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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER 001-12275.
IMS HEALTH INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1506026
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
200 NYALA FARMS, WESTPORT, CONNECTICUT 06880
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (203) 222-4200.
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ------------------- -------------------
Common Stock, par value $.01 per share ................. New York Stock Exchange
Preferred Stock Purchase Rights ........................ New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of February 1, 1999, 318,016,855 shares of Common Stock of IMS Health
Incorporated were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon its closing transaction price on the
Composite Tape on such date) was approximately $12,025 million.
(Continued)
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Documents Incorporated by Reference
PART I
ITEM 1 -Business IMS Health Business
Segments, 1998, Pages
34 to 36 Note 17.
Operations by Business
Segments, of the 1998
Annual Report to
Shareholders.
ITEM 3 -Legal Proceedings Pages 32 and 33, Note
15. Contingencies, of
the 1998 Annual Report
to Shareholders.
PART II
ITEM 5 -Market for the Registrant's Common Pages 11 and 12,
Equity and Related Stockholder Financial Review, of
Matters the 1998 Annual Report
to Shareholders.
ITEM 6 -Selected Financial Data Page 38, Five-Year
Selected Financial
Data, of the 1998
Annual Report to
Shareholders.
ITEM 7 -Management's Discussion and Analysis Pages 1 to 12,
of Financial Condition and Results of Financial Review, of
Operations the 1998 Annual Report
to Shareholders.
ITEM 7A -Quantitative and Qualitative Disclosure Page 11, Financial
About Market Risk Review, and Page 24 to
25, Note 9. Financial
Instruments, of the
1998 Annual Report to
Shareholders.
ITEM 8 -Financial Statements and Supplementary Pages 14 to 38 of the
Data 1998 Annual Report to
Shareholders; Pages F-1
to F-20 of the Gartner
Group, Inc. 1998 Annual
Report to Shareholders.
PART III
ITEM 10 -Directors and Executive Officers of the Section entitled
Registrant "Election of Directors"
of the Company's Proxy
Statement dated
February 26, 1999.
ITEM 11 -Executive Compensation Section entitled
"Compensation of
Executive Officers and
Directors" of the
Company's Proxy
Statement dated
February 26, 1999.
ITEM 12 -Security Ownership of Certain Beneficial Section entitled
Owners and Management "Security Ownership of
Management and Others"
of the Company's Proxy
Statement dated February
26, 1999.
ITEM 13 -Certain Relationships and Related Not Applicable.
Transactions
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The Index to Exhibits is located on Page 23
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PART I
As used in this report, except where the context indicates otherwise, the
terms "Company" and "IMS HEALTH" mean IMS Health Incorporated and all
subsidiaries consolidated in the financial statements contained or incorporated
by reference herein.
ITEM 1. BUSINESS
IMS Health Incorporated ("accounting successor to Cognizant") was
incorporated under the laws of the State of Delaware on February 3, 1998. The
Company began operating as an independent publicly held company on July 1, 1998
(the "Distribution Date") as a result of its spin-off (the "Cognizant Spin-off")
from Cognizant Corporation ("Cognizant"). Prior to the Cognizant Spin-off, the
Company was owned by Cognizant. Cognizant began operating as an independent
publicly held company on November 1, 1996 as a result of its spin-off (the "D&B
Spin-off") from The Dun & Bradstreet Corporation ("Dun & Bradstreet"). Prior to
the D&B Spin-off, Cognizant was owned by Dun & Bradstreet.
The Common stock of IMS HEALTH was distributed by Cognizant Corporation
("Cognizant") to its shareholders on June 30, 1998. Simultaneously with the
distribution Cognizant changed its name to Nielsen Media Research, Inc.
("Nielsen Media Research"). Notwithstanding the legal form of the distribution,
whereby Cognizant spun off IMS HEALTH, for accounting purposes the transaction
is accounted for as if Cognizant spun off Nielsen Media Research and IMS HEALTH
has been deemed the "accounting successor" to Cognizant. The separation created
IMS HEALTH as the premier global provider of information solutions to the
pharmaceutical and healthcare industries, and established an independent Nielsen
Media Research, the leader in North American electronic audience measurement
services.
On November 11, 1998 the Company announced that its Board of Directors
approved a plan, in principle, to spin-off substantially all of its equity
ownership of Gartner Group, Inc. ("Gartner"). The transaction, expected to be
completed in the first half of 1999, is to be structured as a tax-free
distribution of Gartner stock to IMS HEALTH shareholders.
At the December 31, 1998 the Company owned approximately 47 million shares
of Gartner. Prior to the spin-off, 40.1 million of these shares will be
exchanged for new Class B Common Stock of Gartner. The Class B Stock will be
entitled to elect 80% of Gartner's Board of Directors, but will otherwise be
identical to existing Class A Common Stock. The exchange will be part of a
Gartner recapitalization. The Class B shares will be distributed to the
Company's shareholders in a tax-free distribution, subject to receipt of a
favorable tax ruling from the Internal Revenue Service ("IRS") with respect to
the distribution. The Company intends to monetize its remaining position in
Gartner by the end of 1999. This includes 6.9 million shares of Class A Common
Stock and warrants to purchase a further 600,000 shares.
Separately, Gartner announced that, subject to approval by the IRS of the
tax-free treatment of the distribution, it intends to declare a special one-time
cash dividend of $300 million to its shareholders of record immediately prior to
the spin-off. The Gartner Board of Directors also announced that it intends to
authorize a $300 million open market share repurchase program for up to 20% of
its stock commencing immediately after the spin-off.
The transaction is subject to receipt of a favorable ruling from the IRS,
final approval by the Company's and Gartner Boards of Directors, and approval by
Gartner shareholders.
IMS HEALTH is the global provider of information solutions to the
pharmaceutical and healthcare industries. IMS HEALTH consists of the market
information, and decision-support services business for the pharmaceutical and
healthcare industries conducted by IMS HEALTH and various subsidiaries ("IMS"),
IMS Health Strategic Technologies Inc. ("Strategic Technologies"), which is a
leading provider of automated sales support to the pharmaceutical industry,
ERISCO Managed Care Technologies, Inc. ("Erisco"), which provides application
software and services to the healthcare industry to help manage the
administration of group health and life insurance products, Enterprise
Associates, Inc. ("Enterprises"), which invests in businesses mainly in the
information technology and healthcare information industries, a 61.7% ownership
interest in Cognizant Technology Solutions Corporation ("CTS"), which provides
software solutions to complex IT problems including application development and
maintenance services and Year 2000 and Eurocurrency compliance services. The
Company also has an equity investment in Gartner Group, Inc. ("Gartner"), the
premier provider of research and advisory services to the information technology
industry. The Company operates in approximately 90 countries. The number of
full-time equivalent employees at December 31, 1998 was approximately 8,000.
The Company's operations can be grouped into the following business
segments: IMS, Emerging Markets, and CTS, plus its equity investment in Gartner.
Gartner is the leading independent provider of research and analysis on the
computer hardware, software, communications and related technology industries.
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IMS
The IMS segment provides information and decision-support services to the
pharmaceutical and healthcare industries worldwide. These services broadly
include market research services, sales management services, sales force
automation 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 62% of total
revenue generated outside the United States in 1998. In 1998, IMS continued its
expansion in developing markets in Eastern Europe and Sub-Saharan Africa.
Revenue in 1998 increased by 22% compared with 1997 in these developing markets.
Sales management services represented approximately 48% of the IMS
segment's worldwide revenue in 1998. Sales management services include sales
territory reports, prescription tracking reports 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:
o 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 35 countries.
o 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
nearly one million individual prescribers on a monthly basis.
Xponent is currently under development in Europe. The Europe Xponent
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. Europe
Xponent is in development in the United Kingdom, Germany, Belgium,
the Netherlands, Italy, France and Spain. The acquisition of PMSI
has accelerated the development of Xponent.
Sales management reporting services are made available to clients
and their sales representatives and management via hardcopy reports, CD-ROMs,
software application tools, computer on-line services, web based access and
magnetic media for use in client computer systems and IMS's customized
electronic workstations. IMS's data delivery systems assist clients in
maximizing efficiency by aiding in the setting of sales targets and calculation
of sales commissions; 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
several customized client-server decision support systems that allow 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 and web based access capabilities.
Market research services represented approximately 35% of the IMS
segment's worldwide revenue in 1998. 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 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, software application tools,
computer on-line services, and magnetic media for use in client computer systems
and IMS's customized electronic workstations. IMS's principal market research
services are as follows:
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o 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 83 countries.
o 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.
o 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 38 countries.
o Promotional Audits. These audits measure pharmaceutical promotion
for a particular market, including sales-force promotion and journal
and mail advertising, based on information received from panels of
physicians and from monitoring medical journals and direct mail. IMS
publishes promotional reports for 26 countries.
o 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
15 countries.
o Self-Medication and OTC 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 34 countries.
o 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.
The remaining 17% of the IMS segment's 1998 revenue was derived primarily
through professional consulting, software, direct marketing, research and
development services, and sales support technology. 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 manage sales and marketing, (iii) to evaluate the
effectiveness of marketing programs, (iv) to analyze components of a product
marketing program at any stage of its implementation, and (v) for consultancy
in optimizing strategy, marketing programs and product commercialization. These
services are as follows:
o IMS Global Services. IMS's Global Services unit is based in the
United Kingdom and the United States and provides access to global
level information services to pharmaceutical clients operating on a
multinational level. Global Services' core service offering,
MIDAS(TM), is an on-line multinational integrated data analysis tool
which harnesses IMS's worldwiDE databases and is used by the
pharmaceutical industry to assess and utilize pharmaceutical
information and trends in multiple markets. MIDAS gives clients
on-line access to IMS-compiled pharmaceutical, medical, promotional
and chemical data. 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 and
strategic consultancy.
o Territory enterprise relationship management systems. Strategic
Technologies, a subsidiary of IMS HEALTH is a leading provider of
automated sales support technologies to the pharmaceutical industry.
Strategic Technologies offers sales and marketing applications which
can be integrated with client-critical databases to provide customer
and business insights. Over 35,000
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pharmaceutical sales executives worldwide rely on Strategic
Technologies' solutions to make critical sales and marketing
decisions on a daily basis. Three industry-leading IMS HEALTH
products increase pharmaceutical sales force performance and
productivity by providing access to up-to-the-minute profiling,
targeting, activity reporting, team selling and sample management
information. Cornerstone(TM) is a flexiblE, Windows(TM)-based,
integrated sales and marketing information system used by sales
forces. Capabilities of IMS HEALTH'S Cornerstone include the ability
to quickly access and generate standard and customized reports, such
as weekly activity summary reports, division reports and product
launch reports; desktop or laptop reporting that provides fast
updating of customer activities; and access to pharmaceutical
databases through Cornerstone's MarketViews, which can be configured
to deliver customized sales summaries by territory, district and
physicians. Premiere(SM) is a Windows(TM)-based, integrated salES
and marketing information system similar to Cornerstone with a
substantial user base in Europe, Canada and Asia/Pacific. Core data
can be drawn from various sources and tailored by country, region,
department or individual user. Its unique application generators and
builders are used to customize and modify the system to a company's
specific requirements --quickly and without the need for
re-programming. Sales and marketing professionals at every level of
an organization can use Premiere to develop selling strategies,
allocate and coordinate sales resources, track competitive activity,
and plan, monitor and evaluate sales activity. Precise(SM)2000 is an
Electronic Territory Management System that offers lower-cost
hardware solutions for pharmaceutical sales organizations. The
system is designed to help sales teams optimize their resources at
every level, including organizing daily sales activities, monitoring
individual performance, and making strategic and tactical decisions.
This fully integrated software system also can be customized to
increase productivity, to target prospective customers and to
improve decision-making within a sales organization. Management is
currently developing a next stage integrated and global sales
management information system. Strategic Technologies is a market
leader in application of a variety of hand held devices which offer
greater portability in developed markets and a low cost entry
strategy into sales force automation in emerging markets.
o 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's
professional consulting services provides a wide range of custom
market research, promotion optimization, promotion effectiveness,
managed care and other advanced analytics services for the
pharmaceutical and healthcare marketplace. The professional services
consulting group also 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.
o 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 salesforce support
services, publication circulation management, direct mail,
telemarketing projects utilizing physicians and other healthcare
professionals, and other customized promotion programs.
o 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, certain Eastern European
countries, Japan and the United States, 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.
o Pharmacy dispensing and point-of-sales software systems. IMS also
provides pharmacy dispensing and point-of-sale software systems to
retail pharmacies in the United Kingdom and Australia.
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 HEALTH 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.
Sales to the healthcare industry accounted for substantially all of the
IMS segment's revenue in 1998. All major pharmaceutical companies are customers
of IMS, and many of the companies subscribe to reports and services in several
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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 the Company's gross revenues in 1998.
While no competitor provides the geographical reach or breadth of IMS's
services, IMS generally has competition in 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 and prescription tracking reports, representing
approximately 60% of the annual revenue of the US 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.
EMERGING MARKETS
This segment is comprised of Erisco, Enterprises and SSJ K.K. ("SSJ").
ERISCO
Erisco has been a leading provider of application software and services to
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.
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
United States is estimated to surpass the 100 million mark. This significant
market growth combined with the limitations of aging information systems, will
continue to increase the demand for sophisticated managed care applications.
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.
Within the high-growth managed care market segment, Erisco competes with
three other information systems vendors; McKessonHBOC, Computer Sciences
Corporation and Health Systems Design. Competition is principally based on
company reputation, system functionality and technology, and ease of use and
service.
ENTERPRISES
Enterprises invests in emerging and established businesses, with an
emphasis on information technology and the health care information industry. It
has invested as a limited partner in Information Partners Capital Fund,
Information Associates, L.P. and Information Associates II, L.P., all of which
are venture capital limited partnerships, as well as through direct investments.
SSJ
SSJ is based in Japan and markets financial application software products
and services tailored for the Japanese market.
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CTS
In the second quarter of 1998, CTS effected an initial public offering of
its Class A Common Stock. As of December 31, 1998 IMS HEALTH owns 61.7% of the
outstanding common stock of CTS, representing approximately 94% of the combined
voting power of CTS' common stock. CTS is quoted on the Nasdaq National Market
under the trading symbol "CTSH." CTS provides various software development and
maintenance services to IMS Health and is subsidiaries, including assisting in
IMS HEALTH'S Year 2000 compliance efforts. IMS HEALTH provides certain
administrative services to CTS pursuant to an agreement entered into in
connection with the public offering.
During 1998, CTS recorded intercompany sales of approximately $13
million, principally to the IMS segment. These sales are eliminated in
consolidation.
CTS delivers high-quality, cost-effective, full life cycle solutions to
complex software development and maintenance problems. Its services include the
following:
o 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, or (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.
o 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.
o 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 large portion of
customers' systems.
o Eurocurrency Compliance Services. The monetary union of the European
Community presents a significant opportunity for CTS as computer
systems which deal with any European denominated currency modified
to handle local currency and Eurocurrency transactions. CTS is
addressing the Eurocurrency compliance problem and has established 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.
o 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.
o 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.
The IT services market includes a large number of participants, is subject
to rapid changes and is highly competitive. 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.
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RESOURCE GROUP
Shared Business Services began operations in 1994 as an internal services
business. The shared service center in Allentown, Pennsylvania provides
centralized functions covering broad finance and administrative services
formerly supplied within each IMS HEALTH division, in the United States and
Canada, but at lower cost with higher levels of service. In 1998 effective with
the Cognizant Spin-off, the center began servicing Nielsen Media Research as an
external services provider in the functions of general accounting, accounts
payable, payroll and financial systems support.
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. 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.
RELATIONSHIP BETWEEN IMS HEALTH
AND NIELSEN MEDIA RESEARCH AFTER THE DISTRIBUTION
Prior to the Cognizant Spin-off, IMS HEALTH and Cognizant (which changed
its name to Nielsen Media Research, Inc.) entered into certain agreements
governing their relationship subsequent to the Cognizant Spin-off and providing
for the allocation of certain liabilities and obligations arising from periods
prior to the Cognizant Spin-off, including those obligations and liabilities
that arose in connection with the D&B Spin-off. The following descriptions
summarize certain terms of such agreements, but is qualified by reference to the
texts of such agreements, which are incorporated by reference to the Exhibits to
this Form 10-K.
DISTRIBUTION AGREEMENT
Cognizant and IMS HEALTH entered into a Distribution Agreement (the
"Distribution Agreement") providing for, among other things, certain corporate
transactions required to effect the Cognizant Spin-off and other arrangements
between Cognizant and IMS HEALTH subsequent to the Cognizant Spin-off.
In particular, the Distribution Agreement defines the assets and
liabilities which were allocated to and assumed by IMS HEALTH and those which
are allocated to and assumed by Nielsen Media Research. All assets were
transferred without any representation or warranty, "as is-where is", and the
relevant transferee bears the risk that any necessary consent to transfer was
not obtained.
The Distribution Agreement provides for, among other things, assumption 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) Cognizant's businesses (i.e., Nielsen Media
Research) and certain other specified liabilities and (ii) all other liabilities
to IMS HEALTH. Pursuant to the terms of the 1996 Distribution Agreement (the
"1996 Distribution Agreement") among Cognizant, Dun & Bradstreet and ACNielsen
Corporation ("ACNielsen"), as a condition to the Distribution, IMS HEALTH and
Nielsen Media Research were required to and did undertake to be jointly and
severally liable to Dun & Bradstreet and ACNielsen for any liabilities arising
thereunder. The Distribution Agreement allocates between IMS HEALTH and
8
<PAGE>
Nielsen Media Research the financial responsibility for such liabilities
including contingent liabilities related to certain prior business transactions
and certain liabilities to Dun & Bradstreet that may arise in connection with
the D&B Spin-off.
Among other things, IMS HEALTH and Nielsen Media Research agreed to an
allocation of certain potential liabilities in connection with the action filed
by Information Resources, Inc. described in Note 15 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Shareholders, referred to in
Item 3 Legal Proceedings (the "IRI Action"). IMS HEALTH and Nielsen Media
Research have agreed that, as between themselves, IMS HEALTH will assume 75%,
and Cognizant will assume 25%, of any payments to be made by Cognizant in
respect of IRI Action under the 1996 Indemnity and Joint Defense Agreement among
Cognizant, Dun & Bradstreet and ACNielsen (the "IJDA") including any legal fees
and expenses incurred in 1999 or thereafter. IMS HEALTH agreed to be fully
responsible for any legal fees and expenses incurred during 1998. Nielsen Media
Research aggregate liability to IMS HEALTH for payments in respect of the IRI
Action and certain other specified contingent liabilities is not to exceed $125
million. Under the IJDA, ACNielsen assumed exclusive liability for the IRI
Liabilities up to a specified amount (the "ACN Maximum Amount"), which is to be
calculated at the time such liabilities, if any, become payable, and that
Cognizant and Dun & Bradstreet 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.
In addition, pursuant to the Distribution Agreement, on the Distribution
Date, Nielsen Media Research contributed to IMS HEALTH all cash in Nielsen Media
Research accounts other than (i) cash required by Nielsen Media Research to
satisfy certain specified obligations and (ii) such additional cash as was
necessary for the net borrowings of Nielsen Media Research (excluding the items
referred to in clause (i)) to be $300 million as of the Distribution Date.
The Distribution Agreement provides that neither Nielsen Media Research
nor IMS HEALTH will take any action that would jeopardize the intended tax
consequences of the Cognizant Spin-off. Specifically, each company 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. As part of the request for a ruling
that the Cognizant Spin-off will be tax free for Federal income tax purposes,
each company represented to the Internal Revenue Service that, subject to
certain exceptions, it has no plan or intent to liquidate, merge or sell all or
substantially all of its assets. As a result, the Company may not initiate any
action leading to a change of control, and in the case of a change in control,
the foregoing representations, and the ruling based thereon, could be called
into question. As a result, the acquisition of control of the Company prior to
July 1, 2000 may be more difficult or less likely to occur because of the
potential substantial contractual damages associated with a breach of such
provisions of the Distribution Agreement.
TAX ALLOCATION AGREEMENT
Nielsen Media Research and IMS HEALTH entered into a Tax Allocation
Agreement under which IMS HEALTH agreed to 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 will
be allocated to IMS HEALTH if such adjustment relates to IMS HEALTH's business
and to Cognizant 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 will 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 IMS
HEALTH's business and of Nielsen Media Research if they are attributable to
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.
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EMPLOYEE BENEFITS AGREEMENT
Nielsen Media Research and IMS HEALTH entered into an Employee Benefits
Agreement, which allocates responsibility for certain employee benefits matters
on and after the Distribution Date. Among other things, the Employee Benefits
Agreement requires that the Company adopt a defined pension plan, nonqualified
supplemental pension plans and welfare plans for the benefit of IMS HEALTH
employees and former employees. Nielsen Media Research is required to continue
to sponsor its current defined benefit pension plans and welfare plans for the
benefit of employees and former employees and will retain the liability for
benefits under Nielsen Media Research nonqualified supplemental pension plans
for such employees. 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. Assets and liabilities of the
Cognizant Pension Plan attributable to the Company's employees and retirees were
transferred to a plan maintained by the Company.
AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT
Nielsen Media Research, IMS HEALTH, Dun & Bradstreet, R.H. Donnelley,
Inc., ACNielsen and Gartner entered into an Amended and Restated Transition
Services Agreement pursuant to which such parties have agreed to certain basic
terms governing the provision by Dun & Bradstreet 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, Dun & Bradstreet and ACNielsen entered into in
connection with the D&B Spin-off and includes Gartner as a party to such
agreement.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information and statements provided by the Company may
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. The Company cautions shareholders and investors
that actual results may differ materially from those projected or suggested in
any forward-looking statement as a result of a wide variety of factors,
including but not limited to the factors set forth below:
o 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").
The Company began to address the Year 2000 issue in 1996, when it
began to assess the impact on its operations. In 1997, the Company
created a Year 2000 Task Force (the "task force") to manage overall
risks and to facilitate activities across the entire Company. CTS, a
majority owned subsidiary, is being used to convert the majority of
the systems to allow most internal staff members to focus on the
core business. The Company has also used outside services to assist
in conversion and to assess the progress of its Year 2000 program.
The Company has identified its Year 2000 areas of focus as systems
and software for the creation and delivery of its products and
systems and software for its internal administrative operations.
o The cost of addressing the Year 2000 issue and the dates which the
Company currently expects to complete Year 2000 compliance are based
on the current best estimates of management, which are derived
utilizing various assumptions regarding the 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. The Company's plans are dependent on the continuous
operation of industries outside of its direct control such as
utilities, transportation, etc. The above expectations are subject
to uncertainties. For example, if the Company is unsuccessful in
identifying or fixing all Year 2000 problems in its critical
operations, or effected by the inability of its data suppliers or
major customers to continue operations due to such a problem, the
Company's results of operations or financial condition could be
materially impacted. See the "Financial Review" in the 1998 Annual
Report to Shareholders.
o Results could be affected by the costs and other effects of
litigation and other contingencies involving the Company. In
particular, management of the Company is unable to predict at this
time the final outcome of the IRI Action described in "Note 15.
Contingencies" of the Notes to Consolidated Financial Statements in
the 1998 Annual Report to Shareholders, or whether the resolution of
this matter could materially affect the Company's results of
operations, cash flows or financial position.
o The Company has been informed by The Dun & Bradstreet Corporation
("D&B") that the IRS is currently reviewing D&B's utilization of
certain losses during 1989 and 1990. While D&B has not received an
assessment with respect to these transactions, it understands that
the IRS will challenge D&B's position. The Company has estimated
that D&B's total cash liability to the IRS if an assessment is made
and the IRS prevails would be approximately $425,000 for taxes and
accrued interest net of tax benefit. Under the terms of the 1996
Distribution Agreement, the Company is liable to pay half of such
taxes and interest owed to the extent that D&B's total liabilities
exceed $137,000. A portion of the Company's liabilities would in
turn be shared with Nielsen Media Research in connection with the
Distribution dated June 30, 1998 between Cognizant and the Company.
The Company estimates that its current share of the Liability were
the IRS to prevail would be approximately $135,000. Additional
information is incorporated by reference to Note 12. Income Taxes on
Pages 30 - 31 of the 1998 Annual Report to Shareholders.
10
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o The Company operates globally, deriving 59% of its $1,186,513 in
revenue and 114% of its $132,484 in 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-denominated operating results. The Company's
geographic expansion in emerging markets such as Eastern Europe,
Africa and Asia Pacific is expected to continue. Emerging markets
tend to be considerably less stable than established markets which
may further contribute to volatility in operating results. In
addition, the Company is subject to the usual risks inherent in
carrying on business in certain countries outside the United States,
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.
o Although an important aspect of the Company's business strategy is
growth through acquisitions, there can be no assurance that
management of the Company 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.
o The Company competes in businesses which demand or sell
sophisticated information systems, software and other technology.
The types of systems which the Company'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, the Company will be able to replace them, to replace them
as quickly as the Company's competition or to develop and market new
and better products and services in the future on a cost-effective
basis.
o Currently, the Company's assets include a significant block of the
outstanding shares of Gartner. In the third quarter of 1997, the
Company's voting interest in Gartner fell below 50% to 49.5% based
upon the exercise of Gartner employee stock options and employee
stock purchases. Accordingly, as of September 30, 1997 the Company
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 the Company will have an impact on the trading prices
of the Company's 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.
o A number of countries in which the Company operates have enacted
regulations limiting the prices pharmaceutical companies may charge
for drugs. The Company believes that such cost containment measures
will cause pharmaceutical companies to seek more effective means of
marketing their products (which will benefit the Company 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.
o Certain of the data services provided by the Company 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 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
Company's business. However, there can be no assurance that future
initiatives would not adversely affect the Company's ability to
generate or assemble data or to develop or market current or future
products and services.
o Each of the Company's businesses is subject to significant or
potential competition which is likely to intensify in the future.
o The Company's results could be adversely affected by general or
specific weakening of economic conditions, including weak economic
conditions in the pharmaceutical, healthcare, information technology
or other industries in which the Company's customers operate.
11
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o On November 11, 1998 the Company announced that its Board of
Directors approved a plan, in principle, to spin-off substantially
all of its equity ownership of Gartner. The transaction, expected to
be completed in the first half of 1999, is to be structured as a
tax-free distribution of Gartner Stock to IMS HEALTH shareholders.
The transaction is subject to receipt of a favorable ruling from the
IRS, final approval by the Company's and Gartner's Board of
Directors, and approval by Gartner shareholders. Additional
information is incorporated by reference to the Financial Review on
pages 1-12 of the 1998 Annual Report to Shareholders.
---------------------------------------
The names of the Company's products used in this report are trademarks or
registered trademarks of IMS Health Incorporated or one of its subsidiaries.
Additional information is incorporated by reference to Note 17. Operations by
Business Segment on Pages 34 - 36 of the 1998 Annual Report to Shareholders.
12
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ITEM 2. PROPERTIES
The principal properties of the Company are set forth below.
The executive offices of IMS Health Incorporated are located at 200 Nyala
Farms, Westport, Connecticut in a leased property.
Property of the Company is geographically distributed to meet sales and
operating requirements worldwide. The properties of the Company are
generally considered to be both suitable and adequate to meet current
operating requirements and virtually all space is being utilized.
IMS
Owned properties located within the United States include three
facilities. The properties are located in Totowa, New Jersey; and Plymouth
Meeting and West Norriton, Pennsylvania.
Owned properties located outside the United States include nine
facilities: one property each in Buenos Aires, Argentina; Artarmon,
Australia; Crows Nest, Australia; Innsbruck, Austria; Santiago, Chile;
Lisbon, Portugal; and London, Loughborough and Pinner, England.
The operations of this business unit are also conducted from twenty-two
leased offices located throughout the United States and one-hundred and
five non-United States locations.
EMERGING MARKETS
Operations are conducted from two leased office locations throughout the
United States.
CTS
Operations are conducted from three leased office locations throughout the
United States and nine non-United States locations.
RESOURCE GROUP/CORPORATE
Operations are conducted from two leased office locations in Allentown,
Pennsylvania and Westport, Connecticut.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 15. of Notes to Consolidated Financial
Statements on Pages 32 and 33 of the 1998 Annual Report to Shareholders
which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
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EXECUTIVE OFFICERS OF THE REGISTRANT*
Officers are elected by the Board of Directors to hold office until their
respective successors are chosen and qualified.
Listed below are the executive officers of the registrant at February 26,
1999 and brief summaries of their business experience during the past five
years.
Name Title Age
---- ----- ---
Robert E. Weissman Chairman and Chief Executive Officer** 58
Victoria R. Fash President and Chief Operating Officer** 48
J. Michal Conaway Chief Financial Officer 50
Gilles Pajot Vice Chairman and President - Europe Region 49
Robert Hooper President, IMS America 53
Alan J. Klutch Senior Vice President - Finance 54
James C. Malone Senior Vice President - Finance and Controller 50
Kenneth S. Siegel Senior Vice President - General Counsel and
Corporate Secretary 43
Craig S. Kussman Senior Vice President - Corporate Development 40
David H. Owen Senior Vice President - Global Human Resources 48
Matthew L. Friedman Vice President and Treasurer 41
* Set forth as a separate item pursuant to Items 401(b) and (e) of
Regulation S-K.
** Member of the Board of Directors.
Mr. Weissman was appointed Chairman and Chief Executive Officer of IMS
Health Incorporated in February, 1998. He previously served as Chairman and
Chief Executive Officer of Cognizant Corporation from September, 1996 to July,
1998. Mr. Weissman was Chairman and Chief Executive Officer of Dun & Bradstreet
from April, 1995 to October, 1996 after serving as President and Chief Executive
Officer from January, 1994 to March, 1995. He was named Dun & Bradstreet's
President and Chief Operating Officer in January, 1985.
Ms. Fash was appointed President and Chief Operating Officer of IMS Health
Incorporated in February, 1998 and will become the Chief Executive Officer,
effective March 19, 1999. Ms. Fash served as Executive Vice President and Chief
Financial Officer of Cognizant Corporation from September, 1996 to July, 1998
and Chairman and Chief Executive Officer of I.M.S. International, Inc., a
subsidiary of Cognizant, from December, 1997 to July, 1998. From April, 1995 to
November, 1996, Ms. Fash was Vice President-Business Strategy of Dun &
Bradstreet. Prior to that, she served as Vice President-Business Operations
Planning of Dun & Bradstreet from May, 1994 to April, 1995. Previously, she had
served as Assistant to the President of Dun & Bradstreet from September, 1991 to
May, 1994.
Mr. Conaway was appointed Chief Financial Officer in September, 1998. He
previously served as Senior Vice President and Chief Financial Officer of Fluor
Corporation, an engineering and diversified services company, from June, 1995 to
September, 1998; Vice President and Chief Financial Officer from June, 1994 to
June, 1995 and Vice President-Finance from January, 1993 to June, 1994.
Mr. Pajot was appointed Vice Chairman and President - Europe Region in
December, 1997. Prior to that he served as Senior Vice President and President
Market Region Europe of Pharmacia & Upjohn. From September, 1994 to November
1995 he was Executive Vice President Worldwide of Pharmacia AB.
Mr. Hooper was appointed General Manager of IMS America, Ltd. in April,
1997 and was appointed President in April, 1998. Prior to that, he was President
of Abbott Laboratories Canada from July 1993 to April, 1997.
Mr. Klutch was appointed Senior Vice President - Finance of IMS Health
Incorporated in June, 1998. He previously served as Senior Vice President -
Finance of Cognizant Corporation from September, 1996 to July, 1998. Mr. Klutch
was Vice President - Financial Planning of Dun & Bradstreet from October, 1984
to October, 1996.
Mr. Malone was appointed Senior Vice President - Finance and Controller of
IMS Health Incorporated in May, 1998. He served as Senior Vice President -
Finance and Controller of Cognizant Corporation from December, 1996 to July,
1998 and had been appointed Vice President - Finance and Controller from
September, 1996 to December, 1996. Previously, he had served as Assistant Vice
President and Leader - North American Shared Transaction Services Center
14
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from February, 1995 to December, 1996 and as Vice President and Controller of
Reuben H. Donnelley Corporation, subsidiary of Dun & Bradstreet from 1990 to
February, 1995.
Mr. Siegel was appointed Secretary of IMS Health Incorporated in February,
1998 and Senior Vice President, General Counsel and Corporate Secretary in June,
1998. He served as Senior Vice President and General Counsel of Cognizant
Corporation from February, 1997 to July, 1998 and Secretary from July, 1997 to
July, 1998. Mr. Siegel was a partner with the law firm of Baker & Botts, L.L.P.
from September, 1994 to February, 1997. Previously, he was a partner at the law
firm of O'Sullivan Graev & Karabell from July, 1987 to August, 1994.
Mr. Kussman was appointed Senior Vice President - Corporate Development in
August, 1998 having served as Vice President Corporate Development since June,
1998. He served as Vice President - Corporate Development of Cognizant
Corporation from October, 1997 to June, 1998 and Vice President - Mergers and
Acquisitions, from November, 1996 to October, 1997. Previously, he had served as
Assistant Vice President - Financial Planning of Dun & Bradstreet from May, 1991
to November, 1996.
Mr. Owen was appointed Senior Vice President, Global Human Resources in
December 1998. Previously, he operated his own business consulting firm, Owen
Consultants, from January, 1998 to November, 1998 and again from July, 1997 to
December, 1997. Mr. Owen was Resourcing Director of Origin BV, an information
technology services company, from February, 1997 to December, 1997 and was
Director, Human Resources, Service Delivery and Internal Communications at Forte
plc, a hotel and restaurant operator.
Mr. Friedman was appointed Vice President and Treasurer of IMS Health
Incorporated in February, 1999, having served as Interim Treasurer of the
Company since August, 1998. Previously he was Assistant Treasurer of Cognizant
Corporation from November, 1996 to June, 1998. Prior to that he served as
Director - International Finance for Dun & Bradstreet from December, 1994 to
November, 1996.
15
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information in response to this Item is set forth under Dividends and
Common Stock Information in the "Financial Review" on Page 7 of the 1998 Annual
Report to Shareholders, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data required by this Item is incorporated herein by
reference to the information relating to the years 1994 through 1998 set forth
in the "Five-Year Selected Financial Data" on Page 27 of the 1998 Annual Report
to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth in the "Financial
Review" on Pages 1 to 7 of the 1998 Annual Report to Shareholders, which
information is incorporated herein by reference.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information in response to this Item is set forth under Market Risk in the
"Financial Review" on Page 11 and in Note 9. Financial Instruments on Pages 24
to 25 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules under Item 14 on Page 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference
to the section entitled "Election of Directors" in the Company's proxy statement
dated February 26, 1999 with the Securities and Exchange Commission, except that
"Executive Officers of the Registrant" on Page 10 of this report responds to
Items 401(b) and (e) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference
to the section entitled "Compensation of Executive Officers and Directors" in
the Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
17
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
(1) Financial Statements.
See Index to Financial Statements and Schedule on Page 20.
(2) Financial Statement Schedule.
See Index to Financial Statements and Schedule on Page 20.
(3) Other Financial Information.
Five-year Selected Financial Data. See Index to Financial
Statements and Schedule on Page 20.
(4) Exhibits.
See Index to Exhibits on Pages 23, which indicates which
Exhibits are management contracts or compensatory plans
required to be filed as Exhibits. Only responsive information
appearing on pages 1 to 38 to Exhibit 13 is incorporated
herein by reference, and no other information appearing in
Exhibit 13 is or shall be deemed to be filed as part of this
Form 10-K.
(b) Reports on Form 8-K.
18
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMS HEALTH INCORPORATED
(Registrant)
By: /s/ ROBERT E. WEISSMAN
------------------------------------
(Robert E. Weissman,
Chairman)
By: /s/ VICTORIA R. FASH
------------------------------------
(Victoria R. Fash,
President & Chief Executive Officer)
By: /s/ J. MICHAL CONAWAY
------------------------------------
(J. Michal Conaway,
Chief Financial Officer)
By: /s/ JAMES C. MALONE
------------------------------------
(James C. Malone, Senior Vice
President - Finance & Controller)
Date: February 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ CLIFFORD L. ALEXANDER /s/ H. EUGENE LOCKHART
- - -------------------------------------- ---------------------------------
(Clifford L. Alexander, Jr., Director) (H. Eugene Lockhart, Director)
/s/ VICTORIA R. FASH /s/ M. BERNARD PUCKETT
- - -------------------------------------- ---------------------------------
(Victoria R. Fash, Director) (M. Bernard Puckett, Director)
/s/ JOHN P. IMLAY /s/ WILLIAM C. VAN FAASEN
- - -------------------------------------- ---------------------------------
(John P. Imlay, Jr., Director) (William C. Van Faasen, Director)
/s/ ROBERT KAMERSCHEN /s/ ROBERT E. WEISSMAN
- - -------------------------------------- ---------------------------------
(Robert Kamerschen, Director) (Robert E. Weissman, Director)
/s/ ROBERT J. LANIGAN
- - --------------------------------------
(Robert J. Lanigan, Director)
Date: February 26, 1999
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INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
The Company's consolidated financial statements, the notes thereto and the
related report thereon of PricewaterhouseCoopers LLP, independent accountants,
for the years ended December 31, 1998, 1997, and 1996, appearing on pages 14 to
36 of the accompanying 1998 Annual Report to Shareholders, are incorporated by
reference into this Annual Report on Form 10-K (see below). The additional
financial data indicated below should be read in conjunction with such
consolidated financial statements.
<TABLE>
<CAPTION>
PAGE
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10-K 1998 ANNUAL REPORT TO
SHAREHOLDERS
--------------------- ---------------------
<S> <C> <C>
Statement of Management's Responsibility for Financial Statements........Exhibit 13 Pg 13 13
Report of Independent Accountants........................................Exhibit 13 Pg 13 13
As of December 31, 1998, 1997 and 1996:
Consolidated Statements of Financial Position..........................Exhibit 13 Pg 15 15
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Income......................................Exhibit 13 Pg 14 14
Consolidated Statements of Cash Flows..................................Exhibit 13 Pg 16 16
Consolidated Statements of Shareholders' Equity........................Exhibit 13 Pg 17 - 18 17 - 18
Notes to Consolidated Financial Statements...............................Exhibit 13 Pg 19 - 37 19 - 37
Other Financial Information:
Quarterly Financial Data (Unaudited) for the years ended
December 31, 1998, 1997 and 1996.......................................Exhibit 13 Pg 37 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................Exhibit 13 Pg 1- 7 1 - 7
Business Segments is already included in "Notes to Consolidated Financial Statements"
Five-Year Selected Financial Data......................................Exhibit 13 Pg 38 38
SCHEDULE:
Report of Independent Accountants...................................... 16 --
II. Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997, and 1996............................................ 17 --
OTHER:
IMS Health Incorporated and Subsidiaries............................... Exhibit 21 --
Schedules other than the one listed above are omitted as not required or
inapplicable or because the required information is provided in the consolidated
financial statements, including the notes thereto.
The consolidated financial statements of Gartner Group, Inc. and the notes
thereto, for the years ended September 30, 1998, 1997, and 1996, and the related
report thereon of KPMG Peat Marwick LLP, independent accountants, for the years
ended September 30, 1998, 1997 and 1996 appearing on pages F-1 to F-20 of the
Gartner Group, Inc. 1998 Annual Report to Shareholders, filed hereunder as
Exhibit 99.2, are incorporated by reference into this Annual Report on Form
10-K.
