratio, having the same terms as the Corporation Restricted Stock from which they
arose.
(b) IMS Health Employees. As of the Effective Time, Corporation
Restricted Stock and IMS Health Restricted Stock credited to IMS Health
Employees and IMS Health Transitional Employees 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 Corporation Restricted Stock multiplied by the IMS
Health Ratio and the reciprocal of the Corporation Ratio, such replacement
shares of IMS Health Restricted Stock to have the same terms as the Corporation
Restricted Stock from which they arose.
SECTION 6.4. Executive Annual Incentive Plan. Outstanding awards
under the Corporation Executive Annual Incentive Plan shall be treated as
determined by the Corporation and IMS Health, respectively.
<PAGE>
19
SECTION 6.5. Corporation Employee Stock Purchase Plan. (a) From and
after the Effective Time, Corporation shall continue to sponsor the Corporation
Employee Stock Purchase Plan.
(b) As of the Effective Time, IMS Health shall adopt the IMS Health
Employee Stock Purchase Plan for the benefit of IMS Health Employees.
SECTION 6.6. Allocation of Liabilities. The IMS Health Group shall
assume all Liabilities with respect to awards granted to IMS Health Employees,
IMS Health Retirees, Corporation Retirees and IMS Health Disabled Employees
pursuant to the IMS Health Replacement Option Plan. The Corporation Group shall
retain all other Liabilities with respect to awards granted pursuant to the
Corporation Stock Option Plans (including, but not limited to, awards granted to
Corporation Post-Distribution Employees).
ARTICLE VII
FOREIGN EMPLOYEE BENEFIT PLANS
SECTION 7.1. Foreign Plans. Except as set forth in [Exhibit 7.1],
with respect to its employees, Corporation and IMS Health shall continue to
sponsor and retain liability for any Employee Benefits Plans maintained outside
the United States.
ARTICLE VIII
OTHER EMPLOYEE BENEFIT ISSUES
SECTION 8.1. Employee Benefit Litigation Liabilities. Except as
otherwise expressly provided in this agreement , the IMS Health Group shall
assume all Employee Benefit Litigation Liabilities that are asserted by
Corporation Pre-Distribution Employees who were employees of the IMS Health
Group or Corporate Staff Employees and the Corporation Group shall assume all
Employee Benefit Litigation Liabilities that are asserted by all other
Corporation Pre-Distribution Employees.
SECTION 8.2. Indemnification. To the extent that any claim or
litigation is asserted against Corporation by a Corporation Retiree who was a
Corporate Staff Employee prior to the Distribution, Corporation shall be
entitled to indemnification from IMS Health for the amount of any liability
imposed.
SECTION 8.3. Workers' Compensation. The Corporation Group shall
retain all Liabilities relating to workers' compensation claims that were
incurred (a) prior to the Effective Time with respect to Corporation
Pre-Distribution Employees who were employed by the Corporation Group (not
including the IMS Health Group) and Corporate Staff Employees allocated to
Corporation as a result of the Distribution and (b) on and after
<PAGE>
20
the Effective Time with respect to Corporation Post-Distribution Employees. The
IMS Health Group shall retain all Liabilities relating to workers' compensation
claims that were incurred (a) prior to the Effective Time with respect to
Corporation Pre-Distribution Employees who were employed by the IMS Health Group
and Corporate Staff Employees allocated to IMS Health as a result of the
Distribution and (b) on and after the Effective Time with respect to IMS Health
Employees. For purposes of this paragraph, a claim is deemed incurred when the
injury that is the subject of the claim occurs.
SECTION 8.4. Cash Funding. Sufficient cash shall be left with
Corporation upon the Distribution, based on a good faith estimate, to fund all
severance Liabilities retained by Corporation Group pursuant to Section 5.3(a)
hereof as well as the unfunded amounts payable by Corporation to Corporation
Retirees hereunder (including payments under non-qualified plans pursuant to
Section 4.1 hereof and retiree welfare benefits pursuant to Section 5.7 hereof).
Such cash amount shall include amounts sufficient to fund all such payments as
well as any related tax, social security and similar government-mandated
payments and employee plan contributions, all without giving effect to any
present-value calculation and without reduction of any taxes due thereon. If the
estimated cash amounts result in an excess or deficit over or under the amounts
actually expended by Corporation for such items, appropriate payments will be
made between the parties to eliminate any such excess or deficit.
ARTICLE IX
BENEFIT PLAN PARTICIPATION
SECTION 9.1. Corporation Plans. Except as specifically provided
herein, all IMS Health Employees shall cease participation in all Corporation
Employee Benefit Plans as of the Effective Time.
SECTION 9.2. IMS Health Plans. Except as provided in Section 5.7
herein, (a) with respect to any newly created Employee Benefit Plan sponsored by
the IMS Health Group after the Effective Time, the IMS Health Group shall cause
to be recognized (to the extent applicable) each IMS Health Employee's (i) past
service with the Corporation Group to the extent recognized under similar plans
maintained by the Corporation Group immediately prior to the Effective Time and
(ii) accrued but unused vacation time and sick days, and (b) any IMS Health
Employee who participated in a Corporation Employee Benefit Plan immediately
prior to the Effective Time shall be entitled to immediate participation in a
similar newly created Employee Benefit Plan sponsored by the IMS Health Group.
SECTION 9.3. Subsequent Employer. Except as provided in Section 5.6
herein, if, during the one-year period following the Effective Time, a
Corporation Post-Distribution Employee or a
<PAGE>
21
IMS Health Employee terminates employment with his or her employer and then
immediately commences employment with the Corporation Group or the IMS Health
Group, the subsequent employer shall cause to be recognized (to the extent
applicable) such employee's past service with the Corporation Group or the IMS
Health Group to the extent recognized under similar plans maintained by the
prior employer. Notwithstanding the foregoing, no past service shall be
recognized with respect to pension accruals under the defined benefit plans of
the subsequent employer.
SECTION 9.4. Right to Amend or Terminate. Except as specifically
provided herein, nothing in this Agreement shall be construed or interpreted to
restrict the Corporation Group's or the IMS Health Group's right or authority to
amend or terminate any of their Employee Benefit Plans following the Effective
Time.
ARTICLE X
ACCESS TO INFORMATION
SECTION 10.1. Access to Information. Article IV of the Distribution
Agreement shall govern the rights of the Corporation Group and the IMS Health
Group with respect to access to information. The term "Records" in that Article
shall be read to include all Employee Benefit Records.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1. Indemnification. Article III of the Distribution
Agreement shall govern the rights of the Corporation Group and the IMS Health
Group with respect to indemnification. The term "Corporation Liabilities" in
that Article shall be read to include all Liabilities assumed or retained by the
Corporation Group pursuant to this Agreement. The term "IMS Health Liabilities"
in that Article shall be read to include all Liabilities assumed or retained by
the IMS Health Group pursuant to this Agreement.
ARTICLE XII
DISPUTE RESOLUTION
SECTION 12.1. Dispute Resolution. Article VI of the Distribution
Agreement shall govern the rights of the Corporation Group and the IMS Health
Group with respect to dispute resolution. The term "Agreement Dispute" in that
Article shall be read to include all Employee Benefit Disputes.
<PAGE>
22
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules (if any), and the Distribution Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter. In the event of any
inconsistency between this Agreement and any Schedule hereto, the Schedule shall
prevail. Other than Sections 2.7 and 4.5 and Article VI of the Distribution
Agreement, which shall prevail over any inconsistent or conflicting provisions
in this Agreement, notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of the Distribution
Agreement, this Agreement shall control.
SECTION 13.2. Ancillary Agreements. This Agreement is not intended
to address, and should not be interpreted to address, the matters specifically
and expressly covered by the Ancillary Agreements.
SECTION 13.3. 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 such counterparts have been signed
by each of the parties and delivered to the other parties.
SECTION 13.4. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
SECTION 13.5. Expenses. Except as otherwise set forth in this
Agreement, the Distribution Agreement or any Ancillary Agreement, all costs and
expenses incurred and for which invoices have been submitted on or prior to the
Effective Time (whether or not paid on or prior to the Distribution Date) in
connection with the preparation, execution, delivery and implementation of this
Agreement, the Distribution Agreement, any Ancillary Agreement, the Information
Statement (including any registration statement on Form 10 of which such
Information Statement may be a part) and the Distribution and the consummation
of the transactions contemplated thereby shall be charged to and paid by
Corporation. Except as otherwise set forth in this Agreement, the Distribution
Agreement or any Ancillary Agreement, all costs and expenses incurred or for
which invoices are submitted after the Effective Time shall be charged to and
paid by IMS Health. Any amount or expense to be paid or reimbursed by any party
hereto to any other party hereto shall be so paid or reimbursed promptly after
the
<PAGE>
23
existence and amount of such obligation is determined and demand therefor is
paid.
SECTION 13.6. Notices. All notices and other communications
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and will be deemed given on the date on which
such notice is received:
To Nielsen Media Research, Inc.:
299 Park Avenue
New York, NY 10171
Telecopy:
Attn: Chief Legal Officer
To IMS Health Incorporated:
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
Attn: General Counsel
SECTION 13.7. Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 13.8. Amendments. Subject to the terms of Section 13.11
hereof, this Agreement may not be modified or amended except by an agreement in
writing signed by each of the parties hereto.
SECTION 13.9. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any party hereto without the prior
written consent of the other parties hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
SECTION 13.10. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
SECTION 13.11. Termination. This Agreement (including, without
limitation, Section 4.3 and Article XI hereof) may be terminated and may be
amended, modified or
<PAGE>
24
abandoned at any time prior to the Distribution by and in the sole discretion of
Corporation without the approval of the shareholders of Corporation. In the
event of such termination, no party shall have any liability of any kind to any
other party or any other person. After the Distribution, this Agreement may not
be terminated except by an agreement in writing signed by the parties; provided,
however, that Section 4.8 and Article XII shall not be terminated or amended
after the Distribution in respect of the third party beneficiaries thereto
without the consent of such persons.
SECTION 13.12. Subsidiaries. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party or by any entity that is contemplated to be a Subsidiary of such
party on and after the Distribution Date.
SECTION 13.13. Third Party Beneficiaries. Except as provided in
Section 4.3 and Article XI, this Agreement is solely for the benefit of the
parties hereto and their respective Subsidiaries and Affiliates and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 13.14. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION 13.15. Exhibits and Schedules. The Exhibits and Schedules,
if any, shall be construed with and as an integral part of this Agreement to the
same extent as if the same had been set forth verbatim herein.
SECTION 13.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 13.17. Consent to Jurisdiction. Without limiting the
provisions of Article XII hereof, each of the parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the parties further
<PAGE>
25
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in New York with
respect to any matters to which it has submitted to jurisdiction in this Section
13.17. Each of the parties irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in (i) the Supreme Court of
the State of New York, New York County, or (ii) the United States District Court
for the Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 13.18. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
SECTION 13.19. Governmental Notices; Cooperation. Notwithstanding
anything in this Agreement to the contrary, all actions contemplated herein with
respect to Employee Benefit Plans which are to be consummated pursuant to this
Agreement shall be subject to such notices to, and/or approvals by, the Service
or the PBGC (or any other governmental agency or entity) as are required or
deemed appropriate by such Employee Benefit Plan's sponsor. Each of Corporation
and IMS Health agrees to use its commercially reasonable efforts to cause all
such notices and/or approvals to be filed or obtained, as the case may be. Each
party hereto shall reasonably cooperate with the other parties with respect to
any government filings, employee notices or any other actions reasonably
necessary to maintain and implement the Employee Benefit Plans covered by this
Agreement.
SECTION 13.20. Further Assurances. From time to time, as and when
reasonably requested by any other party hereto, each party hereto shall execute
and deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to effect
the purposes of this Agreement and the transactions contemplated hereunder.
<PAGE>
26
IN WITNESS WHEREOF, the parties have duly executed and entered into
this Agreement, as of the date first above written.
COGNIZANT CORPORATION
by
-----------------------
Name:
Title:
IMS HEALTH INCORPORATED
by
-----------------------
Name:
Title:
<PAGE>
27
Exhibit 2.2
Target % of
Investment Manager Fund Name Portfolio
- ------------------ --------- -----------
(1)
Barclays Global US Debt Index Fund 34.5%
Investors
Barclays Global US Equity Index Fund 27.5%
Investors
J.P. Morgan Investment Research Optimized 27.5%
Management Equity Fund
Wellington Trust International Research 10.0%
Company, N.A. Equity Fund
Bank of New York Cash/Collective Trust 0.5%
Fund
Short Term Investment
Fund
- ----------
(1) The actual percent of the portfolio for any one fund may vary plus or
minus three percentage points compared to the target percentages.
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
TRANSITION SERVICES AGREEMENT
-----------------------------
This AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT dated as of
_______________, 1998, among THE DUN & BRADSTREET CORPORATION, a Delaware
corporation (the "Corporation"), THE NEW DUN & BRADSTREET CORPORATION, a
Delaware corporation ("New D&B"), COGNIZANT CORPORATION, a Delaware corporation
("Cognizant"), IMS Health Incorporated, a Delaware corporation ("IMS Health"),
ACNIELSEN CORPORATION, a Delaware corporation ("ACNielsen"), and GARTNER GROUP,
INC., a Delaware Corporation ("Gartner") amends and restates in its entirety the
Transition Services Agreement dated as of October 28, 1996 (the "1996 Transition
Services Agreement") among the Corporation, Cognizant and ACNielsen and includes
Gartner as a party to such agreement.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, pursuant to a Distribution Agreement dated as of October 28,
1996 (the "1996 Distribution Agreement") among the Corporation, Cognizant and
ACNielsen, each party agreed to provide to the other parties certain
transitional, administrative and support services, including insurance and risk
management services, on the terms set forth in the 1996 Transition Services
Agreement and the Appendix thereto.