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of IMS Health Incorporated:
Our audits of the consolidated financial statements referred to in our
report dated February 16, 1999 appearing in the 1998 Annual Report to
Shareholders of IMS Health Incorporated ("accounting successor to Cognizant
Corporation") (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 16, 1999
21
<PAGE>
IMS HEALTH INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(A)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - -----------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(B) OF PERIOD
----------- --------- -------- ------------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1998 ... $ 3,905 $ 1,828 $ 2,034 $ 7,767
======= ======= ======= =======
For the Year Ended December 31, 1997 ... $11,697 $ 462 $(8,254) $ 3,905
======= ======= ======= =======
For the Year Ended December 31, 1996 ... $ 8,135 $ 4,093 $ (531) $11,697
======= ======= ======= =======
</TABLE>
NOTE:
(A) Schedule II has been restated to exclude Nielsen Media Research, a
discontinued operation.
(B) Primarily represents the inclusion of the allowance for doubtful
accounts related to the Walsh and PMSI businesses in 1998; and the
deconsolidation of Gartner and the recovery of accounts in 1997.
22
<PAGE>
INDEX TO EXHIBITS
REGULATION S-K
EXHIBIT NUMBER DESCRIPTION
- - -------------- -----------
3 Articles of Incorporation and By-laws
.1 Restated Certificate of Incorporation of IMS Health Incorporated
dated May 29, 1998 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10 filed on June 12,
1998, file number 001-14049).
.2 Amended and Restated By-laws of IMS Health Incorporated
(incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form 10 filed on June 12, 1998, file
number 001-14049).
10 Material Contracts
.1 Distribution Agreement between Cognizant Corporation and IMS Health
Incorporated, dated as of June 30, 1998.
.2 Tax Allocation Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.
.3 Employee Benefits Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.
.4 Amended and Restated Transition Services Agreement among The Dun &
Bradstreet Corporation, The New Dun & Bradstreet Corporation,
Cognizant Corporation, IMS Health Incorporated, ACNielsen
Corporation and Gartner Group, Inc., dated as of June 30, 1998.
.5 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive
Plan, as adopted effective July 1, 1998.*
.6 1998 IMS Health Incorporated Non-Employee Directors' Deferred
Compensation Plan, as adopted effective July 1, 1998.*
.7 1998 IMS Health Incorporated Employees' Stock Incentive Plan, as
adopted effective July 1, 1998.*
.8 1998 IMS Health Incorporated Replacement Plan for Certain Employees
Holding Cognizant Corporation Equity-Based Awards, as adopted
effective July 1, 1998.*
.9 1998 IMS Health Incorporated Replacement Plan for Certain
Non-Employee Directors Holding Cognizant Corporation Equity-Based
Awards, as adopted effective July 1, 1998.*
.10 Form of Non-Employee Directors' Stock Option Agreement.*
.11 Form of Non-Employee Directors' Restricted Stock Agreement.*
.12 Form of Restricted Stock Unit Agreements
.13 Form of Stock Option Agreement.*
.14 Form of Purchased Option Agreement.*
.15 Forms of Change-in-Control Agreement for Certain Executives of IMS
Health Incorporated.*
.16 IMS Health Incorporated Employee Protection Plan, as adopted
effective December 1, 1998.*
.17 IMS Health Incorporated Executive Annual Incentive Plan, as adopted
effective July 1, 1998. *
.18 IMS Health Incorporated Supplemental Executive Retirement Plan, as
adopted effective July 1, 1998.*
.19 IMS Health Incorporated Retirement Excess Plan, as adopted effective
July 1, 1998.*
.20 Rights Agreement dated as of June 15, 1998 between IMS Health
Incorporated and First Chicago Trust Company of New York.
.21 IMS Health Incorporated Savings Equalization Plan, as adopted
effective July 1, 1998.*
.22 Employment Agreement by and between IMS Health Incorporated and
Robert E. Weissman, dated as of July 1, 1998.*
.23 Employment Agreement by and between IMS Health Incorporated and
Victoria R. Fash, dated as of July 1, 1998.*
.24 Amended and Restated Cognizant Technology Solutions Non-Employee
Directors' Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Form S-1 filed by Cognizant Technology Solution
Corporation on April 9, 1998, file number 333-49783).
.25 Undertaking of IMS Health Incorporated, dated June 30, 1998.
13 1998 Annual Report to Shareholders.
21 List of Active Subsidiaries as of December 31, 1998.
23 Consent of Independent Accountants.
27 Financial Data Schedules.
99. Additional Exhibits
.1 Consent of KPMG Peat Marwick LLP, independent accountants for
Gartner Group, Inc.
.2 Pages F1 to F20 of the Gartner Group, Inc. 1998 Annual Report
to Shareholders.
- - --------------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement
IMS HEALTH INCORPORATED
-------------------------------------------------
1998 ANNUAL REPORT TO SHAREHOLDERS
IMS HEALTH [LOGO}
<PAGE>
IMS HEALTH INCORPORATED
1998 ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
Financial Review........................................................... 1-12
Statement of Management's Responsibility for Financial Statements............ 13
Report of Independent Accountants............................................ 13
Consolidated Financial Statements..........................................14-18
Notes to Consolidated Financial Statements................................ 19-36
Quarterly Financial Data..................................................... 37
Five-Year Selected Financial Data............................................ 38
<PAGE>
IMS HEALTH INCORPORATED
FINANCIAL REVIEW
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
All share and per share data presented are adjusted to reflect a 2-for-1
stock split distributed to shareholders on January 15, 1999. (See Note 2. to the
Consolidated Financial Statements).
YEAR-ENDED DECEMBER 31, 1998 COMPARED WITH
YEAR-ENDED DECEMBER 31, 1997
The accompanying financial statements and related financial review relate
to IMS Health Incorporated ("IMS Health" or the "Company"). On June 30, 1998,
the common stock of IMS Health was distributed by Cognizant Corporation
("Cognizant") to its shareholders. Simultaneously with the distribution (the
"Distribution"), Cognizant changed its name to Nielsen Media Research, Inc.
("Nielsen Media Research"). Notwithstanding the legal form of the Distribution,
whereby Cognizant spun off IMS Health, for accounting purposes the transaction
is accounted for as if Cognizant spun off Nielsen Media Research and IMS Health
has been deemed the "accounting successor" to Cognizant. IMS Health consists of
the market information and decision support services business for the
pharmaceutical and healthcare industries conducted by IMS Health and various
subsidiaries ("IMS") including IMS Health Strategic Technologies Inc.
("Strategic Technologies"), ERISCO Managed Care Technologies, Inc. ("Erisco"),
Enterprise Associates, Inc. ("Enterprises"), a 61.7% interest in Cognizant
Technology Solutions Corporation ("CTS") and SSJ K.K. ("Super Systems Japan").
The Company also has an equity investment in Gartner Group, Inc. ("Gartner").
Pursuant to Accounting Principles Board ("APB") Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of the Company have been
reclassified to reflect the results of Nielsen Media Research as a discontinued
operation. (See Note 1. to the Consolidated Financial Statements).
Investment in Gartner
In September 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, in the third quarter of 1997, the Company deconsolidated
Gartner (the "Gartner Deconsolidation") and as of January 1, 1997 is accounting
for its ownership interest on the equity basis. (See Note 3. to the Consolidated
Financial Statements).
On November 11, 1998, the Company announced that its Board of Directors had
approved a plan, to spin-off substantially all of its equity ownership of
Gartner. The transaction, expected to be completed in the first half of 1999, is
to be structured as a tax-free distribution of Gartner stock to IMS Health
shareholders. The transaction is subject to receipt of a favorable ruling from
the Internal Revenue Service ("IRS") regarding the tax free nature of the
proposed transaction, final approval by the Company's and Gartner's Boards of
Directors, and approval by Gartner shareholders.
At December 31, 1998, the Company owned approximately 47 million shares of
Gartner. Prior to the proposed spin-off transaction, 40.1 million of these
shares will be exchanged for new Class B Common Stock of Gartner. The Class B
Stock will be entitled to elect 80% of Gartner's Board of Directors, but will
otherwise be identical to existing Class A Common Stock. The exchange will be
part of a Gartner recapitalization and requires approval by Gartner
shareholders. The Class B shares will be distributed to the Company's
shareholders in a tax-free distribution, subject to receipt of a favorable tax
ruling from the Internal Revenue Service with respect to the distribution. The
Company intends to monetize its remaining position in Gartner through the first
quarter of the Year 2000. This includes 6.9 million shares of Class A Common
Stock and warrants to purchase a further 600,000 shares.
Separately, Gartner announced that subject to approval by the IRS of the
tax-free treatment of the distribution, it intends to declare a special one-time
cash dividend of $300,000 to its shareholders of record immediately prior to the
spin-off. The Gartner Board of Directors has authorized a $300,000 open market
share repurchase program for up to 20% of its stock commencing immediately after
the spin-off.
Dispositions
During the year, the Company recorded $46,118 net pre-tax gains principally
reflecting the sale of investments in Aspect Development, Inc., which is part of
Enterprises' portfolio and the sale of shares in CTS. (See Note 6. to the
Consolidated Financial Statements). These sales generated cash proceeds of
$78,883.
Acquisitions and Joint Venture
On June 24, 1998, Cognizant acquired Walsh International Inc. ("Walsh").
The final purchase price of the acquisition was $193,748, consisting of $167,148
of common stock, $9,521 of stock options and $17,079 of accrued acquisition and
integration costs.
Under the terms of the Walsh acquisition agreement, Walsh shareholders
received .6082 (on a pre-split basis the ratio is .3041) shares of Cognizant
common stock per Walsh share or based on a Cognizant share price of $25.896,
consideration of approximately $167,148 (on a pre-split basis a Cognizant share
price of $51.792). Walsh had 10,612,628 shares outstanding. Cognizant issued
1
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
6,454,600 shares from treasury stock to consummate the Walsh acquisition. The
direct acquisition and integration costs consist of severance of $4,876, lease
terminations of $2,569, and other direct acquisition and integration costs of
$9,634. These direct acquisition and integration costs were incurred as a direct
result of the acquisition and the formal plan to exit certain activities as part
of the overall integration effort (such as severance costs related to Walsh
employees) and certain contractual costs (such as Walsh leases). To date,
incurred acquisition and integration costs are within original estimates.
Approximately $156,557 is recorded as the excess of the purchase price over the
fair value of identifiable net assets, (goodwill), which is being amortized on a
straight-line basis over 15 years.
The severance costs are related to 78 Walsh employees. As of December 31,
1998, the Company made payments of $3,257, reducing the work force by 56, and
the remaining terminations are anticipated to be completed by June 1999. The
following table displays the activities since the acquisition with respect to
these liabilities:
ORIGINAL LIABILITY 1998 DECEMBER 31,
ESTIMATE EXPENDITURES 1998 BALANCE
- - --------------------------------------------------------------------------------
Employee Separation $ 4,876 $ (3,257) $ 1,619
Lease terminations 2,569 (96) 2,473
Other direct costs 9,634 (8,713) 921
- - --------------------------------------------------------------------------------
Total $ 17,079 $(12,066) $ 5,013
- - --------------------------------------------------------------------------------
On August 5, 1998, IMS Health acquired certain non-U.S. assets of
Pharmaceutical Marketing Services Inc. ("PMSI"). The final purchase price of the
acquisition was $103,291, consisting of $75,292 of common stock, $5,415 of stock
options and $22,584 of accrued acquisition and integration costs.
Under the terms of the PMSI acquisition agreement, PMSI received 2,395,926
shares of IMS Health common stock. The direct acquisition and integration costs
consist of severance of $3,794, lease terminations of $1,623, contract
cancellations of $10,935, and other direct acquisition and integration costs of
$6,232. These direct acquisition and integration costs are incremental to other
costs and were incurred as a direct result of the formal plan to exit certain
activities as part of the overall integration effort (such as severance costs
related to PMSI employees) and certain contractual cancellation costs (such as
PMSI contracts and leases). Acquisition and integration costs incurred to date
are within original estimates. Approximately $115,275 is recorded as the excess
of the purchase price over the fair value of identifiable net assets (goodwill),
which is being amortized on a straight-line basis over 15 years.
The severance costs are related to 63 PMSI employees. As of December 31,
1998, the Company made payments of $2,013 reducing the work force by 33, and the
remaining terminations are anticipated to be completed by July 1999. The
following table displays the activities since the acquisition with respect to
these liabilities:
ORIGINAL LIABILITY 1998 DECEMBER 31,
ESTIMATE EXPENDITURES 1998 BALANCE
- - --------------------------------------------------------------------------------
Employee Separation $ 3,794 $(2,013) $ 1,781
Lease terminations 1,623 (60) 1,563
Contract Cancellations 10,935 (1,038) 9,897
Other direct costs 6,232 (5,077) 1,156
- - --------------------------------------------------------------------------------
Total $22,584 $(8,187) $14,397
- - --------------------------------------------------------------------------------
Joint Venture
On September 1, 1998, the Company formed a joint venture with IHA Institut
fur Marktanalysen AG ("IHA"). The Company and IHA each contributed all of their
Swiss pharmaceutical research assets to the venture and each own 50% of the
venture. The Company contributed assets of $54 and cash of $11,014. The $12,027
excess of the investment over the value of the Company's share of the net assets
has been recorded as goodwill, which is being amortized on a straight line basis
over 20 years. The Company has accounted for its ownership interest in the joint
venture under the equity method.
Purchase Price Allocation
The Company made allocations of the aggregate purchase price to acquired
in-process research and development ("IPR&D") amounting to $21,900 in the second
quarter of 1998 related to the Walsh acquisition and $10,900 in the third
quarter of 1998 related to the PMSI acquisition.
The Securities and Exchange Commission (the "SEC") recently issued revised
guidance with respect to allocations of IPR&D projects in connection with
acquisitions. In accordance with this guidance, the amount allocated to IPR&D
reflects the relative value and contribution of the acquired IPR&D.
Consideration was given to the project's stage of completion, the complexity of
the work completed to date, the difficulty of completing the remaining
development, costs already incurred and the projected cost to complete the
projects.
The allocation of the Company's aggregate purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed in
connection with the Walsh and PMSI acquisitions, was based primarily on
estimates of fair values by an independent appraisal firm. The allocation is
summarized below:
WALSH PMSI TOTAL
- - -------------------------------------------------------------
In-process R&D write-off $ 21,900 $ 10,900 $ 32,800
Net liabilities assumed (5,009) (28,274) (33,283)
Software/Core technology 29,000 7,700 36,700
Deferred taxes (8,700) (2,310) (11,010)
Goodwill 156,557 115,275 271,832
- - -------------------------------------------------------------
Total Purchase Price $193,748 $103,291 $297,039
- - -------------------------------------------------------------
2
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
In the aggregate, the impact of both the Walsh and PMSI acquisitions on the
results of operations, other than the one-time charges and IPR&D write-offs, had
they occurred on January 1, 1998 or 1997, would be immaterial.
At the date of the respective acquisitions, the development of the IPR&D
projects had not yet reached technological feasibility and had no alternative
future use. Accordingly, these costs were expensed as of the respective
acquisition dates.
The projects identified as IPR&D at Walsh include enhancement of Walsh's
Windows-based sales manage-ment information system, enhancement of its
pharmaceutical marketing database, and development of a next-stage integrated
and enhanced sales management information system. These projects were identified
as underway at Walsh and, at the date of the acquisition, would require
additional effort to establish technological feasibility. In addition, based on
a third party independent appraiser, the Company allocated $29,000 to existing
core technology representing computer software that is currently in use, which
is being amortized over 5 years.
The projects identified as IPR&D at PMSI include significant improvements
of PMSI's physician database products in Europe and Japan and to its pharmacy
software system in the United Kingdom. These projects were identified as being
underway at PMSI, at the date of acquisition, and would require additional
effort to establish technological feasibility. In addition, based on a third
party independent appraiser, the Company allocated $7,700 to existing core
technology representing computer software that is currently in use, which is
being amortized over 5 years.
The amounts assigned to the IPR&D projects were determined by first
estimating the degree of completion of each project and the potential net cash
flows from such projects after commercial introduction. The potential net cash
flows include reductions reflecting the necessary investment in fixed and
working capital and other collateral assets, which include core technology,
where appropriate and a fair return on those assets. A portion of the potential
net cash flows for each project was then attributed to the effort already
completed by Walsh and PMSI by the acquisition date, based upon the estimated
degree of completion. The attributed potential net cash flows for each project
were discounted to present value using a risk-adjusted discount rate.
The discount rates utilized to value the IPR&D projects ranged from 17% to
30%. Such discount rates took into account the industry risk for the Walsh and
PMSI businesses acquired (as evidenced by the calculated weighted average cost
of capital), technological development risk associated with completing the
in-process projects, and market and commercial risk associated with introducing
the new products/technology. The implied weighted average cost of capital for
the different Walsh and PMSI projects ranged from 12% to 15%.
The degree of completion represents the extent to which the different
in-process projects are complete, as of the respective acquisition dates. The
completion percentage ranged from 53% to 87% for projects at Walsh and 80% to
90% for projects at PMSI. In the opinion of management, IMS Health is on target
to begin realizing the benefits from these various projects through product
introductions at launch dates ranging from early 1999 to January 2000.
The Company believes that the assumptions used, including the revenue
forecasts and margin analysis, are reasonable. No assurance can be given,
however, that the underlying assumptions used to estimate expected project
sales, development costs or profitability, or the events associated with such
projects, will transpire as estimated. For these reasons, actual results may
vary from the projected results.
Management expects to continue supporting these IPR&D efforts and believes
the Company has a reasonable chance of successfully completing the IPR&D
programs. However, there is risk associated with the completion of the IPR&D
projects and the Company cannot be assured that any will meet with either
technological or commercial success.
If none of these IPR&D projects are successfully developed, the sales and
profitability of the Company may be adversely affected in future periods. The
failure of any particular individual project in-process would not materially
impact the Company's financial condition, results of operations or cash flows.
Operating results are subject to uncertain market events and risks, which are
beyond the Company's control, such as trends in technology, government
regulations, market size and growth, and product introduction or other actions
by competitors.
In connection with the PMSI acquisition, the Company commenced an
evaluation of its existing IMS Health product offerings. Based on this strategic
assessment, the Company decided to abandon certain of its existing software
products. The impact of this decision was to recognize the impairment of certain
computer software assets ($36,300), the closure of certain IMS facilities ($800)
and the severance of some IMS employees ($5,600). This resulted in a one-time
charge of $43,019 and is included as a component of operating income.
3
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Public Offering of a Subsidiary
On June 19, 1998, CTS effected an initial public offering (the "CTS IPO")
of 2,917,000 shares of Class A Common Stock, par value $0.01 per share
(3,354,550 including the underwriters' over-allotment option granted by
Cognizant). Cognizant's interest in CTS was transferred to the Company in the
Distribution. The Company's ownership interest was 61.7% at December 31, 1998
and, accordingly, the Company consolidates CTS results within its financial
statements. The equity not owned by the Company is reflected on the Statement of
Financial Position in the minority interest line and on the Consolidated
Statements of Income in the Other Expense-Net line. (See Note 6. to the
Consolidated Financial Statements).
Operating Results
Revenue in 1998 increased 12.0% to $1,186,513 from $1,059,559 in 1997. This
increase primarily reflects the strong growth of the core IMS worldwide
business. The core IMS worldwide revenues benefited from the introduction of new
compounds within the pharmaceutical client base, new product introductions,
acquisition-related revenue and geographic expansion. Adjusting for the impact
of a stronger U.S. dollar, 1998 revenue increased by 15.4%.
Operating costs and selling and administrative expenses in 1998 were
$1,054,029, compared with $831,949 in 1997, an increase of 26.7%. This increase
was due primarily to the Company's increased spending on new revenue growth
initiatives, increased spending on the Year 2000 ("Y2K") issue, charges related
to the Distribution (approximately $35,000), one-time charges and IPR&D
write-offs related to the Walsh and PMSI acquisitions, and incremental recurring
expenses related to the two acquired businesses. If these 1998 expenses are
adjusted to exclude the charges related to the Distribution, the one-time
charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, Y2K
costs, operating costs and selling and administrative expenses increased by
7.4%, to $893,263 in 1998.
Operating income in 1998 decreased 41.8% to $132,484 from $227,610 in 1997.
This decrease primarily reflects the impact of increased spending on the Y2K
issue, charges related to the Distribution, one-time charges and IPR&D
write-offs related to the Walsh and PMSI acquisitions, and the operations of
Walsh and PMSI. If 1998 operating income is adjusted to exclude the charges
related to the Distribution, the one-time charges and IPR&D write-offs related
to the Walsh and PMSI acquisitions, Y2K costs, operating income increased by
28.8%, to $293,250 in 1998. This operating income growth outpaced revenue growth
primarily due to the Company's ability to leverage its worldwide resources.
Operating margin in 1998 was 11.2%, compared with 21.5% in 1997. If the
1998 operating margin is adjusted to exclude the items listed above, operating
margin improved to 24.7% in 1998 from 21.5% in 1997. The IMS segment operating
margin was 28.6% in 1998 compared with 28.1% in 1997.
Non-operating income-net (including interest income and expense) in 1998
was $138,177, compared with $94,864 in 1997. The increase was principally due to
gains from the CTS IPO and the sale of assets from the Enterprises portfolio,
increased Gartner Equity Income and higher net interest income.
The Company's consolidated 1998 effective tax rate was 34.1%, compared with
27.4% in 1997. The Company's higher tax rate in 1998 reflects non-deductible
charges related to the Distribution, and the one-time charges and IPR&D
write-offs related to the Walsh and PMSI acquisitions, and the continued impact
of global tax planning strategies.
Income from continuing operations in 1998 was $178,465, compared with
$234,116 in 1997, a decrease of 23.8%. This decrease was due principally to
increased spending on the Y2K issue, charges related to the Distribution,
one-time charges and IPR&D write-offs related to the Walsh and PMSI
acquisitions, partially offset by gains from the CTS IPO, the sale of assets
from the Enterprises portfolio and a pre-tax unrealized gain on its investment
in Gartner ("SAB 51 Gain"). Excluding these items, income from continuing
operations increased 25.5% to $271,815 in 1998 from $216,634 in 1997, reflecting
the strong growth of the core IMS worldwide business.
Income from discontinued operations, net of income taxes in 1998 was
$42,093 (which includes the first six months of Nielsen Media Research's 1998
operations), compared to $78,234 in 1997 (which includes a full year of Nielsen
Media Research's operations).
Net income in 1998 was $220,558, compared with $312,350 in 1997, a decrease
of 29.4%. This decrease principally reflects the items noted above in income
from continuing operations and the inclusion of only six months of Nielsen Media
Research's 1998 operations.
RESULTS BY BUSINESS SEGMENT
IMS
The IMS segment consists of IMS, the leading global provider of market
information, sales management and decision-support services to the
pharmaceutical and healthcare industries, and Strategic Technologies, a leading
provider of automated sales support technologies to the pharmaceutical industry.
IMS segment revenue increased 10.6% in 1998 to $1,083,992 from $980,521 in 1997.
This
4
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
growth reflected strong performance of core business services, increased demand
for services due to introduction of new compounds within the pharmaceutical
client base, geographic expansion, the impact of the Walsh and PMSI
acquisitions, and strong revenue growth at Strategic Technologies. Excluding the
impact of a stronger U.S. dollar in 1998, revenue growth was 14.1%. Operating
income decreased 30.4% to $184,771 in 1998 from $265,351 in 1997. Excluding the
one-time charges and IPR&D write-offs related to the Walsh and PMSI
acquisitions, and Y2K costs in 1998, operating income growth was 17.0% due to
the factors described above. Operating income growth outpaced revenue growth
primarily due to the segment's ability to leverage its worldwide resources.
EMERGING MARKETS
The Emerging Markets segment consists primarily of Erisco, and also
includes Enterprises and Super Systems Japan. In the third quarter of 1997, the
Company sold Pilot and recorded a non-cash pre-tax loss of $29,945. Excluding
Pilot in 1997, the segment had a 21.7% increase in 1998 revenue to $57,542 from
$47,286 in 1997, primarily reflecting strong growth at Erisco. 1998 operating
income for the segment was $6,171 compared with a loss of $12,669 in 1997. This
improvement reflects the elimination of the Pilot losses, combined with strong
improvements in profitability at Erisco.
CTS
CTS revenue, excluding sales to related parties, increased 224.1% to
$44,979 in 1998 from $13,879 in 1997. This growth reflected the addition of new
customers and the continuing conversion of Y2K customers into ongoing
development and maintenance customers. Operating income, excluding the operating
profit associated with related parties, increased 205.7% to $8,918 in 1998 from
$2,917 in 1997. The strong revenue growth was partially offset by the continued
acceleration of sales and marketing investments and increased infrastructure to
support revenue growth.
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, the Company's voting
interest in Gartner fell below 50% in September 1997. Accordingly, the Company
accounts for its ownership interest on the equity basis. In both 1997 and 1998,
the income statement impact of the Company'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 ("SAB 51") in the income
statement). Gartner Equity Income grew by 9.0% to $70,979 in 1998 from $65,120
in 1997. SAB 51 gains grew by 1.0% to $14,838 in 1998 from $14,689 in 1997. A
SAB 51 Gain was not recognized in the fourth quarter of 1998 due to the
announcement of the spin-off of the Company's equity investment in Gartner (See
Note 3. to the Consolidated Financial Statements).
RESULTS BY GEOGRAPHIC AREA
Revenue in the United States increased by 19.6% to $489,719 in 1998 from
$409,527 in 1997. The increase reflected the strong performance of core business
services by the IMS segment, high revenue growth at Erisco and CTS through the
addition of new customers and new product introductions and the Walsh
acquisition.
Non-U.S. revenue increased 7.2% to $696,794 in 1998 from $650,032 in 1997.
Non-U.S. operations include Europe, Australia and the Far East. The increase
reflects continued growth of IMS, new product introductions, geographic
expansion by IMS and the impact of the Walsh and PMSI acquisitions. Excluding
the impact of a stronger U.S. dollar in 1998, non-U.S. revenue increased by
12.7%.
YEAR-ENDED DECEMBER 31, 1997 COMPARED WITH
YEAR-ENDED DECEMBER 31, 1996
In September 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, in the third quarter, the Company deconsolidated Gartner
as of January 1, 1997 and is accounting for its ownership interest on the equity
basis.
Revenue in 1997 decreased 24.9% to $1,059,559 from $1,411,192 in 1996. This
decrease primarily reflects the impact of the Gartner Deconsolidation. Revenue
in 1997 increased by 10.2%, excluding Gartner revenue from both years and the
impact of a stronger U.S. dollar. The increase reflects double-digit revenue
growth in the IMS segment, partially offset by Pilot, which was sold in the
third quarter of 1997. IMS segment revenue growth benefited from strong
performance of its core business services, geographic expansion and excellent
growth of its electronic territory management product. The impact of a stronger
U.S. dollar in 1997 reduced revenue growth by approximately 3%.
Operating costs and selling and administrative expenses in 1997 were
$831,949 compared with $1,167,485 in 1996, a decrease of 28.7%. This decrease
primarily reflects the impact of the Gartner Deconsolidation. Excluding Gartner
expenses from both years and business units sold in 1996, operating costs and
selling and administrative expenses increased 4.0% to $831,949 in 1997 from
$799,939 in 1996. This increase reflects the Company's increased spending on new
revenue growth initiatives
5
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FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
which contributed to revenue growth of 10.2% in 1997. The impact of a stronger
U.S. dollar in 1997 decreased operating costs and selling and administrative
expenses by approximately 3%.
Operating income in 1997 decreased 6.6% to $227,610 from $243,707 in 1996.
This decrease primarily reflects the impact of the Gartner Deconsolidation.
Excluding Gartner operating income in both years and sold business units in
1996, operating income increased 21.8% to $227,610 in 1997 from $186,871 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 approximately 1%. The sale of Pilot,
which had been generating an operating loss, enabled the Company to redeploy
resources to strategic technology investments, including the initiative to
accelerate Y2K compliance. The impact on operating income of Y2K compliance was
$9,819 in 1997.
Operating margin in 1997 was 21.5%, compared with 17.3% in 1996. Excluding
Gartner results from both years, and discontinued business units in 1996,
operating margin was 21.5% in 1997 compared with 18.9% in 1996.
Non-operating income-net in 1997 was $94,864, 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. The Company also recognized
a 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).
The Company's consolidated 1997 effective tax rate was 27.4%, compared with
44.0% in 1996. The Company's lower tax rate in 1997 is due to the benefits of
global tax planning strategies.
Income from continuing operations in 1997 was $234,116, compared with
$139,754 in 1996, an increase of 67.5%. This increase principally reflects IMS
operating income growth, 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 IPR&D costs associated with Gartner's
acquisition of J3 Learning Corporation (the "J3 charge") in 1996. Excluding
these items, income from continuing operations increased 21.3% to $216,616 in
1997 from $178,597 in 1996.
Income from discontinued operations, net of income taxes in 1997 was
$78,234, compared with $55,697 in 1996 an increase of 40.5%. Income from
discontinued operations, net of income taxes represents the results of Nielsen
Media Research. The increase is a result of a reduced tax rate of 27.4% in 1997
from 44.0% in 1996 and growth in Nielsen Media Research. Excluding this item and
Y2K expenses net of taxes in 1997, income from discontinued operations increased
12.1% over the prior year.
Net income in 1997 was $312,350, compared with $195,451 in 1996, an
increase of 59.8%. This increase principally reflects the items noted above in
income from continuing operations and the reduction in the discontinued
operations tax rate. Excluding these items, net income increased 17.6% to
$294,850 in 1997 from $250,805 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 Strategic Technologies, an operating unit of IMS Health and the
leading provider of automated sales support technologies to the pharmaceutical
industry. IMS segment 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
Strategic Technologies. Excluding the impact of a stronger U.S. dollar, revenue
growth was 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 the segment's ability to leverage its resources.
Excluding the impact of Y2K compliance, a stronger U.S. dollar in 1997, and
business units sold in 1996, operating income grew 18.2%.
EMERGING MARKETS
The Emerging Markets segment consists primarily of Erisco, and also
includes Enterprises, Pilot and Super Systems Japan. In the third quarter of
1997, the Company sold Pilot and recorded a non-cash pre-tax loss of $29,945.
The segment had a 17.7% decrease in 1997 revenue to $65,159 from $79,205 in
1996, reflecting the sale of Pilot. Erisco posted high revenue growth through
the addition of new customers and new product introductions. The 1997 operating
loss for the segment was $12,669, compared with $14,558 in 1996, reflecting the
sale of Pilot.
6
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FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
CTS
CTS revenue, excluding sales to related parties, increased to $13,879 in
1997 from $3,161 in 1996. Operating income, excluding the operating profit
associated with re-lated parties, increased to $2,917 in 1997 from $1,655 in
1996. This growth reflected the impact of the addition of new customers.
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, the Company's voting
interest in Gartner fell below 50% in September 1997. Accordingly, the Company
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 the
Company's ownership interest appears in non-operating income-net as Gartner
equity income and as a SAB 51 gain (included as a separate line in the income
statement). Revenue and operating income for Gartner in 1996 were $424,382 and
$60,114, respectively. Operating income was adversely affected by the J3 Charge.
Excluding this item, operating income was $93,347.
RESULTS BY GEOGRAPHIC AREA
Revenue in the United States decreased by 36.0% to $409,527 in 1997 from
$639,831 in 1996. This decrease is primarily the result of the Gartner
Deconsolidation. Excluding Gartner and Pilot revenue in both years, 1997 revenue
in the United States increased by 18.7%. The increase reflected a strong
performance of core business services by IMS and high revenue growth at Erisco
and CTS through the addition of new customers and new product introductions.
Non-U.S. revenue decreased by 15.7% to $650,032 in 1997 from $771,361 in
1996. The decrease is primarily the result of the Gartner Deconsolidation.
Excluding Gartner and Pilot revenue in both years and excluding the impact of a
stronger U.S. dollar, 1997 non-U.S. revenue increased by 10.7%. This increase
reflects continued growth at IMS and geographic expansion.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1998
COMPARED TO DECEMBER 31, 1997
Cash and cash equivalents were $206,390, $312,442 and $422,963 at December
31, 1998, 1997 and 1996, respectively. Cash decreased $106,052 in 1998 primarily
due to payments for the purchase of treasury stock ($666,694) and investing
activities for capital expenditures, additions to software and other investments
($113,389). These cash uses were partially offset by proceeds from debt assumed
by Nielsen Media Research ($300,000), cash from operating activities ($229,842),
proceeds from exercise of stock options ($104,990) and proceeds from sale of
businesses and investments and issuance of subsidiary stock ($78,883).
Accounts Receivable-Net increased to $324,219 at December 31, 1998, from
$251,623 at December 31, 1997, primarily reflecting the Walsh and PMSI
acquisitions and increases at IMS due to new product launches in the fourth
quarter and increased sales.
Other Current Assets increased to $103,868 at December 31, 1998, from
$65,692 at December 31, 1997, primarily reflecting an increase in deferred
income taxes associated with tax deductible non-U.S. intangible assets.
Investment in Gartner Group increased to $252,852 at December 31, 1998,
from $195,695 at December 31, 1997, primarily reflecting equity income-net of
taxes ($41,507) and a gain on the sale by Gartner of Gartner stock ($14,838).
Goodwill increased to $363,841 at December 31, 1998, from $87,430 at
December 31, 1997, primarily reflecting the Walsh acquisition ($156,557) and the
PMSI acquisition ($115,275).
Net Assets from Discontinued Operations decreased to $0 at December 31,
1998, from $122,778 at December 31, 1997, due to the Distribution of Nielsen
Media Research.
Accounts and Notes Payable increased to $90,884 at December 31, 1998, from
$44,441 at December 31, 1997, primarily reflecting short term borrowings in
Japan and the inclusion of the liabilities related to the Walsh and PMSI
businesses.
Accrued and Other Current Liabilities increased to $298,625 at December 31,
1998, from $189,384 at December 31, 1997, primarily reflecting the Walsh and
PMSI acquisitions and related acquisition costs.
Deferred Income Taxes decreased to $30,322 at December 31, 1998, from
$92,153 at December 31, 1997, primarily reflecting long-term benefits associated
with tax deductible non-U.S. intangible assets.
Other Liabilities increased to $181,807 at December 31, 1998, from $71,786
at December 31, 1997, primarily reflecting an increase in pre-spin liabilities.
NON-U.S. OPERATING AND MONETARY ASSETS
The Company 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. The Company enters into forward
contracts to offset the effect of currency fluctuations
7
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FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
on operating income. In 1998, foreign currency translation decreased U.S. dollar
revenue growth and operating income growth by approximately 3% and 8%,
respectively. In 1997, foreign currency translation decreased U.S. dollar
revenue growth and operating income growth by approximately 3% and 1%,
respectively.
Non-U.S. monetary assets are maintained in currencies other than the U.S.
dollar, principally in those of Switzerland, Japan and Australia. 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 1998 decreased
the U.S. dollar amount of cash and cash equivalents by $1,574.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $206,390, $312,442 and $422,963 at December
31, 1998, 1997 and 1996, respectively. Cash decreased $106,052 in 1998 primarily
due to payments for the purchase of treasury stock ($666,694) and investing
activities for capital expenditures, additions to software and other investments
($113,389). These cash uses were partially offset by proceeds from debt assumed
by Nielsen Media Research ($300,000), cash from operating activities ($229,842),
proceeds from exercise of stock options ($104,990) and proceeds from sale of
businesses and investments and issuance of subsidiary stock ($78,883).
Net cash provided by operating activities was $229,842, $259,465 and
$257,059 in 1998, 1997 and 1996, respectively. The decrease of $29,623 in
operating activities in 1998 primarily reflected increased accounts receivable
from fourth quarter revenues ($46,001), higher taxes paid ($44,425) and
increased postemployment benefit payments ($6,671). These decreases were
partially offset by lower other working capital ($31,584) and higher tax
refunds. The increase of $2,406 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 $44,094.
Net cash used in investing activities totaled $102,592 for 1998, compared
with $73,456 and $115,686 in 1997 and 1996, respectively. The cash usage in 1998
increased $29,136 reflecting payments for acquisitions and joint ventures
($38,356) and increases in other investments-net, partially offset by lower
capital expenditures ($16,158) and lower additions to computer software
($13,687). The decrease in cash usage in 1997 of $42,330 primarily reflected
higher proceeds from the sale of businesses and investments ($43,336) and the
absence of purchases of Gartner common stock ($49,419), offset in part by the
absence of net proceeds from marketable securities ($27,601).
Net cash (used in)/provided by financing activities totaled ($214,555),
($215,198) and $80,609 for 1998, 1997 and 1996, respectively. Total financing
activity remained essentially unchanged in 1998 from 1997 with usage for the
purchase of treasury stock increasing ($341,927) and the absence of the 1997
minority interest financing ($100,000), offset by the proceeds of the debt
assumed by Nielsen Media Research ($300,000), higher proceeds from employee
stock option exercises ($78,581), increased short-term borrowing-net of
repayments ($34,008) and the proceeds from the sale and issuance of subsidiary
stock ($31,197). The increase in 1997 of cash used in financing activities
primarily reflected the purchase of shares of the Company's 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.
Cash flow (used by)/provided from discontinued operations totaled
($17,173), $53,580 and $47,694 for 1998, 1997 and 1996, respectively.
The Gartner Deconsolidation resulted in the elimination of the Gartner
Group opening cash balances in 1997. Gartner Group cash balance as of December
31, 1996 was $123,697.
On October 21, 1997 Cognizant announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 20,000,000 shares
(on a post split basis) of Cognizant's outstanding common stock. As the
Accounting Successor to Cognizant, the Company purchased the remaining balance
of 18,850,800 shares of the Company's stock (on a post split basis) pursuant to
this program. A portion of this program was intended to offset option exercises.
This program was completed by the Company on November 17, 1998 at a cost of
$591,331.
In the fourth quarter the Board of Directors authorized a stock repurchase
program to buy up to 16,000,000 shares (on a post split basis) of the Company's
outstanding common stock. A portion of this program is intended to offset option
exercises. Through December 31, 1998, 2,898,800 shares (on a post split basis)
have been acquired at a total cost of $98,113.
In connection with the Distribution, Cognizant borrowed $300,000, which was
to repay existing intercompany liabilities. This debt was assumed by Nielsen
Media Research upon the Distribution.
8
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FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
On November 11, 1998 the Company announced that its Board of Directors,
approved a plan, to spin-off substantially all of its equity ownership in
Gartner. The transaction, expected to be completed in the first half of 1999, is
to be structured as a tax-free distribution of Gartner stock to IMS Health
shareholders. The transaction is subject to receipt of a favorable ruling from
the IRS, final approval by the Company's and Gartner Boards of Directors, and
approval by Gartner shareholders.
The Company owns approximately 47 million shares of Gartner. Prior to the
spin-off, 40.1 million of these shares will be exchanged for new Class B Common
Stock of Gartner. The Class B Stock will be entitled to elect 80% of Gartner's
Board of Directors, but will otherwise be identical to existing Class A Common
Stock. The exchange will be part of a Gartner recapitalization and requires
approval by Gartner shareholders. The Class B shares will be distributed to the
Company's shareholders in a tax-free distribution, subject to receipt of a
favorable tax ruling from the Internal Revenue Service with respect to the
distribution. The Company intends to monetize its remaining position in Gartner,
6.9 million shares of Class A Common Stock and warrants to purchase a further
600,000 shares, during the twelve months following the spin-off.