WHEREAS, the Corporation and New D&B have entered into a Distribution
Agreement dated the date hereof (the "D&B Distribution Agreement") pursuant to
which, among other matters, each of the Corporation and New D&B have agreed to
provide, or cause one or more of their Subsidiaries to provide, to the other
party and their respective Subsidiaries certain transitional, administrative and
support services.
WHEREAS, Cognizant and IMS Health have entered into a Distribution
Agreement dated the date hereof (the "Cognizant Distribution Agreement" and
together with the 1996 Distribution Agreement and the D&B Distribution
Agreement, the "Distribution Agreements") pursuant to which, among other
matters, each of Cognizant and IMS Health have agreed to provide, or cause one
or more of their Subsidiaries to provide, to the other party and their
respective Subsidiaries certain transitional, administrative and support
services.
WHEREAS, each of the Corporation, New D&B, Cognizant, IMS Health and
ACNielsen agrees that it is in its best interest to amend and restate the 1996
Transition Services Agreement to include each party on the terms set forth in
this Agreement and Gartner agrees that it is in its best interest to become a
party to this Agreement. New D&B shall hereinafter be referred to as the
"Provider", and each of the Corporation, Cognizant, IMS Health, ACNielsen and
Gartner shall hereinafter be referred to as a "Recipient" or collectively, the
"Recipients."
<PAGE>
2
NOW, THEREFORE, subject to the terms, conditions, covenants and
provisions of this Agreement, each of the Corporation, New D&B, Cognizant, IMS
Health, ACNielsen and Gartner mutually covenant and agree that as of the date
hereof, the 1996 Transition Services Agreement will be amended and restated in
its entirety as follows:
ARTICLE I
SERVICES PROVIDED
-----------------
1.1 TRANSITION SERVICES. New D&B (the "Provider") shall provide
comprehensive insurance and risk management services to the Corporation,
Cognizant, IMS Health, ACNielsen and Gartner (each a "Recipient"; collectively,
the "Recipients"). Such services shall include risk identification, development
of appropriate insurance programs, loss prevention initiatives, accounting for
premiums, deductibles, retentions and defense costs, claims management
(including coordination with insurance carriers), the collection and
distribution of insurance proceeds and such other services as the Corporation's
Risk Management staff has been providing to the Corporation, Cognizant and
ACNielsen as of the date hereof (all such services, collectively, the
"Transition Services").
1.2 PERSONNEL. In providing the Transition Services, the Provider as
it deems necessary or appropriate in its sole discretion, may (i) use the
personnel of such Provider or its Affiliates, and (ii) employ the services of
third parties to the extent such third party services are routinely utilized to
provide similar services to other businesses of such Provider or are reasonably
necessary for the efficient performance of any of such Transition Services.
Each Recipient may retain at its own expense its own consultants and other
professional advisers.
1.3 REPRESENTATIVES. Each of the Corporation, New D&B, Cognizant, IMS
Health, ACNielsen and Gartner shall nominate a representative to act as its
primary contact person for the provision of all of the Transition Services
(collectively, the "Primary Coordinators"). The initial Primary Coordinators
shall be Frank Colarusso for the Corporation, John Riley, Director of Risk
Management, for New D&B, Stuart Goldshein for Cognizant, Leslye Katz, Vice
President and Treasurer, for IMS Health, John Forster for ACNielsen and Andrea
Tarbox for Gartner. Each party may treat an act of a Primary Coordinator of
another party as being authorized by such other party without inquiring behind
such act or ascertaining whether such Primary Coordinator had authority to so
act. The Provider and the relevant Recipient of a Transition Service shall
advise each other in writing of any change in the Primary Coordinators for such
Transition Service, setting forth the name of the Primary Coordinator to be
replaced and the name of the replacement, and certifying that the replacement
Primary Coordinator is authorized to act for such party in all matters relating
to this Agreement. Each of the Corporation, New D&B, Cognizant, IMS Health,
ACNielsen and Gartner agree that all communications relating to the provision of
the Transition Services shall be directed to the Primary Coordinators.
<PAGE>
3
1.4 LEVEL OF TRANSITION SERVICES. (a) The Provider shall perform the
Transition Services for which it is responsible hereunder following commonly
accepted standards of care in the industry and exercising the same degree of
care as it exercises in performing the same or similar services for its own
account as of the date of this Agreement, with priority equal to that provided
to its own businesses or those of any of its Affiliates, Subsidiaries or
divisions. Nothing in this Agreement shall require the Provider to favor the
businesses of any Recipient over its own businesses or those of any of its
Affiliates, Subsidiaries or divisions.
(b) The Provider of Transition Services shall not be required to
provide the Recipient of such Transition Services with extraordinary levels of
Transition Services, special studies, training, or the like or the advantage of
systems, equipment, facilities, training, or improvements procured, obtained or
made after the applicable Distribution Date by the Provider.
(c) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transition Services, each Recipient agrees
that the Transition Services provided by third parties shall be subject to the
terms and conditions of any agreements between the Provider of such Transition
Services and such third parties. The Provider shall consult with the relevant
Recipient concerning the terms and conditions of any such agreements to be
entered into, or proposed to be entered into, with third parties after the date
hereof.
1.5 LIMITATION OF LIABILITY. In the absence of gross negligence or
willful misconduct on the part of the Provider, and whether or not the Provider
is negligent, such Provider shall not be liable for any claims, liabilities,
damages, losses, costs, expenses (including, but not limited to, settlements,
judgments, court costs and reasonable attorneys' fees), fines and penalties,
arising out of any actual or alleged injury, loss or damage of any nature
whatsoever in providing or failing to provide Transition Services for which it
is responsible hereunder to the Recipient of such Transition Services.
Notwithstanding anything to the contrary contained herein, in the event the
Provider commits an error with respect to or incorrectly performs or fails to
perform any Transition Service, at the relevant Recipient's request, the
Provider shall use reasonable efforts and good faith to correct such error,
re-perform or perform such Transition Service at no additional cost to such
Recipient; PROVIDED, that the Provider shall have no obligation to recreate any
lost or destroyed data to the extent the same cannot be cured by the
re-performance of the Transition Service in question.
1.6 FORCE MAJEURE. Any failure or omission by a party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond the
control of each of the parties hereto: acts of God, fire, storm, flood,
earthquake, governmental regulation or direction, acts of the public enemy, war,
<PAGE>
4
rebellion, insurrection riot, invasion, strike or lockout; PROVIDED, HOWEVER,
that such party shall resume the performance whenever such causes are removed.
Notwithstanding the foregoing, if such party cannot perform under this Agreement
for a period of forty-five (45) days due to such cause or causes, the affected
party may terminate the Agreement with the defaulting party by providing written
notice thereto.
1.7 MODIFICATION OF PROCEDURES. The Provider may make changes from
time to time in its standards and procedures for performing the Transition
Services for which it is responsible hereunder. Notwithstanding the foregoing
sentence, unless required by law, the Provider shall not implement any
substantial changes affecting a Recipient of the relevant Transition Services
unless:
(a) the Provider has furnished such Recipient notice (which shall be
the same notice the Provider shall provide its own businesses) thereof;
(b) the Provider changes such procedures for its own businesses at
the same time; and
(c) the Provider gives such Recipient a reasonable period of time for
such Recipient (i) to adapt its operations to accommodate such changes or (ii)
to reject the proposed changes. In the event such Recipient fails to accept or
reject a proposed change on or before a date specified in such notice of change,
such Recipient shall be deemed to have accepted such change. In the event such
Recipient rejects a proposed change but does not terminate this Agreement, such
Recipient agrees to pay any charges resulting from the Provider's need to
maintain different versions of the same systems, procedures, technologies, or
services or resulting from requirements of third party vendors or suppliers.
1.8 NO OBLIGATION TO CONTINUE TO USE SERVICES. No Recipient shall
have any obligation to continue to use any of the Transition Services and may
delete any Transition Service from the Transition Services that the Provider is
providing to such Recipient by giving the Provider 180 days notice thereof.
1.9 PROVIDER ACCESS. To the extent reasonably required for personnel
of the Provider to perform the Transition Services for which the Provider is
responsible hereunder, the Recipient of such Transition Services shall provide
personnel of the Provider with access to its equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
1.10 PERFORMANCE REVIEWS. The Primary Coordinators for each Recipient
shall meet during the fourth quarter of each year with the Primary Coordinator
for the Provider for the purpose of reviewing the performance of the Provider's
Risk Management staff. Any disputes relating to the quality of such performance
shall be brought to the
<PAGE>
5
attention of the respective Chief Financial Officers (or person holding an
equivalent title) of the Provider and the Recipients.
ARTICLE II
COMPENSATION
2.1 CONSIDERATION. As consideration for the Transition Services, each
Recipient of Transition Services shall pay to the Provider a portion of the
costs and expenses incurred by the Provider relating to the Risk Management
staff as follows: each Recipient shall pay (i) a base charge of $50,000 per year
plus (ii) a proportionate share of any additional costs and expenses (i.e., not
covered by the total base charge) based on such Recipient's proportion of total
revenue as a percentage of the aggregate total revenue of all parties to this
Agreement. For purposes of calculating any additional amount payable pursuant
to clause (ii) of the preceding sentence, a party's revenue shall be that set
forth on its audited financial statements for the most recent year-end. Such
costs and expenses shall be calculated in accordance with generally accepted
accounting principles applied consistently and billed in twelve monthly
installments. Notwithstanding the foregoing, however, any services provided by
the Provider's Risk Management staff to the Provider or the Recipients that are
not in the ordinary course (all such services being "extraordinary services")
shall be borne by the company or companies for whom such extraordinary service
was provided. No extraordinary service shall be provided without the specific
approval of the company to be charged. The costs and expenses to be borne by
each Recipient will be in accordance with the annual Risk Management budget to
be provided by the Primary Coordinator for the Provider during the preceding
calendar year as follows: by May 1 for each of the Corporation, New D&B and
Cognizant; and by September 1 for each of IMS Health, ACNielsen and Gartner.
The Risk Management budget may increase each year in an amount equal to 5% over
the prior year's budget; increases in excess of 5% must be approved by the
respective Primary Coordinators for each Recipient.
2.2 INVOICES. After the end of each month, the Provider, together
with its Affiliates or Subsidiaries providing Transition Services will submit
one invoice to the Recipient of such Transition Services for all Transition
Services provided to such Recipient and its Subsidiaries by the Provider during
such month. Such monthly invoices shall be issued no later than the fifteenth
day of each succeeding month. Each invoice shall include a summary list of the
previously agreed upon Transition Service for which there are fixed dollar fees,
together with documentation supporting each of the invoiced amounts that are not
covered by the fixed fee agreements. The total amount set forth on such summary
list and such supporting detail shall equal the invoice total, and will be
provided under separate cover apart from the invoice. All invoices shall be
sent to the attention of the Primary Coordinator of the applicable Recipient at
the address set forth in Section 6.5 hereof or to such other address as such
Recipient shall have specified by notice in writing to the Provider.
<PAGE>
6
2.3 PAYMENT OF INVOICES. (a) Payment of all invoices in respect of a
Transition Service shall be made by check or electronic funds transmission in
U.S. Dollars, without any offset or deduction of any nature whatsoever, within
thirty (30) days of the invoice date. All payments shall be made to the account
designated by the Provider to the Recipient, with written confirmation of
payment sent by facsimile to the Primary Coordinator or other person designated
thereby.
(b) If any payment is not paid when due, the Provider shall have the
right, without any liability to the Recipient of such Transition Service, or
anyone claiming by or through such Recipient, upon five days' notice, to cease
providing any or all of the Transition Services provided by the Provider to such
Recipient, which right may be exercised by the Provider in its sole and absolute
discretion.
ARTICLE III
CONFIDENTIALITY
---------------
3.1 OBLIGATION. Each party and its Subsidiaries shall not use or
permit the use of (without the prior written consent of the other parties) and
shall keep, and shall cause its consultants and advisors to keep, confidential
all information concerning the other parties received pursuant to or in
connection with this Agreement. Additionally, any information which is
identified by a party as being "highly sensitive" (in connection with a
contemplated acquisition or otherwise) shall not be disclosed outside of the
Provider's Risk Management staff.
3.2 CARE AND INADVERTENT DISCLOSURE. With respect to any confidential
information, each party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held
in confidence; and
(b) upon the discovery of any inadvertent disclosure or
unauthorized use of said information, or upon obtaining notice of such a
disclosure or use from any other party, it shall take all necessary actions
to prevent any further inadvertent disclosure or unauthorized use, and,
subject to the provisions of Section 1.5 above, each such other party shall
be entitled to pursue any other remedy which may be available to it.
<PAGE>
7
ARTICLE IV
TERM AND TERMINATION
--------------------
4.1 TERM. This Agreement shall become effective on June 30, 1998 and
shall remain in force for a period of three years (or in the case of ACNielsen,
IMS Health and Gartner until November 1, 1999). After such initial period, this
Agreement shall automatically be renewed for successive one-year periods until
any party provides at least 180-days notice to the other parties of its
intention not to renew, unless all of the Transition Services are deleted by
each Recipient in accordance with Section 1.8 above, or this Agreement is
terminated under Sections 1.6, 4.3 or 6.16 below prior to the end of such Time
Period.
4.2 Intentionally Left Blank
4.3 TERMINATION. If any party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under this Agreement (other than a payment default), the party
entitled to the benefit of such performance (hereinafter referred to as a
"Non-Defaulting Party") may give written notice to the Defaulting Party
specifying the nature of such failure or default and stating that the
Non-Defaulting Party intends to terminate this Agreement with respect to the
Defaulting Party if such failure or default is not cured within fifteen days of
such written notice. If any failure or default so specified is not cured within
such fifteen day period, the Non-Defaulting Party may elect to immediately
terminate this Agreement with respect to the Defaulting Party; PROVIDED,
HOWEVER, that if the failure or default relates to a dispute contested in good
faith by the Defaulting Party, the Non-Defaulting Party may not terminate this
Agreement pending the resolution of such dispute in accordance with Article V
hereof. Such termination shall be effective upon giving a written notice of
termination from the Non-Defaulting Party to the Defaulting Party and shall be
without prejudice to any other remedy which may be available to the
Non-Defaulting Party against the Defaulting Party.
4.4 TERMINATION OF OBLIGATIONS. Each Recipient specifically agrees and
acknowledges that all obligations of the Provider to provide each Transition
Service for which the Provider is responsible hereunder shall immediately cease,
with respect to such Recipient, upon the termination of this Agreement. Upon
the cessation of the Provider's obligation to provide any Transition Service,
the Recipient of such Transition Service shall immediately cease using, directly
or indirectly, such Transition Service (including, without limitation, any and
all software of the Provider or third party software provided through the
Provider, telecommunications services or equipment, or computer systems or
equipment).
4.5 SURVIVAL OF CERTAIN OBLIGATIONS. Without prejudice to the
survival of the other agreements of the parties, the following obligations shall
survive the termination of this Agreement: (a) the obligations of each party
under Articles III and IV, and (b) the Provider's right to receive the
compensation for the Transition Services provided by it hereunder
<PAGE>
8
provided in Section 2.1 above incurred prior to the effective date of
termination.
ARTICLE V
DISPUTE RESOLUTION
------------------
5.1 DISPUTE RESOLUTION. Any disputes arising out of or in connection
with this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VI of the applicable Distribution Agreement
governing the particular parties.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Appendix hereto, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter. In
the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the provisions of any other Ancillary
Agreement, this Agreement shall control.
6.2 OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the other Ancillary Agreements.
6.3 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 such counterparts have been signed by
each of the parties and delivered to the other parties.
6.4 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the applicable Distribution Date.
6.5 NOTICES. All notices and other communications hereunder shall be
in writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
<PAGE>
9
To the Corporation:
[R.H. Donnelley Inc.]
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn: Frank Colarusso
With a copy to:
[R.H. Donnelley Inc.]
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn: General Counsel
To New D&B:
The New Dun & Bradstreet Corporation
220 East 42 Street
New York, New York 10017
Telecopy: (212) 883-3403
Attn: John Riley, Director of Risk Management
With a copy to:
The New Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy: (908) 665-5803
Attn: Chief Legal Counsel
<PAGE>
10
To Cognizant:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: (212) 708-7504
Attn: Stuart Goldshein
With a copy to:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: [ ]
Attn: Chief Legal Officer
To IMS Health:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: Leslye Katz, Vice President and Treasurer
With a copy to:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: General Counsel
<PAGE>
11
To ACNielsen:
ACNielsen Corporation
177 Broad Street
Stamford, Connecticut 06901
Telecopy: (203) 961-3179
Attn: John Forster
With a copy to:
ACNielsen Corporation
177 Broad Street
Stamford, Connecticut 06901
Telecopy: (203) 961-3179
Attn: General Counsel
To Gartner:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, Connecticut 06904
Telecopy:
Attn: Andrea Tarbox
With a copy to:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, Connecticut 06904
Telecopy:
Attn: General Counsel
6.6 WAIVERS. The failure of any party to require strict performance
by any other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
6.7 AMENDMENTS. Subject to the terms of Section 4.3 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
<PAGE>
12
6.8 ASSIGNMENT. This Agreement may not be assigned by any party,
other than to an Affiliate of such party or pursuant to a corporate
reorganization or merger, without the consent of the other party. Any
assignment in contravention of this Section 6.8 shall be void.
6.9 SUCCESSORS AND ASSIGNS. The provisions to this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
6.10 SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party or
by any entity that is contemplated to be a Subsidiary of such party on and after
the applicable Distribution Date.
6.11 THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
6.12 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
6.13 Intentionally Left Blank
6.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
6.15 CONSENT TO JURISDICTION. Each of the parties irrevocably submits
to the exclusive jurisdiction of (a) the Supreme Court of the State of New York,
New York County, and (b) the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each of
the parties agrees to commence any action, suit or proceeding relating hereto
either in the United States District Court for the Southern District of New York
or if such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction in this Section 6.15. Each of the parties irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or
<PAGE>
13
proceeding arising out of this Agreement or the transactions contemplated hereby
in (i) the Supreme Court of the State of New York, New York County, or (ii) the
United States District Court for the Southern District of New York, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
6.16 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
6.17 LAWS AND GOVERNMENT REGULATIONS. Each Recipient shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its businesses and (ii) any use such Recipient may make of the
Transition Services to assist it in complying with such laws and governmental
regulations. While the Provider shall not have any responsibility for the
compliance by the Recipient of such Transition Services with such laws and
regulations, the Provider agrees to use reasonable efforts to cause the
Transition Services to be provided by such party to be designed in such manner
that such Transition Services shall be able to assist the Recipient of such
Transition Services in complying with applicable legal and regulatory
responsibilities.
6.18 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of buyer and seller of services nor be
deemed to vest any rights, interests or claims in any third parties. The
parties do not intend to waive any privileges or rights to which they may be
entitled.
6.19 DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the applicable
Distribution Agreement governing the relevant parties.
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Transition Services Agreement to be executed the day and year first
above written.
THE DUN & BRADSTREET CORPORATION
By:
--------------------------------
Name:
Title:
THE NEW DUN & BRADSTREET CORPORATION
By:
--------------------------------
Name:
Title:
COGNIZANT CORPORATION
By:
--------------------------------
Name:
Title:
IMS HEALTH INCORPORATED
By:
--------------------------------
Name:
Title:
ACNIELSEN CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE>
15
GARTNER GROUP, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 10.5
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
June ___, 1998
Nancy Henry, Esq.
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, NJ 07974
Earl Doppelt, Esq.
ACNielsen Corporation
177 Broad Street
Stamford, CT 06901
Dear Ms. Henry and Mr. Doppelt:
Reference is made to the Distribution Agreement (the "1996
Distribution Agreement"), dated as of October 28, 1996, among Cognizant
Corporation ("Cognizant"), The Dun & Bradstreet Corporation ("D&B") and
ACNielsen Corporation ("ACNielsen"). Cognizant has announced its intention to
separate into two separate companies through a distribution (the "IMS HEALTH
Distribution") to its stockholders of all of the shares of common stock of its
subsidiary IMS Health Incorporated ("IMS HEALTH"). In Section 8.9(c) of the 1996
Distribution Agreement, Cognizant agreed not to make a distribution such as the
IMS HEALTH Distribution unless it caused the distributed entity to undertake to
both D&B and ACNielsen to be jointly and severally liable for all Cognizant
Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in
accordance with Section 8.9(c) of the 1996 Distribution Agreement and intending
to be legally bound hereby, from and after the effective time of the IMS HEALTH
Distribution, IMS HEALTH undertakes to each of D&B and ACNielsen to be jointly
and severally liable with Cognizant for all Cognizant Liabilities under the 1996
Distribution Agreement.
Very truly yours,
IMS HEALTH INCORPORATED
By:
-------------------------------
Name:
Title:
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -----------
<S> <C> <C>
ENTERPRISE ASSOCIATES, INC. Delaware
COGNIZANT INDIA HOLDING CORPORATION Delaware
CZT India Corporation Delaware
Dun & Bradstreet India Private Limited India
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Delaware 98,28
Cognizant Technology Solutions U.S. Corporation Delaware
Cognizant Technology Solutions Canada, Inc. Ontario
Cognizant Technology Solutions India Limited India
Cognizant Technology Solutions UK Limited United Kingdom
CSS Investment Corporation Delaware
COGNIZANT TRANSPORTATION SERVICES CORPORATION Delaware
DBHC, INC. Delaware
LexHealth, Inc. Illinois
ERISCO, INC. New York
IMS JAPAN K.K. Japan
SSJ K.K. Japan
IMS HOLDINGS (U.K.) LIMITED United Kingdom
Intercontinental Medical Statistics Ltd. United Kingdom
Imsworld Publications Ltd. United Kingdom
Medical Direct Mail Organisation Ltd. United Kingdom
PMS International Limited United Kingdom
Pharma Strategy Group Limited United Kingdom
IMS AUSTRALIA PTY. LTD. Australia
Amfac Pty. Limited Australia
Chemdata Pty. Limited Australia
Data Design Hisoft Pty. Limited Australia
Medrecord Australia Pty. Limited Australia
Permail Pty. Limited Australia
Healthnet Pty. Limited Australia
INFORMATIONS MEDICALES ET STATISTIQUES S.A. France
IMS OF CANADA LIMITED Nova Scotia
IMS TAIWAN COMPANY LTD. Taiwan 99.99
IMS PHILIPPINES, INC. Philippines 99.96
IMS PACIFIC LIMITED Hong Kong
IMS KOREA LTD. Korea
IMS (NZ) LIMITED New Zealand
<PAGE>
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -----------
I.M.S. PORTUGAL-CONSULTORES INTERNACIONAIS DE
MARKETING FARMACEUTICO, LDA Portugal
IMS INTERNATIONAL (SOUTH AFRICA) (PTY.) LTD. South Africa
Decision Surveys International (Pty.) Ltd. South Africa
I.M.S. FINANCIAL, INC. Delaware
IMS Software Services, Ltd. Delaware
Dun & Bradstreet Germany Holding GmbH Germany
IMS-MIDOC Medizinische Informations,
Dokumentations und Consultingge-
sellschaft mbH Germany
IMS Holding Deutschland GmbH Germany
IFNS Marktforschung GmbH Germany
IMS GmbH Institut fuer Medizinische Germany
Statistik
IMS Data GmbH Germany
IMS Hellas Ltd. Greece
GPI Krankenhausforschung Germany 60.00
Gesellschaft Fur Pharma-
Informations-systeme m.b.H.