Separately, Gartner announced that, subject to approval by the IRS of the
tax-free treatment of the distribution, it intends to declare a special one-time
cash dividend of $300,000 to its shareholders of record immediately prior to the
spin-off. The Gartner Board of Directors intends to authorize a $300,000 open
market share repurchase program for up to 20% of its stock commencing
immediately after the spin-off. If completed as currently contemplated the
Company anticipates receiving $200-$300 million after-tax cash proceeds from the
monetization of the stock and warrants and the Gartner dividend.
The Company has been informed by the Dun & Bradstreet Corporation ("D&B")
that the IRS is currently reviewing D&B's utilization of certain capital losses
during 1989 and 1990. While D&B has not received an assessment with respect to
these transactions, it understands that the IRS will challenge D&B's position.
The Company has estimated that D&B's total cash liability to the IRS if an
assessment is made and the IRS prevails would be approximately $425,000 for
taxes and accrued interest net of tax benefit. Under the terms of the
Distribution Agreement dated October 28, 1996 among D&B, Cognizant and ACNielsen
Corporation (the "1996 Distribution Agreement"), the Company is liable to pay
half of such taxes and interest owed to the extent that D&B's total liabilities
exceed $137,000. A portion of the Company's liability would in turn be shared
with Nielsen Media Research in connection with the Distribution dated June 30,
1998 between Cognizant and the Company. The Company estimates that its current
share of the liability were the IRS to prevail would be approximately $135,000.
(See Note 12. to the Consolidated Financial Statements).
The Company's existing balances of cash, cash equivalents and marketable
securities, and cash generated from operations and debt capacity are expected to
be more than sufficient to meet the Company's current long-term and short-term
cash requirements including dividends, acquisitions, stock repurchase programs
and the other contingencies noted above.
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".
The Company began to address the Y2K issue in 1996, when it began to assess
the impact on its operations. In 1997, the Company created a Y2K Task Force (the
"task force") to manage overall risks and to facilitate activities across the
entire Company. CTS, a majority owned subsidiary, is being used to convert the
majority of the systems to allow most internal staff members to focus on the
core business. The Company has also used outside services to assist in
conversion and to assess the progress of its Y2K program. The Company has
identified its Y2K areas of focus as systems and software for the creation and
delivery of its products and systems and software for its internal
administrative operations.
The task force developed a conversion methodology that included three
phases: analysis, coding and testing, and testing and implementation. The
analysis phase includes planning, inventory and impact analysis. Coding and
testing involves code changes, using conversion rules and criteria and unit
testing, and verifying and documenting the results of the conversion. Testing
and implementation includes system tests across platforms and verification of
data, an acceptance test within the user environment and implementation or
releasing the systems back into production. This conversion methodology has been
communicated throughout the Company and is being utilized to achieve systems
compliance by the Year 2000.
The creation of customer products relies on the receipt of data from
external data suppliers and the Company's ability to convert the data and
deliver the information to its customers. The consolidation of the data is
principally performed at central processing locations. The Company believes
central systems represent approximately 85% of its
9
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FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Y2K efforts. The Company operates central processing facilities in Germany,
England, the United States and Japan. The systems at these sites contained the
most lines of code required to undergo conversion. The following is a status
report of each location as of December 31, 1998:
% OF LINE OF CODE
LOCATION TESTED AND IMPLEMENTED EXPECTED COMPLIANCE
TO DATE
--------------------------------------------------------------
Germany 94% lines of code 99% by 1st quarter 1999
England 89% lines of code 99% by 1st quarter 1999
United States 89% lines of code 99% by 1st quarter 1999
Japan 98% lines of code 99% by 1st quarter 1999
--------------------------------------------------------------
IMS Health continues to enhance its existing product portfolio and
continues to launch new products. There is an ongoing effort to ensure this
software is compliant (such software is excluded from the tables above). In
addition, the Company has decided to replace certain non-compliant software. It
is imperative that these replacement projects be completed and deployed on
schedule, as the existing software is not undergoing Y2K renovation. These
projects are on track to be completed and deployed by the fourth quarter of 1999
and continue to be under close scrutiny by the task force. The Erisco systems
are 99% compliant as of December 31, 1998.
The Company operates local offices in over 90 countries with about half of
them using systems for data collection, panel administration and customized
local requirements. Varied approaches are utilized to ensure system compliance.
In some cases, specialized teams from CTS are being used to assist the local
offices with all phases of their system conversions and hardware compliance. The
following table represents a status report of each geographic region as of
December 31, 1998:
% OF LOCAL SYSTEMS
CONVERTED AND BACK
LOCATION IN PRODUCTION EXPECTED COMPLIANCE
- - ------------------------------------------------------------
North America 81% 99% 1st Quarter 1999
Europe 56% 99% 2nd Quarter 1999
Asia Pacific 62% 99% 1st Quarter 1999
South America 33% 99% 1st Quarter 1999
Rest of World 29% 99% 2nd Quarter 1999
- - ------------------------------------------------------------
% OF PC'S AND
SERVERS MADE Y2K OVERALL %
LOCATION CAPABLE TO DATE EXPECTED COMPLIANCE COMPLETED
- - -------------------------------------------------------------------
North America 89% 99% 1st Quarter 1999 89%
Europe 64% 99% 2nd Quarter 1999 63%
Asia Pacific 80% 99% 2nd Quarter 1999 77%
South America 63% 99% 2nd Quarter 1999 62%
Rest of World 86% 99% 1st Quarter 1999 70%
- - -------------------------------------------------------------------
These numbers exclude end-user desktop applications such as spreadsheets,
macros, etc. The Company's Y2K project incorporates administrative operations
systems and software such as accounts receivable, payroll, accounts payable and
the general ledger systems. These systems are expected to be 99% compliant by
the end of the first quarter of 1999.
The Company has also developed an internal audit program that examines the
testing and effectiveness of controls, assesses the accuracy and completeness of
inventories and reviews the documentation for completeness and accuracy. As of
December 31, 1998, audits occurred in the United States, England and Germany,
with follow up audits scheduled for early 1999. An audit of Japan is also
planned for the first quarter of 1999. The Company performs audits on the local
country conversions with the assistance of CTS. Local office audits have been
performed in North America and Europe with South America planned for early 1999.
The Company relies on over 16,000 suppliers of electronic data and has been
proactive in working with these suppliers to determine their Y2K readiness and
ability to maintain data flow continuity. A program consisting of seminars,
visits, mailings and telephone calls continues to be administered so the Company
can track status and assess risk associated with Y2K readiness for key data
suppliers.
Considerable risk to some data sources currently exists, especially for
hospital information as their priority relates to patient care. In some
instances, IMS Health receives data from governments and continued receipt of
their data will be a function of their readiness. Based on information from data
sources to date, it appears that the Y2K readiness information has been
incomplete or progress to date has been unsatisfactory in some areas. The
Company assesses risk regarding the readiness of data sources through the use of
a detailed questionnaire regarding Y2K conversion plans in order to verify and
the supplier's ability to continue to deliver data. As a contingency,
statistically valid methods of data extrapolation are being developed in the
event the supply of data from a limited number of suppliers is incomplete or
found to be unusable. Investigation of alternate sources will be pursued when
the risk assessment determines the data source to have a high risk of impacting
the Company's ability to deliver products. Ultimately, the risk for our
customers will be the completeness and quality of the data, but the Company
believes it is a short-term issue and is working to minimize the effect on its
data and customers.
Throughout 1999 the Company's Y2K efforts will focus on (i) the testing the
critical components of the Company's systems; (ii) the continued assessment of
supplier and customer readiness to address the Y2K conversion and; (iii)
finalizing contingency plans to address unanticipated issues.
10
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
External and internal costs of addressing the Y2K issue are expensed as
incurred. It is currently estimated that the aggregate cost of the Company's Y2K
program will be approximately $75,000. Through December 31, 1998 the Company has
incurred $54,741 of which $44,922 was incurred in 1998. The Company expects to
incur between $20,000 to $25,000 in 1999. These estimates do not include the
costs of software and systems that are being replaced or upgraded in the normal
course of business.
The cost of addressing the Y2K issue and the dates which the Company
currently expects to complete Y2K compliance are based on the current best
estimates of management, which are derived utilizing various assumptions
regarding the 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 Y2K issue. The Company's plans are
dependent on the continuous operation of industries out of the Company's direct
control such as utilities, transportation, etc.
The above expectations are subject to uncertainties. For example, if the
Company is unsuccessful in identifying or fixing all Y2K problems in its
critical operations, or is affected by the inability of its data suppliers or
major customers to continue operations due to such a problem, the Company's
results of operations or financial condition could be materially impacted.
MARKET RISK
The Company'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, the Company employs established practices
and procedures to manage its exposure to fluctuations in the value of foreign
currencies using a variety of financial instruments.
The Company'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, the Company enters into various contracts
which change in value as foreign exchange rates change to protect the value of a
portion of committed foreign currency revenues and non-functional currency
assets and liabilities. The principal currencies hedged are the Japanese yen,
the Euro and the Swiss franc. 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 investment or speculative
purposes.
The fair value of the Company'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, all of which were
forward exchange contracts, based on a hypothetical 10% decrease in the value of
the U.S. dollar or, in the case of non-dollar-related instruments, the currency
being purchased, was $11,977 at December 31, 1998. The estimated fair values of
the foreign exchange risk management contracts were determined based on quoted
market prices.
The Company also invests in equity 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. The Company 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
$3,768 at December 31, 1998.
EURO CONVERSION
On January 1, 1999, 11 member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro is between January 1, 1999 and January 1, 2002.
The Company has prepared for the introduction of the Euro, including the
conversion of information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments, strategies concerning
continuity of contracts, and impacts on the processes for preparing taxation and
accounting records. Although the Euro may affect some companies' pricing
policies, differences in IMS' national market size, data collection requirements
and specific product specifications required due to the diverse market
information needs in the healthcare markets of Europe are expected to minimize
the potential for price harmonization in most of the Company's product ranges.
IMS Health's expectations regarding the Euro currency issue are
forward-looking statements that involve a
11
<PAGE>
FINANCIAL REVIEW (continued)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
number of risks and uncertainties that could cause the actual results to differ
materially from the projected results. Factors that may cause these differences
include, but are not limited to, the ability or willingness of third parties to
convert affected systems in a timely manner and the actions of governmental
agencies or other third parties with respect to Euro currency issues.
FORWARD-LOOKING STATEMENTS
This 1998 Annual Report to Shareholders, as well as information included
in oral statements or other written statements made or to be made by IMS Health,
contain statements which, in the opinion of IMS Health, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Litigation Reform Act"). These statements
appear in a number of places in this annual report 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, dividends and the effects of regulation and competition, the terms of
the Distribution Y2K readiness and all other statements regarding the intent,
plans, beliefs or expectations of IMS Health or its 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 seeks growth through acquisition, the ability to identify, consummate and
integrate 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; regulatory and legislative initiatives, particularly
in the area of medical privacy; the ability to timely and cost-effectively
resolve any problems associated with the Y2K issue; the ability to obtain future
financing on satisfactory terms; deterioration in economic conditions,
particularly in the pharmaceutical, healthcare, or other industries in which
customers operate; conditions in the securities markets which may effect the
value or liquidity of portfolio investments and management's estimates of lives
of assets, recoverability of assets, fair market value, stimates and liabilities
and accrued income tax benefits and liabilities. Consequently, all the
forward-looking statements contained in this annual report are qualified by the
information contained herein, including, but not limited to, the information
contained under this heading the consolidated financial statements and notes
thereto and by the material set forth under the headings "Business" and
"Factors" that May Affect Future Results, in the Annual Report on Form 10-K for
the year ended December 31, 1998. IMS Health is under no obligation to publicly
release any revision to any forward-looking statement contained or incorporated
herein to reflect any future events or occurrences.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, various new accounting pronouncements were issued which may
impact the Company's financial statements. (See Note 2. to the Consolidated
Financial Statements).
DIVIDENDS
The payment and level of cash dividends by the Company are subject to the
discretion of the board of directors of the Company. Although the Company has
declared and anticipates that it will declare quarterly dividends in the range
of 6% to 10% of net earnings, dividend decisions will be based on, and affected
by, a number of factors; including the operating results and financial
requirements of the Company. The Company's Board of Directors approved a first
quarter dividend increase of 33%, to a quarterly rate of $0.02 per post-split
share, or $0.08 per share annually. This follows the January 1999 2-for-1 stock
split.
IMS HEALTH COMMON STOCK INFORMATION
The Company's common stock is listed on the NYSE (symbol "RX"). The number
of shareholders of record and shares outstanding on December 31, 1998 were
10,084 and 318,741,700, respectively. The high and low closing stock price per
share during 1998 was $38 and $26 3/8, respectively. Approximately 70% of the
Company's shares were held by institutions.
All share and per-share amounts have been restated to give effect to the
2-for-1 stock split approved by the Company's Board of Directors on December 15,
1998 and distributed to shareholders on January 15, 1999 (See Note 2. to the
Consolidated Financial Statements).
DIVIDENDS PAID
PRICE PER SHARE ($) PER SHARE ($)
- - ------------------------------------------------------------
1998 1998
- - ------------------------------------------------------------
HIGH LOW
- - ------------------------------------------------------------
First Quarter -- -- --
Second Quarter (1) 29 3/4 26 9/16 --
Third Quarter 33 3/32 27 1/2 0.015
Fourth Quarter 38 29 3/8 0.015
- - ------------------------------------------------------------
Year 38 26 3/8 0.030
- - ------------------------------------------------------------
(1) Commencing June 23, 1998
12
<PAGE>
STATEMENT OF MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL
STATEMENTS
- - --------------------------------------------------------------------------------
To the Shareholders of IMS Health Incorporated:
Management is responsible for the preparation of the consolidated financial
statements and related information that are presented in this report. The
consolidated financial statements, which include amounts based on management's
estimates and judgments, have been prepared in conformity with generally
accepted accounting principles. Other financial information in the report to
shareholders is consistent with that in the consolidated financial statements.
The Company maintains accounting and internal control systems to provide
reasonable assurance at reasonable cost that assets are safeguarded against loss
from unauthorized use or disposition, and that the financial records are
reliable for preparing financial statements and maintaining accountability for
assets. These systems are augmented by written policies, an organizational
structure providing division of responsibilities, careful selection and training
of qualified personnel and a program of internal audits.
The Company engaged PricewaterhouseCoopers LLP, independent accountants, to
audit and render an opinion on the consolidated financial statements in
accordance with generally accepted auditing standards. These standards include
an assessment of the systems of internal controls and tests of transactions to
the extent considered necessary by them to support their opinion.
The Board of Directors, through its Audit Committee consisting solely of
outside directors of the Company, meets periodically with management, internal
auditors and our independent accountants to ensure that each is meeting its
responsibilities and to discuss matters concerning internal controls and
financial reporting. PricewaterhouseCoopers and the internal auditors each have
full and free access to the Audit Committee.
/s/ ROBERT E. WEISSMAN
Robert E. Weissman
Chairman &
Chief Executive Officer
/s/ VICTORIA R. FASH
Victoria R. Fash
President &
Chief Operating Officer
/s/ J. MICHAL CONAWAY
J. Michal Conaway
Chief Financial Officer
REPORT OF INDEPENDENT
ACCOUNTANTS
- - --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of IMS Health Incorporated:
In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of income, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of IMS Health Incorporated ("accounting successor to Cognizant Corporation") and
its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
February 16, 1999
13
<PAGE>
<TABLE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
Consolidated Statements of Income
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
Dollar amounts in thousands, except per share data 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE $ 1,186,513 $ 1,059,559 $ 1,411,192
- - ----------------------------------------------------------------------------------------------------------------------------
Operating Costs 533,634 432,654 566,567
Selling and Administrative Expenses 343,218 310,644 459,053
Depreciation and Amortization 96,358 88,651 108,632
Acquired In Process Research and Development 32,800 0 33,233
Direct Acquisition Integration Costs 48,019 0 0
- - ----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 132,484 227,610 243,707
- - ----------------------------------------------------------------------------------------------------------------------------
Interest Income 19,548 12,749 9,456
Interest Expense (1,166) (2,293) (1,338)
Gartner Equity Income 70,979 65,120 0
Gain from Sale of Gartner Stock (SAB 51) 14,838 14,689 0
Gains from Dispositions--Net 33,341 9,391 200
Gain on Issuance of Subsidiary Stock 12,777 0 0
Other Expense--Net (12,140) (4,792) (2,465)
- - ----------------------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 138,177 94,864 5,853
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations,
Before Provision for Income Taxes 270,661 322,474 249,560
Provision for Income Taxes (92,196) (88,358) (109,806)
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 178,465 234,116 139,754
Income from Discontinued Operations, Net of
Income Taxes of $15,887, $29,527 and $43,764 for
1998, 1997, and 1996, respectively 42,093 78,234 55,697
- - ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 220,558 $ 312,350 $ 195,451
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock
Basic
Income from Continuing Operations $ .55 $ .71 $ .41
Income from Discontinued Operations .13 .24 .17
- - ----------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ .68 $ .95 $ .58
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
DILUTED
INCOME FROM CONTINUING OPERATIONS $ .53 $ .70 $ .41
INCOME FROM DISCONTINUED OPERATIONS .13 .23 .16
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ .66 $ .93 $ .57
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic 324,584,000 330,326,000 339,888,000
Dilutive Effect of Shares Issuable as of Period-End
Under Stock Option Plans 5,968,000 3,334,000 374,000
Adjustment of Shares Applicable to Exercised
Stock Options and Restricted Stock during the period 5,218,000 1,320,000 738,000
- - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 335,770,000 334,980,000 341,000,000
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
<TABLE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
Consolidated Statements of Financial Position
<CAPTION>
As of December 31,
----------------------------
Dollar amounts in thousands, except per share data 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 206,390 $ 312,442
Accounts Receivable--Net 324,219 251,623
Other Current Assets 103,868 65,692
- - ----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 634,477 629,757
- - ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN GARTNER GROUP 252,852 195,695
SECURITIES AND OTHER INVESTMENTS 106,276 109,712
PROPERTY, PLANT AND EQUIPMENT--NET 179,151 178,533
OTHER ASSETS--NET
Computer Software 168,994 153,958
Goodwill 363,841 87,430
Other Assets 25,928 24,226
- - ----------------------------------------------------------------------------------------------------------------------------
Total Other Assets-Net 558,763 265,614
- - ----------------------------------------------------------------------------------------------------------------------------
Net Assets from Discontinued Operations 0 122,778
- - ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,731,519 $ 1,502,089
- - ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and Notes Payable $ 90,884 $ 44,441
Accrued and Other Current Liabilities 298,625 189,384
Accrued Income Taxes 32,537 52,696
Deferred Revenues 128,272 110,768
- - ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 550,318 397,289
- - ----------------------------------------------------------------------------------------------------------------------------
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS 27,577 38,082
DEFERRED INCOME TAXES 30,322 92,153
MINORITY INTERESTS 116,225 101,209
OTHER LIABILITIES 181,807 71,786
- - ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 906,249 700,519
- - ----------------------------------------------------------------------------------------------------------------------------
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--800,000,000 Shares;
Issued 335,045,390 and 342,240,138 Shares in 1998 and 1997 , respectively 3,352 3,422
Capital in Excess of Par 732,012 806,839
Retained Earnings 686,653 358,456
Treasury Stock, at cost, 16,303,690, and 18,052,896 Shares in 1998 and 1997, respectively (535,971) (323,026)
Cumulative Translation Adjustment (84,149) (76,771)
Unrealized Gains on Investments 23,373 32,650
- - ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 825,270 801,570
- - ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,731,519 $ 1,502,089
- - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
15
<PAGE>
<TABLE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
Dollar amounts in thousands 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 220,558 $ 312,350 $ 195,451
Less Income from Discontinued Operations (42,093) (78,234) (55,697)
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 178,465 234,116 139,754
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 96,358 88,651 108,632
Gains on Issuance of Subsidiary Stock (12,777) -- --
Gains from Sale of Investments, Net (33,341) (9,391) (200)
Acquired In-Process Research and Development 32,800 -- 33,233
Direct Acquisition Integration Costs 48,019 -- --
Benefit Payments (13,653) (6,982) (10,641)
Non-Recurring Charge Payments (3,885) (5,201) (13,096)
Restructuring Payments -- -- (11,515)
Net (Increase) Decrease in Accounts Receivable (40,123) 5,878 (5,530)
Net Increase in Deferred Revenue 10,596 10,054 22,020
Equity Income, Net of Taxes (41,507) (38,040) --
Gain from Sale of Gartner Stock (SAB 51) (14,838) (14,689) --
Minority Interests 10,303 4,797 11,710
Deferred Income Taxes 6,380 48,414 (11,299)
Net Increase (Decrease) in Accrued Income Taxes 14,781 (18,822) 16,194
Net Increase in Other Working Capital Items (7,736) (39,320) (22,203)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 229,842 259,465 257,059
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Businesses and Investments 47,686 44,901 1,565
Payments for Acquisitions of Businesses and Joint Ventures (38,356) -- (24,386)
Cash of Companies Acquired in Stock Purchases 11,895 -- --
Capital Expenditures (30,862) (47,020) (57,034)
Additions to Computer Software (61,089) (74,776) (47,960)
Increase in Other Investments-Net (21,438) (10,723) (24,423)
Proceeds from Maturities of Marketable Securities -- -- 193,392
Payments for Marketable Securities -- -- (165,791)
Payments for Purchase of Gartner Group Common Stock -- -- (49,419)
Other (10,428) 14,162 58,370
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (102,592) (73,456) (115,686)
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Purchase of Treasury Stock (666,694) (324,767) --
Proceeds from Exercise of Stock Options 104,990 26,409 557
Dividends Paid (19,592) (19,883) --
Proceeds from Employee Stock Purchase Plan 3,855 1,683 --
Short-Term Borrowings 42,546 -- --
Short-Term Debt Payments (8,538) -- (50,000)
Proceeds from debt assumed by Nielsen Media Research 300,000 -- --
Proceeds from Sale and Issuance of Subsidiary Stock 31,197 -- --
Minority Interest Financing -- 100,000 --
Net Transfers from The Dun & Bradstreet Corporation -- -- 44,880
Other Stock Transactions with Employees -- -- 14,377
Proceeds from Issuance of Purchased Stock Options -- -- 8,699
Other (2,319) 1,360 62,096
- - ----------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (214,555) (215,198) 80,609
- - ----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Equivalents (1,574) (11,215) (3,063)
Change of Gartner Group to Equity Basis -- (123,697) --
Cash Flow (used by) provided by Discontinued Operations (17,173) 53,580 47,694
- - ----------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (106,052) (110,521) 266,613
Cash and Cash Equivalents, Beginning of Year 312,442 422,963 156,350
- - ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 206,390 $ 312,442 $ 422,963
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the Period for Interest $ 1,645 $ 2,293 $ 1,463
Cash Paid during the Period for Income Taxes $ 88,519 $ 44,094 $ 48,372
Non-Cash Investing Activities
Stock Issued in Connection with Acquisitions $ 243,853 $ -- $ --
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
16
<PAGE>
<TABLE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
Consolidated Statements of Shareholders' Equity
Dollar amounts in thousands
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OTHER COMPREHENSIVE
INCOME:
---------------------
CAPITAL UNREALIZED
IN EXCESS CUMULATIVE GAINS/ COMPRE-
DIVISIONAL COMMON OF PAR RETAINED TREASURY TRANSLATION (LOSSES) HENSIVE
THREE YEARS ENDED DECEMBER 31, 1998 EQUITY STOCK VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 598,083 -- -- -- -- $ 6,505 -- $604,588
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income 129,462 $ 129,462 129,462
Net Transfers from The Dun &
Bradstreet Corporation 44,880 44,880
Change in Cumulative Translation
Adjustment (16,817) (16,817) (16,817)
--------------------
Comprehensive Income $ 112,645
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Recapitalization, November 1, 1996 -- $ 3,422 $794,203 -- $ (25,200) $ (10,312) -- $762,113
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income 65,989 $ 65,989 65,989
Exercise of Stock Options 557 557
Restricted Stock Plan (82,800 shares) 210 210
Less: Unearned Portion (210) (210)
Purchase Stock Options 8,699 8,699
Change in Cumulative Translation
Adjustment (1,440) (1,440) (1,440)
Unrealized Gains on Investments 36,695 36,695 36,695
--------------------
Comprehensive Income $ 101,244
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 -- $ 3,422 $803,459 $ 65,989 $ (25,200) $ (11,752)$ 36,695 $872,613
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income 312,350 $ 312,350 312,350
Cash Dividends ($.06 per share) (19,883) (19,883)
Exercise of Stock Options
(75,536 shares) 1,151 1,151
Treasury Stock Reissued Under:
Exercise of Stock Options
(1,637,850 shares) 2,187 25,258 27,445
Restricted Stock Plan (82,800
shares) 1,741 1,741
Less: Unearned Portion (1,741) (1,741)
Plus: Earned Portion 42 42
Employee Stock Purchase Plan
(93,290 shares) 1,683 1,683
Treasury Shares Acquired
(18,266,836 shares) (324,767) (324,767)
Change in Cumulative Translation
Adjustment (65,019) (65,019) (65,019)
Unrealized Loss on Investments--Net of
reclassification adjustment (4,045) (4,045) (4,045)
--------------------
Comprehensive Income $ 243,286
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 -- $ 3,422 $806,839 $ 358,456 $(323,026) $ (76,771)$ 32,650 $801,570
- - ---------------------------------------------------------------------------------------------------------------------------------
17
</TABLE>
<PAGE>
<TABLE>
Dollar amounts in thousands
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OTHER COMPREHENSIVE
INCOME:
---------------------
CAPITAL UNREALIZED
IN EXCESS CUMULATIVE GAINS/ COMPRE-
DIVISIONAL COMMON OF PAR RETAINED TREASURY TRANSLATION (LOSSES) HENSIVE
THREE YEARS ENDED DECEMBER 31, 1998 EQUITY STOCK VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 -- $ 3,422 $806,839 $ 358,456 $(323,026) $ (76,771)$ 32,650 $801,570
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income 220,558 $ 220,558 220,558
Cash Dividends ($.06 per share) (19,592) (19,592)
Prepaid Employee Stock Option Plan
exercises or cancellations (1,950) (1,950)
Transfer to Nielsen Media Research
Employee Prepaid Stock Option Plan
Payments (1,159) (1,159)
Value of Stock Options granted
in connection with acquisitions 14,936 14,936
Treasury Shares Acquired
(21,749,600 shares) (666,694) (666,694)
Treasury Stock Reissued Under:
Exercise of Stock Options
(7,145,992 shares) 8,649 104,990 113,639
Restricted Stock Plan
(38,090 shares) 4,317 4,317
Less: Unearned Portion (4,317) (4,317)
Plus: Earned Portion of Grants
(33,340 shares) 3,846 3,846
Employee Stock Purchase Plan
(184,548 shares) 3,855 3,855
Stock issued for Walsh and other
acquisitions (6,506,162 shares) 168,561 168,561
Stock Issued for PMSI Acquisition
(2,395,926 Shares) 75,292 75,292
Other 1,832 1,832
Dividend of Nielsen Media
Research including
Treasury Shares (7,194,748) (70) (80,367) 127,231 80,437 127,231
Change in Cumulative Translation
Adjustment (7,378) (7,378) (7,378)
Unrealized Loss on Investments--Net of
reclassification adjustment (9,277) (9,277) (9,277)
--------------------
Comprehensive Income $ 203,903
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 -- $ 3,352 $732,012 $ 686,653 $(535,971) $ (84,149)$ 23,373 $825,270
- - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the consolidated financial statements.
18
</TABLE>
<PAGE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The financial statements and notes relate to IMS Health Incorporated ("IMS
Health" or the "Company"). The Common Stock of IMS Health was distributed by
Cognizant Corporation ("Cognizant") to its shareholders on June 30, 1998.
Simultaneously with the distribution (the "Distribution"), Cognizant changed its
name to Nielsen Media Research, Inc. ("Nielsen Media Research"). Notwithstanding
the legal form of the Distribution, whereby Cognizant spun off IMS Health, for
accounting purposes the transaction is accounted for as if Cognizant spun off
Nielsen Media Research and IMS Health has been deemed the "accounting successor"
to Cognizant. The separation created IMS Health as the global provider of
information solutions to the pharmaceutical and healthcare industries, and
established an independent Nielsen Media Research. IMS Health consists of the
market information, sales management, and decision support services business for
the pharmaceutical and healthcare industries conducted by IMS Health and various
subsidiaries ("IMS"), IMS Health Strategic Technologies Inc. ("Strategic
Technologies"), ERISCO Managed Care Technologies, Inc. ("Erisco"), Enterprise
Associates, Inc. ("Enterprises"), a 61.7% interest in Cognizant Technology
Solutions Corporation ("CTS") and SSJ K.K. ("Super Systems Japan"). The Company
also has an equity investment in Gartner Group, Inc. ("Gartner").
Cognizant received a favorable ruling from the Internal Revenue Service
("IRS") with respect to the tax-free treatment of the Distribution in May 1998.
Cognizant's Board of Directors on June 15, 1998 approved the final plan, terms
and conditions relating to the separation of the Company including distribution,
tax allocation, employee benefits and other agreements and authorized management
to execute the plan of distribution. The Board of Directors declared a dividend
to shareholders of record as of the close of business on June 25, 1998
consisting of one share of IMS Health Common Stock for each share of Cognizant
Common Stock. The Distribution was effective June 30, 1998.
In connection with the Distribution, Cognizant borrowed $300,000 on June
24, 1998, which was used to repay existing intercompany liabilities. This debt
remained the obligation of Nielsen Media Research following the Distribution. In
connection with the Distribution, Cognizant contributed to IMS Health all cash
in Cognizant's accounts other than (i) cash required by Cognizant (renamed
Nielsen Media Research) to satisfy certain specified obligations and (ii) such
additional cash as was necessary for the net borrowings of Cognizant (renamed
Nielsen Media Research) to equal $300,000 as of the Distribution.
Prior to the Distribution, Nielsen Media Research and IMS Health entered
into certain agreements that 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 that may arise from periods prior to the Distribution (the
"Distribution Agreement"). Among other things, the agreements set forth
principles to be applied in allocating certain Distribution-related costs and
specify portions of contingent liabilities to be shared if certain amounts are
exceeded (including certain liabilities that may arise in connection with the
1996 spin-off of Cognizant from The Dun and Bradstreet Corporation ("D&B")).
Pursuant to Accounting Principles Board ("APB") Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of the Company have been
reclassified to reflect Nielsen Media Research as discontinued operations for
periods up to and including June 30, 1998 and reflect the Distribution which
occurred on June 30, 1998.
Summarized data for discontinued operations is as follows.
YEARS ENDED DECEMBER 31,
--------------------------------------
RESULTS OF OPERATIONS 1998 (1) 1997 1996
- - --------------------------------------------------------------------------------
Operating Revenue $193,996 $358,594 $319,404
Income Before Provision
for Income Taxes 57,980 107,761 99,461
Income from Discontinued
Operations, Net of Income
Taxes $ 42,093 $ 78,234 $ 55,697
(1) Includes Nielsen Media Research results through the date of the
Distribution.
NET ASSETS OF DISCONTINUED OPERATIONS DECEMBER 31, 1997
- - --------------------------------------------------------------------------------
Current Assets $ 64,655
Property Plant & Equipment 55,050
Computer Software 43,093
Deferred Charges 16,299
Other Assets 21,112
Current Liabilities (43,921)
Other Liabilities (33,510)
- - --------------------------------------------------------------------------------
Net Assets of Discontinued Operations $122,778
================================================================================
As of December 31, 1998, IMS Health does not have any ownership interest in
Nielsen Media Research.
================================================================================
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.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
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 in the income statement 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. (See Note 3. to the Consolidated
Financial Statements).
The financial statements of the IMS segment reflect a fiscal year ending
November 30 to facilitate timely reporting of the Company's financial results.
(See Note 19. to the Consolidated Financial Statements).
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.
Securities and Other Investments. 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. Any gains or losses from
the sale of these securities are recognized using the specific identification
method. (See Note 8. to the Consolidated Financial Statements).
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". Research and Development 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, for 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. The
Company recognizes any impairment losses on capitalized software as a result of
its review.
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 five 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 Long-Lived Assets. In accordance with the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Company reviews long-lived assets and certain identifiable
intangibles held and used 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. Accordingly, the Company recognizes impairment
losses on long-lived assets as a result of its review. The measurement for such
impairment loss is then based on the fair value of the asset. (See Note 7. to
the Consolidated Financial Statements).
Revenue Recognition. The Company generally 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, when persuasive evidence of an
arrangement exists, the related fees are fixed or determinable and collection of
fees is probable. 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,
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
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 or where the U.S. dollar is designated as the
functional currency, monetary assets and liabilities are translated using
end-of-period exchange rates, whereas 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 Distribution, the Company was included in the Federal
and certain state and non-U.S. income tax returns of Cognizant. Income taxes are
provided using the asset and liability method in accordance with SFAS No. 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.
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, contingencies, in-process research and
development ("IPR&D") and purchase price allocations.
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 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
Cognizant common stock outstanding through the Distribution Date, reflecting the
one-for-one distribution ratio, and the weighted average number of shares of IMS
Health common stock outstanding since the Distribution.
On December 15, 1998, the Company's Board of Directors authorized a 2-for-1
split of its common stock effective January 15, 1999, in the form of a stock
dividend to shareholders of record on December 29, 1998. All share and per-share
amounts in the accompanying Consolidated Financial Statements and Notes to
Consolidated Financial Statements have been restated to give effect to the stock
split.
Concentrations of Credit Risk. IMS Health maintains accounts receivable balances
($324,219 and $251,623 at December 31, 1998 and 1997, respectively), principally
from customers in the pharmaceutical industry.
Reclassifications. Certain prior-year amounts have been reclassified to conform
with the 1998 presentation.
Recently Issued Accounting Standards. In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued 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. SOP 98-1 applies to costs incurred after adoption,
including costs for software projects that are in progress at the time of the
adoption. The Company has evaluated the impact of this SOP on its financial
position and results of operations and will implement SOP 98-1 for fiscal years
beginning after December 15, 1998. The adoption of this pronouncement will not
have a material effect on the Company's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Accounting for the Costs of
Start-up Activities". SOP 98-5 requires all costs of start-up activities to be
expensed as incurred. SOP 98-5 is effective for financial statements for years
beginning after December 15, 1998. The adoption of this pronouncement will not
have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 is effective for all fiscal quarters for all fiscal years beginning
after June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. For fair-value hedge transactions in which the Company is
hedging changes in an asset's, liability's, or firm commitment's fair value,
changes in the fair value of the derivative instrument will generally be offset
in the income statement by changes in the hedged item's fair value. For
cash-flow hedge transactions, in which the Company is
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
hedging the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges will be recognized in current period earnings.
Management is currently evaluating the effects of this change on the Company's
financial statements.
================================================================================
Note 3. Investment in Gartner
In the third quarter of 1997, the Company's voting interest in Gartner fell
below 50%, principally as a result of the exercise of Gartner employee stock
options and employee stock purchases. Accordingly, effective January 1, 1997,
the Company deconsolidated Gartner in that year and is now accounting for its
ownership interest on the equity basis.
In 1998, proceeds from the issuance of shares to Gartner employees,
including associated tax benefits, increased Gartner's equity by $43,654 and
reduced the Company's ownership interest by less than 1% to approximately 47% at
September 30, 1998. Accordingly, the Company recognized a pre-tax unrealized
gain on Gartner stock of $14,838 corresponding to the net increase in the value
of its underlying investment in Gartner. As a result of the proposed tax-free
spin-off of Gartner, the Company has not recognized gains in accordance with
Staff Accounting Bulletin 51 ("SAB 51") for the fourth quarter of 1998.
Selected financial information regarding the results of operations and
financial position of Gartner is summarized below:
(UNAUDITED)
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
- - -------------------------------------------------------------
Condensed Income Statement
Information
Operating Revenue $669,670 $548,539
Operating Income $148,134 $126,239
Income Before Provision for Taxes $155,992 $134,385
Net Income $ 92,791 $ 79,732
=============================================================
(UNAUDITED)
AS OF DECEMBER 31,
-----------------------
1998 1997
- - ------------------------------------------------------------
Condensed Balance Sheet Information
Current Assets $511,857 $439,356
Non-current Assets $328,323 $237,284
Current Liabilities $386,528 $338,087
Non-current Liabilities $ 888 $ 3,933
============================================================
Note 4. Dispositions
During 1998, the Company realized a net $46,118 pre-tax gain on the sale of
certain of its investments including Aspect Development Inc., which is part of
Enterprises' portfolio and the sale of stock holdings in CTS. (See Note 6. to
the Consolidated Financial Statements). These sales generated cash proceeds of
$78,883.
During 1997, the Company realized 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 of 1997, the Company sold its wholly
owned subsidiary Pilot Software Inc. and realized a non-cash pre-tax loss of
$29,945.
================================================================================
Note 5. Investment Partnership
Two 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 interest (85%) in the partnership.
The third-parties' investments in this partnership are reflected as a minority
interest.
================================================================================
Note 6. Public Offering of a Subsidiary
CTS effected an initial public offering (the "CTS IPO") of 2,917,000 shares
of Class A Common Stock, par value $0.01 per share, of CTS (3,354,550 including
the underwriters' over-allotment option granted by Cognizant) on June 19, 1998.
Of such shares, 2,500,000 were offered by CTS and 417,000 shares were offered by
Cognizant, the accounting predecessor to IMS Health. Of the total proceeds, CTS
used approximately $6.5 million to repay intercompany debt owed to Cognizant.
Cognizant's interest in CTS was transferred to the Company in the Distribution.
The transaction (other than the over-allotment option) closed on June 24, 1998
and resulted in a gain of $12,777, which is a SAB 51 gain. The underwriters
over-allotment option was exercised during the third quarter. The Company
recognized a gain from this sale. The Company's
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
ownership interest is 61.7% at December 31, 1998 and accordingly, the Company
consolidates CTS's results within its financial statements. Any minority
interest is captured on the Statement of Financial Position in the minority
interest line and on the Consolidated Statements of Income in the Other
Expense-Net line. CTS's Class A Common Stock is listed on the NASDAQ National
Market under the symbol "CTSH".
================================================================================
Note 7. Acquisitions and Joint Venture
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International Inc. ("Walsh").
The final purchase price of the acquisition was $193,748, consisting of $167,148
of common stock, $9,521 of stock options and $17,079 of accrued acquisition and
integration costs.
Under the terms of Walsh acquisition agreement, Walsh shareholders received
.6082 (on a pre-split basis the ratio is .3041) shares of Cognizant common stock
per Walsh per share or based on a Cognizant share price of $25.896,
consideration of approximately $167,148 (on a pre-split basis a Cognizant share
price of $51.792). Walsh had 10,612,628 shares outstanding. Cognizant issued
6,454,600 shares from treasury stock to consummate the Walsh acquisition. The
direct acquisition and integration costs consist of severance of $4,876, lease
terminations of $2,569, and other direct acquisition and integration costs of
$9,634. These direct acquisition and integration costs were incurred as a direct
result of the acquisition and the formal plan to exit certain activities as part
of the overall integration effort (such as severance costs related to Walsh
employees) and certain contractual costs (such as Walsh leases). To date
incurred acquisition and integration costs are within original estimates.
Approximately $156,557 is recorded as the excess of the purchase price over the
fair value of identifiable net assets (goodwill), which is being amortized on a
straight-line basis over 15 years.
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of
Pharmaceutical Marketing Services Inc. ("PMSI"). The final purchase price of the
acquisition was $103,291, consisting of $75,292 of common stock, $5,415 of stock
options and $22,584 of accrued acquisition and integration costs.
Under the terms of PMSI acquisition agreement, PMSI received 2,395,926
shares of IMS Health common stock issued from treasury stock, consideration of
approximately $75,292. The acquisition and integration costs consist of
severance of $3,794, lease terminations of $1,623, contract cancellation of
$10,935, and other direct acquisition and integration costs of $6,232. These
direct acquisitions and integration costs are incremental to other costs and
were incurred as a direct result of the formal plan to exit certain activities
as part of the overall integration effort (such as severance costs related to
PMSI employees) and certain contractual cancellation costs (such as PMSI
contracts and leases). Acquisition and integration costs incurred to date are
within original estimates. Approximately $115,275 is recorded as the excess of
the purchase price over the fair value of identifiable net assets (goodwill),
which is being amortized on a straight-line basis over 15 years.
Joint Venture
On September 1, 1998, the Company formed a joint venture with IHA Institut
fur Marktanalysen AG ("IHA"). The Company and IHA each contributed all of their
Swiss pharmaceutical research assets to the venture and each own 50% of the
venture. The Company contributed assets of $54 and cash of $11,014. The $12,027
excess of the investment over the value of the Company's share of the net assets
has been recorded as goodwill, which is being amortized on a straight line basis
over 20 years. The Company has accounted for its ownership interest in the
venture under the equity basis.
Purchase Price Allocation
In connection with both the Walsh and PMSI acquisitions, the Company made
allocations of the purchase price to acquired IPR&D amounting to $21,900 in the
second quarter of 1998 related to the Walsh acquisition and $10,900 in the third
quarter of 1998 related to the PMSI acquisition.
The Securities and Exchange Commission (the "SEC") recently issued revised
guidance with respect to allocations of IPR&D projects in connection with an
acquisition. In accordance with this guidance, the amount allocated to IPR&D
reflects the relative value and contribution of the acquired IPR&D.
Consideration was given to the project's stage of completion, the complexity of
the work completed to date, the difficulty of completing the remaining
development, costs already incurred and the projected cost to complete the
projects.
In addition, the Company allocated $29,000 at Walsh and $7,700 at PMSI to
existing core technology, representing computer software that will be used. Such
amounts are being amortized over 5 years.
The allocation of the Company's aggregate purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed in
connection with these acquisitions was based primarily on estimates of fair
values
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
by an independent appraisal firm. The allocation is summarized below:
WALSH PMSI TOTAL
- - -------------------------------------------------------------------------------
In-process R&D write-off $ 21,900 $ 10,900 $ 32,800
Net liabilities assumed (5,009) (28,274) (33,283)
Software/Core technology 29,000 7,700 36,700
Deferred taxes (8,700) (2,310) (11,010)
Goodwill 156,557 115,275 271,832
- - -------------------------------------------------------------------------------
Total Purchase Price $193,748 $103,291 $297,039
- - -------------------------------------------------------------------------------
The excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired has been recorded as goodwill, which
is being amortized on a straight-line basis over a period of 15 years.
At the date of the respective acquisitions, the development of the IPR&D
projects had not yet reached technological feasibility and had no alternative
future uses. Accordingly, these costs were expensed as of the respective
acquisition dates.
In the aggregate, the impact of both the Walsh and PMSI acquisitions on the
results of operations, other than the one-time charges and the IPR&D write-offs,
had they occurred on January 1, 1998 or 1997 would be immaterial.
In connection with the PMSI acquisition, the Company commenced an
evaluation of its existing IMS Health product offerings. Based on this strategic
assessment, the Company decided to abandon certain existing IMS Health software
products. The impact of this decision was to recognize the impairment of certain
computer software assets ($36,300), the closure of certain IMS facilities ($800)
and the severance of some IMS employees ($5,600). This resulted in a one-time
charge of $43,019 recorded as a one time acquisition charge as a component of
operating income.
================================================================================
Note 8. Equity Securities
Amounts included below are classified in the consolidated statements of
financial position as Securities and Other Investments. Cash equivalents have
been excluded from these disclosures.
DECEMBER 31,
-------------------------------------------------------
1998 1997
- - --------------------------------------------------------------------------------
COST FAIR VALUE COST FAIR VALUE
- - -------------------------------------------------------------------------------
Equity Securities $5,491 $37,685 $3,491 $48,463
================================================================================
Note 9. 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. The Company's policy is to
maintain 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 investment or 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, the Euro and the Swiss
franc. The Company also uses forward contracts to hedge non-functional currency
assets and liabilities.
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, 1998, the notional amount
hedged of committed foreign revenues was $126,271. At December 31, 1998, the
Company had deferred losses of $1,185 related to foreign currency hedge
transactions. Deferred amounts to be recognized can change with market
conditions and are expected to be substantially offset by changes in the value
of the related hedged transactions. The impact of foreign exchange risk
management activities on operating income in 1998 and 1997 was a net gain of $
9,433 and $15,617, respectively. In addition, at December 31, 1998, the Company
had approximately $75,211 in foreign exchange forward contracts outstanding with
various expiration dates through January 1999 hedging non-functional currency
assets and liabilities. 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.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Fair Value of Financial Instruments
At December 31, 1998, the Company's financial instruments included cash,
cash equivalents, receivables, accounts payable and foreign exchange risk
management contracts. At December 31, 1998, 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, 1998, the
notional amounts of the Company's risk management contracts were $201,482 and
all contracts mature in 1999. The estimated fair values of the foreign exchange
risk management contracts were determined based on quoted market prices.
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, 1998 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.
The Company maintains accounts receivable balances ($324,219 and $251,623
at December 31, 1998 and 1997, respectively), principally from customers in the
pharmaceutical industry. The Company's trade receivables do not represent
significant concentrations of credit risk at December 31, 1998 due to the high
quality of its customers and their dispersion across many geographic areas.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Note. 10 Pension and Post-retirement Benefits
In accordance with FAS No. 132, "Employers' Disclosure About Pensions and
Other Postretirement Benefits", the status of all of the Company's defined
benefit pension and postretirement benefit plans at December 31, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
- - --------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $150,372 $124,327 $ 14,940 $ 14,880
Service Cost 10,687 9,959 870 1,000
Interest Cost 9,738 10,504 720 860
Foreign Currency Exchange Loss (1,931) (2,013) 0 0
Amendments (1,156) 0 0 (1,920)
Plan participant's contributions 988 895 30 20
Actuarial (gain)/loss (865) 8,976 (230) 240
Impact of 1998 Distribution of Nielsen Media Research (34,870) 0 (8,040) 0
Benefits paid (3,427) (2,276) (180) (140)
- - --------------------------------------------------------------------------------------------------------------------------
Net benefit obligation at December 31, $129,536 $150,372 $ 8,110 $ 14,940
- - --------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $175,263 $144,105 $ 0 $ 0
Actual return on plan assets 27,965 31,007 0 0
Foreign Currency Exchange Loss (948) 0 0 0
Employer contribution 1,653 1,532 150 120
Plan participant's contributions 988 895 30 20
Impact of 1998 Distribution of Nielsen Media Research (58,290) 0 0 0
Benefits paid (3,427) (2,276) (180) (140)
- - --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31, $143,204 $175,263 $ 0 $ 0
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
- - -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OVER/(UNDER) FUNDED STATUS AT END OF YEAR $ 13,668 $ 24,891 $ (8,110) $(14,940)
Unrecognized actuarial (gain)/loss (18,898) (17,823) 420 540
Unrecognized prior service cost/(benefit) (2,606) (5,620) (680) (2,110)
Unrecognized net transition asset (388) (1,990) 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized at December 31, $ (8,224) $ (542) $ (8,370) $(16,510)
- - ------------------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost $ 13,295 $ 21,083 $ 0 $ 0
Accrued benefit liability (22,282) (21,625) (8,370) (16,510)
Intangible asset 763 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized in the Statement of Financial
Position at December 31, $ (8,224) $ (542) $ (8,370) $(16,510)
- - ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
Discount rate 6.34% 6.93% 6.50% 7.00%
Expected return on plan assets 8.68% 9.11% n/a n/a
Rate of compensation increase 4.98% 4.33% n/a n/a
- - ------------------------------------------------------------------------------------------------------------------------------------
The assumed rate of future increases in per capita cost of covered healthcare benefits is 6.5% in 1999, decreasing gradually to
5% for the year 2021 and remaining constant thereafter.
The components of net periodic benefit cost for 1998 and 1997 are summarized as follows:
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
- - ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 10,687 $ 9,959 $ 870 $ 1,000
Interest cost 9,738 10,504 720 860
Expected return on plan assets (13,124) (13,951) 0 0
Amortization of prior service cost (237) (190) (490) (660)
Recognized actuarial loss 316 660 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost for the year ended December 31 $ 7,380 $ 6,982 $ 1,100 $ 1,200
- - ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost for 1996 was $6,885 and $2,619 for pension benefits and postretirement benefits, respectively. The
components of 1996 net periodic benefit costs is unavailable.
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
The Distribution at June 30, 1998 resulted in a transfer of the allocable
portion of the benefit obligation and plan assets to Nielsen Media Research.
(See Note 1. to the Consolidated Financial Statements). Pension expenses related
to discontinued operations included in the table above were $226, $1,571 and
$2,397 for the years 1998, 1997 and 1996, respectively. Other benefit costs for
discontinued operations were not significant.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $35,036, $28,964, and $14,695, respectively, as of
December 31, 1998, and $38,247, $23,522, and $13,415, respectively as of
December 31, 1997.
Assumed health care costs trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates for 1998 would have the following effects:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
- - --------------------------------------------------------------------------------
Increase/(Decrease)
Effect on total service/interest cost $130 ($110)
Effect on post-retirement benefit
obligation $780 ($680)
- - --------------------------------------------------------------------------------
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 $3,713, $4,666 and $4,075 for the years 1998,
1997 and 1996, respectively which includes expenses related to discontinued
operations of $768, $2,021, and $1,797 for the years 1998, 1997, and 1996,
respectively.
- - --------------------------------------------------------------------------------
Note 11. Employee Stock Plans
The Company has an 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 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 three to 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 1998 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
14,560,757 and 5,774,615, respectively, at December 31, 1998, at prices ranging
from $0.63 to $35.68 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 options have a life of ten years,
vest proportionally over four years and have an exercise price equal to the fair
market value of the common stock on the grant date. At December 31, 1998,
586,776 options were outstanding at a weighted average exercise price of $5.40
per share. Of this amount, 89,628 were exercisable at a price of $3.85.
In December 1997, CTS adopted a Non-Employee Directors' Stock Option Plan
which provides for the grant of stock options to eligible directors. 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 options have a
life of ten years, vest proportionally over two years and have an exercise price
equal to the fair market value of the common stock on the grant date. At
December 31, 1998, 49,500 options were outstanding at a weighted average
exercise price of $9.76 per share. Of this amount, 10,250 were exercisable at
prices ranging from $9.08 to $10.00 per share.
In March 1998, CTS granted non-qualified stock options to purchase an
aggregate of 48,750 shares to CTS's Chairman and Chief Executive Officer at an
exercise price of $6.92 per share. At December 31, 1998, 12,187 were
exercisable.
SFAS No. 123, "Accounting for Stock-Based Compensation" 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 APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no significant 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 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:
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except per share data
Years Ended December 31,
---------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------
Net Income As reported $220,558 $312,350 $195,451
Pro forma $188,001 $284,634 $188,705
Earnings Per Share:
Basic As reported $0.68 $0.95 $0.58
Pro forma $0.58 $0.86 $0.56
Diluted As reported $0.66 $0.93 $0.57
Pro forma $0.56 $0.85 $0.55
================================================================================
Years Ended December 31,
--------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------
Income from continuing operations:
As reported $178,465 $234,116 $139,754
Pro forma $147,734 $206,400 $133,008
Earnings Per Share:
Basic from Continuing Operations
As reported $0.55 $0.71 $0.41
Pro forma $0.46 $0.62 $0.39
Diluted from Continuing Operations
As reported $0.53 $0.70 $0.41
Pro forma $0.44 $0.62 $0.39
================================================================================
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 1998, 1997 and 1996: dividend yield
of 0.3%; expected volatility of 25%; a risk-free interest rate of 5.1%; and an
expected term of 3.5 years. The weighted average fair value of the Company's
stock options granted in 1998, 1997 and 1996 are $7.92, $6.56 and $4.88,
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 as the Company's with the following weighted-average assumptions for
1998, 1997 and 1996: dividend yield of 0%; expected volatility of 38%; a
risk-free interest rate of 5.4%; and an expected term of 3.5 years. The weighted
average fair value of Gartner stock options granted in 1998, 1997 and 1996 are
$11.55, $10.12 and $11.80, respectively.
Immediately following the 1996 Distribution, outstanding awards under the
D&B Key Employees Stock Option Plans held by Cognizant employees were canceled
and replaced by substitute awards under Cognizant'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.
Immediately following the Distribution, outstanding awards under
Cognizant's Key Employees Stock Incentive Plan and other option plans were
cancelled and replaced by substitute awards under various IMS Health option
plans. The formula to determine the number of replacement options was the
average fair market value of Cognizant shares before the Distribution divided by
the average fair market value of IMS Health shares after the Distribution.
At December 31, 1998, outstanding options for IMS Health common stock held
by Company employees, including the replacement awards mentioned above, totaled
28,859,996, of which 5,402,436 had vested and were exercisable. The option
prices range from $3.69 to $34.25 per share and are exercisable over periods
ending no later than 2008. At December 31, 1997, outstanding options for
Cognizant common stock held by Company employees totaled 43,844,780, of which
8,772,362 had vested and were exercisable. The option prices ranged from $11.50
to $22.24 per share.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- - -------------------------------------------------------------------------------
Options Outstanding,
December 31, 1996 40,453,498 $16.50
Granted 7,756,474 $21.18
Exercised (1,713,386) $15.39
Expired/Terminated (2,651,806) $16.60
- - --------------------------------------------------------------------------------
Options Outstanding,
December 31, 1997 43,844,780 $17.38
================================================================================
Nielsen Media Research (9,394,856) $16.89
Conversion Adjustment (1,768,840) --
Granted (1)(2) 6,508,614 $28.94
Exercised (2) (6,324,494) $16.91
Expired/Terminated (2) (4,005,208) $18.17
- - --------------------------------------------------------------------------------
Options Outstanding,
December 31, 1998 28,859,996 $21.18
================================================================================
(1) This includes 1,928,188 options granted in connection with the Walsh and
PMSI acquisitions.
(2) Excludes Nielsen Media Research.
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
-------------------------------------------------------------
DECEMBER 31, 1998 OPTION EXERCISE PRICES
RANGE OF ---------------------------------------------- REMAINING -----------------------------------------
EXERCISE PRICES NUMBER OUTSTANDING NUMBER EXERCISABLE CONTRACTUAL LIFE OUTSTANDING EXERCISABLE
- - -------------------- ----------------------- ---------------------- ------------------- ---------------- ------------------------
<S> <C> <C> <C> <C> <C>
$ 3.69-$14.83 443,490 388,780 4.8 years $12.42 $12.29
$15.23-$17.82 16,702,910 3,777,072 7.8 years $17.57 $17.39
$18.23-$20.86 1,254,202 566,580 7.4 years $19.20 $18.91
$21.48-$23.51 4,951,255 668,791 8.9 years $23.41 $23.46
$27.39-$29.97 1,181,737 671 9.5 years $29.22 $27.39
$30.17-$34.25 4,326,402 542 9.7 years $31.85 $30.17
----------------------- ----------------------
28,859,996 5,402,436
==================================================================================================================================
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Note 12. Income Taxes
The Company has been informed by D&B that the IRS is currently reviewing
D&B's utilization of certain capital losses during 1989 and 1990. While D&B has
not received an assessment with respect to these transactions, it understands
that the IRS will challenge D&B's position. The Company has estimated that D&B's
total cash liability to the IRS if an assessment is made and the IRS prevails
would be approximately $425,000 for taxes and accrued interest net of tax
benefit. Under the terms of the Distribution Agreement dated October 28, 1996
among D&B, Cognizant and ACNielsen Corporation (the "1996 Distribution
Agreement"), the Company is liable to pay half of such taxes and interest owed
to the IRS to the extent that D&B's total liabilities exceed $137,000. A portion
of the Company's liability would in turn be shared with Nielsen Media Research
under the Distribution Agreement. The Company estimates that its share of the
liability were the IRS to prevail would be approximately $135,000. This
liability has been included in other liabilities.
The Company has accrued its anticipated share of the probable liability to
D&B under the 1996 Distribution Agreement. Accordingly, management does not
believe that this matter will have a material adverse effect on the Company's
consolidated financial position or operating results when it is resolved in a
future period. However, should the IRS issue an assessment notice, payment of
the Company's share could have a material adverse effect on cash flows in the
period in which it is made. However, the Company believes that is has more than
sufficient funds available from operating cash flows and committed bank lines to
cover any such payment without a material effect on its liquidity or its
financial condition.
Income from continuing operations before provision for income taxes consisted
of:
1998 1997 1996
- - ------------------------------------------------------------
U.S. $122,161 $124,524 $ 66,164
Non-U.S. 148,500 197,950 183,396
- - ------------------------------------------------------------
Total $270,661 $322,474 $249,560
- - ------------------------------------------------------------
The provision (benefit) for income taxes consisted of:
1998 1997 1996
- - ------------------------------------------------------------
U.S. Federal and State:
Current $161,661 $16,883 $16,031
Deferred (3,627) 1,528 25,092
- - ------------------------------------------------------------
Sub-total $158,034 $ 18,411 $41,123
- - ------------------------------------------------------------
Non-U.S.:
Current $30,235 $57,221 $ 61,660
Deferred (96,073) 12,726 7,023
- - ------------------------------------------------------------
Sub-total (65,838) 69,947 68,683
- - ------------------------------------------------------------
Total $92,196 $88,358 $109,806
- - ------------------------------------------------------------
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.
1998 1997 1996
- - ---------------------------------------------------------------
Tax Expense at Statutory Rate 35.0% 35.0% 35.0%
State and Local Income Taxes,
net of Federal TaxBenefit 0.7 1.5 1.1
Impact of Non-U.S. Tax Rates
and Credit 0.4 (0.2) 1.6
Amortization of Non-U.S.
Intangibles (43.7) -- --
Pre D&B Spin Liability 39.0 -- --
Amortization of U.S.
Intangibles (7.4) (8.8) --
Non-Deductible
Reorganization Costs 4.5 -- --
Non-Deductible IPR&D 4.2 -- 4.6
Goodwill 1.3 0.4 1.5
Other 0.1 (0.5) 0.2
- - ---------------------------------------------------------------
Total Taxes 34.1% 27.4% 44.0%
- - ---------------------------------------------------------------
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
1998 1997
- - ------------------------------------------------------------
Deferred Tax Assets:
Non U.S. Intangibles $ 86,738 $ --
U.S. Intangibles 20,701 15,107
Operating Losses 22,546 23,236
Post-Retirement and
Post-Employment Benefits 9,934 8,069
Other 5,576 9,129
- - ------------------------------------------------------------
145,495 55,541
Valuation Allowance (21,239) (21,826)
- - ------------------------------------------------------------
124,256 33,715
- - ------------------------------------------------------------
Deferred Tax Liabilities:
Computer Software (48,549) (40,781)
Deferred Revenue (28,990) (33,322)
Depreciation (10,168) (10,822)
Marketable Securities (8,821) (20,522)
Other (25,301) (13,158)
- - ------------------------------------------------------------
(121,829) (118,605)
- - ------------------------------------------------------------
Net Deferred Tax $ 2,427 $ (84,890)
Asset/(Liability)
- - ------------------------------------------------------------
To consolidate certain of its international operations, in 1998 the Company
engaged in certain non-U.S. reorganizations which gave rise to tax deductible
non-U.S. intangible assets.
The 1998 net deferred tax asset consists of a current deferred tax asset of
$32,749, included in Other Current Assets, offset by a non-current deferred tax
liability of $30,322. (See Notes 2., 5. and 16. to the 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.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
Undistributed earnings of non-U.S. subsidiaries aggregated approximately
$534,930 at December 31, 1998. Deferred tax liabilities have not been recognized
for these undistributed earnings because it is the Company's intention to
indefinitely reinvest such undistributed earnings outside the United States. If
such earnings are repatriated in the future, or are no longer deemed to be
indefinitely reinvested, applicable taxes will be provided for on such amounts.
It is not currently practicable to determine the amount of applicable taxes.
- - --------------------------------------------------------------------------------
Note 13. 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 1998, 1997 and 1996 was $21,868, $19,432, and $28,963,
respectively. The minimum annual rental expense for real estate operating leases
that have remaining noncancelable lease terms in excess of one year, net of
sublease rentals, at December 31, 1998 was: 1999--$22,527; 2000--$21,563;
2001--$20,762; 2002--$17,313; 2003--$15,029 and an aggregate of $31,546
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 $17,815, $28,241, and $23,372 for 1998,
1997 and 1996, respectively. At December 31, 1998, 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: 1999--$16,778;
2000--$10,859; 2001--$6,435; 2002--$5,320 and 2003--$651.
The Company has agreements with various third parties to purchase certain
data and telecommunications services, extending beyond one year. At December 31,
1998, the purchases covered by these agreements aggregated: 1999--$76,287;
2000--$26,181 and 2001--$14,389.
- - --------------------------------------------------------------------------------
Note 14. IMS Health Capital Stock
Under the Company's Restated Certificate of Incorporation, the Company has
authority to issue 420,000,000 shares with a par value of $.01 per share of
which 400,000,000 represent shares of common stock, 10,000,000 represent shares
of preferred stock and 10,000,000 represent shares of series common stock. The
preferred and series common stock can be issued with varying terms, as
determined by the Board of Directors.
On June 30, 1998, 335,225,390 shares of the Company's common stock were
distributed to the shareholders of Cognizant. Since the Company has been treated
as the successor entity for accounting purposes, the Company's historical
financial statements reflect the recapitalization of the Company in connection
with the Distribution, including the elimination of treasury shares (which
shares became treasury shares of Nielsen Media Research).
In connection with the Distribution, the Company entered into a Rights
Agreement designed to protect shareholders of the Company in the event of
unsolicited offers to acquire the Company and the other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent shareholder interests. Under the Rights Agreement, each
share of the common stock has one-half of one right which trades with the stock
until the right becomes exercisable. Each right entitles the registered holder
to purchase 1/1000 of a share of Series A Junior Participating Preferred Stock,
par value $.0l per share, at a price of $225 per 1/1000 of a share, subject to
adjustment. The rights will generally not be exercisable until a person or group
("Acquiring Person") acquires beneficial ownership of, or commences a tender
offer or exchange offer which would result in such person or group having
beneficial ownership of 15% or more of the outstanding common stock (20% in the
case of certain institutional investors).
In the event that any person or group becomes an Acquiring Person, each
right will thereafter entitle its holder (other than the Acquiring Person) to
receive, upon exercise, shares of stock having a market value of two times the
exercise price in the form of the Company's common stock or, where appropriate,
the Acquiring Person's common stock. The Company may redeem the rights, which
expire in June 2008, for $0.01 per right, under certain circumstances.
On October 21, 1997 Cognizant announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 20,000,000 shares
(on a post split basis) of Cognizant's outstanding common stock. As the
"Accounting Successor to Cognizant," the Company purchased the remaining balance
of 18,850,800 shares of the Company's stock (on a post split basis). A portion
of this program was intended to offset option exercises. This program was
completed by the Company on November 17, 1998 at a total cost of $591,331.
In the fourth quarter, the Board of Directors authorized a stock repurchase
program to buy up to 16,000,000 shares of the Company's outstanding common
stock. A portion of this program is intended to offset option exercises. Through
December 31, 1998, 2,898,800 shares have been acquired at a total cost of
$98,113.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Note 15. Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims
litigation and tax matters arising in the ordinary course of business. In the
opinion of management, the outcome of such current legal proceedings, claims
litigation and tax matters, 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 the Company is subject to certain other contingencies discussed
below:
Information Resources Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and I.M.S. International Inc. (a
predecessor of IMS Health) (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. Discovery
is continuing in this matter.
In light of the potentially significant liabilities which could arise from
the IRI Action and in order to facilitate the distribution by D&B of shares of
Cognizant and ACNielsen in 1996, D&B, ACNielsen (the parent company of A.C.
Nielsen Company) and Cognizant entered into an Indemnity and Joint Defense
Agreement pursuant to which they agreed (i) to certain arrangements allocating
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 liabilities up to a maximum amount to be calculated at the time such
liabilities, if any, become payable (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 will be 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 were required to and did
undertake to be jointly and severally liable to D&B and ACNielsen for
Cognizant's obligations under the 1996 Distribution Agreement. In connection
with the Distribution, IMS Health and Nielsen Media Research 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.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
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.
Other Contingencies
The Company, Cognizant and D&B have entered into global tax planning
initiatives in the normal course of business. These activities are subject to
review by tax authorities. As a result of the review process, uncertainties
exist and it is possible that some of these matters could be resolved adversely
to the Company, Cognizant or D&B. (See Notes 2. and 12. to the Consolidated
Financial Statements).
- - --------------------------------------------------------------------------------
Note 16. Supplemental Financial Data
Accounts Receivable--Net:
1998 1997
- - -------------------------------------------------------------
Trade and Notes $262,990 $204,317
Less: Allowance for
Doubtful Accounts (7,767) (3,905)
Unbilled Receivables 51,097 34,232
Other 17,899 16,979
- - -------------------------------------------------------------
At December 31, $324,219 $251,623
- - -------------------------------------------------------------
Other Current Assets:
1998 1997
- - -------------------------------------------------------------
Deferred Income Taxes $32,749 $ 7,263
Prepaid Expenses 39,706 32,114
Inventories 31,413 26,315
- - -------------------------------------------------------------
At December 31, $103,868 $ 65,692
- - -------------------------------------------------------------
Property, Plant and Equipment--Net, Carried at Cost, Less Accumulated
Depreciation and Amortization: 1998 1997
- - ------------------------------------------------------------
Buildings $88,921 $92,291
Machinery and Equipment 238,679 229,610
Less: Accumulated (170,764) (162,660)
Depreciation
Leasehold Improvements, less:
Accumulated Amortization of
$13,415 and $11,310 14,340 12,636
Land 7,975 6,656
- - ------------------------------------------------------------
At December 31, $179,151 $178,533
- - ------------------------------------------------------------
Computer Software and Goodwill:
COMPUTER SOFTWARE GOODWILL
- - ------------------------------------------------------------
January 1, 1997 $148,604 $251,483
Additions at Cost 74,776 1,554
Amortization (47,521) (8,810)
Other Deductions,
Additions and
Reclassifications (21,901) (156,797)
- - ------------------------------------------------------------
December 31, 1997 153,958 87,430
Additions at Cost 61,089 292,349
Amortization (51,190) (12,100)
Asset Impairment (36,300) --
Software Additions from
Acquisitions 36,700 --
Other Deductions and
Reclassifications 4,737 (3,838)
- - ------------------------------------------------------------
December 31, 1998 $168,994 $ 363,841
- - ------------------------------------------------------------
Accumulated Amortization of Computer Software was $216,136 and $203,970 at
December 31, 1998 and 1997, respectively. Accumulated Amortization of Goodwill
$46,380 and $40,399 at December 31, 1998 and 1997, respectively.
Accounts and Notes Payable:
1998 1997
- - -------------------------------------------------------------
Trade $21,892 $21,994
Taxes Other Than Income Taxes 16,596 13,736
Notes 40,378 458
Other 12,018 8,253
- - -------------------------------------------------------------
At December 31, $90,884 $44,441
- - -------------------------------------------------------------
The weighted average interest rates in notes payable at December 31,1998
and 1997 were 2.0% and 7.50%, respectively.
The Company has short-term borrowing arrangements with several banks to
provide up to $135,400 of borrowings at December 31, 1998. None of these
arrangements had material commitment fees or compensating balance requirements.
Accrued and Other Current Liabilities:
1998 1997
- - -------------------------------------------------------------
Salaries, Wages, Bonuses and
Other Compensation $75,178 $ 60,159
Accrued Acquisition and
Integration Costs 19,410 --
Other 204,037 129,225
- - -------------------------------------------------------------
At December 31, $298,625 $189,384
- - -------------------------------------------------------------
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
- - --------------------------------------------------------------------------------
At December 31, 1998, the Company had a severance accrual of $11,700,
included in other liabilities, principally relating to the reorganization of its
European operations.
- - --------------------------------------------------------------------------------
Note 17. Operations by Business Segment
As described in Note 1, the business segments have been restated to reflect
Nielsen Media Research as a discontinued operation.
In 1997, the Company adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". As required, the Company has restated prior
period segment results in order to conform to this statement. The Company,
operating globally in approximately 80 countries, delivers information, software
and related services principally through the strategic business segments
referenced below. The accounting policies of the segments are the same as those
described in Note 2. to the Consolidated Financial Statements.
The IMS segment includes the market information, sales management and
decision-support services and sales management systems businesses for the
pharmaceutical and healthcare industries. In 1998, the IMS segment includes the
acquisition of Walsh and PMSI, (See Note 7. to the Consolidated Financial
Statements), which have been integrated into the IMS operations.
The Emerging Markets segment principally includes Erisco, a leading
supplier of software-based administrative and analytical solutions to the
managed care industry. It also includes 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 Software Inc. ("Pilot"), which was sold as of July 31,
1997.
CTS is a provider of software applications development and maintenance
services and Year 2000 and Eurocurrency compliance services (See Note 6. to the
Consolidated Financial Statements).
Gartner is the world's leading independent provider of research and
analysis on the computer hardware, software, communications and related
information technology industries.
34
<PAGE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
<CAPTION>
EMERGING
YEAR ENDED DECEMBER 31, 1998 IMS MARKETS CTS (1) GARTNER(2) TOTAL
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE $1,083,992 $ 57,542 $ 44,979 $1,186,513
Acquired In Process Research and Development 32,800 32,800
Direct Acquisition Integration Costs 48,019 48,019
SEGMENT OPERATING INCOME $ 184,771 $ 6,171 $ 8,918 $ 199,860
General Corporate Expenses (67,376)
Interest Income (3) 9,212 3 638 9,853
Interest Expense (4) (804) (804)
Non-Operating Income--Net
Gartner Equity Income (2) 70,979 70,979
Gains from Dispositions--Net (5) 27,753 12,777 40,530
Non-Operating Income--Other--Net 17,619
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provisions for Income Taxes $ 270,661
Provision for Income Taxes (92,196)
Income from Discontinued Operations, Net of Income
Taxes (6) 42,093
Net Income 220,558
Segment Depreciation and Amortization $ 87,723 $ 5,418 $ 2,221 $ 95,362
Segment Capital Expenditures $ 25,146 $ 1,121 $ 4,075 $ 30,342
Identifiable Assets at December 31, 1998 (7) $1,235,285 $ 109,431 $ 51,634 $ 252,852 $1,649,202
- - ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- - ----------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE $ 980,521 $ 65,159 $ 13,879 $1,059,559
SEGMENT OPERATING INCOME/(LOSS) $ 265,351 $ (12,669) $ 2,917 $ 255,599
General Corporate Expenses (27,989)
Interest Income (3) 4,441 123 17 4,581
Interest Expense (4) (679) (109) (788)
Non-Operating Income--Net
Gartner Equity Income (1) 65,120 65,120
Gains from Dispositions--Net 9,391 9,391
Non-Operating Income--Other--Net 16,560
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision
for Income Taxes $ 322,474
Provision for Income Taxes (88,358)
Income from Discontinued Operations, Net of Income
Taxes (6) 78,234
Net Income 312,350
Segment Depreciation and Amortization $ 76,375 $ 10,164 $ 975 $ 87,514
Segment Capital Expenditures $ 41,932 $ 1,724 $ 2,580 $ 46,236
Identifiable Assets at December 31, 1997 (7) $ 855,789 $ 132,748 $ 15,880 $ 195,695 $1,199,112
- - ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
- - ----------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE $ 904,444 $ 79,205 $ 3,161 $ 424,382 $1,411,192
Write-Off of Purchased In Process Research &
Development 33,233 33,233
SEGMENT OPERATING INCOME/(LOSS) $ 232,827 $ (14,558) $ 1,655 $ 60,114 $ 280,038
General Corporate Expenses (36,331)
Interest Income (3) 3,597 125 96 3,982 7,800
Interest Expense (4) (1,043) (295) (1,338)
Non-Operating Expense--Other--Net (809)
Gains from Dispositions--Net 200 200
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision
for Income Taxes $ 249,560
Provision for Income Taxes (109,806)
Income from Discontinued Operations, Net of Income
Taxes (6) 55,697
Net Income 195,451
Segment Depreciation and Amortization $ 80,313 $ 11,634 $ 547 $ 15,934 $ 108,428
Segment Capital Expenditures $ 37,862 $ 2,522 $ 732 $ 15,918 $ 57,034
Identifiable Assets at December 31, 1996 (7) $ 756,966 $ 196,743 $ 10,082 $ 497,242 $1,461,033
- - ----------------------------------------------------------------------------------------------------------------------------
35
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars amounts in thousands, except per share data
(1) Related party sales of $13,627, $11,092 and $8,877 for the years ended
December 31, 1998, 1997 and 1996, respectively, consisting primarily of
sales from CTS to the IMS segment and Nielsen Media Research have been
excluded. The related party sales associated with discontinued operations
were $4,365 and $2,436 for December 31, 1997 and 1996, respectively.
(2) The Company maintained a majority interest in Gartner during 1996 and
accordingly, reflected Gartner on a consolidated basis. During 1997, The
Company's voting interest in Gartner fell below 50%. Gartner's results for
1997 and 1998 are therefore reflected as Gartner Equity Income and included
in Non-Operating Income--Net.
(3) Interest income excludes amounts recorded at corporate of $9,695, $8,168
and $1,656 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(4) Interest expense excludes amounts recorded at corporate of $362, $1,505 and
$0 for the years ended December 31, 1998, 1997 and 1996, respectively.
(5) Gains from Dispositions-Net excludes amounts recorded at Corporate of
$5,588 at December 31, 1998.
(6) Income from Discontinued Operations, Net of Income Taxes includes taxes of
$15,887, $29,527 and $43,764 for the years ended December 31, 1998, 1997
and 1996, respectively.
(7) Total Assets include Net Assets of Discontinued Operations of $122,778, and
$98,124 as of December 31, 1997 and 1996, respectively. Assets of $82,317,
$180,199 and $234,288 as of December 31, 1998, 1997 and 1996, respectively,
include cash and cash equivalents and Property, Plant and Equipment not
identified with business segments and represent the reconciling items
between total identifiable assets and Net Assets of Discontinued
Operations. (See Note 1. to the Consolidated Financial Statements) and the
Company's total assets.
Financial Information by Country:(1)
<TABLE>
<CAPTION>
UNITED STATES UNITED KINGDOM ALL OTHER (3) TOTAL
- - -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUE (2) $489,719 $ 79,897 $616,897 $ 1,186,513
LONG-LIVED ASSETS $239,578 $153,236 $342,100 $ 734,914
- - -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
- - -------------------------------------------------------------------------------------------------------------------------------
Operating Revenue (2) $409,527 $43,299 $606,733 $ 1,059,559
Long-Lived Assets $242,974 $54,028 $134,145 $ 431,147
- - -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
- - -------------------------------------------------------------------------------------------------------------------------------
Operating Revenue (2) $639,831 $82,727 $688,634 $ 1,411,192
Long-Lived Assets $430,020 $73,153 $142,898 $ 646,071
- - -------------------------------------------------------------------------------------------------------------------------------
</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.
(3) Included in All Others is non U.S. and non-UK revenue principally from
Europe, Australia and the Far East.
Note 18. Subsequent Events (Unaudited)
Elimination of one month Reporting lag in IMS operating entities. As indicated
in Note 2. to the Consolidated Financial Statements, the Company consolidates
its IMS operating units on a one month reporting lag basis. Effective in the
first quarter of the Company's 1999 fiscal year, IMS operating units that
previously reported on a fiscal year ending November 30, changed their reporting
period to eliminate the one month lag to bring these to a fiscal year ending
December 31. This change was made to reflect the results of operations and
financial position of these operating units on a more timely basis and to
increase operating and planning efficiency. The results of these operating units
for the period December 1 through December 31, 1998, will be reflected as an
adjustment to retained earnings in the Company's 1999 first quarter reporting
period ending March 31, 1999. The Company is still evaluating the financial
statement impact of the change.
36
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Dollar amounts in thousands, except per share data
Historical results are restated to reflect Nielsen Media Research as a discontinued operation. (See Note 1. to the Consolidated
Financial Statements). The results of operations and related disclosures as of and for the quarter ended June 30, 1998 and September
30, 1998 have been restated as it relates to the purchase price allocation for the Walsh and PMSI acquisitions. This change was made
to conform with the SEC's refined approach for the measurement of acquired IPR&D, Core Technology/Software and the related
allocation of purchase price. The estimate for the one time charge for the acquired IPR&D projects for the original quarterly
filing(s) upon the acquisitions was $57,000 for Walsh (revised to $52 million quarter 3) and $14,200 for PMSI. These have now been
reduced to $21,900 and $10,900, respectively. The impact of this re-allocation of the purchase price on the income statement, is an
increase to net income of $35,100 for quarter 2 and a decrease in pre-tax income of $2,335 for Quarter 3, on previously reported
amounts for consolidated income. The impact of increased amortization expense related to the intangible assets is not significant.
Net income for the year is increased now by $32,785. (See note 7 to the Consolidated Financial Statement). Additionally, the Company
has retroactively restated all per-share amounts to give effect for the 2:1 stock split (See Note 2. to the Consolidated Financial
Statements). 1997 quarterly results have been restated to reflect the deconsolidation of Gartner. (See Note 3. to the Consolidated
Financial Statements).