MedVantage GmbH Integriertes Germany 60.00
Datenmanagement in Health Care-Markt
Medicare Audit Limited United Kingdom 50.00
Intercontinental Medical Statistics Ireland Limited Ireland 99.99
IMS Information Medical Statistics (Israel) Ltd. Israel
IMS Asia (1989) Pte. Ltd. Singapore
IMS Pharminform Holding AG Switzerland
Cognizant Licensing Associates, L.P. Delaware 83.00
Spartan Leasing Corporation Delaware
Pharmadat Marktforschungs-Gesellschaft m.b.H. Austria
Pharmacall Statistik Ges. m.b.H. Austria
Informations Medicales Et Statistiques S.A. Belgium
Pharma Data Boliviana S.R.L. Bolivia
IMS Servicos Ltda. Brazil
Intercomunicaciones Y Servicio de Datos S.A. Columbia 98.96
IMS Medinform A.S. Czech Republic
IMS Republica Dominicana, S.A. Dominican Republic
Datandina Ecuador S.A. Ecuador
IMS Egypt Limited Egypt
Institute for Medical Statistics OY Finland
Asserta Centroamerica Medicion de Mercados, S.A. Guatemala
IMS Medinform Hungaria Market Research Services Ltd. Hungary
IMS Data (M) Sdn. Bhd. Malaysia
<PAGE>
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -----------
Interdata S.A. de C.V. Mexico
Informations Medicales & Statistiques S.A.R.L. Morocco
I.M.S. (Nederland) B.V. Netherlands
IMS Denmark ApS Denmark
I.M.S. Finance (Nederland) B.V. Netherlands
Institute for Medical Statistics Norge A/S Norway
Pharma Data Paraguaya S.R.L. Paraguay
IMS Lanka (Private) Limited Sri Lanka
Datandina S.A. Peru
Intercontinental Marketing Services Iberica, S.A. Spain
Mercados Y Analisis, S.A. Spain
Data Coordination AG Switzerland
PMA Sociedad Anomina Argentina
IMS AG Switzerland
IMS Information Medical Statistics AG Switzerland
IMS Poland Limited Sp. z.o.o. Poland
IMS Institute for Medical Statistics Sweden AB Sweden
RCI Research Consultants AG Switzerland
Marketing Y Datos Limitada Chile
Interstatistik AG Switzerland
IMS Ges m.b.H. Austria
Datec Industria e Comercio, Distribuidora
Grafica e Mala Direta Ltda. Brazil
IMS Tunisia Tunisia
IMS Tibbi Istatistik Ticaret ve
Musavirlik Ltd Sirketi Turkey
Pharma Data Uruguaya S.A. Uruguay
PMV De Venezuela, C.A. Venezuela
CLARK-O'NEILL, INC. New Jersey
COORDINATED MANAGEMENT SYSTEMS, INC. Delaware
INTERCONTINENTAL MEDICAL STATISTICS INTERNATIONAL, LTD. Delaware
DIOGENES.COM, INC. Delaware
COGNIZANT TRADING CORPORATION Delaware
IMS South Africa (Pty.) Ltd. South Africa
IMSA (Pty.) Ltd. South Africa
IPRA (Pty.) Ltd. South Africa
PMSA (Pty.) Ltd. South Africa
IMS SERVICES NEDERLAND B.V. Netherlands
<PAGE>
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -----------
IMS ITALIA S.P.A. Italy
IMS Holding (Belgium) S.A. Belgium
CZT/ACN TRADEMARKS, L.L.C. Delaware 50.00
SALES TECHNOLOGIES, INC. Georgia
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 344,251 318,435
<SECURITIES> 0 0
<RECEIVABLES> 303,047 303,609
<ALLOWANCES> 7,395 7,199
<INVENTORY> 29,969 26,463
<CURRENT-ASSETS> 724,507 694,412
<PP&E> 515,523 508,078
<DEPRECIATION> 281,945 274,495
<TOTAL-ASSETS> 1,630,331 1,579,520
<CURRENT-LIABILITIES> 425,402 441,210
<BONDS> 0 0
0 0
0 0
<COMMON> 1,711 1,711
<OTHER-SE> 870,551 799,859
<TOTAL-LIABILITY-AND-EQUITY> 1,630,331 1,579,520
<SALES> 0 0
<TOTAL-REVENUES> 337,032 1,418,153
<CGS> 0 0
<TOTAL-COSTS> 292,555 1,082,811
<OTHER-EXPENSES> 2,722 4,789
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 200 2,293
<INCOME-PRETAX> 82,764 430,235
<INCOME-TAX> 22,677 117,885
<INCOME-CONTINUING> 60,087 312,350
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 60,087 312,350
<EPS-PRIMARY> 0.37 1.89
<EPS-DILUTED> 0.36 1.86
</TABLE>
<PAGE>
EXHIBIT 99.1
SUBJECT TO COMPLETION OR AMENDMENT, DATED JUNE 12, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10 RELATING TO CERTAIN OF THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES.
<PAGE>
INFORMATION STATEMENT
------------------
IMS HEALTH INCORPORATED
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------------
NIELSEN MEDIA RESEARCH, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------------
This Information Statement is being furnished in connection with the
distribution (the "Distribution") to holders of common stock, par value $0.01
per share (the "Cognizant Common Stock"), of Cognizant Corporation ("Cognizant")
of all outstanding shares of common stock, par value $0.01 per share (the "IMS
HEALTH Common Stock"), of IMS Health Incorporated ("IMS HEALTH"). As of
, 1998, Cognizant will have contributed to IMS HEALTH all or
substantially all of those businesses comprising the IMS HEALTH Business (as
defined below), which accounted for approximately 75% of Cognizant's revenues
and 68% of its operating income in 1997. See "IMS HEALTH Business".
Shares of IMS HEALTH Common Stock will be distributed to holders of
Cognizant Common Stock of record as of the close of business on , 1998
(the "Record Date"). Each such holder will receive one share of IMS HEALTH
Common Stock for every share of Cognizant Common Stock held on the Record Date.
Share certificates representing shares of IMS HEALTH Common Stock will be mailed
on , 1998 or as promptly as practicable thereafter. No consideration
will be paid by Cognizant's stockholders for shares of IMS HEALTH Common Stock.
Prior to the date hereof, there has not been any established trading market for
the IMS HEALTH Common Stock, although a "when-issued" market is expected to
develop prior to the Distribution. 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". See "The Distribution--Listing and Trading of IMS HEALTH
Common Stock and Nielsen Media Research Common Stock".
After the Distribution, Cognizant's only remaining business will be the
Nielsen Media Research Business (as defined below), and, therefore, in
connection with the Distribution, Cognizant will change its name to Nielsen
Media Research, Inc. See "Nielsen Media Research Business". The symbol under
which shares of Cognizant Common Stock (which on and after the Distribution Date
will be known as "Nielsen Media Research Common Stock") will trade on the NYSE
will become "NMR". See "The Distribution--Listing and Trading of IMS HEALTH
Common Stock and Nielsen Media Research Common Stock".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY RECIPIENTS OF IMS HEALTH COMMON STOCK AND CONTINUING
HOLDERS OF NIELSEN MEDIA RESEARCH COMMON STOCK.
------------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THESE SECURITIES 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 INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Stockholders of Cognizant with inquiries related to the Distribution should
contact First Chicago Trust Company of New York, the Distribution Agent for the
Distribution, at 1-800-519-3111 or the Vice President-- Investor Relations of
Cognizant at (203) 222-4238.
The date of this Information Statement is , 1998.
<PAGE>
TABLE OF CONTENTS
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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
IMS HEALTH MANAGEMENT AND EXECUTIVE COMPENSATION........................................................... 61
IMS HEALTH SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 70
DESCRIPTION OF IMS HEALTH CAPITAL STOCK.................................................................... 72
NIELSEN MEDIA RESEARCH CAPITALIZATION...................................................................... 80
NIELSEN MEDIA RESEARCH SELECTED FINANCIAL DATA............................................................. 81
NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS............................... 82
NIELSEN MEDIA RESEARCH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................................... 85
NIELSEN MEDIA RESEARCH BUSINESS............................................................................ 90
NIELSEN MEDIA RESEARCH MANAGEMENT AND EXECUTIVE COMPENSATION............................................... 98
NIELSEN MEDIA RESEARCH SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................... 104
DESCRIPTION OF NIELSEN MEDIA RESEARCH CAPITAL STOCK........................................................ 105
AVAILABLE INFORMATION...................................................................................... 114
REPORTS OF IMS HEALTH...................................................................................... 114
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 will be
separated into two publicly traded companies: (i) 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 IMS HEALTH Common Stock for each share of 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 Distribution of the shares
of IMS HEALTH Common Stock to Cognizant stockholders will be tax-free to
Cognizant and its stockholders.
1
<PAGE>
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
<PAGE>
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 "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 current management of
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3
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Cognizant or its subsidiaries. See "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 reflect
the separation of the IMS HEALTH Business from the Nielsen
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4
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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
shares of Cognizant Common Stock outstanding as of
, 1998, the Distribution would consist of
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 is , 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 Date among such
Cognizant Common Stock (which will represent each such
stockholder's interest in Nielsen Media Research after the
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5
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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 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 "Relationship Between
IMS HEALTH and Nielsen Media Research After the
Distribution".
</TABLE>
6
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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. Based on preliminary discussions with the IMS
HEALTH Board of Directors, 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
Between IMS HEALTH and Nielsen Media Research After the
Distribution--Distribution Agreement".
</TABLE>
7
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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).
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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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 3.2 million shares from treasury stock to
consummate the Walsh acquisition. The PMSI acquisition will
not be completed until after the Record Date and therefore,
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. If the Walsh acquisition is not completed
prior to the Record Date, Walsh shareholders will also
receive IMS HEALTH Common Stock pursuant to a similar
formula. 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 and customary closing conditions. The
acquisition of PMSI is also subject to the receipt of
regulatory and other required approvals. Cognizant has
received all the necessary regulatory approvals for the
acquisition of Walsh. 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 selling stockholder. 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".
</TABLE>
* * *
9
<PAGE>
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
<PAGE>
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.
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<PAGE>
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
</TABLE>
12
<PAGE>
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.
13
<PAGE>
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.
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 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.
14
<PAGE>
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 light of the potentially significant liabilities which could arise
from the IRI Action and in order to facilitate the D&B spin-off (as defined
below) in 1996, 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
15
<PAGE>
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 61% of its revenues 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
16
<PAGE>
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 and customary closing
conditions. The acquisition of PMSI is also subject to the receipt of regulatory
and other required approvals. Cognizant has received all the necessary
regulatory approvals for the acquisition of Walsh. 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 (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.
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<PAGE>
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".
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
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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. 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 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 (an after tax amount equal to
approximately 22% of its 1997 cash flow before financing activities) 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 formally approved the Distribution and declared 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, 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 on or about 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
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IMS HEALTH Common Stock is offered in exchange for the stock of the target, or
may be pursuant to 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
shares of Cognizant Common Stock outstanding as of , 1998,
the Distribution would consist of 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
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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
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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.
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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
IMS HEALTH has agreed to sell promptly after the Distribution Date, 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 "IMS HEALTH Management and Executive Compensation--Board of
Directors" and "Nielsen Media Research Management and Executive
Compensation--Board of Directors".
The following description summarizes the material 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 necessary or desirable
to carry out the purposes of the Distribution Agreement and the other agreements
summarized below.
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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 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
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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.
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
27
<PAGE>
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
generally 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 in general 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 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
28
<PAGE>
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 "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.
AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT
Cognizant, IMS HEALTH, D&B, The New Dun & Bradstreet Corporation ("New
D&B"), AC Nielsen and Gartner Group, Inc. ("Gartner") will enter into an Amended
and Restated Transition Services Agreement pursuant to which such parties have
agreed to certain basic terms governing the provision by New D&B to the other
parties of insurance and risk management services for a transitional period
after the Distribution Date. The Amended and Restated Transition Services
Agreement amends and restates in its entirety the Transition Services Agreement
dated as of October 28, 1996 among Cognizant, D&B and ACNielsen entered into in
connection with the D&B spin-off and includes Gartner as a party to such
agreement.
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 "IMS
29
<PAGE>
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. Based
on preliminary discussions with the IMS HEALTH Board of Directors, 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.
30
<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 acquisition 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)
-------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- ------------
<CAPTION>
($ 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 the net assets of the Nielsen Media
Research Business 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 (3,183) 19,530
Non-Operating Income--Net(3) 38,287 (3,183) 35,104
------------ -------------- -------------
Income from Continuing Operations Before Provision for
Income Taxes 82,764 (28,932) 53,832
Provision for Income Taxes 22,677 (7,927) 14,750
------------ -------------- -------------
Income from Continuing Operations 60,087 (21,005) 39,082
Income From Discontinued Operations--Net of Income Taxes -- 21,005 21,005
------------ -------------- -------------
NET INCOME $ 60,087 0 $ 60,087
------------ -------------- -------------
------------ -------------- -------------
BASIC EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.37 $ (0.13) $ 0.24
BASIC EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.13 0.13
------------ -------------- -------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.37 $ 0.00 $ 0.37
------------ -------------- -------------
------------ -------------- -------------
DILUTED EARNINGS PER SHARE CONTINUING OPERATIONS $ 0.36 $ (0.13) $ 0.23
DILUTED EARNINGS PER SHARE DISCONTINUED OPERATIONS -- 0.13 0.13
------------ -------------- -------------
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
42
<PAGE>
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
43
<PAGE>
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
44
<PAGE>
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.
45
<PAGE>
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 of 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.
55
<PAGE>
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
56
<PAGE>
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.
57
<PAGE>
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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<PAGE>
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 3.2 million shares from treasury stock to consummate the
Walsh acquisition. The PMSI acquisition will not be completed until after the
Record Date and therefore, 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. If the Walsh acquisition is not completed prior to the Record
Date, Walsh shareholders will also receive IMS HEALTH Common Stock pursuant to a
similar formula. 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 and customary closing conditions. The acquisition of
PMSI is also subject to the receipt of regulatory and other required approvals.
Cognizant has received all the necessary regulatory approvals for the
acquisition of Walsh. 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.
59
<PAGE>
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 light of the potentially significant liabilities which could arise from
the IRI Action and in order to facilitate the 1996 Distribution, 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.
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<PAGE>
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 "--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 "--IMS HEALTH
Executive Officers".
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.
Officer, present; Chairman and
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
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
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<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 exercisable for NMR Common
Stock, in proportion to the relative value of share 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.
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.
IMS HEALTH 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 IMS HEALTH AND AGE* BIOGRAPHICAL DATA
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Robert E. Weissman, 57.................................. See information under "IMS HEALTH Board of Directors".
Chairman and Chief Executive Officer
Victoria R. Fash, 46.................................... See information under "IMS HEALTH Board of Directors".
President and Chief Operating Officer
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.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH IMS HEALTH AND AGE* BIOGRAPHICAL DATA
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
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
65
<PAGE>
COMPENSATION OF IMS HEALTH EXECUTIVE OFFICERS
The following table discloses the compensation paid by Cognizant for
services rendered to Cognizant in 1997 to IMS HEALTH's Chief Executive Officer
and to each of the persons who 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.
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH COGNIZANT
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
AWARDS PAYOUTS
------------------------ -----------------
ANNUAL 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
IMS HEALTH YEAR ($) ($) COMPENSATION(2)($) ($) (#) ($)
- ---------------------- --------- --------- --------- ------------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Weissman.... 1997 750,000 1,007,100 1,006 0 0 0
Chairman and Chief
Executive Officer
Victoria R. Fash...... 1997 375,000 349,128 0 268,938 0 0
President and Chief
Operating Officer
Alan J. Klutch........ 1997 325,000 303,473 0 0 0 0
Senior Vice
President-
Finance
Kenneth S. 1997 325,000 235,025 127,388 0 190,000 0
Siegel(6)...........