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
OPERATING REVENUE $240,968 $270,496 $283,606 $391,443 $1,186,513
OPERATING INCOME $ 18,728 $(13,912) $ 4,753 $122,915 $ 132,484
INCOME FROM CONTINUING OPERATIONS,
NET OF INCOME TAXES $ 39,082 $ 1,552 $ 24,955 $112,876 $ 178,465
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES $ 21,005 $ 21,088 $ 0 $ 0 $ 42,093
NET INCOME $ 60,087 $ 22,640 $ 24,955 $112,876 $ 220,558
- - ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK
BASIC
INCOME FROM CONTINUING OPERATIONS $ .12 $ .00 $ .08 $ .35 $ .55
INCOME FROM DISCONTINUED OPERATIONS $ .06 $ .07 $ .00 $ .00 $ .13
NET INCOME $ .18 $ .07 $ .08 $ .35 $ .68
DILUTED
INCOME FROM CONTINUING OPERATIONS $ .12 $ .00 $ .07 $ .34 $ .53
INCOME FROM DISCONTINUED OPERATIONS $ .06 $ .07 $ .00 $ .00 $ .13
NET INCOME $ .18 $ .07 $ .07 $ .34 $ .66
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Operating Revenue $229,305 $251,076 $251,130 $328,048 $1,059,559
Operating Income $ 21,608 $ 39,355 $ 59,174 $107,473 $ 227,610
Income from Continuing Operations,
Net of Income Taxes $ 33,371 $ 40,067 $ 57,317 $103,361 $ 234,116
Income from Discontinued Operations,
Net of Income Taxes $ 19,534 $ 19,988 $ 19,749 $ 18,963 $ 78,234
Net Income $ 52,905 $ 60,055 $ 77,066 $122,324 $ 312,350
- - ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock
Basic
Income from Continuing Operations $ 0.10 $ 0.12 $ 0.18 $ 0.31 $ 0.71
Income from Discontinued Operations $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24
Net Income $ 0.16 $ 0.18 $ 0.24 $ 0.37 $ 0.95
Diluted
Income from Continuing Operations $ 0.10 $ 0.12 $ 0.17 $ 0.31 $ 0.70
Income from Discontinued Operations $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.23
Net Income $ 0.16 $ 0.18 $ 0.23 $ 0.36 $ 0.93
- - ------------------------------------------------------------------------------------------------------------------------------------
37
</TABLE>
<PAGE>
<TABLE>
FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
Dollar amounts in thousands, except per share data
- - ------------------------------------------------------------------------------------------------------------------------------------
The Company has retroactively restated all per-share amounts to give effect for the 2:1 stock split. (See Note 2. to the
Consolidated Financial Statements).
<CAPTION>
1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Operating Revenue $ 1,186,513 $ 1,059,559 $ 1,411,192 $ 1,253,688 $ 995,112
Costs and Expenses(1)(2) 1,054,029 831,949 1,167,485 1,186,079 849,899
- - ------------------------------------------------------------------------------------------------------------------------------------
Operating Income(1)(2) 132,484 227,610 243,707 67,609 145,213
Non-Operating Income--Net(3) 138,177 94,864 5,853 7,880 18,85
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations, Before Provision
for Income Tax 270,661 322,474 249,560 75,489 164,065
Provision For Income Taxes (92,196) (88,358) (109,806) (34,214) (66,282)
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 178,465 234,116 139,754 41,275 97,783
Income from Discontinued Operations, Net of Income
Taxes (4) 42,093 78,234 55,697 47,606 48,622
- - ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 220,558 $ 312,350 $ 195,451 $ 88,881 $ 146,405
- - ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock
Basic
Income from Continuing Operations $ .55 $ .71 $ .41 $ .12 $ .29
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from Discontinued Operations, Net of Income
Taxes $ .13 $ .24 $ .17 $ .14 $ .14
- - ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ .68 $ .95 $ .58 $ .26 $ .43
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding 324,584,000 330,326,000 339,888,000 339,044,000 339,892,000
Diluted
Income from Continuing Operations $ .53 $ .70 $ .41 $ .12 --
Income from Discontinued Operations, Net of
Income Taxes $ .13 $ .23 $ .16 $ .14 --
- - ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ .66 $ .93 $ .57 $ .26 --
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding 335,770,000 334,980,000 341,000,000 343,216,000 --
- - ------------------------------------------------------------------------------------------------------------------------------------
As a % of Operating Revenue:
Operating Income (1) 11.2% 21.5% 17.3% 5.4% 14.6%
Income from continuing operations (1) 15.1% 22.1% 9.9% 3.3% 9.8%
SHAREHOLDERS' EQUITY $ 825,270 $ 801,570 $ 872,613 $ 604,588 $ 606,483
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,731,519 $ 1,502,089 $ 1,793,445 $ 1,398,823 $ 1,305,114
- - ------------------------------------------------------------------------------------------------------------------------------------
(1) 1998 includes charges related to the Distribution of $35,025 and one-time charges and IPR&D write-offs to the Walsh and PMSI
acquisitions of $48,019 and $32,800, respectively. 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 $87,770 and an incremental provision for post-employment benefits of $32,500. Also
includes restructuring expense of $12,800 and $7,957 in 1995 and 1994, respectively.
(3) Non-operating Income in 1998 includes Gartner equity income of $70,979, SAB 51 gains of $14,838, the gain related to the CTS
IPO of $12,777, and gains from dispositions-net of $33,341. 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 and $21,473 in non-operating income in 1996, 1995 and 1994, respectively.
(4) Income from Discontinued Operations, net of Income Taxes include a tax provision of $15,887, $29,527, $43,764, $39,462 and
$32,801 for 1998, 1997, 1996, 1995 and 1994, respectively.
</TABLE>
38
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
IMS HEALTH INCORPORATED
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
DIRECTORS
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLIFFORD L. ALEXANDER, JR. (1) H. EUGENE LOCKHART (1)
President Executive Vice President &
Alexander & Associates, Inc. Chief Marketing Officer
AT&T Corporation
VICTORIA R. FASH M. BERNARD PUCKETT (2)
President & Chief Operating Officer Private Investor
IMS Health Incorporated
JOHN P. IMLAY, JR. (2) WILLIAM C. VAN FAASEN (2)
Chairman President & Chief Executive Officer
Imlay Investments, Inc. Blue Cross & Blue Shield of Massachusetts
ROBERT KAMERSCHEN (2) ROBERT E. WEISSMAN
Chairman Chairman & Chief Executive Officer
ADVO, Inc. IMS Health Incorporated
Board Committees
ROBERT J. LANIGAN (1) (1) Audit Committee
Chairman Emeritus (2) Compensation and Benefits
Former Chairman & Chief Executive Officer Committee
Owens-Illinois, Inc.
OFFICERS
- - ----------------------------------------------------------------------------------------------------------------------------
ROBERT E. WEISSMAN
Chairman & Chief Executive Officer
- - ----------------------------------------------------------------------------------------------------------------------------
VICTORIA R. FASH
President & Chief Operating Officer
- - ----------------------------------------------------------------------------------------------------------------------------
J. MICHAL CONAWAY
Chief Financial Officer
- - ----------------------------------------------------------------------------------------------------------------------------
ALAN J. KLUTCH JAMES C. MALONE KENNETH S. SIEGEL
Senior Vice President-Finance Senior Vice President-Finance & Senior Vice President
Controller General Counsel & Secretary
CRAIG S. KUSSMAN DAVID H. OWEN MATTHEW L. FRIEDMAN
Senior Vice President-Corporate Development Senior Vice President-Global Human Vice President-Treasurer
Resources
OFFICERS OF OPERATING UNITS
- - ----------------------------------------------------------------------------------------------------------------------------
IMS EMERGING MARKETS
VICTORIA R. FASH ERISCO Managed Care Technologies, Inc.
Chairman & Chief Executive Officer ANTHONY BELLOMO COGNIZANT TECHNOLOGY SOLUTIONS
President CORPORATION
GILES PAJOT WIJEYARAJ A. MAHADEVA
Vice Chairman Enterprise Associates, Inc. Chairman & Chief Executive Officer
President, IMS Europe Region VENETIA KONTOGOURIS
President
ROBERT HOOPER
President, IMS America Region
SHUNSUKE KEIMATSU
Chairman & Chief Executive Officer, IMS Japan
HANS BIEDERMAN
President, Emerging Markets
JAMES C. NEWELL
President, Global Services
RONALD BROWN
Chief Executive Officer and President
IMS Health Strategic Technologies, Inc.
</TABLE>
<PAGE>
IMS HEALTH [LOGO]
TRANSFER AGENT
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-1225
CORPORATE CENTER
200 Nyala Farms
Westport, Connecticut 06880
Telephone: (203) 222-4200
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1301 Avenue of Americas
New York, N.Y. 10019
FORM 10-K
Your Company will file its report to shareholders on Form 10-K with
the Securities and Exchange Commission by March 31, 1999. Many of the
SEC's 10-K information requirements are satisfied by this 1998 Annual
Report to Shareholders. However, a copy of the Form 10-K will be
available without charge after March 31, 1999, upon request to the Investor
Relations Department at the Corporate Center address.
COMMON STOCK INFORMATION
The Company's common stock (RX) is listed on the New York Stock
Exchange.
Exhibit 10.1
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of June 30, 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) (A) causing Media
Licensing Associates, Inc. ("Media Licensing") to withdraw its interest in
Cognizant Licensing Associates, L.P. ("Licensing Associates"), and, in
connection therewith, to receive the shares of common stock of Gartner Group,
Inc. ("Gartner") held by Licensing Associates, (B) upon the completion of the
transaction described in (A), causing Media Licensing to merge with and into
NMR, with NMR as the surviving corporation, (C) upon the completion of the
transaction described in (B), to cause NMR to merge with and into the
Corporation, with the Corporation as the surviving corporation renamed "Nielsen
Media Research, Inc.", (D) causing I.M.S. International, Inc. to merge with and
into IMS HEALTH, with IMS HEALTH as the surviving corporation, (E) upon the
completion of the transaction described in (D), causing IMS America Ltd. to
merge with and into IMS HEALTH, with IMS HEALTH as the surviving corporation,
(F) upon the completion of the transaction described in (E), causing the
Corporation to contribute all of the non-stock assets and liabilities held
directly by the Corporation (other than assets specified herein to remain with
the Corporation after the Distribution) to IMS HEALTH, (G) upon the completion
of the transaction described in (F), causing the Corporation to contribute all
the capital stock held by the Corporation in Cognizant Technology Solutions
Corporation, Cognizant Enterprises Inc., Gartner, Erisco, Inc., I.M.S. Services
Nederland B.V., IMS Italia S.p.A., IMS Japan K.K., Cognizant India Holdings
Corporation, IMS ChinaMetrik Incorporated, Cognizant Transportation Services
Corporation, DBHC Inc., IMS
<PAGE>
2
Holdings (UK) Limited, Sales Technologies, Inc., Walsh International, Inc. and
any other first tier subsidiary of the Corporation not related to the NMR
Business 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.
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 I.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
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3
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;
(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;
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4
(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;
(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.
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5
(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.
(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 June 25, 1998.
(s) "Effective Time" shall mean immediately prior to the midnight, New York
time, that ends 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.
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6
(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.
(bb) "IMS HEALTH Contracts" shall mean all the contracts and agreements to
which the Corporation or any of its Affiliates who are not individuals is a
party or by which it or any of its Affiliates who are not individuals is bound
immediately prior to the Effective Time, except the NMR Contracts.
(cc) "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.
(dd) "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.
(ee) "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.
(ff) "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.
(gg) "Indemnifiable Losses" shall mean any and all losses, liabilities,
claims, damages, demands, costs or expenses (including, without limitation,
reasonable attorneys' fees and
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7
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.
(hh) "Indemnifying Party" shall have the meaning set forth in Section 3.3.
(ii) "Indemnitee" shall have the meaning set forth in Section 3.3.
(jj) "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.
(kk) "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.
(ll) "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 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.
(mm) "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.
(nn) "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.
(oo) "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.
(pp) "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
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8
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.
(qq) "Nielsen Media Research Business" shall have the meaning set forth in
the recitals hereto.
(rr) "1996 Distribution" shall mean the distribution described in the 1996
Distribution Agreement.
(ss) "1996 Distribution Agreement" shall mean the Distribution Agreement
among the Corporation, The Dun & Bradstreet Corporation and ACNielsen
Corporation dated as of October 28, 1996.
(tt) "NMR" shall mean Nielsen Media Research, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Corporation.
(uu) "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;
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9
(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;
(vi) the minute books and similar corporate records of the
Corporation; and
(vii) 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 Benefits Agreement or any
Ancillary Agreement referred to in the 1996 Distribution Agreement (except in
each case to the extent provided in this Agreement or any Ancillary Agreement to
this 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.
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10
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).
(vv) "NMR Balance Sheet" shall mean the consolidated balance sheet of the
NMR Group, including the notes thereto, as of March 31, 1998, set forth as
Schedule 1.1(av) hereto.
(ww) "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.
(xx) "NMR Contracts" shall mean the following contracts and agreements to
which the Corporation or any of its Affiliates who are not individuals is a
party or by which it or any of its Affiliates who are not individuals 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), the Intellectual
Property Agreement referred to in the 1996 Distribution Agreement (except
to the extent it relates to intellectual property used by the IMS HEALTH
Group) and any contracts or agreements listed or described on Schedule
1.1(ax)(i);
(ii) any contract or agreement entered into in the name of the
Corporation, or in the name of, or expressly on behalf of, any division,
business unit or member of the NMR Group except for those contracts listed
or described on Schedule 1.1(ax)(ii) or which are primarily for the benefit
of any division, business unit or member of the IMS HEALTH 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;
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11
(v) any contract or agreement representing capital or operating
equipment lease obligations reflected on the NMR Balance Sheet, and
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.
(yy) "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.
(zz) "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.
(aaa) "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;
(ii) all Liabilities (other than Taxes and any employee-related
Liabilities which are 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,
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12
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
(z) all agreements and obligations of any member of the IMS HEALTH Group
under this Agreement or any of the Ancillary Agreements.
(bbb) "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.
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13
(ccc) "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.
(ddd) "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.
(eee) "Provider" shall have the meaning set forth in Section 5.1.
(fff) "Recipient" shall have the meaning set forth in Section 5.1.
(ggg) "Records" shall have the meaning set forth in Section 4.1.
(hhh) "Rights" shall have the meaning set forth in Section 2.1(c).
(iii) "Rules" shall have the meaning set forth in Section 6.2.
(jjj) "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.
(kkk) "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.
(lll) "Shared Transaction Services Agreement" shall mean the Shared
Transaction Services Agreement between the Corporation and IMS HEALTH.
(mmm) "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).
(nnn) "TAM Master Agreement" shall mean the master agreement between the
Corporation and ACNielsen Corporation dated as of October 28, 1996, including
any agreements ancillary thereto, relating to the conduct of the television
audience measurement business after the 1996 Distribution.
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(ooo) "Tax" shall have the meaning set forth in the Tax Allocation
Agreement.
(ppp) "Tax Allocation Agreement" shall mean the Tax Allocation Agreement
between the Corporation and IMS HEALTH.
(qqq) "Technology Solutions Business" shall have the meaning set forth in
the recitals hereto.
(rrr) "Third Party Claim" shall have the meaning set forth in Section 3.3.
(sss) "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 I.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 II.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 or as of the
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15
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 (or any amendment thereto).
(d) Directors. On or prior to the Distribution Date, the Corporation as the
sole stockholder of IMS HEALTH, shall have taken all necessary action 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
<PAGE>
16
Group shall be duly and validly transferred or caused 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>
17
(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 (or any amendment thereto) 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) subject to Section 2.1(p), 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 (X) any such legal fees and
<PAGE>
18
expenses incurred prior to January 1, 1999 shall be IMS HEALTH Liabilities
and not NMR Liabilities and (Y) any such legal fees and expenses incurred
during 1999 that are NMR Liabilities will be reimbursed to IMS HEALTH on
the first business day after January 1, 2000 with respect to fees incurred
through November 30, 1999 and notified to the Corporation, and within 10
business days after notice to the Corporation of other such fees incurred
in 1999; and provided further that the aggregate amount of NMR Liabilities
under 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 an aggregate of $300 million, the proceeds of which will be used to
pay expenses of the Distribution and to repay existing intercompany indebtedness
to certain members of the IMS HEALTH Group. This $300 million of debt 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)
<PAGE>
19
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 (other than the TAM Master Agreement and the Intellectual
Property Agreement (to the extent such action relates to intellectual property
used by the NMR Group)), in each such case without the prior written consent of
IMS HEALTH. The Corporation agrees that it will take any action pursuant to the
terms of the agreements referred to in clauses (i) and (ii) of the preceding
sentence that it is requested to take by IMS HEALTH; provided that IMS HEALTH
agrees to consult with the Corporation regarding the terms and conditions of any
settlement agreement relating to the IRI Action which would require the
Corporation to contribute to the amount of the settlement thereunder; and
provided further that if the Corporation reasonably asserts that such settlement
would cause financial hardship to the Corporation then the obligations of the
Corporation under this Agreement with respect to the payment of its portion of
such settlement shall be adjusted as follows:
(I) if the payment date for the settlement (the "Payment Date") occurs
prior to the second anniversary of the Distribution Date, then (A) the
Corporation shall pay 50% of the amount that it would otherwise be
obligated to pay hereunder in respect of such settlement on the Payment
Date, (B) IMS HEALTH shall pay the remaining 50% of such amount on behalf
of the Corporation on the Payment Date and (C) the Corporation shall
reimburse IMS HEALTH for the amount IMS HEALTH pays pursuant to clause (B)
(plus interest thereon at the prevailing three-month treasury rate) in two
equal installments to be paid on each of the first and second anniversaries
of the Payment Date; and
(II) if the Payment Date occurs on or after the second anniversary of
the Distribution Date but prior to the third anniversary of the
Distribution Date, then (A) the Corporation shall pay 66 2/3% of the amount
that it would otherwise be obligated to pay hereunder in respect of such
settlement on the Payment Date, (B) IMS HEALTH shall pay the remaining 33
1/3% of such amount on behalf of the Corporation on the Payment Date and
(C) the Corporation shall reimburse IMS HEALTH for the amount IMS HEALTH
pays pursuant to clause (B) (plus interest thereon at the prevailing
three-month treasury rate) on the first anniversary of the Payment Date.
Notwithstanding the foregoing, if the Payment Date occurs on or after the third
anniversary of the Distribution Date, then no adjustment shall be made to the
obligations of the Corporation under this Agreement with respect to the payment
of its portion of such settlement.
(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>
20
(r) New Assistance Agreement. As soon as reasonably practicable after the
Distribution Date, the Corporation and IMS HEALTH shall enter into an amendment
to the Assistance Agreement (the "1996 Assistance Agreement") among the State of
Connecticut, acting by the Department of Economic and Community Development, The
Dun & Bradstreet Corporation, ACNielsen Corporation and the Corporation dated
October 30, 1996 pursuant to which the Corporation will be released from its
obligations under the 1996 Assistance Agreement in consideration for (i) the
Corporation's agreement to maintain no less than 170 Full Time Positions (as
defined in the 1996 Assistance Agreement) and (ii) IMS HEALTH's agreement to
maintain no less than 17 Full Time Positions (as defined in the 1996 Assistance
Agreement), in each such case for the remainder of the term of the 1996
Assistance Agreement. The Corporation and IMS HEALTH shall cooperate with one
another in negotiating such amendment and shall use their respective reasonable
efforts to conclude such negotiations on or prior to July 15, 1998.
(s) 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)-(r) 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 II.2. Intercompany Accounts. The parties acknowledge that the
Corporation has transferred $417 million to IMS HEALTH to repay intercompany
indebtedness to certain members of the IMS HEALTH Group existing as of May 31,
1998. On the Distribution Date, the Corporation shall transfer the remaining
cash balances referred to in Section 2.3 below to IMS HEALTH as a contribution
of capital. If there is a net amount due and payable from either party to the
other for intercompany receivables, payables and loans with respect to the month
of June, 1998, the amount characterized as a capital contribution by the
Corporation to IMS HEALTH shall be adjusted by such net amount due and no cash
payment in respect thereof shall be made.
SECTION II.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 the estimated cash amounts set forth on Schedule 2.3.
Promptly after the Distribution Date, but no later than July 31, 1998, the
Corporation and IMS HEALTH shall determine the actual amounts for each item on
Schedule 2.3. Any net variance between such actual amounts and the estimated
amounts set forth on Schedule 2.3 shall be paid by the appropriate party to the
other party on or promptly after July 31, 1998 (including the closing market
price on June 30, 1998 of the APAC Teleservices, Inc. shares held pursuant to
the Escrow Agreement identified in Schedule 1.1(ax)(ii)). If additional
variances are discovered thereafter and prior to December 31, 1998, the
appropriate party shall pay the amount thereof promptly to the other party.
<PAGE>
21
SECTION II.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 II.5. Resignations. (a) Subject to Section 2.5(b), the Corporation
and NMR shall cause all their employees to resign or be terminated, effective
not later than the Effective Time, 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 or be terminated, effective not later than the
Effective Time, 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 II.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 II.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
<PAGE>
22
that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with.
SECTION II.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 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 II.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.
<PAGE>
23
SECTION II.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 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).
<PAGE>
24
SECTION II.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 incident thereto, which such
party is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
SECTION II.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 II.13. Ancillary Agreements. On or 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.
<PAGE>
25
SECTION II.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 any assignee of the Corporation's rights to the
"Cognizant" name, logo or other trademarks or intellectual property
utilizing Cognizant;
(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;
<PAGE>
26
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
(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.
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ARTICLE III. INDEMNIFICATION
SECTION III.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 III.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 III.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 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
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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
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.
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29
(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 III.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 IV.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 IMS HEALTH 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 IMS
HEALTH.
(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 Corporation 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 Corporation.
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30
SECTION IV.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 IV.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 IV.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,
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 IV.5. Privileged Matters. The parties hereto recognize that legal
and other professional services that have been and will be provided on or 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:
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31
(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 the 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 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
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32
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 IV.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.
SECTION IV.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
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claim, whether or not in writing, which is not reflected on such Schedule, is
hereby irrevocably cancelled, released and waived.
SECTION IV.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 V.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 Shared Transaction Services Agreement. Except as otherwise set
forth in such 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 agreement.
SECTION V.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 V.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.
ARTICLE VI. DISPUTE RESOLUTION
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SECTION VI.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 VI.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. '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 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
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35
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 VI.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 VII.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 on or 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 VII.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 on or 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 conduct of the NMR Business, and
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36
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 VII.3. Administration; Other Matters. (a) Administration. 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. 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.
(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
<PAGE>
37
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 an aggregate deductible is
reached, 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.
(e) After 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.
SECTION VII.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 VII.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>
38
ARTICLE VIII. MISCELLANEOUS
SECTION VIII.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 VIII.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 VIII.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 VIII.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 VIII.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 (or any
amendment thereto) 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; provided that if such costs and
expenses are not paid by the Corporation prior to the Effective Time, they 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, 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
<PAGE>
39
promptly after the existence and amount of such obligation is determined and
demand therefor is made.
SECTION VIII.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 the Corporation:
Nielsen Media Research, Inc.
299 Park Avenue
New York, NY 10171
Telecopy: (212) 708-6927
Attn: Chief Legal Officer
To IMS HEALTH:
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
Attn: General Counsel
SECTION VIII.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 VIII.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 VIII.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
<PAGE>
40
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 Business Entity undertakes to
the Corporation to be jointly and severally liable for all IMS HEALTH
Liabilities hereunder.
SECTION VIII.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 VIII.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 VIII.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 or after
the Distribution Date.
SECTION VIII.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 VIII.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 VIII.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 VIII.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
<PAGE>
41
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE
OF NEW YORK.
SECTION VIII.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 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 VIII.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>
42
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: /s/ Robert E. Weissman
---------------------------------
Name: Robert E. Weissman
Title: Chairman and Chief Executive
Officer
IMS HEALTH INCORPORATED
By: /s/ Victoria R. Fash
---------------------------------
Name: Victoria R. Fash
Title: President and Chief Operating
Officer
<PAGE>
DISTRIBUTION AGREEMENT
between
COGNIZANT CORPORATION
and
IMS HEALTH INCORPORATED
Dated as of June 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS.........................................................2
SECTION 1.1. General....................................................2
SECTION 1.2. References; Interpretation................................14
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS;
CERTAIN COVENANTS...............................................14
SECTION 2.1. The Distribution and Other Transactions...................14
SECTION 2.2. Intercompany Accounts.....................................20
SECTION 2.3. Cash Balances.............................................20
SECTION 2.4. Assumption and Satisfaction of Liabilities................20
SECTION 2.5. Resignations..............................................20
SECTION 2.6. Further Assurances........................................20
SECTION 2.7. Limited Representations or Warranties.....................21
SECTION 2.8. Guarantees................................................21
SECTION 2.9. Witness Services..........................................22
SECTION 2.10. Certain Post-Distribution Transactions....................22
SECTION 2.11. Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution
Date ....................................................23
SECTION 2.12. Conveyancing and Assumption Instruments...................23
SECTION 2.13. Ancillary Agreements......................................24
SECTION 2.14. Corporate Names...........................................24
ARTICLE III. INDEMNIFICATION.................................................26
SECTION 3.1. Indemnification by the Corporation........................26
SECTION 3.2. Indemnification by IMS HEALTH.............................26
SECTION 3.3. Procedures for Indemnification............................26
SECTION 3.4. Indemnification Payments..................................28
ARTICLE IV. ACCESS TO INFORMATION............................................28
SECTION 4.1. Provision of Corporate Records............................28
SECTION 4.2. Access to Information.....................................29
SECTION 4.3. Reimbursement; Other Matters..............................29
SECTION 4.4. Confidentiality...........................................29
SECTION 4.5. Privileged Matters........................................29
SECTION 4.6. Ownership of Information..................................31
SECTION 4.7. Limitation of Liability...................................31
SECTION 4.8. Other Agreements Providing for Exchange of Information....32
ARTICLE V. ADMINISTRATIVE SERVICES...........................................32
SECTION 5.1. Performance of Services...................................32
SECTION 5.2. Independence..............................................32
SECTION 5.3. Non-exclusivity...........................................32
i
<PAGE>
ARTICLE VI. DISPUTE RESOLUTION..............................................32
SECTION 6.1. Negotiation...............................................32
SECTION 6.2. Arbitration...............................................33
SECTION 6.3. Continuity of Service and Performance.....................34
ARTICLE VII. INSURANCE.......................................................34
SECTION 7.1. Policies and Rights Included Within Assets;
Assignment of Policies...................................34
SECTION 7.2. Post-Distribution Date Claims.............................34
SECTION 7.3. Administration; Other Matters.............................35
SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense.......36
SECTION 7.5. Cooperation...............................................36
ARTICLE VIII. MISCELLANEOUS..................................................36
SECTION 8.1. Complete Agreement; Construction..........................36
SECTION 8.2. Ancillary Agreements......................................37
SECTION 8.3. Counterparts..............................................37
SECTION 8.4. Survival of Agreements....................................37
SECTION 8.5. Expenses..................................................37
SECTION 8.6. Notices...................................................37
SECTION 8.7. Waivers...................................................38
SECTION 8.8. Amendments................................................38
SECTION 8.9. Assignment................................................38
SECTION 8.10. Successors and Assigns...................................38
SECTION 8.11. Termination..............................................38
SECTION 8.12. Subsidiaries.............................................39
SECTION 8.13. Third Party Beneficiaries................................39
SECTION 8.14. Title and Headings.......................................39
SECTION 8.15. Exhibits and Schedules...................................39
SECTION 8.16. GOVERNING LAW............................................39
SECTION 8.17. Consent to Jurisdiction..................................39
SECTION 8.18. Severability.............................................40
ii
<PAGE>
Exhibits
Exhibit 2.1(m) Undertaking of IMS Health Incorporated
iii
<PAGE>
Schedules to Distribution Agreement
Schedules
1.1(m) Conveyance and assumption instruments
1.1(au)(i) Certain Business Entities and Subsidiaries to be included in the
NMR Group
1.1(au)(ii) Pre-Distribution reorganization transactions to transfer assets
to the Corporation or the NMR Group
1.1(au)(x) Certain assets not to be included as NMR Assets
1.1(au)(y) Certain Business Entities or businesses holding assets from
divested, terminated or former businesses which are to be
included as NMR Assets
1.1(av) Combined balance sheet of the NMR Group as of March 31, 1998
1.1(ax)(i) Certain contracts to be included as NMR Contracts
1.1(ax)(ii) Certain contracts in the name of the Corporation or NMR to be
included as IMS HEALTH Contracts
1.1(ax)(iv) Certain federal, state and local government contracts to be
included as NMR Contracts
1.1(ax)(v) Capital or operating lease obligations to be included as NMR
Contracts
1.1(ba)(i) Certain liabilities to be included as NMR Liabilities
1.1(ba)(x) Certain liabilities not to be included as NMR Liabilities
1.1(ba)(y) Certain Business Entities or businesses holding liabilities from
divested, terminated or former businesses which are to be
included as NMR Liabilities
2.1(i) Liabilities from 1996 Distribution to be included as NMR
Liabilities
2.1(j)(i) Allocation of Liabilities for certain prior business transactions
2.3 Cash Balances
2.8(a) Guarantees of IMS HEALTH Liabilities from which NMR Group
members are to be removed
2.8(b) Guarantees of NMR Liabilities from which IMS HEALTH Group
members are to be removed
4.7(b) Pre-existing agreements between the parties which continue
after the Distribution
iv
<PAGE>
Exhibit 2.1(m)
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
June 29, 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>
Schedule 2.1(j)(i)
Allocation of Liabilities Relating to Certain Prior Business Transactions
1. Any and all Liabilities of Cognizant for any audit adjustments to Taxes
arising out of the transactions and related agreements known as (a) Nieuw
Willemstad Partnership or Oud Philipsburg Partnership, involving A.C. Nielsen
Company and The Dun & Bradstreet Corporation; (b) Duns Licensing Associates,
L.P., involving Dun & Bradstreet, Inc. and IMS America, Ltd.; and (c) D&B
Investors, L.P., involving Reuben H. Donnelley Corporation, IMS America, Ltd.
and Dun & Bradstreet, Inc. shall be allocated as follows: (x) IMS HEALTH shall
be liable for and shall pay all such Taxes allocated to Cognizant pursuant to
Section 2.1(j)(ii) of the 1996 Distribution Agreement until such Taxes, in the
aggregate, equal one hundred and thirty million dollars; and (y) IMS HEALTH and
the Corporation shall each be liable for and shall pay one-half of any such
Taxes allocated to Cognizant pursuant to Section 2.1(j)(ii) of the 1996
Distribution Agreement in excess of one hundred and thirty million dollars;
provided, that the Corporation's aggregate liability for Taxes pursuant to this
paragraph and for amounts described in Section 2.1(j)(ii) of the Distribution
Agreement shall not exceed one hundred and twenty-five million dollars;
provided, further, that prior to January 1, 2001, IMS HEALTH shall make any and
all payments for all of the Taxes referred to in clause (y) above, with the
Corporation reimbursing IMS HEALTH for its proportionate share thereof on the
first business day after such date.
2. The liability for any audit adjustments to Taxes arising out of the
transactions and related agreements known as Dun & Bradstreet Computer Leasing,
Inc. and Fillupar Leasing Partnership shall be allocated solely to IMS HEALTH.
3. To the extent that the allocation of liability for Taxes in this
Schedule 2.1(j) results in the sharing of liability for Taxes between IMS HEALTH
and the Corporation, Section 5.1 of the Tax Allocation Agreement, governing Tax
Audits and Controversies, shall be applied as though IMS HEALTH alone were
liable for all such Taxes and the Corporation were not liable for such Taxes;
provided, however, that IMS HEALTH shall not enter into any final settlement or
closing agreement without the consent of the Corporation, which consent may not
be unreasonably withheld. Where consent to any final settlement or closing
agreement is withheld, the Corporation shall continue or initiate further
proceedings, at its own expense, and the liability of IMS HEALTH shall be
limited to the liability that would have resulted for IMS HEALTH from the
proposed closing agreement or final settlement (including interest, additions to
tax and penalties which have accrued at that time).
Exhibit 10.2
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT is dated as of June 30, 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
<PAGE>
2
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 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 DEFINITIONS
SECTION 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:
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder, including any successor
legislation.
"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.
"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.
"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).
"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.
"Deferred Compensation Deduction" shall mean any deduction with respect to
(i) compensation payments made by any member of the IMS HEALTH Group or the NMR
Group,
<PAGE>
3
as the case may be, if such deduction is disallowed for any member of the
payor's group and may be claimed by any member of the other group and/or (ii)
the exercise of stock options in IMS HEALTH or the Corporation, as the case may
be, by any former employee of the Pre-Distribution Cognizant Group if such
deduction is disallowed for any member of the IMS HEALTH Group or the NMR Group,
as the case may be, and may be claimed by any member of the other group.
"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.
"Distribution Agreement" shall mean the distribution agreement, dated as of
June 30, 1998, between the Corporation and IMS HEALTH.
"Distribution Date" shall mean June 30, 1998.
"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: a final and unappealable decision, judgment, decree or other
order by any court of competent jurisdiction; 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; 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 any
other final disposition, including by reason of the expiration of the applicable
statute of limitations.
"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.
"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.
"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
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4
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.
"IMS HEALTH Group" shall mean IMS HEALTH and each Business Entity (other
than any member of the NMR Group) that is a Subsidiary of the Corporation
immediately prior to the Effective Time.
"Included Party" shall have the meaning as defined in Section 2.3.
"Income Tax Return" shall mean any Tax Return relating to Income Taxes.
"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.
"Indemnifying Party" shall have the meaning as defined in Section 3.5(c).
"Indemnitee" shall have the meaning as defined in Section 3.5(c).
"IRS" shall mean the Internal Revenue Service.
"NMR" shall mean Nielsen Media Research, Inc., a Delaware corporation.
"NMR Assets" shall have the same meaning as such term has in the
Distribution Agreement.
"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.
"NMR Group" shall mean NMR, each Business Entity which is contemplated to
remain or become a
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5
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.
"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.
"Nonperforming Party" shall have the meaning as defined in Section 5.2.
"Other Taxes" shall mean all Taxes other than Taxes covered by a
Consolidated Return, a Combined Return, a Non-Combined Return or a Franchise Tax
Return.
"Parties" shall have the meaning as defined in the recitals hereto.
"Person" shall mean any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Post-Distribution Expense Deduction" shall mean any deduction with respect
to an expense or indemnity paid by a member of the IMS HEALTH Group or the NMR
Group after the Distribution Date if such deduction is disallowed or not
allowable for any member of the payor's group and may be claimed by any member
of the other group.
"Pre-Distribution Cognizant Group" shall mean the Corporation and all of
its Subsidiaries (direct and indirect, domestic and foreign) prior to the
Distribution.
"Preparing Party" shall have the meaning as defined in Section 2.3.
"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.
"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.
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6
"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.
"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.
"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.
"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.
"Tax Matters Partner" shall mean the tax matters partner as defined in
section 6231(a)(7) of the Code.
"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 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
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7
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 PREPARATION AND FILING OF TAX RETURNS
SECTION Predistribution Tax Returns.
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.
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 Post-Distribution Tax Returns.
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.
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 Manner of Preparation.
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.
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8
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 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.
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
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9
the Pre-Distribution Cognizant Group and any group of such members shall be
treated as ending on the Distribution Date.
ARTICLE PAYMENT OF TAXES
SECTION Predistribution Taxes
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.
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 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.
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:
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10
(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
corporate office.
The Corporation shall be liable for all Other Taxes that are attributable
to the NMR Business and IMS HEALTH shall be liable for all Other Taxes that are
attributable to the IMS HEALTH Business.
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.
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.
Notwithstanding any statement herein to the contrary, any Taxes covered by
Section 2.1(j)(i) of the
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11
Distribution Agreement shall be governed by Schedule 2.1(j)(i) to the
Distribution Agreement.
SECTION Post-Distribution Taxes. Unless otherwise provided in this
Agreement:
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.
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 Restructuring Taxes.
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.
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 Gain Recognition Agreements. IMS HEALTH shall assume all of the
Corporation's responsibilities with respect to gain recognition agreements
pursuant to the D&B Tax Allocation Agreement.
SECTION Indemnification.
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.
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12
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.
Indemnity Payments.
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 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.
All indemnity payments shall be calculated on a pre-Tax basis and shall be
treated as contributions to capital and/or reductions of assets previously
contributed and/or dividends immediately prior to the Distribution.
ARTICLE TAX ATTRIBUTES AND REORGANIZATION TAX PAYMENTS
SECTION 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 Reorganization Tax Payments, Deferred Compensation Deductions and
Post-Distribution Expense Deductions.
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13
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 is made by
IMS HEALTH, then:
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;
The Corporation shall pay IMS HEALTH the amount of any Tax Benefit that
relates to any adjustments arising from or connected with such Reorganization
Tax Payment or that results from such Deferred Compensation Deduction or
Post-Distribution Expense Deduction within 30 days of the date such Tax Benefits
are realized;
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 unless IMS HEALTH agrees to indemnify the
Corporation for such penalty.
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14
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
IMS HEALTH Group or any member thereof, then:
If necessary, the Corporation shall notify IMS HEALTH and shall provide IMS
HEALTH 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;
IMS HEALTH shall pay the Corporation the amount of any Tax Benefit that
results from such Deferred Compensation Deduction or Post-Distribution Expense
Deduction within 30 days of the date such Tax Benefits are realized;
Notwithstanding the foregoing, IMS HEALTH shall only be required to take
steps to obtain such Tax Benefit or to pay the Corporation if, in the opinion of
IMS HEALTH's Tax counsel, which counsel shall be reasonably acceptable to the
Corporation, the reporting of such Tax Benefit shall not subject IMS HEALTH to
the imposition of a penalty unless the Corporation agrees to indemnify IMS
HEALTH for such penalty.
Realization of Tax Benefits.
For purposes of this Section 4.2, 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 a Party 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.
Either Party may, at its election, pay the amount of any Tax Benefit to the
other Party rather than filing amended returns or otherwise reflecting
adjustments or taking positions on its Tax Returns. If such an election is made,
the Party 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.
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15
Tax Benefits Subsequently Denied. If any Tax Benefit realized pursuant to
Section 4.2(b)(i) is subsequently denied, then IMS HEALTH or the Corporation, as
the case may be, shall refund the amount of any payment for such Tax Benefit
within 30 days of its notification by the other Party that a Final Determination
has been reached denying the claimed Tax Benefit.
SECTION 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: 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 cooperate
with the other Party and the competent authorities in seeking such relief.
ARTICLE TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
SECTION 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 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).
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16
SECTION 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 Retention of Records; Access. Beginning on the Distribution Date,
the Corporation and IMS HEALTH shall, and shall cause each of their Controlled
Entities to:
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
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.
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17
SECTION 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 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 MISCELLANEOUS
SECTION 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 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 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.
A. SECTION 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.
SECTION 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>
18
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 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 Amendments. This Agreement may not be modified or amended except by
an agreement in writing signed by each of the Parties hereto.
SECTION 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 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 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 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 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
<PAGE>
19
contemplated to be a Controlled Entity of such Party on and after the
Distribution Date.
SECTION 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. B. SECTION 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 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 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 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 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.
<PAGE>
20
SECTION 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>
21
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: /s/ Robert E. Weissman
------------------------------
Name: Robert E. Weissman
Title: Chairman and Chief Executive Officer
IMS HEALTH INCORPORATED
By:/s/ Victoria R. Fash
------------------------------
Name: Victoria R. Fash
Title: President and Chief Operating Officer
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
<PAGE>
2
contemplated by this Agreement and the Distribution Agreement, including,
without limitation, the Conveyancing and Assumption Instruments, 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.
<PAGE>
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 any of its 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 Nonqualified Plan Participants" shall have the meaning set
forth in Section 4.1.
"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
<PAGE>
4
employment from the Corporation Group prior to the Effective Time or, with
respect to Corporate Staff Employees, terminated 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; but shall not include any person on Schedule 1.1.
"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 prior to the Effective Time.
"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.
"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 30, 1998.
"Distribution Date" shall mean June 30, 1998.
<PAGE>
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
<PAGE>
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 Nonqualified Plan Participants" shall have the meaning set
forth in 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.
<PAGE>
7
"IMS Health Replacement Plans" shall mean the replacement plans to be
adopted by IMS Health pursuant to Section 6.1(b) of this Agreement.
"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; and shall include any person
on Schedule 1.1.
"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.
<PAGE>
8
"IMS Health Transferred Savings Plan Employees" shall have the meaning set
forth in Section 3.2(a) of this Agreement.
"IMS Health Transitional Employees" shall mean Corporate Staff Employees
who are under an agreement to remain employed by the Corporation after the
Effective Time for a fixed period of time either to perform services in
connection with the Distribution or to 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.
"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
<PAGE>
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 Amended and Restated
Transition Services Agreement among Corporation, IMS Health, ACNielsen, D&B and
R.H. Donnelley Corporation.
"Walsh" shall mean Walsh International Inc., a Delaware corporation.
"Walsh Optionees" shall mean individuals whose options to purchase the
common stock of Walsh were converted into options to purchase Corporation Common
Stock (other than those individuals who are IMS Health Employees).
<PAGE>
10
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.
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, 90% 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 10% 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
<PAGE>
11
proportions as such assets were invested immediately prior to the Effective
Time, which are set forth in Schedule 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 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.
<PAGE>
12
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 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. If the account balances
of the IMS Health Transferred Savings Plan that are transferred on the IMS
Health Savings Plan Transfer Date are thereafter determined to have been
incorrect,
<PAGE>
13
the parties agree to make appropriate payments or asset transfers to correct
such error (appropriately adjusted for subsequent investment experience and
expenses incurred).
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 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.
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14
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 ("Corporation Nonqualified Plan
Participants").
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 prior to the
Effective Time ("IMS Health Nonqualified Plan Participants") 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.
SECTION 4.4. Third-Party Beneficiaries. It is the intention of the parties
to this Agreement that the provisions of Section 4.3 shall be enforceable by (a)
Corporation and IMS Health Nonqualified Plan Participants and (b) their
respective surviving beneficiaries.
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15
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 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. All unused funds remaining in the flexible
spending accounts of IMS Health Employees after April 30, 1999 shall be paid to
IMS Health.
SECTION 5.5. Allocation of Liabilities. (a) The IMS Health Group shall
retain responsibility for and continue to pay all claims relating to the
Corporation self-insured Medical and
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16
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, IMS Health Transitional
Employees and IMS Health Retirees as well as their covered dependents. Any
claims 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, IMS Health
Transitional Employees 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 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
<PAGE>
17
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 which is estimated to be approximately $2.5 million as of June 30,
1998 will be allocated 61.9% to the Corporation Group and 38.1% to IMS Health.
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.
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 6.1
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.
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18
(b) IMS Health Employees; IMS Health Transitional Employees; IMS Health
Disabled Employees; and Walsh Optionees. As of the Effective Time, (i) each
unexercised Corporation Stock Option held by IMS Health Employees, IMS Health
Transitional Employees, IMS Health Disabled Employees and Walsh Optionees shall
be cancelled except as provided in Schedule 6.1 and (ii) such individuals shall
except as provided in Schedule 6.1 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 shares 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
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 may
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
<PAGE>
19
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.
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 Schedule 7.1,
Corporation and IMS Health shall continue to sponsor and retain liability for
any Employee Benefits Plans maintained outside the United States with respect to
their respective employees.
ARTICLE VIII
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20
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 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
(and related benefits) Liabilities of Corporate Staff Employees retained by
Corporation Group pursuant to Section 5.3(a) hereof as well as the unfunded
amounts payable by Corporation to Corporation Retirees hereunder who were
Corporate Staff Employees (including the actuarially determined value of
payments under non-qualified plans pursuant to Section 4.1 hereof and the value
of 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, (i) without giving effect to any present-value
calculation and (ii) with respect to severance (and related benefits)
liabilities, net of tax benefits calculated at a 40% rate. 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
<PAGE>
21
be made between the parties to eliminate any such excess or deficit no later
than December 31, 1998.
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 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.
<PAGE>
22
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.
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.
<PAGE>
23
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, as well as all administrative costs, fees or
expenses relating to any Employee Benefit Plan, shall be charged to and paid by
Corporation, provided that, if such expenses are not paid by Corporation prior
to the Effective Time, they shall be charged to and paid by IMS Health. Except
as otherwise set forth in this Agreement, the Distribution Agreement or any
Ancillary Agreement, all such costs, fees 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
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:
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24
To Nielsen Media Research, Inc.:
299 Park Avenue
New York, NY 10171
Telecopy: (212) 708-6927
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 4.4 and Article XI hereof) may be terminated and may be amended,
modified or 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 4.4 and Article XI 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
<PAGE>
25
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 4.4
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.
<PAGE>
26
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 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.
<PAGE>
27
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>
IN WITNESS WHEREOF, the parties have duly executed and entered into this
Agreement, as of the date first above written.
COGNIZANT CORPORATION
by
/s/ Robert E. Weissman
---------------------------------
Name: Robert E. Weissman
Title: Chairman and Chief Executive Officer
IMS HEALTH INCORPORATED
by
/s/ Victoria R. Fash
---------------------------------
Name: Victoria R. Fash
Title: Chief Operating Officer
<PAGE>
Schedule 1.1 to Employee Benefits Agreement
IMS HEALTH Retirees
- - -------------------
Tom Crawford
<PAGE>
Schedule 2.2 to Employee Benefits Agreement
<TABLE>
<CAPTION>
Target % of
Investment Manager Fund Name Portfolio (1)
- - ------------------ --------- -------------
<S> <C> <C>
Barclays Global Investors US Debt Index Fund 34.5%
Barclays Global Investors US Equity Index Fund 27.5%
J.P. Morgan Investment Management Research Optimized Equity Fund 27.5%
Wellington Trust Company, N.A. International Research Equity Fund 10.0%
Bank of New York Cash/Collective Trust Fund 0.5%
Short Term Investment Fund
</TABLE>
- - ----------
(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>
Schedule 6.1 to Employee Benefits Agreement
William G. Jacobi:
- - ------------------
The following Corporation Stock Options of Mr. Jacobi shall remain outstanding
(and be adjusted as provided for in this Agreement), with the balance of his
options to be converted to IMS Health Options:
Purchased Options (vest 11/15/02) 20,834
Regular Options (vest 11/15/02) 45,834
Regular Options (vest 11/15/01) 33,332
-------
100,000
James R. Peterson:
- - ------------------
Directors' Options 2,000 Corporation
5,000 IMS HEALTH
M. Bernard Puckett:
- - -------------------
The Directors' options held by Mr. Puckett shall be cancelled and replaced with
IMS HEALTH options and Corporation options in proportion to the relative value
of a share of IMS HEALTH Common Stock and Corporation Common Stock immediately
after the Distribution, based on the average of the high and low trading prices
of each such share for the five trading days starting on the first IMS Health
"regular-way" and Corporation "ex-dividend" trading dates.
<PAGE>
Schedule 7.1 to Employee Benefits Agreement
1 Corporation shall, as soon as practicable after the Effective Time,
transfer the Corporation multinational insurance pooling arrangement to IMS
Health, which shall be entitled to all dividends payable thereon from and
after the Effective Time.
2 IMS Health shall continue to maintain Harry Holland and Richard James on
the IMS Health U.K. payroll, and, as promptly as practicable after the
Effective time, shall transfer (i) related pension assets for these
individuals to individual pension accounts to be established for them by
Corporation, based on national valuations to be prepared by Watson Wyatt,
and (ii) the lease contracts for the 2 automobiles used by said individuals
to Corporation. Corporation shall be responsible for, and shall reimburse
IMS Health U.K. for, all costs and expenses associated with the continued
employment of said individuals, including without limitation, salary,
benefits, pension, social security, taxes, insurance and automobile
expenses, and shall indemnify and hold harmless IMS Health and its
Affiliates from any and all liabilities relating to or arising out of the
employment of said individuals, except for those arising out of the gross
negligence or willful misconduct of IMS Health U.K.
Exhibit 10.4
AMENDED AND RESTATED
TRANSITION SERVICES AGREEMENT
This AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT dated as of June
30, 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.
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, each of the Corporation, Cognizant and ACNielsen desires to amend
and restate the 1996 Transition Services Agreement as set forth in this
Agreement and to include New D&B, IMS Health and Gartner as parties hereto; and
each of New D&B, IMS Health and Gartner desires to become a party to this
Agreement.
NOW, THEREFORE, in consideration of the agreements, covenants and
provisions in this Agreement and intending to be legally bound hereby, each of
the Corporation, New D&B, Cognizant, IMS Health, ACNielsen and Gartner mutually
covenant and agree as follows:
ARTICLE I
SERVICES PROVIDED
I.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
<PAGE>
2
to the Corporation, Cognizant and ACNielsen as of the date hereof (all such
services, collectively, the "Transition Services").
I.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.
I.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, Treasurer, for the Corporation, John Riley, Director
of Risk Management, for New D&B, Stuart Goldshein, Controller, for Cognizant,
Matthew Friedman, Assistant 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.
I.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 shall not be required to provide any 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 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
<PAGE>
3
provided by third parties shall be subject to the terms and conditions of any
agreements between the Provider 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.
I.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.
I.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, 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.
I.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
<PAGE>
4
(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.
I.8 No Obligation to Continue to Use Services. No Recipient shall have any
obligation to continue to use the Transition Services and may terminate the
Transition Services that the Provider is providing to such Recipient by giving
the Provider 180 days notice thereof.
I.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.
I.10 Performance Reviews. The Primary Coordinators for each Recipient shall
meet during the fourth quarter of each calendar 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 attention of the respective Chief Financial
Officers (or person holding an equivalent title) of the Provider and the
Recipients.
ARTICLE II
COMPENSATION
<PAGE>
5
II.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 fiscal 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 by May 1 of each year. 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.
II.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.
II.3 Payment of Invoices. (a) Payment of all invoices in respect of
Transition Services 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 relevant Recipient, with written confirmation
of payment sent by facsimile to the Primary Coordinator or other person
designated thereby.
<PAGE>
6
(b) If any payment is not paid when due, the Provider shall have the right,
without any liability to any Recipient of Transition Services, 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
III.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.
III.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.
ARTICLE IV
TERM AND TERMINATION
IV.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 as to
each party unless such party provides at least 180-days notice to the other
parties of its intention not to renew; provided that this Agreement may be
terminated at such other times as are set forth in Sections 1.6, 1.8 and 4.3.
IV.2 Reserved.
<PAGE>
7
IV.3 Default. 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.
IV.4 Termination of Obligations. Each Recipient specifically agrees and
acknowledges that all obligations of the Provider to provide the Transition
Services shall immediately cease, with respect to such Recipient, upon the
termination of this Agreement as to such Recipient. Upon the cessation of the
Provider's obligation to provide any Transition Service to a Recipient, such
Recipient shall immediately cease using, directly or indirectly, the Transition
Services (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).
IV.5 Survival of Certain Obligations. Without prejudice to the survival of
the other agreements of the parties, Sections 1.5, 2.1 (with respect to services
provided prior to the effective time of the termination), 3.1, 3.2, 4.4, 4.5,
5.1, 6.10, 6.13 and 6.14 shall survive any termination of this Agreement.
ARTICLE V
DISPUTE RESOLUTION
V.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 1996 Distribution Agreement, with each
of the parties hereto being deemed a party to that agreement for this purpose.
<PAGE>
8
ARTICLE VI
MISCELLANEOUS
VI.1 Complete Agreement; Construction. This 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.
VI.2 Other Agreements. This Agreement is not intended to address, and
should not be interpreted to address, the matters specifically and expressly
covered by other agreements between or among the parties.
VI.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 has been signed by
each of the parties and delivered to the other parties.
VI.4 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:
R.H. Donnelley Corporation
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn: Treasurer
With a copy to:
R.H. Donnelley Corporation
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn: General Counsel
<PAGE>
To New D&B:
The Dun & Bradstreet Corporation
220 East 42 Street
New York, New York 10017
Telecopy: (212) 883-3403
Attn: Director of Risk Management
With a copy to:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy: (908) 665-5803
Attn: Chief Legal Counsel
To Cognizant:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: (212) 708-7504
Attn: Controller
With a copy to:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: 212-708-6927
Attn: Chief Legal Officer
To IMS Health:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: Treasurer
<PAGE>
10
With a copy to:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: General Counsel
To ACNielsen:
ACNielsen Corporation
177 Broad Street
Stamford, Connecticut 06901
Telecopy: (203) 961-3177
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: (203) 316-6525
Attn: Andrea Tarbox
With a copy to:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, Connecticut 06904
Telecopy: (203) 316-6525
Attn: General Counsel
<PAGE>
11
VI.5 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.
VI.6 Amendments. This Agreement may not be modified or amended except by an
agreement in writing signed by each of the parties hereto.
VI.7 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 6.7 shall be void.
VI.8 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.
VI.9 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.
VI.10 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.
VI.11 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.
VI.12 Reserved.
VI.13 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.
VI.14 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
<PAGE>
12
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 6.14. 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.
VI.15 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.
VI.16 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.
VI.17 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.
VI.18 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>
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: /s/ Frank R. Noonan
-----------------------------------
Name: Frank R. Noonan
Title: Senior Vice President
THE NEW DUN & BRADSTREET CORPORATION
By: /s/ Volney Taylor
-----------------------------------
Name: Volney Taylor
Title: Chairman and Chief Executive Officer
COGNIZANT CORPORATION
By: /s/ Kenneth Siegel
-----------------------------------
Name: Kenneth Siegel
Title: Senior Vice President, General Counsel
and Secretary
IMS HEALTH INCORPORATED
By: /s/ Kenneth Siegel
-----------------------------------
Name: Kenneth Siegel
Title: Senior Vice President, General Counsel
and Secretary
<PAGE>
ACNIELSEN CORPORATION
By: /s/ John A. Forster
-----------------------------------
Name: John A. Forster
Title: Vice President and Treasurer
GARTNER GROUP, INC.
By: /s/ George C. Roy, Jr.
-----------------------------------
Name: George C. Roy, Jr.
Title: Senior Vice President - Finance
Exhibit 10.5
1998 IMS HEALTH INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to aid the Company in attracting, retaining and
compensating non-employee directors and to enable them to increase their
ownership of Shares. The Plan will be beneficial to the Company and its
stockholders since it will allow non-employee directors of the Board to have a
greater personal financial stake in the Company through the ownership of Shares,
in addition to underscoring their common interest with stockholders in
increasing the value of the Shares on a long-term basis.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Award: An Option or Share of Restricted Stock granted pursuant to the
Plan.
(c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
(e) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a
director nominated by a Person who has
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entered into an agreement with the Company to effect a transaction
described in Sections 2(e)(i), (iii) or (iv) of the Plan, (B) a director
nominated by any Person (including the Company) who publicly announces an
intention to take or to consider taking actions (including, but not limited
to, an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any Person
who is the Beneficial Owner, directly or indirectly, of securities of the
Company representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for
election by the Company's stockholders was approved in advance by a vote of
at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A) which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation and (B) after which no Person holds 20%
or more of the combined voting power of the then-outstanding securities of
the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Cognizant: Cognizant Corporation, a Delaware corporation.
(h) Committee: The Compensation and Benefits Committee of the Board.
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(i) Company: IMS Health Incorporated, a Delaware corporation.
(j) Disability: Inability to continue to serve as a non-employee director
of the Board due to a medically determinable physical or mental impairment which
constitutes a permanent and total disability, as determined by the Committee
(excluding any member thereof whose own Disability is at issue in a given case)
based upon such evidence as it deems necessary and appropriate. A Participant
shall not be considered disabled unless he or she furnishes such medical or
other evidence of the existence of the Disability as the Committee, in its sole
discretion, may require.
(k) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 13 of the Plan.
(l) Fair Market Value: On a given date, the arithmetic mean of the high and
low prices of the Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are listed or
admitted to trading, or, if no Composite Tape exists for such national
securities exchange on such date, then on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if the
Shares are not listed or admitted on a national securities exchange, the
arithmetic mean of the per Share closing bid price and per Share closing asked
price on such date as quoted on the National Association of Securities Dealers
Automated Quotation System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are regularly quoted, the
Fair Market Value shall be the value established by the Committee in good faith.
If no sale of Shares shall have been reported on such Composite Tape or such
national securities exchange on such date or quoted on the National Association
of Securities Dealers Automated Quotation System on such date, then the
immediately preceding date on which sales of the Shares have been so reported or
quoted shall be used.
(m) Option: A stock option granted pursuant to Section 6 of the Plan.
(n) Option Price: The purchase price per Share of an Option, as determined
pursuant to Section 6(b) of the Plan.
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(o) Participant: Any director of the Company who is not an employee of the
Company or any Subsidiary of the Company as of the date that an Award is
granted.
(p) Person: As such term is used for purposes of Section 13(d) or 14(d) of
the Act (or any successor section thereto).
(q) Plan: The 1998 IMS Health Incorporated Non-Employee Directors' Stock
Incentive Plan.
(r) Restricted Stock: A Share of restricted stock granted pursuant to
Section 7 of the Plan.
(s) Retirement: Termination of service with the Company after such
Participant has attained age 70, regardless of the length of such Participant's
service; or, with the prior written consent of the Committee (excluding any
member thereof whose own Retirement is at issue in a given case), termination of
service at an earlier age after the Participant has completed six or more years
of service with the Company.
(t) Shares: Shares of common stock, par value $0.01 per share, of the
Company.
(u) Spinoff Date: The date on which the Shares that are owned by Cognizant
are distributed to the holders of record of shares of Cognizant.
(v) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. Shares Subject to the Plan
The total number of Shares which may be issued under the Plan is 80,000.
The Shares may consist, in whole or in part, of unissued Shares or treasury
Shares. The issuance of Awards or the payment of cash upon exercise of an Award
shall reduce the total number of Shares available under the Plan, as applicable.
Shares which are subject to Awards which terminate or lapse may be granted again
under the Plan.
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any
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subcommittee thereof consisting solely of at least two "non-employee directors"
within the meaning of Rule 16b-3 under the Act (or any successor rule thereto).
The Committee is authorized to interpret the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, Participants
and their beneficiaries or successors).
5. Eligibility
All Participants shall be eligible to participate under this Plan.
6. Terms and Conditions of Options
Options granted under the Plan shall be non-qualified stock options for
federal income tax purposes, as evidenced by the related Option agreements, and
shall be subject to the foregoing and the following terms and conditions and to
such other terms and conditions, not inconsistent therewith, as the Committee
shall determine:
(a) Grants. A Participant may receive, on such dates as determined by the
Committee in its sole discretion, grants consisting of such number of Options as
determined by the Committee in its sole discretion.
(b) Option Price. The Option Price per Share shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of the
Shares on the date an Option is granted.
(c) Exercisability. Options granted under the Plan shall be exercisable at
such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
after the date it is granted.
(d) Exercise of Options. Except as otherwise provided in the Plan or in a
related Option agreement, an Option may be exercised for all, or from time to
time any part, of the Shares for which it is then exercisable. For purposes of
Section 6 of the Plan, the exercise date of an Option shall be the later of
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the date a notice of exercise is received by the Company and, if applicable, (A)
the date payment is received by the Company pursuant to clauses (i), (ii) or
(iii) in the following sentence or (B) the date of sale by a broker of all or a
portion of the Shares being purchased pursuant to clause (iv) in the following
sentence. The purchase price for the Shares as to which an Option is exercised
shall be paid to the Company in full at the time of exercise at the election of
the Participant (i) in cash, (ii) in Shares having a Fair Market Value equal to
the aggregate Option Price for the Shares being purchased and satisfying such
other requirements as may be imposed by the Committee, (iii) partly in cash and
partly in such Shares, or (iv) through the delivery of irrevocable instructions
to a broker to deliver promptly to the Company an amount equal to the aggregate
Option Price for the Shares being purchased. No Participant shall have any
rights to dividends or other rights of a stockholder with respect to Shares
subject to an Option until the Participant has given written notice of exercise
of the Option, paid in full for such Shares and, if applicable, has satisfied
any other conditions imposed by the Committee pursuant to the Plan.
(e) Exercisability Upon Termination of Service by Death. If a Participant's
service with the Company and its Subsidiaries terminates by reason of death
after the date of grant of an Option, (i) the unexercised portion of such Option
shall immediately vest in full and (ii) such portion may thereafter be exercised
during the shorter of (A) the remaining stated term of the Option or (B) five
years after the date of death.
(f) Exercisability Upon Termination of Service by Disability or Retirement.
If a Participant's service with the Company and its Subsidiaries terminates by
reason of Disability or Retirement after the date of grant of an Option, (i) the
unexercised portion of such Option shall immediately vest in full and (ii) such
portion may thereafter be exercised during the shorter of (A) the remaining
stated term of the Option or (B) five years after the date of such termination
of service; provided, however, that if a Participant dies within a period of
five years after such termination of service, the unexercised portion of the
Option may thereafter be exercised, during the shorter of (i) the remaining
stated term of the Option or (ii) the period that is the longer of (A) five
years after the date of such termination of service or (B) one year after the
date of death.
(g) Effect of Other Termination of Service. If a Participant's service with
the Company and its Subsidiaries terminates for any reason other than death,
Disability or Retirement after the date of grant of an Option as described
above, the unexercised portion of an Option may thereafter be exercised during
the period ending ninety days after the date of such termination of service, but
only to the extent to which such
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Option was exercisable at the time of such termination of service.
7. Terms and Conditions of Restricted Stock
Restricted Stock granted under the Plan shall be subject to the foregoing
and the following terms and conditions and to such other terms and conditions,
not inconsistent therewith, as the Committee shall determine:
(a) Grants. A Participant may receive, on such dates as determined by the
Committee in its sole discretion, grants consisting of such amounts of
Restricted Stock as determined by the Committee in its sole discretion.
(b) Restrictions. Restricted Stock granted under the Plan may not be sold,
transferred, pledged, assigned or otherwise disposed of under any circumstances;
provided, however, that the foregoing restrictions shall elapse at such time and
upon such terms and conditions as may be specified by the Committee in the
related Award agreement(s).
(c) Acceleration. Notwithstanding anything in the Plan to the contrary, (i)
the restrictions set forth in Section 7(b) of the Plan shall automatically
elapse in the event that a Participant terminates service with the Company as a
result of death or Disability and (ii) the Committee (excluding any member
thereof whose own Award is at issue in a given case) may, in its sole
discretion, accelerate the elapsing of the restrictions set forth in Section
7(b) of the Plan in the event that a Participant terminates service with the
Company for any other reason. In the absence of such acceleration, all Shares of
Restricted Stock as to which restrictions have not previously elapsed pursuant
to Section 7(b) of the Plan shall be forfeited upon the termination of a
Participant's service with the Company for reasons other than death or
Disability.
8. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after
the Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares or other corporate exchange, or any distribution to stockholders of
Shares other than regular cash dividends, the Committee in its sole discretion
and without liability to any person may make such substitution or adjustment, if
any, as it
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deems to be equitable, as to (i) the number or kind of Shares or other
securities issued or reserved for issuance pursuant to the Plan or pursuant to
outstanding Awards, (ii) the Option Price and/or (iii) any other affected terms
of such Awards.
(b) Change in Control. In the event of a Change in Control, the Committee
in its sole discretion and without liability to any person may take such
actions, if any, as it deems necessary or desirable with respect to any Award
(including, without limitation, (i) the acceleration of an Award, (ii) the
payment of a cash amount in exchange for the cancellation of an Award and/or
(iii) the requiring of the issuance of substitute Awards that will substantially
preserve the value, rights and benefits of any affected Awards previously
granted hereunder) as of the date of the consummation of the Change in Control.
9. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
10. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of any
Participant under any Award theretofore granted without such Participant's
consent.
11. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution. During the
lifetime of a Participant, an Award shall be exercisable only by such
Participant. An Award exercisable after the death of a Participant may be
exercised by the legatees, personal representatives or distributees of the
Participant. Notwithstanding anything to the contrary herein, the Committee, in
its sole discretion, shall have the authority to waive this Section 11 (or any
part thereof) to the extent that this Section 11 (or any part thereof) is not
required under the rules promulgated under any law, rule or regulation
applicable to the Company.
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12. Choice of Law
The Plan 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.
13. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
Exhibit 10.6
1998 IMS HEALTH INCORPORATED
NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN
1. Purpose of the Plan
The purpose of the Plan is to enhance the Company's ability to attract and
retain talented individuals to serve as members of the Board and to promote a
greater alignment of interests between non-employee directors and the
shareholders of the Company.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) Annual Deferral Amount: As such term is defined in Section 5(a) of
the Plan.
(c) Award: A Deferred Share Unit or Deferred Cash granted pursuant to
the Plan.
(d) Beneficial Owner: As such term is defined in Rule 13d-3 under the
Act (or any successor rule thereto).
(e) Board: The Board of Directors of the Company.
(f) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company), becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who has
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entered into an agreement with the Company to effect a
transaction described in Sections 2(f)(i), (iii) or (iv) of the
Plan, (B) a director nominated by any Person (including the
Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual
or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any
Person who is the Beneficial Owner, directly or indirectly, of
securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election
by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 66 2/3%
of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation and (B) after which no Person holds
20% or more of the combined voting power of the then-outstanding
securities of the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(g) Code: The Internal Revenue Code of 1986, as amended, or any
successor thereto.
(h) Cognizant: Cognizant Corporation, a Delaware corporation.
(i) Committee: The Compensation and Benefits Committee of the Board.
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(j) Company: IMS Health Incorporated, a Delaware corporation.
(k) Deferred Cash: A bookkeeping entry credited in accordance with an
election made by a Participant pursuant to Section 5 of the Plan.
(l) Deferred Share Unit: A bookkeeping entry, equivalent in value to
one Share, credited in accordance with an election made by a Participant
pursuant to Section 5 of the Plan.
(m) Determination Date: As such term is defined in Section 6 of the
Plan.
(n) Effective Date: The date on which the Plan takes effect, as
defined pursuant to Section 13 of the Plan.
(o) Election Date: The date on which a Participant files an election
with the Secretary of the Company pursuant to Section 5 of the Plan.
(p) Fair Market Value: On a given date, the arithmetic mean of the
high and low prices of the Shares as reported on such date on the Composite
Tape of the principal national securities exchange on which such Shares are
listed or admitted to trading, or, if no Composite Tape exists for such
national securities exchange on such date, then on the principal national
securities exchange on which such Shares are listed or admitted to trading,
or, if the Shares are not listed or admitted on a national securities
exchange, the arithmetic mean of the per Share closing bid price and per
Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or such
market in which such prices are regularly quoted), or, if there is no
market on which the Shares are regularly quoted, the Fair Market Value
shall be the value established by the Committee in good faith. If no sale
of Shares shall have been reported on such Composite Tape or such national
securities exchange on such date or quoted on the National Association of
Securities Dealers Automated Quotation System on such date, then the
immediately preceding date on which sales of the Shares have been so
reported or quoted shall be used.
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(q) First Trading Date: The first date on which the Shares are traded
regular way on the principal national securities exchange on which such
Shares are listed or admitted to trading.
(r) Participant: Any director of the Company who is not an employee of
the Company or any Subsidiary of the Company (i) as of any Election Date
and (ii) during any years of service covered by the election made on such
Election Date.
(s) Person: As such term is used for purposes of Section 13(d) or
14(d) of the Act (or any successor section thereto).
(t) Plan: The 1998 IMS Health Incorporated Non-Employee Directors'
Deferred Compensation Plan.
(u) Prime Rate: The rate of interest per annum publicly announced from
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; provided that each change in the Prime
Rate shall be effective from and including the date such change is publicly
announced as being effective.
(v) Shares: Shares of common stock, par value $0.01 per Share, of the
Company.
(w) Spinoff Date: The date on which the Shares that are owned by
Cognizant are distributed to the holders of record of shares of Cognizant.
(x) Subsidiary: A subsidiary corporation, as defined in Section 424(f)
of the Code (or any successor section thereto).
3. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two "non-employee directors" within the meaning of Rule 16b-3
under the Act (or any successor rule thereto). The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable.
Any decision of the Committee in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final,
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conclusive and binding on all parties concerned (including, but not limited to,
Participants and their beneficiaries or successors).
4. Eligibility
All Participants shall be eligible to participate under this Plan.
5. Voluntary Deferral of Cash Compensation
A Participant may voluntarily elect to defer his or her cash compensation
(including, but not limited to, annual retainer, board meeting fees, committee
meeting fees and committee chairman fees) in the following manner:
(a) Method of Election. In order to make a voluntary election pursuant
to the Plan, the Participant must complete and deliver to the Secretary of
the Company a written election, not later than 30 days after the date on
which he or she commences service as a director of the Company (or, in
subsequent years, not later than the anniversary of the normal commencement
date for such director's term), designating (i) the portion of his or her
cash compensation for a year of service as a director that is to be
deferred (the "Annual Deferral Amount") and (ii) the portion of the Annual
Deferral Amount that is to be deferred into (A) Deferred Share Units and/or
(B) Deferred Cash. Such an election shall only be effective with respect to
(i) the annual retainer and (ii) any other fees earned after the date of
the election. Such election shall remain effective for all future years of
service unless the Participant makes a new election in a subsequent year.
(b) Deferred Share Units. If a Participant elects to defer his or her
Annual Deferral Amount into Deferred Share Units, such Participant will
have Deferred Share Units credited (as of each date on which his or her
cash compensation would otherwise have been paid) to a Deferred Share Unit
account maintained for him or her on the books of the Company. The number
of Deferred Share Units (including fractional Deferred Share Units) to be
credited shall be determined by dividing (i) the amount of cash
compensation to be deferred into Deferred Share Units by (ii) the Fair
Market Value of one Share on the date credited. Deferred Share Units shall
be credited with dividend equivalents when dividends are paid on Shares,
and such dividend equivalents shall be converted into additional Deferred
Share Units based on the Fair Market Value of Shares on the date credited.
Notwithstanding anything to the contrary in this Section 5(b), the Fair
Market Value of one Share on any date prior to the First Trading Date shall
be the Fair Market Value of one Share on the First Trading Date.
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(c) Deferred Cash. If a Participant makes a voluntary election to
defer his or her Annual Deferral Amount into Deferred Cash, such
Participant will have Deferred Cash credited (as of each date on which his
or her cash compensation would otherwise have been paid) to a Deferred Cash
account maintained for him or her on the books of the Company. The amount
of Deferred Cash to be credited shall equal the amount of cash compensation
to be deferred into Deferred Cash. A Participant's account shall be
credited with additional Deferred Cash equal to the amount of notional
interest earned on the account, assuming that such interest is earned at
the Prime Rate and compounded on an annual basis.
6. Termination of Board Service
No later than the first business day of the calendar year immediately
following the date on which a Participant terminates service with the Company
(the "Determination Date"), the Participant shall receive (a) a lump sum payment
in Shares equal in number to the Deferred Share Units credited to the
Participant's Deferred Share Unit account (provided, however, that any
fractional Shares shall be paid in cash based on the Fair Market Value of a
Share as of the Determination Date) and (b) a lump sum payment in cash equal to
the Deferred Cash credited to the Participant's Deferred Cash account.
7. Nontransferability of Units
Awards shall not be transferable or assignable by the Participant otherwise
than by will or by the laws of descent and distribution. During the lifetime of
a Participant, Awards shall be payable only to such Participant. Awards payable
after the death of a Participant may be paid to the legatees, personal
representatives or distributees of the Participant.
8. Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be unfunded.
To the extent any individual holds any rights by virtue of an Award granted
under the Plan, such rights (unless otherwise determined by the Committee) shall
be no greater than the rights of an unsecured general creditor of the Company.
9. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to Awards:
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(a) Generally. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination or exchange of Shares or other corporate exchange, or any
distribution to stockholders of Shares other than regular cash dividends,
the Committee in its sole discretion and without liability to any person
may make such substitution or adjustment, if any, as it deems to be
equitable, as to any Deferred Share Units granted under the Plan.
(b) Change in Control. In the event of a Change in Control, the
Committee in its sole discretion and without liability to any person may
take such actions, if any, as it deems necessary or desirable with respect
to any Awards (including, without limitation, (i) the acceleration of
Awards, (ii) the payment of a cash amount in exchange for the cancellation
of Awards and/or (iii) the requiring of the issuance of substitute Awards
that will substantially preserve the value, rights and benefits of any
affected Awards previously granted hereunder) as of the date of the
consummation of the Change in Control.
10. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
11. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of any
Participant under any Awards theretofore granted without such Participant's
consent.
12. Choice of Law
The Plan 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.
13. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
Exhibit 10.7
1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Subsidiaries in
securing and retaining employees of outstanding ability and to motivate such
employees to exert their best efforts on behalf of the Company and its
Subsidiaries by providing incentives through the granting of Awards. The Company
expects that it will benefit from the added interest which such employees will
have in the welfare of the Company as a result of their proprietary interest in
the Company's success.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Annual Limit: The limitation on the amount of certain Awards intended
to qualify as "performance-based compensation" that may be granted to a given
Participant each year.
(c) Award: An Option, Stock Appreciation Right or Other Stock-Based Award
granted pursuant to the Plan.
(d) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(e) Board: The Board of Directors of the Company.
(f) Change in Control: The occurrence of any of the following events after
effective date:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the
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beginning of such period constitute the Board, and any new director (other
than (A) a director nominated by a Person who has entered into an agreement
with the Company to effect a transaction described in Sections 2(f) (i),
(iii) or (iv) of the Plan, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a Change in
Control or (C) a director nominated by any Person who is the Beneficial
Owner, directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company's securities) whose
election by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A) which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation and (B) after which no Person holds 20%
or more of the combined voting power of the then-outstanding securities of
the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(v) the Board determines that a Change in Control shall be deemed to
have occurred for purposes of the Plan, provided that the Board may impose
limitations on the effects of a Change in Control on any Award or otherwise
if the Change in Control has occurred under this Section 2(f)(v) and not
under other subsections of this Section 2(f).
(g) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
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(h) Cognizant: Cognizant Corporation, a Delaware corporation.
(i) Committee: The Compensation and Benefits Committee of the Board.
(j) Company: IMS Health Incorporated, a Delaware corporation.
(k) Disability: Inability of a Participant to perform the services for the
Company and its Subsidiaries required by his or her employment with the Company
due to any medically determinable physical and/or mental incapacity or
disability which is permanent. The determination whether a Participant has
suffered a Disability shall be made by the Committee based upon such evidence as
it deems necessary and appropriate. A Participant shall not be considered
disabled unless he or she furnishes such medical or other evidence of the
existence of the Disability as the Committee, in its sole discretion, may
require.
(l) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 17 of the Plan.
(m) Fair Market Value: With respect to Shares, unless otherwise determined
by the Committee, on a given date, the arithmetic mean of the high and low
prices of the Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are listed or
admitted to trading, or, if no Composite Tape exists for such national
securities exchange on such date, then on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if the
Shares are not listed or admitted on a national securities exchange, the
arithmetic mean of the per Share closing bid price and per Share closing asked
price on such date as quoted on the Nasdaq System (or such market in which such
prices are regularly quoted), or, if there is no market on which the Shares are
regularly quoted, the Fair Market Value shall be the value established by the
Committee in good faith. If no sale of Shares shall have been reported on such
Composite Tape or such national securities exchange on such date or quoted on
the Nasdaq System on such date, then the immediately preceding date on which
sales of the Shares have been so reported or quoted shall be used.
(n) LSAR: A limited stock appreciation right granted pursuant to Section
8(d) of the Plan.
(o) Other Stock-Based Awards: Awards granted pursuant to Section 9 of the
Plan.
(p) Option: A stock option granted pursuant to Section 7 of the Plan.
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(q) Option Price: The purchase price per Share of an Option, as determined
pursuant to Section 7(a) of the Plan.
(r) Participant: An individual who is selected by the Committee to
participate in the Plan pursuant to Section 5 of the Plan.
(s) Performance-Based Awards: Certain Other Stock-Based Awards granted
pursuant to Section 9(b) of the Plan.
(t) Person: As such term is used for purposes of Section 13(d) or 14(d) of
the Act (or any successor section thereto).
(u) Plan: The 1998 IMS Health Incorporated Employees' Stock Incentive Plan.
(v) Retirement: Termination of employment with the Company or a Subsidiary
(i) after such Participant has attained age 65 or (ii), with the prior written
consent of the Committee that such termination be treated as a Retirement
hereunder, termination of employment under other circumstances.
(w) Shares: Shares of common stock, par value $0.01 per Share, of the
Company.
(x) Spinoff Date: The date on which the Shares that are owned by Cognizant
are distributed to the holders of record of shares of Cognizant.
(y) Stock Appreciation Right: A stock appreciation right granted pursuant
to Section 8 of the Plan.
(z) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. Shares Subject to the Plan
(a) Aggregate Share Limitations. Subject to adjustment as provided in
Section 10(a), the total number of Shares which may be issued and/or delivered
under the Plan is 13,000,000 plus the number of Shares reserved for awards under
the IMS Health Incorporated Replacement Plan for Certain Employees Holding
Cognizant Corporation Equity-Based Awards (the "Replacement Plan") that are not
in fact issued or delivered in connection with such awards. The Shares may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares. Shares subject to an Award under the Plan that is canceled, expired,
forfeited, settled in cash, or otherwise terminated without a delivery of Shares
to the Participant (or a Beneficiary), including the number of Shares withheld
or surrendered in payment of any exercise or purchase price of an Award or taxes
relating to an Award, will become available for Awards under the Plan, and
Shares shall be counted as issued or delivered under the Replacement Plan in a
manner consistent with the counting of Shares under this Section 3. In
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addition, in the case of any Award granted in substitution for awards of a
company or business acquired by the Company or a Subsidiary, Shares issued or
issuable in connection with such substitute Award shall not be counted against
the number of Shares reserved under the Plan, but shall be deemed to be
available under the Plan by virtue of the Company's assumption of the plan or
arrangement of the acquired company or business.
(b) Annual Per-Person Limitations. In each calendar year during any part of
which the Plan is in effect, a Participant may be granted Awards under each of
Section 7, Section 8, and Section 9(b) relating to up to the Participant's
Annual Limit (such Annual Limit to apply separately to each Section). A
Participant's Annual Limit, in any year during any part of which the Participant
is then eligible under the Plan, shall equal 1,000,000 shares plus the amount of
the Participant's unused Annual Limit as of the close of the previous year,
subject to adjustment as provided in Section 10(a).
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two individuals who are each "non-employee directors" within
the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and
"outside directors" within the meaning of Section 162(m) of the Code (or any
successor section thereto). The Committee is authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan in the manner and to the
extent the Committee deems necessary or desirable. Any decision of the Committee
in the interpretation and administration of the Plan, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, Participants
and their beneficiaries or successors). The Committee shall require payment of
any amount it may determine to be necessary to withhold for federal, state,
local or other taxes as a result of the exercise or settlement of an Award.
Unless the Committee specifies otherwise, the Participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in shares or (b) having
shares withheld by the Company from any shares that would have otherwise been
received by the Participant. The Committee may, in its discretion, grant Awards
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. If the chief executive officer of the Company is a
member of the Board, the Board by specific resolution may constitute such chief
executive officer as a committee of one which shall have the authority to grant
Awards of up to an aggregate of 50,000 Shares in each calendar year to each
Participant who is not subject to the rules promulgated under Section 16 of the
Act (or any successor section thereto); provided, however, that such chief
executive officer shall notify the Committee of any such grants made pursuant to
this Section 4.