Senior Vice
President, General
Counsel and
Secretary
James C. Malone....... 1997 240,625 167,850 0 136,538 0 0
Senior Vice
President--Finance
and Controller
<CAPTION>
(A) (I)
NAME AND PRINCIPAL ALL OTHER
POSITION WITH COMPENSATION(5)
IMS HEALTH ($)
- ---------------------- -----------------
<S> <C>
Robert E. Weissman.... 72,568
Chairman and Chief
Executive Officer
Victoria R. Fash...... 19,655
President and Chief
Operating Officer
Alan J. Klutch........ 22,637
Senior Vice
President-
Finance
Kenneth S. 4,800
Siegel(6)...........
Senior Vice
President, General
Counsel and
Secretary
James C. Malone....... 8,212
Senior Vice
President--Finance
and Controller
</TABLE>
- ------------------------
(1) The 1997 bonus awards were earned in 1997 and paid in 1998.
(2) The amount shown for Mr. Weissman represents reimbursement for taxes paid by
him with respect to company-directed travel and certain other expenses. The
amount shown for Mr. Siegel includes 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 amounts shown for Ms. Fash and Mr. Malone 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.
(4) 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
Grants/SAR Grants in Last Fiscal Year to Purchase Cognizant Common Stock".
(5) 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.
(6) Mr. Siegel joined Cognizant on January 31, 1997. The salary and bonus
amounts provided above have been annualized for the full year 1997.
66
<PAGE>
OPTION GRANTS ON COGNIZANT COMMON STOCK TO IMS HEALTH EXECUTIVES IN LAST FISCAL
YEAR
The following table provides information on fiscal year 1997 grants of
options to the named IMS HEALTH executives 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
Victoria R. Fash(3).............................. 0 NA NA NA NA
Alan J. Klutch................................... 0 NA NA NA NA
Kenneth S. Siegel(4)............................. 190,000 4.8% $ 33.0625 01/30/07 $ 1,678,032
James C. Malone.................................. 0 NA NA NA NA
</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) 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 $108,031, respectively.
(4) Mr. Siegel joined Cognizant on January 31, 1997.
AGGREGATE COGNIZANT OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
COGNIZANT OPTION VALUES
The following table provides information on option exercises in 1997 by the
named executives of IMS HEALTH and the value of each such executive's
unexercised in-the-money options to acquire Cognizant Common Stock at December
31, 1997. See also "Relationship Between IMS HEALTH and Nielsen Media Research
After the Distribution--Employee Benefits Agreement".
67
<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
(E)
VALUE OF
UNEXERCISED,
(D) IN-THE-MONEY
NUMBER OF SECURITIES COGNIZANT
UNDERLYING UNEXERCISED OPTIONS/SARS
COGNIZANT OPTIONS/SARS AT AT
(B) (C) FISCAL
SHARES ACQUIRED VALUE FISCAL YEAR-END(2)(#) YEAR-END(3)($)
(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
Victoria R. Fash(4)...... 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(5)..... Stock Options 0 $ 0 0 190,000 $ 0
James C. Malone.......... Effective Date Options 8,334 $ 80,476 26,615 183,085 $ 299,920
1,666 $ 16,087
SUBSTITUTE OPTIONS 953 $ 11,891 2,925 2,952 $ 32,241
958 $ 9,546
982 $ 14,293
985 $ 9,017
<CAPTION>
(A)
NAME UNEXERCISABLE
- ------------------------- -------------
<S> <C>
Robert E. Weissman....... $ 8,835,948
$ 546,848
Victoria R. Fash(4)...... $ 3,625,007
$ 109,811
Alan J. Klutch........... $ 2,039,073
$ 103,451
Kenneth S. Siegel(5)..... $ 2,125,625
James C. Malone.......... $ 2,043,461
$ 31,681
</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) 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.
(5) 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.
68
<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 Mr. Weissman and Ms. Fash are 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 Mr. Weissman and Ms. Fash was
$875,000 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, Siegel and Malone 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. The estimated annual benefits upon
retirement at age 65 for Messrs. Klutch and Malone are $202,828 and $49,103,
respectively, based upon their respective credited service to date for these
plans of 23.5 and 14 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
69
<PAGE>
Fiscal Year" above. See "Relationship Between IMS HEALTH and Nielsen Media
Research After the Distribution--Employee Benefits Agreement".
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 IMS HEALTH
Common Stock that are expected to be beneficially owned after the Distribution
by each of the IMS HEALTH directors, by each of the executive officers named in
the 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 May 31, 1998 ("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 May 31, 1998, (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 "IMS HEALTH Management and Executive
Compensation--Compensation of IMS HEALTH Executive Officers". Information
regarding shares subject to options reflects shares of Cognizant Common Stock
subject to options as of May 31, 1998 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 May 31, 1998 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) 92,125
John P. Imlay, Jr.................................................. 10,898(1) 1,166
Robert Kamerschen.................................................. 7,398(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
James C. Malone.................................................... 3,301 22,040
M. Bernard Puckett................................................. 4,498(1) 1,166
Kenneth S. Siegel.................................................. 0 31,666
William C. Van Faasen.............................................. 1,156(5) 0
Robert E. Weissman................................................. 176,593 460,830
</TABLE>
70
<PAGE>
<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>
All Directors and Executive Officers as a Group(6)................. 238,287 837,628
FMR Corporation.................................................... 18,355,768(7)(8) 0
82 Devonshire Street
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) 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) Includes 556 shares of restricted stock granted 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.
71
<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 shares of
Cognizant Common Stock outstanding as of , 1998, and a distribution
ratio of one share of IMS HEALTH Common Stock for every one share of Cognizant
Common Stock, 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
72
<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
On , 1998 the Board of Directors of IMS HEALTH declared 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 on
, 1998 (the "IMS HEALTH Record Date") to Cognizant, which will be the
sole stockholder of record on the IMS HEALTH Record Date. Each IMS HEALTH Right
entitles 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 of $ per one one-thousandth of a share of IMS HEALTH
Participating Preferred Stock (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 are set forth in
an IMS HEALTH Rights Agreement dated as of , 1998, as the same may be
amended from time to time (the "IMS HEALTH Rights Agreement"), between IMS
HEALTH and First Chicago Trust Company of New York, as the IMS HEALTH Rights
Agent (the "IMS HEALTH 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 IMS HEALTH Rights, an
"IMS HEALTH Acquiring Person") have acquired beneficial ownership of 15% or more
(20% or more in the case of an "Institutional Investor" as defined in the IMS
HEALTH Rights Plan") 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 provides 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 are not exercisable until the IMS HEALTH Rights
Distribution Date. The IMS HEALTH Rights will expire on , 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 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 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 are also 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 are 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 may
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 may 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"). 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 form of 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 is 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 "IMS HEALTH
Management and Executive Compensation--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 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 $300
million of third party debt. This debt will be an obligation of Nielsen Media
Research after the Distribution.
NIELSEN MEDIA RESEARCH UNAUDITED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
PRO FORMA
NIELSEN MEDIA PRO FORMA NIELSEN MEDIA
RESEARCH ADJUSTMENTS RESEARCH
-------------- ----------- --------------
<S> <C> <C> <C>
($ 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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<PAGE>
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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<PAGE>
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
could use this to re-enter 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 light of the potentially significant liabilities which could arise from
the IRI Action and in order to facilitate the 1996 Distribution, 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, 2/95 to 12/97;
Research Executive Vice 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 Chief 1996 Chairman and Chief Executive Officer, 57
Executive Officer, Cognizant, 9/96 to present; Chairman and
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.;
Cognizant
Corporation
Robert E. Weissman State Street
Boston
Corporation;
Gartner Group,
Inc.; Cognizant
Corporation.
</TABLE>
- ------------------------
* As of March 13, 1998
In addition to the directors named above, Nielsen Media Research expects
that James R. Craigie, Peter A. Lund and Michael D. Moore, will be directors of
Nielsen Media Research after the Distribution. Mr. Craigie is currently
Executive Vice President of Kraft Foods, Inc. and President of the Beverage and
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Desserts Division of that company and has held such positions since 1994 and
1998, respectively. Mr. Lund was President and Chief Executive Officer of CBS
Inc. from 1995 until 1997. Mr. Moore is currently Executive Vice President,
Media Development for the MacManus Group and has held such position since 1998.
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.
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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
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.
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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.
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".
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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 NA NA NA NA
Stuart J. Goldshein....................... 0 NA NA NA NA
Stephen J. Boatti......................... 0 NA NA NA NA
</TABLE>
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(2)(#) AT FISCAL YEAR-END(3)($)
(A) ON EXERCISE(1) REALIZED ---------------------------- --------------------------
NAME (#) ($) 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(4) 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. Goldshein Effective Date 0 $ 0 12,332 61,868 $ 134,111 $ 676,640
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.
(4) Mr. Young was not employed by Cognizant during 1997.
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<PAGE>
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, beneficially owned by each of the persons
expected to be directors of Nielsen Media Research after the Distribution, each
of the executive officers named in the Nielsen Media Research Summary
Compensation Table above, by all such directors and executive officers as a
group and by each person known to Cognizant to beneficially own more than 5% of
the outstanding shares of Cognizant Common Stock at December 31, 1997 (the "5%
Owners"). Stock ownership information is based upon (i) the number of shares of
Cognizant Common Stock held by such directors and executive officers as of
December 31, 1997, and (ii) the number of shares of Cognizant Common Stock held
by 5% Owners based upon a Schedule 13G filed by such 5% Owners with the SEC.
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, all of which (except as provided in the next sentence) will
be converted into options that are exercisable into shares of Nielsen Media
Research Common Stock. See "Relationship Between IMS HEALTH and Nielsen Media
Research After the Distribution--Employee Benefits Agreement". Options to
acquire Cognizant Common Stock held by Messrs. Weissman and Puckett, both of
whom will become IMS HEALTH directors in connection with the Distribution, and
certain options to acquire Cognizant Common Stock held by Mr. Jacobi, will not
be converted into options to acquire Nielsen Media Research Common Stock but
rather will be converted into options to acquire IMS HEALTH Common Stock based
on a conversion formula to be calculated after the Distribution Date. The
information in the following table does not reflect the conversion of options to
acquire Cognizant Common Stock. See "Relationship Between IMS HEALTH and Nielsen
Media Research After the Distribution--Employee Benefits Agreement". 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. 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
James R. Craigie.................................................. 0 0
John A. Dimling................................................... 1,903 64,267
Stuart J. Goldshein............................................... 873 26,388
William G. Jacobi................................................. 6,742 149,266
Peter A. Lund..................................................... 0 0
Michael D. Moore.................................................. 0 0
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.
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<PAGE>
(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 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.
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
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<PAGE>
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 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. The PMSI
acquisition will not be completed until after the Record Date and therefore,
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. If the Walsh
acquisition is not completed prior to the Record Date, Walsh shareholders will
also receive IMS HEALTH Common Stock pursuant to a similar formula. Cognizant
expects to issue approximately 3.2 million shares from treasury stock to
consummate the Walsh acquisition. 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
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<PAGE>
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.
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
107
<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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. 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.
110
<PAGE>
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 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
111
<PAGE>
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.
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.
112
<PAGE>
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.
113
<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.
114
<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 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, within other income/expense-net, 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 (CONTINUED)
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.
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)
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 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>
F-19
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
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>
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.
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
F-21
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 14. COMMITMENTS (CONTINUED)
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 (CONTINUED)
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
YEAR ENDED DECEMBER 31, 1996 IMS MEDIA RESEARCH GARTNER(1) MARKETS(2) TOTAL
- ----------------------------------------------------- ---------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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.
(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.
F-29
<PAGE>
COGNIZANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
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 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 in this Form 10 on page F-2 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-35 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
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 Group 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.
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
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 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>
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)
<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, 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
F-50
<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)
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>
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 (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:
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-39 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-59 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>
EXHIBIT 99.2
, 1998
To all Cognizant Stockholders:
On , 1998, the Board of Directors of Cognizant Corporation
declared a dividend of shares of IMS Health Incorporated to achieve the
reorganization of Cognizant as two separate companies.
If you are a stockholder of Cognizant as of the close of business on
, 1998, the record date for the dividend, certificates representing
shares in IMS HEALTH will be mailed to you automatically. For each share of
Cognizant you hold, you will receive one share of IMS HEALTH.
Stock certificates representing your shares in IMS HEALTH will be sent to
you on or about , 1998. The Cognizant certificates you currently
hold will represent your investment in the "new" Nielsen Media Research, Inc.,
which is the new name for the former Cognizant Corporation.
Shares of IMS HEALTH will trade "regular way" on the New York Stock Exchange
beginning , 1998. The symbol for IMS HEALTH will be "RX" and the
symbol for the "new" Nielsen Media Research will be changed to "NMR".
Detailed information on the reorganization plan and the businesses of IMS
HEALTH and Nielsen Media Research is contained in the accompanying document,
which we urge you to read carefully.
The Board believes the reorganization will enhance management focus on each
business and allow the two companies to pursue opportunities that will improve
their competitive position, enhance their valuation and create wealth for
stockholders.
Sincerely,
Robert E. Weissman
Chairman and Chief Executive Officer
Cognizant Corporation
<PAGE>
Exhibit 99.3
- --------------------------------------------------------------------------------
IMS HEALTH INCORPORATED
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK,
as Rights Agent
Rights Agreement
Dated as of June __, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions........................................... 2
Section 2. Appointment of Rights Agent................................... 9
Section 3. Issue of Right Certificates................................... 9
Section 4. Form of Right Certificates.................................... 13
Section 5. Countersignature and Registration............................. 14
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates.................................... 15
Section 7. Exercise of Rights, Purchase Price; Expiration
Date of Rights............................................... 16
Section 8. Cancellation and Destruction of Right
Certificates................................................. 19
Section 9. Availability of Shares of Preferred Stock..................... 20
Section 10. Preferred Stock Record Date.................................. 22
Section 11. Adjustment of Purchase Price, Number of Shares
and Number of Rights......................................... 23
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares.................................................... 42
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earnings Power..................................... 43
Section 14. Fractional Rights and Fractional Shares....................... 51
Section 15. Rights of Action.............................................. 54
Section 16. Agreement of Right Holders.................................... 54
Section 17. Right Certificate Holder Not Deemed a
Stockholder.................................................. 55
Section 18. Concerning the Rights Agent................................... 56
Section 19. Merger or Consolidation or Change of Name of
Rights Agent................................................. 57
Section 20. Duties of Rights Agent........................................ 58
Section 21. Change of Rights Agent........................................ 63
<PAGE>
Page
----
Section 22. Issuance of New Right Certificates............................ 64
Section 23. Redemption.................................................... 65
Section 24. Exchange...................................................... 66
Section 25. Notice of Certain Events...................................... 69
Section 26. Notices....................................................... 70
Section 27. Supplements and Amendments.................................... 71
Section 28. Successors.................................................... 72
Section 29. Benefits of this Agreement.................................... 72
Section 30. Determinations and Actions by the Board of
Directors.................................................... 73
Section 31. Severability.................................................. 73
Section 32. Governing Law................................................. 74
Section 33. Counterparts.................................................. 74
Section 34. Descriptive Headings.......................................... 74
- ii -
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of June __, 1998 between IMS Health
Incorporated, a Delaware corporation (the "Company"), and First Chicago Trust
Company of New York (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the close
of business (as defined below) on June __, 1998 (the "Record Date") each Right
representing the right to purchase one-thousandth (subject to adjustment) of a
share of Preferred Stock (as hereinafter defined), upon the terms and subject to
the conditions herein set forth, and the Board of Directors has further
authorized and directed the issuance of one Right (subject to adjustment as
provided herein) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to shares of
Common Stock that shall become outstanding after the Distribution Date and prior
to the Redemption Date and the Final Expiration Date in accordance with Section
22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
<PAGE>
2
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such
term is hereinafter defined) of 15% or more of the shares of Common Stock
then outstanding (or, if an Institutional Investor (as hereinafter
defined) 20% or more of the shares of Common Stock then outstanding), but
shall not include an Exempt Person (as such term is hereinafter defined);
provided, however, that if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an
"Acquiring Person" has become such inadvertently (including, without
limitation, because (i) such Person was unaware that it beneficially owned
a percentage of Common Stock that would otherwise cause such Person to be
an "Acquiring Person" or (ii) such Person was aware of the extent of its
Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Rights Agreement) and
without any intention of changing or influencing control of the Company,
and such Person, as promptly as practicable after being advised of such
determination divested or divests himself or itself of Beneficial
Ownership of a sufficient number of shares of Common Stock so that such
Person would no longer be an Acquiring Person, then such Person shall not
be deemed to be or to have become an "Acquiring Person" for any purposes
of
<PAGE>
3
this Agreement. Notwithstanding the foregoing, (i) the sole stockholder of
the Company at the time of the adoption of this Agreement will not be
deemed an Acquiring Person for any purposes of this Agreement prior to the
distribution by such Person of the Company's outstanding Common Stock to
the stockholders of such Person and (ii) no Person shall become an
"Acquiring Person" as the result of an acquisition of shares of Common
Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 15% or more (20% or more in the case of an Institutional
Investor) of the shares of Common Stock then outstanding, provided,
however, that if a Person shall become the Beneficial Owner of 15% or more
(20% or more in the case of an Institutional Investor) of the shares of
Common Stock then outstanding by reason of such share acquisitions by the
Company and thereafter becomes the Beneficial Owner of any additional
shares of Common Stock (other than pursuant to a dividend or distribution
paid or made by the Company on the outstanding Common Stock in shares of
Common Stock or pursuant to a split or subdivision of the outstanding
Common Stock), then such Person shall be deemed to be an "Acquiring
Person" unless upon the consummation of the acquisition of such additional
shares of Common Stock such Person does not own 15% or more (20% or more
in the case of an Institutional Investor) of the shares of Common Stock
then outstanding. For all purposes of this Agreement, any calculation of
the
<PAGE>
4
number of shares of Common Stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule 13d-
3(d)(1)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the
date hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to
"beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly
within the meaning of Rule 13d-3 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling
<PAGE>
5
group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, (x) securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase, (y) securities which such Person has a right
to acquire on the exercise of Rights at any time prior to the time a
Person becomes an Acquiring Person or (z) securities issuable upon
exercise of Rights from and after the time a Person becomes an
Acquiring Person if such Rights were acquired by such Person or any
of such Person's Affiliates or Associates prior to the Distribution
Date or pursuant to Section 3(a) or Section 22 hereof ("original
Rights") or pursuant to Section 11(i) or Section 11(n) with respect
to an adjustment to original Rights; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, any security by reason of such agreement,
arrangement or understanding if the agreement, arrangement or
understanding to vote such security (1) arises solely from a
revocable proxy or
<PAGE>
6
consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act
and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to
Section 1(c)(ii)(B)) or disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of New York,
or the State in which the principal office of the Rights Agent is located,
are authorized or obligated by law or executive order to close.
(e) "close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not
a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
<PAGE>
7
(f) "Common Stock" when used with reference to the Company shall
mean the common stock, par value $.01, of the Company (but shall not
include the Series Common Stock, par value $.01 of the Company). "Common
Stock" when used with reference to any Person other than the Company shall
mean the capital stock (or, in the case of an unincorporated entity, the
equivalent equity interest) with the greatest voting power of such other
Person or, if such other Person is a subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(h) "equivalent preferred shares" shall have the meaning set forth
in Section 11(b) hereof.
(i) "Exempt Person" shall mean the Company, any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including,
without limitation, in its fiduciary capacity, or, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity or
trustee holding Common Stock for or pursuant to the terms of any such plan
or for the purpose of funding any such plan or funding other employee
benefits for employees of the Company or of any Subsidiary of the Company.
(j) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(k) "Institutional Investor" shall mean a Person (i) which is
principally engaged in the business of managing
<PAGE>
8
investment funds for unaffiliated securities investors and, as part of
such Person's duties as agent for fully managed accounts, holds or
exercises voting or dispositive power over shares of Common Stock of the
Company and (ii) which acquires Beneficial Ownership of shares of Common
Stock of the Company pursuant to trading activities undertaken in the
normal course of such Person's business and not for the purpose of
exercising, either alone or in concert with any Person, power to direct or
cause the direction of the management and policies of the Company.
(l) "New York Stock Exchange" shall mean the New York Stock
Exchange, Inc.
(m) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(n) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, without par value, of the Company having the rights and
preferences set forth in the Form of Certificate of Designation attached
to this Agreement as Exhibit A.
(o) "Record Date" shall have the meaning set forth in the preamble
to this Agreement.
(p) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(q) "Securities Act" shall mean the Securities Act of 1933, as
amended.
<PAGE>
9
(r) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such or such earlier date as a majority of the Board of
Directors shall become aware of the existence of an Acquiring Person.
(s) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially owned,
directly or indirectly, by such Person, and any corporation or other
entity that is otherwise controlled by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Stock Acquisition Date or (ii) the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time
<PAGE>
10
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public announcement
of the intention of such Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any Person
(other than an Exempt Person) becoming the Beneficial Owner of shares of Common
Stock aggregating 15% or more of the Common Stock then outstanding (including
any such date which is after the date of this Agreement and prior to the
issuance of the Rights), the earlier of such dates being herein referred to as
the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Stock
registered in the names of the holders thereof and not by separate Right
Certificates, and (y) the Rights will be transferable only in connection with
the transfer of Common Stock. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage-prepaid mail, to each record
holder of Common Stock as of the close of business on the Distribution Date
(other than any Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right (subject to adjustment as provided herein)
for each share
<PAGE>
11
of Common Stock so held. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of Preferred
Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Stock as
of the close of business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Stock outstanding on the
Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common Stock
represented thereby.
Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration
<PAGE>
12
Date shall have impressed on, printed on, written on or otherwise affixed to
them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between IMS Health
Incorporated and First Chicago Trust Company of New York, dated as
of June __, 1998 as the same may be amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
executive offices of IMS Health Incorporated. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. IMS Health Incorporated will mail to
the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights
owned by or transferred to any Person who becomes an Acquiring
Person (as defined in the Rights Agreement) and certain transferees
thereof will become null and void and will no longer be
transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
cancelled and retired so that the Company shall not be entitled
<PAGE>
13
to exercise any Rights associated with the Common Stock which are no longer
outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall
not affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of the New York
Stock Exchange or of any other stock exchange or automated quotation system on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 11, 13 and 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-thousandths of a share of Preferred Stock as shall be set forth therein at
the price per one one-thousandth of a share of Preferred Stock set forth therein
(the "Purchase Price"), but the number of such one one-thousandths of a share of
Preferred Stock and the Purchase Price shall be subject to adjustment as
provided herein.