5. Eligibility
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Employees (but not members of the Committee or any person who serves only
as a director) of the Company and its Subsidiaries are eligible to be granted
Awards. In addition, any person who has been offered employment by the Company
or a Subsidiary is eligible to be granted Awards, provided that no such person
may receive any payment or exercise any right relating to an Award until such
person has commenced such employment. Participants shall be selected from time
to time by the Committee, in its sole discretion, from among those eligible, and
the Committee shall determine, in its sole discretion, the number of Shares to
be covered by the Awards granted to each Participant.
6. Limitations
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
7. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee,
non-qualified, incentive or other stock options for federal income tax purposes,
as evidenced by the related Award agreements, and shall be subject to the
foregoing and the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of the
Shares on the date an Option is granted. The Committee may require the
participant to pay a portion of the Option Price at the time of grant of the
option, with the remainder of the Option Price payable upon exercise of the
Option. Such prepayment of the Option Price shall be non-refundable, unless
otherwise determined by the Committee
(b) Exercisability. Options granted under the Plan shall be exercisable at
such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or in an
Award agreement, an Option may be exercised for all, or from time to time any
part, of the Shares for which it is then exercisable. For purposes of Section 7
of the Plan, the exercise date of an Option shall be the later of the date a
notice of exercise is received by the Company and, if applicable, (A) the date
payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the
following sentence, or (B) the date of sale by a broker of all or a portion of
the Shares being purchased pursuant to clause (iv) in the following sentence.
Unless otherwise determined by the Committee, the Option Price for the Shares as
to which an Option is exercised shall be paid to the Company in full not later
than the time of exercise at the election of the Participant (i) in cash, (ii)
in Shares having a Fair Market Value equal to the aggregate unpaid Option Price
for the Shares being purchased and satisfying such other requirements as may be
imposed by the Committee, (iii) partly in cash and partly in such Shares, or
(iv) through the delivery of irrevocable instructions to a broker to deliver
promptly to the Company an amount equal to the aggregate Option Price for the
Shares being purchased. The Award
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agreement shall, unless otherwise provided by the Committee, permit the
Participant to elect, subject to such terms and conditions as the Committee
shall determine, to have the number of Shares deliverable to the Participant as
a result of the exercise reduced by a number sufficient to pay the amount the
Company determines to be necessary to withhold for federal, state, local or
other taxes as a result of the exercise of the Option. No Participant shall have
any rights to dividends or other rights of a stockholder with respect to Shares
subject to an Option until the Participant has given written notice of exercise
of the Option, paid in full for such Shares and, if applicable, has satisfied
any other conditions imposed by the Committee pursuant to the Plan.
(d) Restrictions on Shares Issued Upon Exercise; Other Conditions. If and
to the extent so determined by the Committee, Shares issued upon exercise of an
Option may be subject to limitations on transferability, risks of forfeiture,
deferral of delivery, or such other terms and conditions as the Committee may
impose, subject to Section 14(b). Such terms and conditions may include required
forfeiture of Options or gains realized upon exercise thereof, for a specified
period after exercise, in the event the Participant fails to comply with
conditions relating to non-competition, non-disclosure, non-solicitation or
non-interference with employees, suppliers, or customers, and non-disparagement
and other conditions specified by the Committee.
(e) Termination Provisions. The Committee shall determine, in its
discretion, whether and the extent to which an Option shall be forfeited or
shall become exercisable on an accelerated basis in the event of the
Participant's termination of employment due to death, Disability, Retirement, or
for other reasons, the period following such a termination during which the
Option shall be exercisable, and other provisions relating to such terminations.
8. Terms and Conditions of Stock Appreciation Rights
(a) Grants. The Committee also may grant (i) a Stock Appreciation Right
independent of an Option or (ii) a Stock Appreciation Right in connection with
an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to
clause (ii) of the preceding sentence (A) may be granted at the time the related
Option is granted or at any time prior to the exercise or cancellation of the
related Option, (B) shall cover the same Shares covered by an Option (or such
lesser number of Shares as the Committee may determine) and (C) shall be subject
to the same terms and conditions as such Option except for such additional
limitations as are contemplated by this Section 8 (or such additional
limitations as may be included in an Award agreement).
(b) Terms. The exercise price per Share of a Stock Appreciation Right shall
be an amount determined by the Committee but in no event shall such amount be
less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount permitted by applicable laws,
rules, by-laws or policies of regulatory authorities or stock exchanges. Each
Stock Appreciation Right granted independent of an Option shall entitle a
Participant upon exercise to an amount equal to (i) the excess of (A) the Fair
Market Value on the exercise date of one Share over (B) the exercise price per
Share, times (ii) the number of Shares covered by the Stock Appreciation Right.
Each Stock Appreciation Right granted in conjunction with an Option, or a
portion
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thereof, shall entitle a Participant to surrender to the Company the unexercised
Option, or any portion thereof, and to receive from the Company in exchange
therefor an amount equal to (i) the excess of (A) the Fair Market Value on the
exercise date of one Share over (B) the Option Price per Share, times (ii) the
number of Shares covered by the Option, or portion thereof, which is
surrendered. The date a notice of exercise is received by the Company shall be
the exercise date. Payment shall be made in Shares or in cash, or partly in
Shares and partly in cash, valued at such Fair Market Value, all as shall be
determined by the Committee. Stock Appreciation Rights may be exercised from
time to time upon actual receipt by the Company of written notice of exercise
stating the number of Shares subject to an exercisable Option with respect to
which the Stock Appreciation Right is being exercised. No fractional Shares will
be issued in payment for Stock Appreciation Rights, but instead cash will be
paid for a fraction or, if the Committee should so determine, the number of
Shares will be rounded downward to the next whole Share.
(c) Limitations. The Committee may impose, in its discretion, such
conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs that
are exercisable upon the occurrence of specified contingent events. Such LSARs
may provide for a different method of determining appreciation, may specify that
payment will be made only in cash and may provide that any related Awards are
not exercisable while such LSARs are exercisable. Unless the context otherwise
requires, whenever the term "Stock Appreciation Right" is used in the Plan, such
term shall include LSARs.
9. Other Stock-Based Awards
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole or in
part by reference to, or are otherwise based on the Fair Market Value of, Shares
("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such
form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive one or more Shares (or the
equivalent cash value of such Shares) as an outright bonus or upon the
completion of a specified period of service, the occurrence of an event and/or
the attainment of performance objectives. Other Stock-Based Awards may be
granted alone or in addition to any other Awards granted under the Plan. Subject
to the provisions of the Plan, the Committee shall determine to whom and when
Other Stock-Based Awards will be made, the number of Shares to be awarded under
(or otherwise related to) such Other Stock-Based Awards; whether such Other
Stock-Based Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards (including, without
limitation, the vesting provisions thereof). Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 9(a). In addition, the Committee is authorized to grant dividend
equivalents to a Participant, entitling the Participant to receive cash, Shares,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of Shares, or other periodic payments. Dividend equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents
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shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares, Awards, or other investment vehicles, subject
to such restrictions on transferability and risks of forfeiture as the Committee
may specify.
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section 9 may be
granted in a manner which is deductible by the Company without limitation under
Section 162(m) of the Code (or any successor section thereto)
("Performance-Based Awards"). A Participant's Performance-Based Award shall be
determined based on the attainment of written performance goals approved by the
Committee for a performance period established by the Committee (i) while the
outcome for that performance period is substantially uncertain and (ii) no more
than 90 days after the commencement of the performance period to which the
performance goal relates or, if less, the number of days which is equal to 25
percent of the relevant performance period. The performance goals, which must be
objective, shall be based upon one or more of the following criteria: (i)
consolidated earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization); (ii) net income; (iii) operating income;
(iv) earnings per share; (v) book value per share; (vi) return on stockholders'
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) economic value added; (xix) return on assets;
(xx) total stockholder return (stock price appreciation plus dividends and
distributions); (xxi) operating management goals; (xxii) and execution of
pre-approved corporate strategy. The foregoing criteria may relate to the
Company, one or more of its Subsidiaries or one or more of its divisions or
units, or any combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code (or any successor section
thereto), the performance goals may be calculated without regard to
extraordinary items. In the case of a Performance-Based Award which is not
valued in a way in which the limitation set forth in the final sentence of
Section 3 would operate as an effective limitation satisfying Treasury
Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to
any Participant with respect to performance in a single fiscal year of the
Company shall be $5,000,000. The Committee shall determine whether, with respect
to a performance period, the applicable performance goals have been met with
respect to a given Participant and, if they have, to so certify and ascertain
the amount of the applicable Performance-Based Award. No Performance-Based
Awards will be paid for such performance period until such certification is made
by the Committee. The amount of the Performance-Based Award actually paid to a
given Participant may be less than the amount determined by the applicable
performance goal formula, at the discretion of the Committee. The amount of the
Performance-Based Award determined by the Committee for a performance period
shall be paid to the Participant at such time as determined by the Committee in
its sole discretion after the end of such performance period; provided, however,
that a Participant may, if and to the extent permitted by the Committee and
consistent with the provisions of Section 162(m) of the Code, elect to defer
payment of a Performance-Based Award.
10. Adjustments Upon Certain Events
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Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after
the Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares of other corporate exchange, or any large, special, and non-recurring
distribution to Stockholders, the Committee in its sole discretion and without
liability to any person may make such substitution or adjustment, if any, as it
deems to be equitable, as to (i) the number or kind of Shares or other
securities issued or reserved for issuance pursuant to the Plan or pursuant to
outstanding Awards, (ii) the Option Price, (iii) the number and kind of Shares
by which annual per-person Award limitations are measured under Section 3 hereof
and/or (iv) any other affected terms of such Awards (including making provision
for the payment of cash, other Awards or other property in respect of any
outstanding Award). In addition, the Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence, as well as acquisitions and
dispositions of businesses and assets) affecting the Company, any subsidiary or
any business unit, or the financial statements of the Company or any subsidiary,
or in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in view of the
Committee's assessment of the business strategy of the Company, any subsidiary
or business unit thereof, performance of comparable organizations, economic and
business conditions, personal performance of a Participant, and any other
circumstances deemed relevant; provided that no such adjustment shall be
authorized to be made if and to the extent that such authority or the making of
such adjustment would cause Options, Stock Appreciation Rights, or Performance
Awards granted under Section 9(b) hereof intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to so qualify.
(b) Change in Control. Except as otherwise provided in an Award agreement,
in the event of a Change in Control, the Committee in its sole discretion and
without liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including, without limitation,
(i) the acceleration of an Award, (ii) the payment of a cash amount in exchange
for the cancellation of an Award and/or (iii) the requiring of the issuance of
substitute Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as of the date of
the consummation of the Change in Control.
11. No Right to Employment
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment of a Participant and shall
not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant.
12. Successors and Assigns
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The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
13. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution. During the
lifetime of a Participant, an Award shall be exercisable only by such
Participant. An Award exercisable after the death of a Participant may be
exercised by the legatees, personal representatives or distributees of the
Participant. Notwithstanding anything to the contrary herein, the Committee, in
its sole discretion, shall have the authority to waive this Section 13 (or any
part thereof) to the extent that this Section 13 (or any part thereof) is not
required under the rules promulgated under any law, rule or regulation
applicable to the Company.
14. Amendments or Termination
(a) Changes to the Plan. The Board may amend, alter or discontinue the
Plan, except that (i) any amendment or alteration shall be subject to the
approval of the Company's stockholders at or before the next annual meeting of
stockholders for which the record date is after the date of such Board action if
such stockholder approval is required by any federal or state law or regulation
or the rules of any stock exchange or automated quotation system on which the
Shares may then be listed or quoted, and the Board may otherwise, in its
discretion, determine to submit amendments or alterations to stockholders for
approval; (ii) without the consent of a Participant, no amendment or alteration
shall materially impair any of the Participant's rights under an Award
theretofore granted to such Participant; and (iii) the Committee may amend or
alter the Plan in such manner as it deems necessary to permit the granting of
Awards meeting requirements of the Code or other applicable laws.
Notwithstanding anything to the contrary herein, the Board may not amend, alter
or discontinue the provisions relating to Section 10(b) of the Plan after the
occurrence of a Change in Control.
(b) Changes to Outstanding Awards. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue, or terminate any Award
theretofore granted and any Award agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Other provisions of the
Plan notwithstanding, if any right under this Plan would cause a transaction to
be ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Shares having a Fair Market Value equal to the
cash otherwise payable hereunder for the right which caused the transaction to
be ineligible for pooling of interest accounting.
15. International Participants
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With respect to Participants who reside or work outside the United States
of America and either who are not (and who are not expected to be) "covered
employees" within the meaning of Section 162(m) of the Code or who are granted
Awards not intended to qualify as "performance-based compensation" under Section
162(m), the Committee may, in its sole discretion, amend the terms of the Plan
or Awards with respect to such Participants in order to conform such terms with
local laws, regulations, or customs or otherwise to meet the objectives of the
Plan, and may, where appropriate, establish one or more sub-plans to reflect
such amended provisions.
16. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor any submission of the
Plan, specific Plan terms, or amendments thereto to a vote of stockholders of
the Company shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements as it may deem desirable,
including, without limitation, the granting of awards otherwise than under the
Plan, and such other arrangements may be either applicable generally or only in
specific cases.
17. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of
the State of New York.
18. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
12
Exhibit 10.8
1998 IMS HEALTH INCORPORATED REPLACEMENT PLAN
FOR CERTAIN EMPLOYEES HOLDING
COGNIZANT CORPORATION EQUITY-BASED AWARDS
1. Purpose of the Plan
The purpose of the 1998 IMS Health Incorporated Replacement Plan for
Certain Employees Holding Cognizant Corporation Equity-Based Awards (the "Plan")
is to provide for the award of substantially identical replacement stock
options, replacement limited stock appreciation rights and replacement
restricted stock to certain employees (the "Eligible Holders") of IMS Health
Incorporated (the "Company") whose awards under the 1996 Cognizant Corporation
Key Employees Stock Incentive Plan and 1996 Cognizant Corporation Replacement
Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based
Awards (the "Cognizant Plans") were cancelled pursuant to the spinoff of the
Company from Cognizant Corporation ("Cognizant"). The Company expects that the
Plan will allow it to retain such employees and to motivate them to exert their
best efforts on behalf of the Company and its subsidiaries by providing
incentives through the replacement awards. The Company also expects that it will
benefit from the added interest which such employees will have in the welfare of
the Company as a result of their proprietary interest in the Company's success.
It is the intention of the Company that the terms of the replacement awards will
(i) preserve the economic value of the cancelled Cognizant awards and (ii)
except for the terms described in Sections 7, 8, 9 and 10 of this Plan, remain
substantially identical to the terms of the cancelled Cognizant awards.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Award: A replacement Option, replacement stock appreciation right or
replacement restricted stock granted pursuant to the Plan.
(c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
<PAGE>
2
(e) Change in Control: With respect to D&B Replacement Stock Options, as
defined in the 1996 Cognizant Corporation Replacement Plan for Certain
Employees Holding The Dun & Bradstreet Corporation Equity-Based
Awards. Otherwise, the occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a
director nominated by a Person who has entered into an agreement with
the Company to effect a transaction described in Sections 2(e)(i),
(iii) or (iv) of the Plan, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an actual
or threatened proxy contest) which if consummated would constitute a
Change in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
<PAGE>
3
voting securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation and (B) after which no Person holds 20% or more of the
combined voting power of the then-outstanding securities of the
Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Cognizant Replacement Stock Option: A stock option granted pursuant to
Section 7 of the Plan as a replacement for a stock option previously
granted under the 1996 Cognizant Corporation Key Employees Stock
Incentive Plan.
(h) Cognizant Restricted Stock: Restricted stock held by an Eligible
Holder that was granted under the Cognizant Plans.
(i) Committee: The Compensation and Benefits Committee of the Board.
(j) Company: IMS Health Incorporated, a Delaware corporation.
(k) D&B Plans: The 1991 Key Employees Stock Option Plan for The Dun &
Bradstreet Corporation and Subsidiaries and the 1982 Key Employees
Stock Option Plan for The Dun & Bradstreet Corporation.
(l) D&B Replacement Stock Option: A stock option granted pursuant to
Section 7 of the Plan as a replacement for a stock option previously
granted under the 1996 Cognizant Corporation Replacement Plan for
Certain Employees Holding The Dun & Bradstreet Corporation
Equity-Based Awards.
(m) Daily Average Trading Price: the average of the high and low trading
prices for stock on a given day.
(n) Disability: Inability to engage in any substantial gainful activity by
reason of a medically determinable physical or mental impairment which
constitutes a permanent and total disability, as
<PAGE>
4
defined in Section 22(e)(3) of the Code (or any successor section
thereto). The determination whether an Eligible Holder has suffered a
Disability shall be made by the Committee based upon such evidence as
it deems necessary and appropriate. An Eligible Holder shall not be
considered disabled unless he or she furnishes such medical or other
evidence of the existence of the Disability as the Committee, in its
sole discretion, may require.
(o) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 15 of the Plan.
(p) Eligible Holder: As such term is defined in Section 1 of the Plan.
(q) Fair Market Value: On a given date, the arithmetic mean of the high
and low prices of the Shares asreported on such date on the Composite
Tape of the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if no Composite Tape
exists for such national securities exchange on such date, then on the
principal national securities exchange on which such Shares are listed
or admitted to trading, or, if the Shares are not listed or admitted
on a national securities exchange, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated
Quotation System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are regularly
quoted, the Fair Market Value shall be the value established by the
Committee in good faith. If no sale of Shares shall have been reported
on such Composite Tape or such national securities exchange on such
date or quoted on the National Association of Securities Dealer
Automated Quotation System on such date, then the immediately
preceding date on which sales of the Shares have been so reported or
quoted shall be used.
(r) IMS Health Restricted Stock: Restricted stock received by an Eligible
Holder as a result of the Spinoff.
(s) Option: A Cognizant Replacement Stock Option and a D&B Replacement
Stock Option.
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5
(t) Person: As such term is used for purposes of Section 13(d) or 14(d) of
the Act (or any successor sectionthereto).
(u) Plan: As such term is defined in Section 1 hereof.
(v) Post-Retirement Exercise Period: As such term is defined in Section
7(f) of the Plan.
(w) Shares: Shares of common stock, par value $0.01 per Share, of the
Company.
(x) Special Exercise Period: As such term is defined in Section 7(f) of
the Plan.
(y) Spinoff: the distribution of the Shares owned by Cognizant to the
holders of record of shares of Cognizant.
(z) Spinoff Date: The date on which the Spinoff was effected.
(aa) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor sectionthereto).
3. Shares Subject to the Plan
The total number of Shares which may be issued under the Plan is equal to
the aggregate number of shares subject to replacement awards, as calculated
pursuant to Sections 7(a), 8(a) and 9 of this Plan. The Shares may consist, in
whole or in part, of unissued shares or treasury shares. Issuance of Shares upon
exercise of an option or reduction of the number of Shares subject to an option
upon exercise of a stock appreciation right shall reduce the total number of
Shares available under the Plan. In addition, Shares which are subject to
unexercised stock options which terminate or lapse may not be optioned again
under the Plan.
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two individuals who are each "non-employee directors" within
the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and
"outside directors" within the meaning of Section 162(m) of the Code (or any
successor section thereto). The Committee is authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of the Plan. The Committee may
<PAGE>
6
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable.
Any decision of the Committee in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned (including, but
not limited to, Eligible Holders and their beneficiaries or successors). The
Committee shall require payment of any amount it may determine to be necessary
to withhold for federal, state, local or other taxes as a result of the exercise
of an Award. Unless the Committee specifies otherwise, the Eligible Holder may
elect to pay a portion or all of such withholding taxes by (a) delivery in
Shares or (b) having Shares withheld by the Company from any Shares that would
have otherwise been received by the Eligible Holder. The number of Shares so
delivered or withheld shall have an aggregate Fair Market Value sufficient to
satisfy the applicable withholding taxes.
5. Eligibility
Only Eligible Holders shall receive grants of replacement stock options,
replacement stock appreciation rights and replacement restricted stock under the
Plan. The granting of a stock option, stock appreciation right or restricted
stock under the Plan shall impose no obligation on the Company or any Subsidiary
to continue the employment of an Eligible Holder and shall not lessen or affect
the right to terminate the employment of such Eligible Holder.
6. Limitations
Options hereunder shall only be granted in replacement of Cognizant Stock
Options (as defined in Section 7(a) of the Plan) held by Eligible Holders
immediately prior to the Spinoff Date.
7. Terms and Conditions of Options
Stock options granted under the Plan shall be non-qualified, and shall be
subject to the foregoing and the following terms and conditions and to such
other terms and conditions, not inconsistent therewith, as the Committee shall
determine:
(a) Generally. As of the Spinoff Date, each unexercised stock option
held by an Eligible Holder that was granted under the Cognizant Plans (a
"Cognizant Stock Option") shall be cancelled, and such Eligible Holder
shall receive a replacement stock option pursuant to this Plan. The number
of Shares covered by each replacement stock option shall be determined by
(i) multiplying the number of shares of Cognizant common stock covered by
the cancelled Cognizant Stock Option by a
<PAGE>
7
fraction, the numerator of which is the average of the Daily Average
Trading Prices 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 of the Shares for the five consecutive trading
days starting on the first date on which the Shares are traded regular way
(the "IMS Health Ratio") and (ii) rounding down the result to a whole
number of shares. The option price of each replacement stock option shall
be determined by dividing the option price of the cancelled Cognizant Stock
Option by the IMS Health Ratio. Unless otherwise specified in this Plan,
all other terms of the replacement stock options shall remain substantially
identical to those of the cancelled Cognizant Stock Options as set forth in
the applicable Cognizant Plan and related option agreement(s).
(b) Exercisability. Except as set forth in the Plan, stock options
granted under the Plan shall have substantially identical terms as those of
the stock options originally granted under the Cognizant Plans; provided,
however, that in no event shall a replacement stock option be exercisable
more than ten years after the date the original option was granted under
the Cognizant Plans.
(c) Exercise of Options. Except as otherwise provided in the Plan or
in an Award agreement, an Option may be exercised for all, or from time to
time any part, of the Shares for which it is then exercisable. For purposes
of Section 7 of the Plan, the exercise date of an Option shall be the later
of the date a notice of exercise is received by the Company and, if
applicable, (A) the date payment is received by the Company pursuant to
clauses (i), (ii) or (iii) in the following sentence or (B) the date of
sale by a broker of all or a portion of the Shares being purchased pursuant
to clause (iv) in the following sentence. The purchase price for the Shares
as to which an Option is exercised shall be paid to the Company in full at
the time of exercise at the election of the Eligible Holder (i) in cash,
(ii) in Shares having a Fair Market Value equal to the aggregate option
price for the Shares being purchased and satisfying such other requirements
as may be imposed by the Committee, (iii) partly in cash and partly in such
Shares or (iv) through the delivery of irrevocable instructions to a broker
to deliver promptly to the Company an amount equal to the aggregate option
price for the Shares being purchased. No Eligible Holder shall have any
rights to dividends or other rights of a stockholder with respect to Shares
subject to an Option until the Eligible Holder has given written notice of
exercise of the Option, paid in full for such Shares and, if applicable,
has satisfied any other conditions imposed by the Committee pursuant to the
Plan.
(d) Exercisability of a Cognizant Replacement Stock Option Upon
Termination of Employment by Death or Disability. If an Eligible Holder's
employment with the Company and its Subsidiaries terminates by reason of
death or Disability after
<PAGE>
8
the date of grant of a Cognizant Replacement Stock Option, (i) the
unexercised portion of such option shall immediately vest in full and (ii)
such portion may thereafter be exercised during the shorter of (A) the
remaining stated term of such option or (B) five years after the date of
death or Disability.
(e) Exercisability of a D&B Replacement Stock Option Upon Termination
of Employment by Death. If an optionee's employment by the Company or a
subsidiary terminates by reason of death one year or more after the date of
grant of the original stock option under the D&B Plans, the D&B Replacement
Stock Option thereafter may be exercised, during the three years after the
date of death or the remaining stated period of such option, whichever
period is shorter, to the extent to which such option was exercisable at
the time of death or thereafter would become exercisable during the
three-year period after the date of death in accordance with its terms.
(f) Exercisability of a Cognizant Replacement Stock Option Upon
Termination of Employment by Retirement. If an Eligible Holder's employment
with the Company and its Subsidiaries terminates by reason of Retirement
after the date of grant of a Cognizant Replacement Stock Option, an
unexercised Cognizant Replacement Stock Option may thereafter be exercised
during the shorter of (i) the remaining stated term of such option or (ii)
five years after the date of such termination of employment (the
"Post-Retirement Exercise Period"), but only to the extent to which such
option was exercisable at the time of such termination of employment or
becomes exercisable during the Post-Retirement Exercise Period; provided,
however, that if an Eligible Holder dies within a period of five years
after such termination of employment, an unexercised Cognizant Replacement
Stock Option may thereafter be exercised, during the shorter of (i) the
remaining stated term of such option or (ii) the period that is the longer
of (A) five years after the date of such termination of employment or (B)
one year after the date of death (the "Special Exercise Period"), but only
to the extent to which such option was exercisable at the time of such
termination of employment or becomes exercisable during the Special
Exercise Period. For purposes of this Section 7(f), "Retirement" shall mean
termination of employment with the Company or a Subsidiary after such
Eligible Holder has attained age 55 and five years of service with the
Company; or, with the prior written consent of the Committee that such
termination be treated as a Retirement hereunder, termination of employment
under other circumstances.
(g) Exercisability of a D&B Replacement Stock Option Upon Termination
of Employment by Disability or Retirement. If an optionee's employment by
the Company or a subsidiary terminates by reason of Disability or
Retirement one year or more after the date of grant of the original stock
option under the D&B Plans, the D&B Replacement Stock Option thereafter may
be exercised, during the five years after the date of such termination of
employment or the remaining stated period of such
<PAGE>
9
option, whichever period is shorter, to the extent to which such option was
exercisable at the time of such termination of employment or thereafter
would become exercisable during such period in accordance with its terms;
provided, however, that if the optionee dies within a period of five years
after such termination of employment, any unexercised stock option may be
exercised thereafter, during either (1) the period ending on the later of
(i) five years after such termination of employment and (ii) one year after
the date of death or (2) the period remaining in the stated term of the
option, whichever period is shorter, to the extent to which such option was
exercisable at the time of death or thereafter would become exercisable
during the remainder of the five-year period after such termination of
employment in accordance with its terms. For purposes of this Section 7(f),
"Retirement" shall mean termination of employment with the Company or a
subsidiary after the optionee has attained age 55 and completed ten or more
years of employment with D&B and/or the Company; or after the optionee has
attained age 65, regardless of the length of such optionee's employment
with D&B and/or the Company.
(h) Effect of Other Termination of Employment. If an Eligible Holder's
employment with the Company and its Subsidiaries terminates for any reason
other than death, Disability or Retirement after the date of grant of an
Option as described above, an unexercised Cognizant Replacement Stock
Option may thereafter be exercised during the period ending 90 days after
the date of such termination of employment, but only to the extent to which
such Option was exercisable at the time of such termination of employment.
If an Eligible Holder's employment terminates for any reason, other than
Disability, death or Retirement one year or more after the date of grant of
the original stock option under the D&B Plans as described above, each D&B
Replacement Stock Option held by such Eligible Holder shall thereupon
terminate. Notwithstanding the foregoing, the Committee may, in its sole
discretion, accelerate the vesting of unvested Cognizant Replacement Stock
Options held by an Eligible Holder if such Eligible Holder is terminated
from employment without "cause" (as such term is defined by the Committee
in its sole discretion) by the Company.
8. Terms and Conditions of Stock Appreciation Rights
Stock appreciation rights (including limited stock appreciation rights)
granted under the Plan shall be subject to the foregoing and the following terms
and conditions and to such other terms and conditions, not inconsistent
therewith, as the Committee shall determine:
(a) Replacement Stock Appreciation Rights. As of the Spinoff Date,
each unexercised stock appreciation right (including a limited stock
appreciation right) held by an Eligible Holder that was granted under the
Cognizant Plans (a "Cognizant SAR") shall be cancelled, and such Eligible
Holder
<PAGE>
10
shall receive a replacement stock appreciation right pursuant to this Plan.
The number of Company stock appreciation rights covered by each replacement
stock appreciation right shall be determined by (i) multiplying the number
of Cognizant Stock Options covered by the cancelled Cognizant SAR by the
IMS Health Ratio and (ii) rounding down the result to a whole number of
stock appreciation rights. The exercise price of each replacement stock
appreciation right shall be determined by dividing the exercise price of
the cancelled Cognizant SAR by the IMS Health Ratio. Unless otherwise
specified in this Plan, all other terms of the replacement stock
appreciation rights shall remain substantially identical to those of the
cancelled Cognizant SARs as set forth in the applicable Cognizant Plans and
related Cognizant SAR agreement(s).
(b) Terms. Stock appreciation rights shall cover the same Shares
covered by a related option (or such lesser number of Shares as the
Committee may determine) and shall be subject to the same terms and
conditions as the option except for such additional limitations as are
contemplated by this Paragraph 8 (or as may be included in a stock
appreciation right granted hereunder). Each stock appreciation right shall
entitle an optionee to surrender to the Company an unexercised option, or
any portion thereof, and to receive from the Company in exchange therefor
an amount equal to the excess of the fair market value on the exercise date
of one Share over the option price per share times the number of Shares
covered by the option, or portion thereof, which is surrendered. The date a
notice of exercise is received by the Company shall be the exercise date.
Payment shall be made in Shares or in cash, or partly in shares and partly
in cash, valued at such fair market value, all as shall be determined by
the Committee. Stock appreciation rights may be exercised from time to time
upon actual receipt by the Company of written notice of exercise stating
the number of Shares subject to an exercisable option with respect to which
the stock appreciation right is being exercised. No fractional Shares will
be issued in payment for stock appreciation rights, but instead cash will
be paid for a fraction or, if the Committee should so determine, the number
of Shares will be rounded downward to the next whole share.
(c) Limitations on Exercisability. The Committee shall impose such
conditions upon the exercisability of stock appreciation rights as will
result, except upon the occurrence of an event contemplated by replacement
limited stock appreciation rights granted pursuant to this Paragraph 8 or
contemplated by the provisions of Paragraph 10, in the amount to be charged
against the Company's consolidated income by reason of stock appreciation
rights not to exceed, in any one calendar year, two percent of the
Company's prior calendar year's consolidated income before income taxes.
The Committee also may impose, in its discretion, such other conditions
upon the exercisability of stock appreciation rights as it may deem fit.
<PAGE>
11
(d) Replacement Limited Stock Appreciation Rights. The Committee shall
grant replacement limited stock appreciation rights in substantially the
same manner in which replacement stock appreciation rights are awarded
pursuant to this Section 8 of the Plan. Unless the context otherwise
requires, whenever the term "stock appreciation right" is used in the Plan,
such term shall include limited stock appreciation rights.
9. Terms and Conditions of Restricted Stock
As of the Spinoff Date, Cognizant Restricted Stock and IMS Health
Restricted Stock held by an Eligible Holder shall be forfeited, and such
Eligible Holder shall receive replacement restricted stock pursuant to this
Plan. The number of shares of restricted stock shall equal (i) the number of
Shares of forfeited IMS Health Restricted Stock plus (ii) the number of shares
of forfeited Cognizant Restricted Stock multiplied by a fraction, the numerator
of which is the average of the Daily Average Trading Prices of Cognizant common
stock for the five consecutive trading days starting on the ex-dividend trading
date, and the denominator of which is the average of the Daily Average Trading
Prices of the Shares for the five consecutive trading days starting on the first
date on which the Shares are traded regular way. Unless otherwise specified in
this Plan, all other terms of the replacement restricted stock shall remain
substantially identical to those of the forfeited Cognizant Restricted Stock as
set forth in the applicable Cognizant Plans and related Cognizant Restricted
Stock agreement(s).
<PAGE>
12
Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination or exchange of Shares or other corporate exchange, or any
distribution to stockholders of Shares other than regular cash dividends,
the Committee in its sole discretion and without liability to any person
may make such substitution or adjustment, if any, as it deems to be
equitable, as to (i) the number or kind of Shares or other securities
issued or reserved for issuance pursuant to the Plan or pursuant to
outstanding Awards, (ii) the option price and/or (iii) any other affected
terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award
agreement or, with respect to D&B Replacement Options in the 1996 Cognizant
Corporation Replacement Plan for Certain Employees Holding The Dun &
Bradstreet Corporation Equity-Based Awards, in the event of a Change in
Control, the Committee in its sole discretion and without liability to any
person may take such actions, if any, as it deems necessary or desirable
with respect to any Award (including, without limitation, (i) the
acceleration of an Award, (ii) the payment of a cash amount in exchange for
the cancellation of an Award and/or (iii) the requiring of the issuance of
substitute Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as of the
date of the consummation of the Change in Control.
11. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and
an Eligible Holder, including without limitation, the estate of such Eligible
Holder and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Eligible Holder's
creditors.
<PAGE>
13
Nontransferability of Awards
An Award shall not be transferable or assignable by the Eligible Holder
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an Eligible Holder, an Award shall be exercisable only by such
Eligible Holder. An Award exercisable after the death of an Eligible Holder may
be exercised by the legatees, personal representatives or distributees of the
Eligible Holder. Notwithstanding anything to the contrary herein, the Committee,
in its sole discretion, shall have the authority to waive this Section 12 (or
any part thereof) to the extent that this Section 12 (or any part thereof) is
not required under the rules promulgated under any law, rule or regulation
applicable to the Company.
13. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the stockholders of the Company, would (except as is provided in Section 10 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Eligible Holder or (b) without the consent of an Eligible Holder, would
impair any of the rights or obligations under any Award theretofore granted to
such Eligible Holder under the Plan. Notwithstanding anything to the contrary
herein, the Board may not amend, alter or discontinue the provisions relating to
Section 10(b) of the Plan after the occurrence of a Change in Control.
14. International Eligible Holders
With respect to Eligible Holders who reside or work outside the United
States of America and who are not (and who are not expected to be) "covered
employees" within the meaning of Section 162(m) of the Code, the Committee may,
in its sole discretion, amend the terms of the Plan or Awards with respect to
such Eligible Holders in order to conform such terms with the requirements of
local law.
15. Choice of Law
The Plan 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.
16. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
1998 IMS HEALTH INCORPORATED REPLACEMENT PLAN
FOR CERTAIN NON-EMPLOYEE DIRECTORS HOLDING COGNIZANT CORPORATION
EQUITY-BASED AWARDS
1. Purpose of the Plan
The purpose of the 1998 IMS Health Incorporated Replacement Plan for
Certain Non-employee Directors Holding Cognizant Corporation Equity-Based Awards
is to provide for the award of substantially identical replacement stock options
to certain non-employee directors of IMS Health Incorporated, a Delaware
corporation whose awards under the 1996 Cognizant Corporation Non-Employee
Directors' Stock Incentive Plan were cancelled pursuant to the spinoff of the
Company from Cognizant Corporation, a Delaware corporation and to certain
retired non-employee directors who elect, pursuant to the Spinoff, to have the
awards granted under the Cognizant Plan cancelled (the "Eligible Holders"). The
Company expects that the Plan will aid the Company in attracting, retaining and
compensating non-employee directors and to enable them to increase their
ownership of Shares. The Plan will be beneficial to the Company and its
shareholders since it will allow non-employee directors to have a greater
personal financial stake in the Company through the ownership of Shares, in
addition to underscoring their common interest with shareholders in increasing
the value of the Shares on a long-term basis. It is the intention of the Company
that the terms of the replacement awards will (i) substantially preserve the
economic value of the cancelled Cognizant awards and (ii) except for the terms
described in Sections 7, 8 and 9 of this Plan, remain substantially identical to
the terms of the cancelled Cognizant awards.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Awards: Replacement Options and Replacement Restricted Stock granted
pursuant to the Plan.
(c) Beneficial Owner: As defined in rule 13d-3 under the Act (or any
successor rule thereto).
(d) Board: The Board of Directors of the Company.
<PAGE>
2
(e) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a
director nominated by a Person who has entered into an agreement with
the Company to effect a transaction described in Sections 2(e)(i),
(iii) or (iv) of the Plan, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an actual
or threatened proxy contest) which if consummated would constitute a
Change in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
<PAGE>
3
voting securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation and (B) after which no Person holds 20% or more of the
combined voting power of the then-outstanding securities of the
Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Cognizant: Cognizant Corporation, a Delaware corporation.
(h) Cognizant Plan: The 1996 Cognizant Corporation Non-Employee Directors'
Stock Incentive Plan.
(i) Committee: The Compensation and Benefits Committee of the Board.
(j) Company: IMS Health Incorporated, a Delaware corporation.
(k) Daily Average Trading Prices: The average of the high and low trading
prices for stock on a given day.
(l) Disability: Inability to continue to serve as a non-employee director
of the Board due to a medically determinable physical or mental
impairment which constitutes a permanent and total disability, as
determined by the Committee (excluding any member thereof whose own
Disability is at issue in a given case) based upon such evidence as it
deems necessary and appropriate. An Eligible Holder shall not be
considered disabled unless he or she furnished such medical or other
evidence of the existence of the Disability as the Committee, in its
sole discretion, may require.
<PAGE>
4
(m) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 14 of the Plan.
(n) Eligible Holder: As such term is defined in Section 1 of the Plan.
(o) Fair Market Value: On a given date, the arithmetic mean of the high
and low prices of the Shares as reported on such date on the Composite
Tape of the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if no Composite Tape
exists for such national securities exchange on such date, then on the
principal national securities exchange on which such Shares are listed
or admitted to trading, or, if the Shares are not listed or admitted
on a national securities exchange, the arithmetic mean of the per
Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated
Quotation System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are regularly
quoted, the Fair Market Value shall be the value established by the
Committee in good faith. If no sale of Shares shall have been reported
on such Composite Tape or such national securities exchange on such
date or quoted on the National Association of Securities Dealers
Automated Quotation System on such date, then the immediately
preceding date on which sales of the Shares have been so reported or
quoted shall be used.
(p) Person: As such term is used in Section 13(d) or 14(d) of the Act (or
any successor section thereto).
(q) Plan: The 1998 IMS Health Incorporated Replacement Plan for Certain
Non-Employees Directors Holding Cognizant Corporation Equity-Based
Awards.
(r) Replacement Option: A stock option granted pursuant to Section 7 of
the Plan.
(s) Replacement Restricted Stock: Restricted stock granted pursuant to
Section 8 of the Plan.
<PAGE>
5
(t) Retirement: Termination of service with the Company after such
Eligible Holder has attained age 70, regardless of the length of such
Eligible Holder's service; or with the prior written consent of the
Committee (excluding any member thereof whose own Retirement is at
issue in a given case), termination of service at an earlier age after
the Eligible Holder has completed six or more years of service with
the Company.
(u) Shares: Shares of common stock, par value $.01 per share, of the
Company.
(v) Spinoff Date: The date on which the Shares are distributed to the
shareholders.