<PAGE>
14
Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board of Directors, the President, any of the Vice Presidents, the Treasurer or
the Controller of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the
<PAGE>
15
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e), 11(a)(ii) and 14 hereof, at any time
after the close of business on the Distribution Date, and prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax
<PAGE>
16
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any
time after the Distribution Date and prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or
<PAGE>
17
agency of the Rights Agent designated for such purpose, together with payment of
the Purchase Price for each one one-thousandth of a share of Preferred Stock as
to which the Rights are exercised, at any time which is both after the
Distribution Date and prior to the earliest of (i) the close of business on June
30, 2008 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $___ for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly
<PAGE>
18
(i) (A) requisition from any transfer agent of the Preferred Stock certificates
for the number of shares of Preferred Stock to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing interests in such number of one one-thousandths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
Preferred Stock represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder and (iv) when appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
<PAGE>
19
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or election to purchase set
forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy
<PAGE>
20
such cancelled Right Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
time that a Person becomes an Acquiring Person, shares of Common Stock and other
securities) issuable upon the exercise of Rights may be listed or admitted to
trading on the New York Stock Exchange or listed on any other national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the New York
Stock Exchange or listed on any other exchange or quotation system upon official
notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock (and following the time that a Person first becomes an
Acquiring Person, shares of Common Stock and other securities) upon the exercise
of Rights, to register and qualify such shares of Preferred Stock (and following
the time that a Person first
<PAGE>
21
becomes an Acquiring Person, shares of Common Stock and other securities) under
the Securities Act and any applicable state securities or "Blue Sky" laws (to
the extent exemptions therefrom are not available), cause such registration
statement and qualifications to become effective as soon as possible after such
filing and keep such registration and qualifications effective until the earlier
of the date as of which the Rights are no longer exercisable for such securities
and the Final Expiration Date. The Company may temporarily suspend, for a period
of time not to exceed 90 days, the exercisability of the Rights in order to
prepare and file a registration statement under the Securities Act and permit it
to become effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the time that a Person becomes an Acquiring Person, shares of Common
Stock and other securities) delivered upon exercise of Rights shall, at the time
of delivery of the certificates therefor (subject to payment of the Purchase
<PAGE>
22
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock (or shares of Common Stock or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Stock (or
shares of Common Stock or other securities) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
Preferred Stock (or shares of Common Stock or other securities) upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by that holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
any certificate for Preferred Stock is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was
<PAGE>
23
duly surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares and
Number of Rights. The Purchase Price, the number of shares of Preferred Stock or
other securities or property purchasable upon exercise of each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of Preferred Stock or (D) issue any shares of its
capital stock in a reclassification of
<PAGE>
24
the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, and the number
and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number
and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, the holder
would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event
that any Person becomes an Acquiring Person, then (A) the Purchase
Price shall be adjusted to be the Purchase Price in effect
immediately prior to such
<PAGE>
25
Person becoming an Acquiring Person multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such Person becoming an Acquiring
Person, whether or not such Right was then exercisable, and (B) each
holder of a Right, except as otherwise provided in this Section
11(a)(ii) and Subsection 11(a)(iii), hereof, shall thereafter have
the right to receive, upon exercise at a price equal to the Purchase
Price (as so adjusted), in accordance with the terms of this
Agreement and in lieu of shares of Preferred Stock, such number of
shares of Common Stock (or at the option of the Company, such number
of one one-thousandths of shares of Preferred Stock) as shall equal
the result obtained by (x) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred
Stock for which a Right is then exercisable and dividing that
product by (y) 50% of the then current per share market price of the
Company's Common Stock (determined pursuant to Section 11(d) hereof)
on the date such Person became an Acquiring Person; provided,
however, that the Purchase Price and the number of shares of Common
Stock so receivable upon exercise of a Right shall thereafter be
subject to further adjustment as appropriate in accordance with
Section 11(f) hereof. Notwithstanding anything in this Agreement to
the contrary, however, from and after the
<PAGE>
26
time (the "invalidation time") when any Person first becomes an
Acquiring Person, any Rights that are beneficially owned by (x) any
Acquiring Person (or any Affiliate or Associate of any Acquiring
Person), (y) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after the
invalidation time or (z) a transferee of any Acquiring Person (or
any such Affiliate or Associate) who became a transferee prior to or
concurrently with the invalidation time pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity
securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer which the Board of Directors has
determined is part of a plan, arrangement or understanding which has
the purpose or effect of avoiding the provisions of this paragraph,
and subsequent transferees of such Persons, shall be void without
any further action and any holder of such Rights shall thereafter
have no rights whatsoever with respect to such Rights under any
provision of this Agreement. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or
<PAGE>
27
its Affiliates, Associates or transferees hereunder. From and after
the invalidation time, no Right Certificate shall be issued pursuant
to Section 3 or Section 6 hereof that represents Rights that are or
have become void pursuant to the provisions of this paragraph, and
any Right Certificate delivered to the Rights Agent that represents
Rights that are or have become void pursuant to the provisions of
this paragraph shall be cancelled. From and after the occurrence of
an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with
Section 13 and not pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with
the foregoing subparagraph (ii) such number or fractions of shares
of Preferred Stock having an aggregate current market value equal to
the current per share market price of a share of Common Stock. In
the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in
effect to which the Company is a
<PAGE>
28
party (A) determine the excess of (1) the value of the shares of
Common Stock issuable upon the exercise of a Right in accordance
with the foregoing subparagraph (ii) (the "Current Value") over (2)
the then current Purchase Price multiplied by the number of one
one-thousandths of shares of Preferred Stock for which a Right was
exercisable immediately prior to the time that the Acquiring Person
became such (such excess, the "Spread"), and (B) with respect to
each Right (other than Rights which have become void pursuant to
Section 11(a)(ii)), make adequate provision to substitute for the
shares of Common Stock issuable in accordance with subparagraph (ii)
upon exercise of the Right and payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) shares
of Preferred Stock or other equity securities of the Company
(including, without limitation, shares or fractions of shares of
preferred stock which, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the shares
of Common Stock, are deemed in good faith by the Board of Directors
to have substantially the same value as the shares of Common Stock
(such shares of preferred stock and shares or fractions of shares of
preferred stock are hereinafter referred to as "Common Stock
equivalents"), (4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing,
<PAGE>
29
having a value which, when added to the value of the shares of
Common Stock actually issued upon exercise of such Right, shall have
an aggregate value equal to the Current Value (less the amount of
any reduction in the Purchase Price), where such aggregate value has
been determined by the Board of Directors upon the advice of a
nationally recognized investment banking firm selected in good faith
by the Board of Directors; provided, however, if the Company shall
not make adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the date that the Acquiring
Person became such (the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, to the extent permitted by
applicable law and any material agreements then in effect to which
the Company is a party, upon the surrender for exercise of a Right
and without requiring payment of the Purchase Price, shares of
Common Stock (to the extent available), and then, if necessary, such
number or fractions of shares of Preferred Stock (to the extent
available) and then, if necessary, cash, which shares and/or cash
have an aggregate value equal to the Spread. If, upon the date any
Person becomes an Acquiring Person, the Board of Directors shall
determine in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon
exercise in full of the
<PAGE>
30
Rights, then, if the Board of Directors so elects, the thirty (30)
day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such
thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this
Section 11(a)(iii) hereof, that such action shall apply uniformly to
all outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to
seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such second
sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the shares of Common Stock shall be the
current per share market price (as
<PAGE>
31
determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common
Stock equivalent" shall be deemed to equal the current per share
market price of the Common Stock. The Board of Directors of the
Company may, but shall not be required to, establish procedures to
allocate the right to receive shares of Common Stock upon the
exercise of the Rights among holders of Rights pursuant to this
Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling
them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Stock (or shares having
similar rights, privileges and preferences as the Preferred Stock
("equivalent preferred shares")) or securities convertible into Preferred
Stock or equivalent preferred shares at a price per share of Preferred
Stock or equivalent preferred shares (or having a conversion price per
share, if a security convertible into shares of Preferred Stock or
equivalent preferred shares) less than the then current per share market
price of the Preferred Stock (determined pursuant to Section 11(d) hereof)
on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of
<PAGE>
32
Preferred Stock and equivalent preferred shares outstanding on such record
date plus the number of shares of Preferred Stock and equivalent preferred
shares which the aggregate offering price of the total number of shares of
Preferred Stock and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price,
and the denominator of which shall be the number of shares of Preferred
Stock and equivalent preferred shares outstanding on such record date plus
the number of additional shares of Preferred Stock and/or equivalent
preferred shares to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one
Right. In case such subscription price may be paid in a consideration part
or all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent. Shares of Preferred Stock and
equivalent preferred shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a
<PAGE>
33
record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not
been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Stock (determined pursuant to Section 11(d)
hereof) on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company whose determination
shall be described in a statement filed with the Rights Agent) of the
portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of
Preferred Stock, and the denominator of which shall be such current per
share market price (determined pursuant to Section 11(d) hereof) of the
Preferred Stock; provided, however, that in
<PAGE>
34
no event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any
security (a "Security" for the purpose of this Section 11(d)(i)) on any
date shall be deemed to be the average of the daily closing prices per
share of such Security for the 30 consecutive Trading Days (as such term
is hereinafter defined) immediately prior to such date; provided, however,
that in the event that the current per share market price of the Security
is determined during a period following the announcement by the issuer of
such Security of (A) a dividend or distribution on such Security payable
in shares of such Security or securities convertible into such shares, or
(B) any subdivision, combination or reclassification of such Security, and
prior to the expiration of 30 Trading Days after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be
<PAGE>
35
appropriately adjusted to reflect the current market price per share
equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in
either case as reported by the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by NASDAQ or
such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open
for the transaction of business or, if the Security is not
<PAGE>
36
listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set
forth in Section 11(d)(i). If the Preferred Stock is not publicly traded
but the Common Stock is publicly traded, the "current per share market
price" of the Preferred Stock shall be conclusively deemed to be the
current per share market price of the Common Stock as determined pursuant
to Section 11(d)(i) multiplied by one thousand (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date hereof). If neither the Common Stock nor the Preferred
Stock is publicly traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or to
the nearest one ten-thousandth of a share
<PAGE>
37
of Preferred Stock or share of Common Stock or other share or security as
the case may be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right to
exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than the
Preferred Stock, thereafter the Purchase Price and the number of such
other shares so receivable upon exercise of a Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), 11(b), 11(c), 11(e), 11(h), 11(i) and 11(m)
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to
the Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one
one-thousandths of a share of Preferred Stock purchasable from time to
time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
<PAGE>
38
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that
number of one one-thousandths of a share of Preferred Stock (calculated to
the nearest one ten-thousandth of a share of Preferred Stock) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered
by a Right immediately prior to such adjustment by (y) the Purchase Price
in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by
<PAGE>
39
dividing the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount
of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company may, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date
Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for
the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall
be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for
herein and shall be registered in the names of the holders of record of
Right
<PAGE>
40
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Preferred
Stock or other shares of capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Preferred Stock
or other such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Preferred Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the
Preferred Stock and other
<PAGE>
41
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price,
in addition to those adjustments expressly required by this Section 11, as
and to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Stock, issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, issuance wholly for cash or Preferred Stock
or securities which by their terms are convertible into or exchangeable
for Preferred Stock, dividends on Preferred Stock payable in shares of
Preferred Stock or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of
its Preferred Stock shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in
the event that at any time after the date of this Agreement and prior to
the Distribution Date, the Company shall (i) declare or pay any dividend
on the
<PAGE>
42
Common Stock payable in Common Stock or (ii) effect a subdivision,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of a dividend payable in Common Stock) into a
greater or lesser number of Common Stock, then in any such case, the
number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter, shall be proportionately
adjusted so that the number of Rights thereafter associated with each
share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by
Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or eliminate the benefits
intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a
<PAGE>
43
certificate setting forth such adjustment, and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with each
transfer agent for the Common Stock or the Preferred Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof (if so required under Section
25 hereof). The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earnings Power. (a) In the event, directly or indirectly, at any time after any
Person has become an Acquiring Person, (i) the Company shall merge with and into
any other Person, (ii) any Person shall consolidate with the Company, or any
Person shall merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Stock shall be changed into or exchanged for
stock or other securities of any other Person (or of the Company) or cash or any
other property, or (iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or one or more of its wholly-owned
Subsidiaries), then upon the first occurrence of
<PAGE>
44
such event, proper provision shall be made so that: (A) each holder of record of
a Right (other than Rights which have become void pursuant to Section 11(a)(ii))
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
(whether or not such Right was then exercisable) immediately prior to the time
that any Person first became an Acquiring Person (each as subsequently adjusted
thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)),
in accordance with the terms of this Agreement and in lieu of Preferred Stock,
such number of validly issued, fully paid and non-assessable and freely
tradeable shares of Common Stock of the Principal Party (as defined herein) not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to the time
that any Person first became an Acquiring Person (as subsequently adjusted
thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m))
and (2) dividing that product by 50% of the then current per share market price
of the Common Stock of such Principal Party (determined pursuant to Section
11(d)(i) hereof) on the date of consummation of such consolidation, merger, sale
or transfer; provided that the Purchase Price and the number of shares of Common
Stock of such Principal Party issuable upon
<PAGE>
45
exercise of each Right shall be further adjusted as provided in Section 11(f) of
this Agreement to reflect any events occurring in respect of such Principal
Party after the date of the such consolidation, merger, sale or transfer; (B)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Agreement; (C) the term "Company" shall
thereafter be deemed to refer to such Principal Party; and (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its shares of Common Stock in accordance with Section 9
hereof) in connection with such consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights; provided that, upon the
subsequent occurrence of any consolidation, merger, sale or transfer of assets
or other extraordinary transaction in respect of such Principal Party, each
holder of a Right shall thereupon be entitled to receive, upon exercise of a
Right and payment of the Purchase Price as provided in this Section 13(a), such
cash, shares, rights, warrants and other property which such holder would have
been entitled to receive had such holder, at the time of such transaction, owned
the Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to,
<PAGE>
46
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the shares of Common Stock are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer the shares of Common Stock of which have the
greatest aggregate market value of shares outstanding, or (B) if no
securities are so issued, (x) the Person that is the other party to the
merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the shares of Common Stock of which have the
greatest aggregate market value of shares outstanding or (y) if the Person
that is the other party to the merger does not survive the merger, the
Person that does survive the merger (including the Company if it survives)
or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence in Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same
<PAGE>
47
portion of the assets or earning power so transferred or if the Person
receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons as is the issuer of Common Stock
having the greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
and the Common Stocks of all of such persons have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
<PAGE>
48
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form,
use its best efforts to cause such registration statement to become
effective as soon as practicable after such filing and use its best
efforts to cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Final Expiration Date, and similarly comply with applicable
state securities laws;
(ii) use its best efforts, if the Common Stock of the
Principal Party shall be listed or admitted to trading on the New York
Stock Exchange or on another national securities exchange, to list or
admit to trading (or
<PAGE>
49
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be
listed or admitted to trading on the New York Stock Exchange or a national
securities exchange, to cause the Rights and the securities receivable
upon exercise of the Rights to be reported by such other system then in
use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the Principal Party
subject to purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then current market price
per share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Stock of such
<PAGE>
50
Principal Party at less than such then current market price, or (ii) providing
for any special payment, tax or similar provision in connection with the
issuance of the Common Stock of such Principal Party pursuant to the provisions
of Section 13, then, in such event, the Company hereby agrees with each holder
of Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been cancelled, waived or amended, or that
the authorized securities shall be redeemed, so that the applicable provision
will have no effect in connection with, or as a consequence of, the consummation
of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after a Person first becomes an Acquiring Person enter into any transaction of
the type contemplated by (i) - (iii) of Section 13(a) hereof if (x) at the time
of or immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer of other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a
<PAGE>
51
distribution of Rights previously owned by such Person or any of its Affiliates
or Associates or (z) the form or nature of organization of the Principal Party
would preclude or limit the exercisability of the Rights.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights (except prior to the Distribution
Date in accordance with Section 11(n) hereof). In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or
<PAGE>
52
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). Interests in fractions of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In
<PAGE>
53
lieu of fractional shares of Preferred Stock that are not integral multiples of
one one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one share of Preferred Stock. For the purposes of this Section
14(b), the current market value of a share of Preferred Stock shall be the
closing price of a share of Preferred Stock (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional shares
of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares of
Common Stock would otherwise be issuable in an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
<PAGE>
54
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
<PAGE>
55
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the office or agency of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date,
the Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the Common Stock
certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent
shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the
<PAGE>
56
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in this Agreement), or to receive dividends or subscription rights, or
otherwise, until the Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
<PAGE>
57
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such
<PAGE>
58
Right Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to
any action taken or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or
<PAGE>
59
desirable that any fact or matter be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board of Directors,
the President, any Vice President, the Treasurer, the Controller or the
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or wilful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
<PAGE>
60
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections
3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12, describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Preferred Stock or other securities to be issued pursuant to
this Agreement or any Right Certificate or as to whether any shares of
Preferred Stock or other securities will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
<PAGE>
61
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any person reasonably believed by the Rights Agent to be one of the
Chairman of the Board of Directors, the President, the Chief Financial
Officer or the Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while
waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on and/or after which
such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date
shall not be less than five Business Days after the date any officer of
the Company actually receives such application, unless any such officer
shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to
such application specifying the action to be taken or omitted.
<PAGE>
62
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the
Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the
form of assignment or the form of election to purchase set forth on the
reverse thereof, as the case may be, has not been completed to certify the
holder is not an Acquiring Person (or an Affiliate or Associate thereof),
the Rights Agent shall not take any further action with respect to such
requested
<PAGE>
63
exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and, following the Distribution Date, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (A)
a corporation organized
<PAGE>
64
and doing business under the laws of the United States or any State thereof,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million or (B) an affiliate of a
corporation described in clause (A) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock or Preferred Stock, and, following
the Distribution Date, mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new
<PAGE>
65
Right Certificates evidencing Rights in such forms as may be approved by its
Board of Directors to reflect any adjustment or change in the Purchase Price and
the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance or sale of
Common Stock following the Distribution Date and prior to the earlier of the
Redemption Date and the Final Expiration Date, the Company may with respect to
shares of Common Stock so issued or sold pursuant to (i) the exercise of stock
options, (ii) under any employee plan or arrangement, (iii) upon the exercise,
conversion or exchange of securities, notes or debentures issued by the Company
or (iv) a contractual obligation of the Company in each case existing prior to
the Distribution Date, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale.
Section 23. Redemption. (a) The Board of Directors of the Company
may, at any time prior to such time as any Person first becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(the redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the 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. The Company may, at its option, pay the Redemption Price in cash,
<PAGE>
66
shares of Common Stock (based on the current market price of the Common Stock at
the time of redemption) or any other form of consideration deemed appropriate by
the Board of Directors.
(b) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.
Section 24. Exchange. (a) The Board of Directors
<PAGE>
67
of the Company may, at its option, at any time after any Person first becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have not become effective or that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such amount per Right being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time (1) after any Person (other than an Exempt Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of shares
of Common Stock aggregating 50% or more of the shares of Common Stock then
outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 24(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange
of the Rights by the Board of Directors 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.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to
<PAGE>
68
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall promptly mail a
notice of any such exchange to all of the holders of the Rights so exchanged at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option and, in the event that there shall
not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit an exchange of Rights as contemplated in
accordance with this Section 24, the Company shall substitute to the extent of
such insufficiency, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, a number of shares of Preferred Stock or
fraction thereof (or equivalent
<PAGE>
69
preferred shares as such term is defined in Section 11(b)) such that the current
per share market price (determined pursuant to Section 11(d) hereof) of one
share of Preferred Stock (or equivalent preferred share) multiplied by such
number or fraction is equal to the current per share market price of one share
of Common Stock (determined pursuant to Section 11(d) hereof) as of the date of
such exchange).
Section 25. Notice of Certain Events. (a) In case the Company shall
at any time after the earlier of the Distribution Date or the Stock Acquisition
Date propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision or combination of outstanding Preferred Stock), (iv) to
effect the liquidation, dissolution or winding up of the Company, or (v) to
declare or pay any dividend on the Common Stock payable in Common Stock or to
effect a subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which
<PAGE>
70
shall specify the record date for the purposes of such stock dividend, or
distribution of rights or warrants, or the date on which such liquidation,
dissolution or winding up is to take place and the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, if any such date is
to be fixed, and such notice shall be so given in the case of any action covered
by clause (i) or (ii) above at least 10 days prior to the record date for
determining holders of the Preferred Stock for purposes of such action, and in
the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Stock and/or Preferred Stock, whichever shall be the
earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
<PAGE>
71
IMS Health Incorporated
200 Nayala Farms
Westport, Connecticut 06880
Attn: General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Boulevard -- Suite 4660
Jersey City, New Jersey 07310
Attn: Tenders and Exchanges Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as otherwise provided
in this Section 27, for so long as the Rights are then redeemable, the Company
may in its sole and absolute discretion, and the Rights Agent shall if the
Company so directs, supplement or amend any provision of this Agreement in any
respect without the approval of any holders of the Rights. At any time when the
Rights are no longer redeemable, except as otherwise provided in this Section
27, the Company may, and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of
<PAGE>
72
Rights Certificates in order to (i) cure any ambiguity, (ii) correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (iii) shorten or lengthen any time period
hereunder, or (iv) change or supplement the provisions hereunder in any manner
which the Company may deem necessary or desirable; provided that no such
supplement or amendment shall adversely affect the interests of the holders of
Rights as such (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person), and no such amendment may cause the rights again to become
redeemable or cause the Agreement again to become amendable other than in
accordance with this sentence. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
decreases the Redemption Price. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under
<PAGE>
73
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Determinations and Actions by the Board of Directors.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend this
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) that are done or made by the Board of Directors of the Company in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights, as such, and all other parties, and (y)
not subject the Board of Directors to any liability to the holders of the
Rights.
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement or applicable to this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of
<PAGE>
74
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.
Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
Attest: IMS HEALTH INCORPORATED
By
---------------------------------
Name:
Title:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
<PAGE>
75
By
---------------------------------
Name:
Title:
<PAGE>
Exhibit A
FORM
OF
CERTIFICATE OF DESIGNATION
OF
Series A JUNIOR PARTICIPATING PREFERRED STOCK
OF
IMS Health Incorporated
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------
IMS Health Incorporated, a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was duly adopted by
the Board of Directors of the Company as required by Section 151 of the General
Corporation Law of the State of Delaware at a meeting duly called and held on
June __, 1998.
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Company's
Certificate of Incorporation, as amended to date (hereinafter called the
"Certificate of Incorporation"), the Board of Directors hereby creates a series
of Preferred Stock, par value $.01 per share, of the Company and hereby states
the designation and number of shares, and fixes the relative rights, powers and
preferences thereof, and the limitations thereof, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 500,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock of the Company (the "Preferred Stock") (or any similar stock)
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") and of any other stock of the Company ranking junior to the
Series A Preferred Stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of January, April, July, and
October in each year (each such date being referred to herein as a "Dividend
Payment Date"), commencing on the first Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $10
or (b) subject to the provision for adjustment hereinafter set forth, 1000 times
the aggregate per share amount of all cash dividends, and 1000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend Payment Date or,
with respect to the first Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Company shall at any time after June __, 1998 declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Dividend Payment Date and the next subsequent
Dividend Payment Date, a dividend of $10 per share on the Series A Preferred
Stock shall nevertheless be payable, when, as and if declared, on such
subsequent Dividend Payment Date.
A-2
<PAGE>
(C) Dividends shall begin to accrue and be cumulative, whether or
not earned or declared, on outstanding shares of Series A Preferred Stock from
the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is
a Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights;
(A) Subject to the provision for adjustment hereinafter set forth
and except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series A Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters upon which the holders of the
Common Stock of the Company are entitled to vote. In the event the Company
shall at any time after June __, 1998 declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a
series of Preferred Stock or any similar stock, and except as otherwise
required by law, the holders of shares of Series A Preferred Stock and the
A-3
<PAGE>
holders of shares of Common Stock and any other capital stock of the
Company having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company
shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (as to dividends) to the
Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (as to
dividends) with the Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Company ranking
junior (as to dividends and upon dissolution, liquidation or winding
up) to the Series A Preferred Stock or rights, warrants or options
to acquire such junior stock;
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
in accordance with a purchase offer made in writing or by
publication (as determined by the Board of
A-4
<PAGE>
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series
or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their retirement become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to any
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1000 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (B) to the holders of shares of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Series A liquidation preference and the liquidation preferences
of all other classes and series of stock of the Company, if any, that rank on a
parity with the Series A Preferred Stock in respect thereof, then the assets
available for such distribution shall be distributed ratably to the holders of
the Series A Preferred Stock and the holders of such parity shares in the
proportion to their respective liquidation preferences. In the event the Company
shall at any time after June __, 1998 declare or pay any dividend
A-5
<PAGE>
on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(A) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are converted into, exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
converted into, exchanged for or changed into an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is converted, exchanged or converted. In the event the Company shall at any time
after June __, 1998 declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the conversion, exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, junior to all other
series of Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the Certificate
of Incorporation (including this Certificate of Designations) would alter,
change or repeal any of the preferences, powers or special rights given to the
Series A
A-6
<PAGE>
Preferred Stock so as to affect the Series A Preferred Stock adversely, then the
holders of the Series A Preferred Stock shall be entitled to vote separately as
a class upon such amendment, and the affirmative vote of two-thirds of the
outstanding shares of the Series A Preferred Stock, voting separately as a
class, shall be necessary for the adoption thereof, in addition to such other
vote as may be required by the General Corporation Law of the State of Delaware.
Section 11. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
A-7
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its ____________________ and attested by its Secretary
this __th day of June, 1998.
_____________________________
[Title]
Attest:
______________________
Secretary
A-8
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- ____ ___ Rights
NOT EXERCISABLE AFTER JUNE 30, 2008 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN
THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
IMS HEALTH INCORPORATED
This certifies that ___________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of June __, 1998 as the same may be amended from time to
time (the "Rights Agreement"), between IMS Health Incorporated, a Delaware
corporation (the "Company"), and First Chicago Trust Company of New York (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
New York City time, on June 30, 2008 at the office or agency of the Rights Agent
designated for such purpose, or of its successor as Rights Agent, one
one-thousandth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"),
of the Company, at a purchase price of $___ per one one-thousandth of a share of
Preferred Stock (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of June __, 1998 based on the Preferred Stock
as constituted at such date. As provided in the Rights Agreement, the Purchase
Price, the number of one one-thousandths of a share of Preferred Stock (or other
securities or property) which may be purchased upon the exercise of the Rights
and the number of Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
B-1
<PAGE>
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates,
upon surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for shares
of Preferred Stock or shares of the Company's Common Stock, par value $.01 per
share.
No fractional shares of Preferred Stock or Common Stock will be
issued upon the exercise or exchange of any Right or Rights evidenced hereby
(other than fractions of Preferred Stock which are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to
B-2
<PAGE>
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Right certificate shall have been exercised as provided
in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _____________.
ATTEST: IMS HEALTH INCORPORATED
By __________________ By __________________
Countersigned:
_______________________,
as Rights Agent
By _________________________
Authorized Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns
and transfer unto ______________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _________________
______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program
- --------------------------------------------------------------------------------
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________
Signature
B-5
<PAGE>
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To IMS Health Incorporated:
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
shares of Preferred Stock (or other securities or property) issuable upon the
exercise of such Rights and requests that certificates for such shares of
Preferred Stock (or such other securities) be issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivery to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________________
________________________
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature guarantee
medallion program.
B-6
<PAGE>
Form of Reverse Side of Right Certificate -- continued
________________________________________________________________________________
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
______________________
Signature
________________________________________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.
B-7
<PAGE>
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS
DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
Shares of Preferred Stock
On June __, 1998 the Board of Directors of IMS Health Incorporated
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share of
the Company (the "Common Stock"). The dividend is payable on June __, 1998 (the
"Record Date") to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Preferred Stock") of the Company at a price of $___ per one one-thousandth of a
share of Preferred Stock (as the same may be adjusted, the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of June __, 1998 as the same may be amended from
time to time (the "Rights Agreement"), between the Company and First Chicago
Trust Company of New York as Rights Agent (the "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 an "Acquiring Person") have acquired beneficial ownership of
15% or more (20% or more in the case of an "Institutional Investor" as defined)
of the outstanding shares of 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 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 Common Stock (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced by such Common Stock certificate together
with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), Common Stock certificates will contain
a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
practicable following the Distribution
<PAGE>
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on June __, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the 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
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The Rights are also subject to adjustment in the event of a stock
dividend on the Common Stock payable in shares of Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of 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 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the 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
1000 times the payment made per share of Common Stock. Each share of Preferred
Stock will have 1000 votes, voting together with the Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which shares of
Common Stock are converted or exchanged, each share of Preferred Stock will be
entitled to receive 1000 times the amount received per share of Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation
and voting rights, the value of the one
2
<PAGE>
one-thousandth interest in a share of Preferred Stock purchasable upon exercise
of each Right should approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right and payment
of the Purchase Price, that number of shares of Common Stock having a market
value of two times the Purchase Price.
In the event that, after a person or group has become an Acquiring
Person, the Company 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 Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the person with whom the Company 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 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 Common Stock or the occurrence of an event described in
the prior paragraph, the Board of Directors of the Company may exchange the
Rights (other than 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 Common Stock,
or a fractional share of Preferred Stock (or of a share of a similar class or
series of the Company's preferred stock having similar rights, preferences and
privileges) of equivalent value, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the 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
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the 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
3
<PAGE>
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
For so long as the Rights are then redeemable, the Company may,
except with respect to the redemption price, amend the Rights in any manner.
After the Rights are no longer redeemable, the Company may, except with respect
to the redemption price, amend the Rights in any manner that does not adversely
affect the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
dated June __, 1998. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference.
4