(w) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
<PAGE>
6
3. Shares Subject to the Plan
The total number of Shares which may be issued under the Plan is equal to
the aggregate number of Shares to be issued as replacement awards, as calculated
pursuant to Sections 7 and 8 of this Plan. The Shares may consist, in whole or
in part, of unissued Shares or treasury shares. After the initial grant of
awards, no further awards shall be granted under the Plan.
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two "non-employee directors" within the meaning of Rule 16b-3
under the Act (or any successor rule thereto). The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable.
Any decision of the Committee in the interpretation and administration of the
plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned (including, but
not limited to, Eligible Holders and their beneficiaries or successors).
5. Eligibility
Only Eligible Holders shall receive grants of replacement stock options
under the Plan.
6. Limitations
Options hereunder shall only be granted in replacement of Cognizant Stock
Options (as defined in Section 7(a) of the Plan) held by Eligible Holders
immediately prior to the Spinoff Date.
7. Terms and Conditions of Options
Options granted under the Plan shall be non-qualified stock options for
federal income tax purposes, as evidenced by the related Option agreements, and
shall be subject to the foregoing and the following terms and conditions and to
such other terms and conditions, not inconsistent therewith, as the Committee
shall determine:
<PAGE>
7
(a) Generally. As of the Spinoff, each unexercised stock option held by an
Eligible Holder that was granted under the Cognizant Plan (a "Cognizant Stock
Option") shall be cancelled, and such Eligible Holder shall receive a
replacement stock option pursuant to this Plan. The number of Shares covered by
each replacement stock option shall be determined by (i) multiplying the number
of shares of Cognizant common stock covered by the cancelled Cognizant Stock
Option by a fraction, the numerator of which is the average of the Daily Average
Trading Prices 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 of the Shares for the five consecutive trading days starting on
the first date on which the Shares are traded regular way (the "Cognizant
Ratio") and (ii) rounding down the result to a whole number of shares. The
option price of each replacement stock option shall be determined by dividing
the option price of the cancelled Cognizant Stock Option by the Cognizant Ratio.
Unless otherwise specified in this Plan, all other terms of the replacement
stock options shall remain substantially identical to those of the cancelled
Cognizant Stock Options as set forth in the Cognizant Plan and related option
agreement(s).
(b) Exercisability. Except as set forth in the Plan, stock options granted
under the Plan shall have substantially identical terms as those of the stock
options originally granted under the Cognizant Plan; provided, however, that in
no event shall a replacement stock option be exercisable more than ten years
after the date the original option was granted under the Cognizant Plan.
(c) Exercise of Options. Except as otherwise provided in the Plan or in a
related Option agreement, an Option may be exercised for all, or from time to
time any part, of the Shares for which it is then exercisable. For purposes of
Section 7 of the Plan, the exercise date of an Option shall be the later of the
date a notice of exercise is received by the Company and, if applicable, (A) the
date payment is received by the Company pursuant to clauses (i), (ii) or (iii)
in the following sentence or (B) the date of sale by a broker of all or a
portion of the Shares being purchased pursuant to clause (iv) in the following
sentence. The purchase price for the Shares as to which an Option is exercised
shall be paid to the Company in full at the time of exercise at the election of
the Eligible Holder (i) in cash, (ii) in Shares having a Fair Market Value equal
to the aggregate Option Price for the Shares being purchased and satisfying such
other requirements as may be imposed by the Committee, (iii) partly in cash and
partly in such Shares or (iv) through the delivery of irrevocable instructions
to a broker to
<PAGE>
8
deliver promptly to the Company an amount equal to the aggregate Option Price
for the Shares being purchased. No Eligible Holder shall have any rights to
dividends or other rights of a stockholder with respect to Shares subject to an
Option until the Eligible Holder has given written notice of exercise of the
Option, paid in full for such Shares and, if applicable, has satisfied any other
conditions imposed by the Committee pursuant to the Plan.
(d) Exercisability Upon Termination of Service by Death. If an Eligible
Holder's service with the Company and its Subsidiaries terminates by reason of
death after the date of grant of an Option, (i) the unexercised portion of such
Option shall immediately vest in full and (ii) such portion may thereafter be
exercised during the shorter of (A) the remaining stated term of the Option or
(B) five years after the date of death.
(e) Exercisability Upon Termination of Service by Disability or Retirement.
If an Eligible Holder's service with the Company and its Subsidiaries terminates
by reason of Disability or Retirement after the date of grant of an Option, (i)
the unexercised portion of such Option shall immediately vest in full and (ii)
such portion may thereafter be exercised during the shorter of (A) the remaining
stated term of the Option or (B) five years after the date of such termination
of service; provided, however, that if an Eligible Holder dies within a period
of five years after such termination of service, the unexercised portion of the
Option may thereafter be exercised, during the shorter of (i) the remaining
stated term of the Option or (ii) the period that is the longer of (A) five
years after the date of such termination of service or (B) one year after the
date of death.
(f) Effect of Other Termination of Service. If an Eligible Holder's service
with the Company and its Subsidiaries terminates for any reason other than
death, Disability or Retirement after the date of grant of an Option as
described above, the unexercised portion of an Option may thereafter be
exercised during the period ending ninety days after the date of such
termination of service, but only to the extent to which such Option was
exercisable at the time of such termination of service.
8. Terms and Conditions of Restricted Stock
As of the Spinoff Date, Cognizant Restricted Stock and IMS Health
Restricted Stock held by an Eligible Holder shall be forfeited, and such
Eligible Holder shall receive replacement restricted stock pursuant to this
Plan. The number of shares of
<PAGE>
9
restricted stock shall equal (i) the number of shares of forfeited IMS Health
Restricted Stock plus (ii) the number of shares of forfeited Cognizant
Restricted Stock multiplied by a fraction, the numerator of which is the average
of the Daily Average Trading Prices of Cognizant common stock for the five
consecutive trading days starting on the ex-dividend trading date, and the
denominator of which is the average of the Daily Average Trading Prices of the
Shares for the five consecutive trading days starting on the first date on which
the Shares are traded regular way. Unless otherwise specified in this Plan, all
other terms of the replacement restricted stock shall remain substantially
identical to those of the forfeited Cognizant Restricted Stock as set forth in
the applicable Cognizant Plans and related Cognizant Restricted Stock
agreement(s).
9. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after
the Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares or other corporate exchange, or any distribution to shareholders of
Shares other than regular cash dividends, the Committee, in its sole discretion
and without liability to any person, may make such substitution or adjustment,
if any, as it deems to be equitable, as to (i) the number or kind of shares or
other securities issued or reserved for issuance pursuant to the Plan or
pursuant to outstanding Awards, (ii) the Option Price and/or (iii) any other
affected terms of such Awards.
(b) Change in Control. In the event of a Change in Control, the Committee
in its sole discretion and without liability to any person may take such
actions, if any, as it deems necessary or desirable with respect to any Award
(including, without limitation, (i) the acceleration of an Award, (ii) the
payment of a cash amount in exchange for the cancellation of an Award and/or
(iii) the requiring of the issuance of substitute Awards that will substantially
preserve the value, rights and benefits of any affected Awards previously
granted hereunder) as of the date of the consummation of the Change in Control.
10. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and
an Eligible Holder, including without limitation,
<PAGE>
10
the estate of such Eligible Holder and the executor, administrator or trustee of
such estate, or any receiver or trustee in bankruptcy or representative of the
Eligible Holder's creditors.
11. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of any
Eligible Holder under any Award theretofore granted without such Eligible
Holder's consent.
12. Nontransferability of Awards
An Award shall not be transferable or assignable by the Eligible Holder
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an Eligible Holder, an Award shall be exercisable only by such
Eligible Holder. An Award exercisable after the death of an Eligible Holder may
be exercised by the legatees, personal representatives or distributees of the
Eligible Holder. Notwithstanding anything to the contrary herein, the Committee,
in its sole discretion, shall have the authority to waive this Section 12 (or
any part thereof) to the extent that this Section 12 (or any part thereof) is
not required under the rules promulgated under any law, rule or regulation
applicable to the Company.
13. Choice of Law
The Plan 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.
14. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
Exhibit 10.10
================================================================================
Notice of Grant of Stock Options IMS Health Incorporated
and Option Agreement
ID: 06-1506026
200 Nyala Farms
Westport, CT 06880
- - --------------------------------------------------------------------------------
Plan: D-98
- - ------------------------
================================================================================
Effective ____________, you have been granted a Non-Qualified Stock Option to
buy ______ shares of IMS Health Incorporated (the Company) stock at $_________
per share.
Shares will vest in accordance with the following schedule:
Percent Vesting Vest Date Expiration Date
--------------- --------- ---------------
one-sixth
one-sixth
one-sixth
one-sixth
one-sixth
one-sixth
- - --------------------------------------------------------------------------------
By the Company's signature below, and your acceptance of the stock option grant,
you and the Company agree that these options are governed by the terms and
conditions of the Non-Employee Directors' Stock Incentive Plan and the Plan
Prospectus, all of which are attached and made part of this document.
================================================================================
/s/ Kenneth S. Siegel
Kenneth S. Siegel
SVP, General Counsel and Secretary
IMS Health Incorporated
Exhibit 10.11
RESTRICTED STOCK AGREEMENT
UNDER THE 1998 IMS HEALTH INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
This restricted stock agreement (the "Award Agreement") confirms the restricted
stock award (the "Award") made on ____________ by the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of IMS Health Incorporated
(the "Company") to
____________________ (the "Participant")
of ________ shares of the Company's common stock, par value $0.01 per share (the
"Restricted Stock"). The Restricted Stock is awarded in accordance with and is
subject to all the terms and conditions of the 1998 IMS Health Incorporated
Non-Employee Directors' Stock Incentive Plan (the "Plan"), which Plan is
incorporated herein by reference.
Certificates issued in respect of the Restricted Stock shall be registered in
the name of the Participant and shall bear the following legend, or any other
similar legend as may be required by the Company:
"The transferability of this certificate and the shares of
stock represented hereby is subject to the terms and conditions
(including forfeiture) of the 1998 IMS Health Incorporated
Non-Employee Directors' Stock Incentive Plan and an agreement
entered into between the registered owner and IMS Health
Incorporated. Copies of such Plan and the agreement are on file
in the office of the Secretary of IMS Health Incorporated."
Except as otherwise provided in this Award Agreement and the Plan, the
Participant shall have all the rights of a shareholder of the Company with
respect to the Restricted Stock, including the right to vote the shares and
receive dividends and distributions. However, until the Restricted Stock is
released to the Participant as set forth below, the Participant may not sell,
transfer, pledge, assign or otherwise dispose of the Restricted Stock.
The stock certificates evidencing the Restricted Stock shall be held in custody
by a bank or other institution, or by the Company itself, until such shares are
forfeited in accordance with the Plan, or until the restrictions thereon shall
have lapsed as set forth below. The Participant hereby agrees as a condition to
the award of the Restricted Stock to deliver to the Company, together with this
Award Agreement, a stock power endorsed in blank relating to the Restricted
Stock covered by this Award, so that, in the event of a forfeiture of the Award,
the Restricted Stock will be transferred to the Company.
<PAGE>
Subject to earlier forfeiture (or release) of the Restricted Stock as provided
in the Plan, all such shares will be released to the Participant free of all
restrictions and delivered to the Participant on ______________.
IN WITNESS WHEREOF, IMS Health Incorporated has caused this Award Agreement to
be executed by its officer thereunto duly authorized.
By the Company's signature below, and your acceptance of these restricted
shares, you and the Company agree that these shares are governed by the terms
and conditions of the Plan and the Plan Prospectus, all of which are attached
and made part of this document.
IMS HEALTH INCORPORATED
/s/ Kenneth S. Siegel
Kenneth S. Siegel
SVP, General Counsel and Secretary
Exhibit 10.12
RESTRICTED STOCK UNITS AGREEMENT
UNITS RESULTING FROM PERS AWARDS
UNDER THE 1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
This Restricted Stock Units Agreement (the "Agreement") confirms the grant of
Restricted Stock Units ("RSUs") on ____________ (the "Grant Date") by the
Compensation and Benefits Committee (the "Committee") of the Board of Directors
of IMS Health Incorporated (the "Company") as follows:
Participant Granted RSUs:
Number of RSUs Granted:
The RSUs are granted based upon the achievement of performance conditions during
1998, in accordance with the Company's Performance-Based Restricted Stock
Program (the "PERS program") under the 1998 IMS Health Incorporated Employees'
Stock Incentive Plan (the "Plan"). Accordingly, the RSUs represent
performance-based restricted stock units or "PERS" as to which the performance
conditions have been satisfied. The RSUs are subject to all the terms and
conditions of the Plan, which is attached hereto and incorporated herein by
reference, and are subject to the terms and conditions of this Agreement,
including the Terms and Conditions attached hereto.
Participant acknowledges and agrees that (i), until an RSU has become vested in
accordance with Section 2(a) hereof, such RSU will be subject to a risk of
forfeiture to the extent provided in Section 2 hereof, and (ii), until the later
of the time each RSU becomes vested or the end of any additional period of
deferral elected by Participant in accordance with Section 4 hereof, such RSU
shall be generally nontransferable, as provided in Section 3 hereof.
IN WITNESS WHEREOF, IMS Health Incorporated has caused this Agreement to be
executed by its officer thereunto duly authorized.
By the Company's signature, and your acceptance of these RSUs, you and the
Company agree to the terms of this Agreement. If you make any election in this
Agreement, you must sign the Agreement and return it to the Human Resources
Department.
IMS HEALTH INCORPORATED
/s/ KENNETH S. SIEGEL
---------------------
Kenneth S. Siegel
SVP, General Counsel and Secretary
<PAGE>
Term and Conditions
of Restricted Stock Units
1. Restricted Stock Units
Each RSU represents a generally nontransferable, conditional right to
receive one share of the Company's Common Stock (a "Share") at a specified
future date, together with a right to Dividend Equivalents and other rights,
subject to the terms and conditions of the Plan and this Agreement. RSUs are
bookkeeping units, and do not represent ownership of Shares or any other equity
security. The Company shall maintain a bookkeeping account for Participant (the
"Account") reflecting the number of RSUs then credited to Participant hereunder
as a result of this grant of RSUs and any crediting of additional RSUs to
Participant pursuant to payments equivalent to dividends paid on Shares under
Section 5 ("Dividend Equivalents"). For purposes of this Agreement, the term
"RSUs" includes RSUs as to which the risk of forfeiture has lapsed but which
remain subject to deferral of settlement.
2. Vesting and Forfeiture.
(a) RSUs granted hereunder shall vest (meaning that the risk of forfeiture
of such RSUs shall lapse) at the earliest of (i) [4:00 pm on December 31, 20001]
[the second anniversary of the Grant Date] (the "Scheduled Lapse Date") , (ii)
Termination of Employment (as defined below) by reason of Retirement (as defined
in the Plan), (iii) Termination of Employment by reason of death or Disability
(as defined in the Plan), (iv) the occurrence of a Change in Control (as defined
in the Plan), or (v) any other event specified in an employment agreement
between the Company and Participant in effect at the time of Termination of
Employment. In addition, a portion of the RSUs, if not otherwise vested, shall
vest upon the Participant's Termination of Employment by the Company not for
Cause (as defined below), which portion shall equal the total number of RSUs
originally granted pursuant to this Agreement multiplied by a fraction the
numerator of which is the number of days elapsed from January 1, 1999 through
the date of Termination of Employment and the denominator of which is the number
of days from January 1, 1999 through the Scheduled Lapse Date. Each RSU credited
as a result of Dividend Equivalents on a forfeitable RSU under Section 5(a)[(i)
shall be fully vested and nonforfeitable from and after the date of such
crediting, and each RSU credited as a result of Dividend Equivalents under
Section 5(a)(ii) and (iii)] shall vest at the time of vesting of the forfeitable
RSU which gives rise, directly or indirectly, to the crediting of such Dividend
Equivalent RSU. Each RSU credited as a result of Dividend Equivalents on a then
non-forfeitable RSU under Section 5(a) shall be fully vested and nonforfeitable
from and after the date of such crediting.
(b) In the event of Participant's Termination of Employment, all RSUs which
are not vested at or prior to the time of such Termination shall be forfeited,
unless otherwise determined by the Committee. Thus, upon Participant's voluntary
Termination of Employment or a Termination of Employment by the Company for
Cause, unvested RSUs generally will be forfeited.
- - ----------
(1) Note to draft: This date would allow the vesting PERS to be excluded from
the footnote to the Summary Compensation Table showing the value of
restricted stock held at the end of the prior fiscal year.
<PAGE>
(c) For purposes of this Agreement, a "Termination of Employment" shall
mean a termination of Participant's employment with the Company or a subsidiary
or affiliate of the Company if, immediately thereafter, Participant is not
employed by any of the Company or its subsidiaries or affiliates.
<PAGE>
(d) For purposes of this Agreement, "Cause" shall have the meaning defined
in an employment agreement between the Company and Participant in effect at the
time of Termination of Employment or, if there is no such employment agreement,
"Cause" shall mean (a) willful malfeasance or willful misconduct by Participant
in connection with his or her employment, (b) continuing failure to perform such
duties as are requested by any employee to whom the Participant reports,
directly or indirectly, or by the board of directors of either the Company or
the subsidiary or affiliate employs Participant, (c) failure by Participant to
observe material policies of the Company or his or her employer applicable to
Participant, or (d) the commission by Participant of (i) any felony or (ii) any
misdemeanor involving moral turpitude.
3. Nontransferability.
Until RSUs become settleable under Section 4 hereof, RSUs shall not be
transferable other than by will or by the laws of descent and distribution or to
a designated beneficiary in the event of Participant's death, and no such
transfer shall be effective to bind the Company unless the Committee shall have
been furnished with a copy of such will or such other evidence as the Committee
may deem necessary to establish the validity of the transfer.
4. Settlement and Election to Defer Settlement.
RSUs granted hereunder, together with RSUs credited as a result of Dividend
Equivalents, shall be settled by delivery of one Share for each RSU being
settled. Settlement of an RSU granted hereunder shall occur upon the lapse of
the risk of forfeiture of such RSU under Section 2, except settlement shall be
deferred in certain cases if so elected by Participant in accordance with this
Section 4. Settlement of RSUs which directly or indirectly result from Dividend
Equivalents on RSUs granted hereunder shall occur at the time of settlement of
the granted RSU.
By filling out this Section 4, signing, and returning this Agreement to the
Human Resources Department at least six months prior to Scheduled Lapse Date (or
such other deadline as may be specified by the Director of Human Resources),
Participant may elect to defer the date of settlement of RSUs. An election
hereunder shall be effective only in the case of RSUs which, but for the
election, would have been settled more than six months after the filing of the
election.
Check Only One:
____ I hereby elect to have my RSUs settled upon the lapse of the risk of
forfeiture under Section 2 (Note: This election will apply if you do
not return the Agreement to the Company or if you do not check any
box).
____ I hereby elect to defer the settlement of my RSUs until the first
business day of the year (subject to accelerated settlement in the
event of a Change of Control Event, death of the Participant, or
Termination of Employment for any reason other than Retirement).
____ I hereby elect to defer the settlement of my RSUs until my Termination
of Employment for any reason. Termination of Employment includes my
death or Disability.
[Any elective deferral will be subject to such additional terms and
conditions as
<PAGE>
the Committee may impose, including terms and conditions under the Company's
1999 Deferred Compensation Plan.]
5. Dividend Equivalents and Adjustments.
(a) Dividend Equivalents shall be paid or credited on RSUs (other than RSUs
that, at the relevant record date, previously have been settled or forfeited) as
follows:
(i) Cash Dividends. If the Company declares and pays a dividend or
distribution on Common Stock in the form of cash, then a number of
additional RSUs shall be credited to Participant's Account as of
the payment date for such dividend or distribution equal to the
number of RSUs credited to the Account as of the record date for
such dividend or distribution multiplied by the amount of cash
actually paid as a dividend or distribution on each outstanding
Share at such payment date, divided by the Fair Market Value of a
Share at such payment date.
(ii) Non-Share Dividends. If the Company declares and pays a dividend
or distribution on Common Stock in the form of property other than
Shares, then a number of additional RSUs shall be credited to
Participant's Account as of the payment date for such dividend or
distribution equal to the number of RSUs credited to the Account
as of the record date for such dividend or distribution multiplied
by the Fair Market Value of such property actually paid as a
dividend or distribution on each outstanding Share at such payment
date, divided by the Fair Market Value of a Share at such payment
date.
(iii) Common Stock Dividends and Splits. If the Company declares and
pays a dividend or distribution on Common Stock in the form of
additional Shares, or there occurs a forward split of Common
Stock, then a number of additional RSUs shall be credited to
Participant's Account as of the payment date for such dividend or
distribution or forward split equal to the number of RSUs credited
to the Account as of the record date for such dividend or
distribution or split multiplied by the number of additional
Shares actually paid as a dividend or distribution or issued in
such split in respect of each outstanding Share.
(b) The number of RSUs credited to Participant's Account shall be
appropriately adjusted, in order to prevent dilution or enlargement of
Participants' rights with respect to RSUs, to reflect any changes in the
outstanding Shares resulting from any event referred to in Section 10(a) of the
Plan, taking into account any RSUs credited to Participant in connection with
such event under Section 5(a) hereof.
6. Other Terms Relating to RSUs.
(a) The number of RSUs credited to a Participant's Account shall include
fractional RSUs calculated to at least three decimal places, unless otherwise
determined by the Committee. Upon settlement of RSUs, Participant shall be paid,
in cash, an amount equal to the value of any fractional share that would have
otherwise been deliverable in settlement of such RSUs, unless the Company
arranges to deliver shares to an account of Participant to which fractional
shares may be credited without requiring the Company to in fact issue a
fractional share.
(b) It shall be a condition to the obligation of the Company to issue and
deliver Shares in settlement of the RSUs that the Participant (or any
Beneficiary) pay to the
<PAGE>
Company or a Participating Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to withhold
federal, state, or local income or other taxes. If the amount requested is not
paid, the Company may refuse to deliver the shares in settlement of the RSUs
until such amount is paid. The Committee may, in its discretion, permit a
Participant (or any Beneficiary of a Participant) to pay all or a portion of the
amount requested by the Company for such taxes at such time and in such manner
as the Committee shall deem to be appropriate, including by authorizing the
Company to withhold from the shares to be delivered in settlement, or by
agreeing to surrender to the Company on or about the date such tax liability is
determinable, Shares having a fair market value (as determined by the Committee)
equal to the amount of such tax liability or a specified portion of such tax
liability.
(c) An individual statement of each Participant's Account will be issued to
each Participant not less frequently than [annually]. Such statements shall
reflect the amount of RSUs credited to Participant's Account, transactions
therein during the period covered by the statement, and other information deemed
relevant by the [Director of Human Resources]. Such a statement may be combined
with or include information regarding other plans and compensatory arrangements
relating to Participant. A Participant's statements shall be deemed a part of
this Agreement, and shall evidence the Company's obligations in respect of RSUs,
including the number of RSUs credited as a result of Dividend Equivalents (if
any); provided, however, that any statement containing an error shall not
represent a binding obligation to the extent of such error.
7. Miscellaneous.
(a) This Agreement shall be legally binding when executed by both the
Company, provided that no election of Participant will be binding unless
Participant has executed the Agreement and returned it to the Human Resources
Department of the Company.
(b) This Agreement shall be binding upon the heirs, executors,
administrators and successors of the parties. This Agreement constitutes the
entire agreement between the parties with respect to the RSUs, and supersedes
any prior agreements or documents with respect to the RSUs. No amendment,
alteration, suspension, discontinuation or termination of this Agreement which
may impose any additional obligation upon the Company or impair the rights of
Participant with respect to the RSUs shall be valid unless in each instance such
amendment, alteration, suspension, discontinuation or termination is expressed
in a written instrument duly executed in the name and on behalf of the Company
and by Participant.
(c) All designations of Beneficiary shall be on such forms as are specified
by and filed with the Human Resources Department. Any Beneficiary designation
made by Participant in accordance with this provision may be changed from time
to time, without the consent of any previously designated Beneficiary (but
subject to any spousal consent as may be required), by filing with the Human
Resources Department a notice of such change on the form provided by the
Committee and such change of Beneficiary designation shall become effective upon
receipt by the Committee. In the event Participant's Beneficiary would otherwise
become entitled to a distribution hereunder, and all Beneficiaries designated by
Participant are not then living, or if no valid Beneficiary designation is in
effect, Participant's estate or duly authorized personal representative shall be
deemed to have been designated by Participant.
(d) Any provision for distribution in settlement of Participant's Account
hereunder shall be by means of bookkeeping entries on the books of the Company
and shall not create in Participant or any Beneficiary any right to, or claim
against any, specific assets of the Company, nor result in the creation of any
trust or escrow account for Participant or any
<PAGE>
Beneficiary. Participant or any Beneficiary entitled to any distribution
hereunder shall be a general creditor of the Company.
(e) Capitalized terms used in this Agreement but not defined herein shall
have the same meanings as in the Plan. If there is any conflict between the
provisions of this Agreement and the provisions of the Plan, the provisions of
the Plan shall govern.
* * * * *
By signing below and returning this Agreement to the Human Resources
Department, I elect to defer settlement of the RSUs until the applicable date
specified in Section 4, subject to earlier settlement in accordance with Section
4 and the other terms of the Plan and this Agreement. (Note: If you do not wish
to defer settlement past the Scheduled Lapse Date, you do not need to sign below
and return this Agreement to the Human Resources Department. If you elect to
further defer settlement, you should retain a copy of this Agreement for your
records.)
PARTICIPANT: Date:
[For HR Use Only: Date Received by Human Resources Department:
]
<PAGE>
RESTRICTED STOCK UNITS AGREEMENT
RESTRICTED STOCK UNITS GRANTED
UNDER THE 1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
This Restricted Stock Units Agreement (the "Agreement") confirms the grant of
Restricted Stock Units ("RSUs") on ____________ (the "Grant Date") by the
Compensation and Benefits Committee (the "Committee") of the Board of Directors
of IMS Health Incorporated (the "Company") as follows:
Participant Granted RSUs:
Number of RSUs Granted:
The RSUs are granted under the 1998 IMS Health Incorporated Employees' Stock
Incentive Plan (the "Plan"). The RSUs are subject to all the terms and
conditions of the Plan, which is attached hereto and incorporated herein by
reference, and are subject to the terms and conditions of this Agreement,
including the Terms and Conditions attached hereto.
Participant acknowledges and agrees that (i), until an RSU has become vested in
accordance with Section 2(a) hereof, such RSU will be subject to a risk of
forfeiture to the extent provided in Section 2 hereof, and (ii), until the later
of the time each RSU becomes vested or the end of any additional period of
deferral elected by Participant in accordance with Section 4 hereof, such RSU
shall be generally nontransferable, as provided in Section 3 hereof.
IN WITNESS WHEREOF, IMS Health Incorporated has caused this Agreement to be
executed by its officer thereunto duly authorized.
By the Company's signature, and your acceptance of these RSUs, you and the
Company agree to the terms of this Agreement. If you make any election in this
Agreement, you must sign the Agreement and return it to the Human Resources
Department.
IMS HEALTH INCORPORATED
/s/ KENNETH S. SIEGEL
---------------------
Kenneth S. Siegel
SVP, General Counsel and Secretary
<PAGE>
Term and Conditions
of Restricted Stock Units
1. Restricted Stock Units
Each RSU represents a generally nontransferable, conditional right to
receive one share of the Company's Common Stock (a "Share") at a specified
future date, together with a right to Dividend Equivalents and other rights,
subject to the terms and conditions of the Plan and this Agreement. RSUs are
bookkeeping units, and do not represent ownership of Shares or any other equity
security. The Company shall maintain a bookkeeping account for Participant (the
"Account") reflecting the number of RSUs then credited to Participant hereunder
as a result of this grant of RSUs and any crediting of additional RSUs to
Participant pursuant to payments equivalent to dividends paid on Shares under
Section 5 ("Dividend Equivalents"). For purposes of this Agreement, the term
"RSUs" includes RSUs as to which the risk of forfeiture has lapsed but which
remain subject to deferral of settlement.
2. Vesting and Forfeiture.
(a) RSUs granted hereunder shall vest (meaning that the risk of forfeiture
of such RSUs shall lapse) [as to one-third of the RSUs on each of the first
three anniversaries of the Grant Date (each being a "Scheduled Lapse Date")] [on
the first anniversary of the Grant Date (the "Scheduled Lapse Date")], except
that all RSUs shall vest on an accelerated basis upon the earliest of (i)
Termination of Employment (as defined below) by reason of Retirement (as defined
in the Plan), (ii) Termination of Employment by reason of death or Disability
(as defined in the Plan), (iii) the occurrence of a Change in Control (as
defined in the Plan), or (iv) any other event specified as resulting in
acceleration of RSUs in an employment agreement between the Company and
Participant in effect at the time of Termination of Employment. [In addition, a
portion of the RSUs, if not otherwise vested, shall vest upon the Participant's
Termination of Employment by the Company not for Cause (as defined below), which
portion shall equal the number of unvested RSUs remaining subject to this
Agreement and having the same Scheduled Lapse Date multiplied by a fraction the
numerator of which is the number of days elapsed from the Grant Date through the
date of Termination of Employment and the denominator of which is the number of
days from the Grant Date through such Scheduled Lapse Date.] Each RSU credited
as a result of Dividend Equivalents on a forfeitable RSU under Section 5(a)[(i)
shall be fully vested and nonforfeitable from and after the date of such
crediting, and each RSU credited as a result of Dividend Equivalents under
Section 5(a)(ii) and (iii)] shall vest at the time of vesting of the forfeitable
RSU which gives rise, directly or indirectly, to the crediting of such Dividend
Equivalent RSU. Each RSU credited as a result of Dividend Equivalents on a then
non-forfeitable RSU under Section 5(a) shall be fully vested and nonforfeitable
from and after the date of such crediting.
(b) In the event of Participant's Termination of Employment, all RSUs which
are not vested at or prior to the time of such Termination shall be forfeited,
unless otherwise determined by the Committee. Thus, upon Participant's voluntary
Termination of Employment or a Termination of Employment by the Company for
Cause, unvested RSUs generally will be forfeited.
(c) For purposes of this Agreement, a "Termination of Employment" shall
mean a termination of Participant's employment with the Company or a subsidiary
or affiliate of the Company if, immediately thereafter, Participant is not
employed by any of the Company or
<PAGE>
its subsidiaries or affiliates.
(d) For purposes of this Agreement, "Cause" shall have the meaning defined
in an employment agreement between the Company and Participant in effect at the
time of Termination of Employment or, if there is no such employment agreement,
"Cause" shall mean (a) willful malfeasance or willful misconduct by Participant
in connection with his or her employment, (b) continuing failure to perform such
duties as are requested by any employee to whom the Participant reports,
directly or indirectly, or by the board of directors of either the Company or
the subsidiary or affiliate employs Participant, (c) failure by Participant to
observe material policies of the Company or his or her employer applicable to
Participant, or (d) the commission by Participant of (i) any felony or (ii) any
misdemeanor involving moral turpitude.
3. Nontransferability.
Until RSUs become settleable under Section 4 hereof, RSUs shall not be
transferable other than by will or by the laws of descent and distribution or to
a designated beneficiary in the event of Participant's death, and no such
transfer shall be effective to bind the Company unless the Committee shall have
been furnished with a copy of such will or such other evidence as the Committee
may deem necessary to establish the validity of the transfer.
4. Settlement and Election to Defer Settlement.
RSUs granted hereunder, together with RSUs credited as a result of Dividend
Equivalents, shall be settled by delivery of one Share for each RSU being
settled. Settlement of an RSU granted hereunder shall occur upon the lapse of
the risk of forfeiture of such RSU under Section 2, except settlement shall be
deferred in certain cases if so elected by Participant in accordance with this
Section 4. Settlement of RSUs which directly or indirectly result from Dividend
Equivalents on RSUs granted hereunder shall occur at the time of settlement of
the granted RSU.
By filling out this Section 4, signing, and returning this Agreement to the
Human Resources Department at least six months prior to Scheduled Lapse Date for
any affected RSUs (or such other deadline as may be specified by the Director of
Human Resources), Participant may elect to defer the date of settlement of RSUs.
An election hereunder shall be effective only in the case of RSUs which, but for
the election, would have been settled more than six months after the filing of
the election.
Check Only One:
____ I hereby elect to have my RSUs settled upon the lapse of the risk of
forfeiture under Section 2 (Note: This election will apply if you do
not return the Agreement to the Company or if you do not check any
box).
____ I hereby elect to defer the settlement of my RSUs until the first
business day of the year (subject to accelerated settlement in the
event of a Change of Control Event, death of the Participant, or
Termination of Employment for any reason other than Retirement).
____ I hereby elect to defer the settlement of my RSUs until my Termination
of Employment for any reason. Termination of Employment includes my
death or Disability.
<PAGE>
[Any elective deferral will be subject to such additional terms and
conditions as the Committee may impose, including terms and conditions under the
Company's 1999 Deferred Compensation Plan.]
5. Dividend Equivalents and Adjustments.
(a) Dividend Equivalents shall be paid or credited on RSUs (other than RSUs
that, at the relevant record date, previously have been settled or forfeited) as
follows:
(i) Cash Dividends. If the Company declares and pays a dividend or
distribution on Common Stock in the form of cash, then a number of
additional RSUs shall be credited to Participant's Account as of
the payment date for such dividend or distribution equal to the
number of RSUs credited to the Account as of the record date for
such dividend or distribution multiplied by the amount of cash
actually paid as a dividend or distribution on each outstanding
Share at such payment date, divided by the Fair Market Value of a
Share at such payment date.
(ii) Non-Share Dividends. If the Company declares and pays a dividend
or distribution on Common Stock in the form of property other than
Shares, then a number of additional RSUs shall be credited to
Participant's Account as of the payment date for such dividend or
distribution equal to the number of RSUs credited to the Account
as of the record date for such dividend or distribution multiplied
by the Fair Market Value of such property actually paid as a
dividend or distribution on each outstanding Share at such payment
date, divided by the Fair Market Value of a Share at such payment
date.
(iii) Common Stock Dividends and Splits. If the Company declares and
pays a dividend or distribution on Common Stock in the form of
additional Shares, or there occurs a forward split of Common
Stock, then a number of additional RSUs shall be credited to
Participant's Account as of the payment date for such dividend or
distribution or forward split equal to the number of RSUs credited
to the Account as of the record date for such dividend or
distribution or split multiplied by the number of additional
Shares actually paid as a dividend or distribution or issued in
such split in respect of each outstanding Share.
(b) The number of RSUs credited to Participant's Account shall be
appropriately adjusted, in order to prevent dilution or enlargement of
Participants' rights with respect to RSUs, to reflect any changes in the
outstanding Shares resulting from any event referred to in Section 10(a) of the
Plan, taking into account any RSUs credited to Participant in connection with
such event under Section 5(a) hereof.
6. Other Terms Relating to RSUs.
(a) The number of RSUs credited to a Participant's Account shall include
fractional RSUs calculated to at least three decimal places, unless otherwise
determined by the Committee. Upon settlement of RSUs, Participant shall be paid,
in cash, an amount equal to the value of any fractional share that would have
otherwise been deliverable in settlement of such RSUs, unless the Company
arranges to deliver shares to an account of Participant to which fractional
shares may be credited without requiring the Company to in fact issue a
fractional share.
<PAGE>
(b) It shall be a condition to the obligation of the Company to issue and
deliver Shares in settlement of the RSUs that the Participant (or any
Beneficiary) pay to the Company or a Participating Company, upon its demand,
such amount as may be requested by the Company for the purpose of satisfying any
liability to withhold federal, state, or local income or other taxes. If the
amount requested is not paid, the Company may refuse to deliver the shares in
settlement of the RSUs until such amount is paid. The Committee may, in its
discretion, permit a Participant (or any Beneficiary of a Participant) to pay
all or a portion of the amount requested by the Company for such taxes at such
time and in such manner as the Committee shall deem to be appropriate, including
by authorizing the Company to withhold from the shares to be delivered in
settlement, or by agreeing to surrender to the Company on or about the date such
tax liability is determinable, Shares having a fair market value (as determined
by the Committee) equal to the amount of such tax liability or a specified
portion of such tax liability.
(c) An individual statement of each Participant's Account will be issued to
each Participant not less frequently than [annually]. Such statements shall
reflect the amount of RSUs credited to Participant's Account, transactions
therein during the period covered by the statement, and other information deemed
relevant by the [Director of Human Resources]. Such a statement may be combined
with or include information regarding other plans and compensatory arrangements
relating to Participant. A Participant's statements shall be deemed a part of
this Agreement, and shall evidence the Company's obligations in respect of RSUs,
including the number of RSUs credited as a result of Dividend Equivalents (if
any); provided, however, that any statement containing an error shall not
represent a binding obligation to the extent of such error.
7. Miscellaneous.
(a) This Agreement shall be legally binding when executed by both the
Company, provided that no election of Participant will be binding unless
Participant has executed the Agreement and returned it to the Human Resources
Department of the Company.
(b) This Agreement shall be binding upon the heirs, executors,
administrators and successors of the parties. This Agreement constitutes the
entire agreement between the parties with respect to the RSUs, and supersedes
any prior agreements or documents with respect to the RSUs. No amendment,
alteration, suspension, discontinuation or termination of this Agreement which
may impose any additional obligation upon the Company or impair the rights of
Participant with respect to the RSUs shall be valid unless in each instance such
amendment, alteration, suspension, discontinuation or termination is expressed
in a written instrument duly executed in the name and on behalf of the Company
and by Participant.
(c) All designations of Beneficiary shall be on such forms as are specified
by and filed with the Human Resources Department. Any Beneficiary designation
made by Participant in accordance with this provision may be changed from time
to time, without the consent of any previously designated Beneficiary (but
subject to any spousal consent as may be required), by filing with the Human
Resources Department a notice of such change on the form provided by the
Committee and such change of Beneficiary designation shall become effective upon
receipt by the Committee. In the event Participant's Beneficiary would otherwise
become entitled to a distribution hereunder, and all Beneficiaries designated by
Participant are not then living, or if no valid Beneficiary designation is in
effect, Participant's estate or duly authorized personal representative shall be
deemed to have been designated by Participant.
<PAGE>
(d) Any provision for distribution in settlement of Participant's Account
hereunder shall be by means of bookkeeping entries on the books of the Company
and shall not create in Participant or any Beneficiary any right to, or claim
against any, specific assets of the Company, nor result in the creation of any
trust or escrow account for Participant or any Beneficiary. Participant or any
Beneficiary entitled to any distribution hereunder shall be a general creditor
of the Company.
(e) Capitalized terms used in this Agreement but not defined herein shall
have the same meanings as in the Plan. If there is any conflict between the
provisions of this Agreement and the provisions of the Plan, the provisions of
the Plan shall govern.
* * * * *
By signing below and returning this Agreement to the Human Resources
Department, I elect to defer settlement of the RSUs until the applicable date
specified in Section 4, subject to earlier settlement in accordance with Section
4 and the other terms of the Plan and this Agreement. (Note: If you do not wish
to defer settlement past the Scheduled Lapse Date, you do not need to sign below
and return this Agreement to the Human Resources Department. If you elect to
further defer settlement, you should retain a copy of this Agreement for your
records.)
PARTICIPANT: Date:
[For HR Use Only: Date Received by Human Resources Department:
]
Exhibit 10.13
================================================================================
Notice of Grant of Stock Options IMS Health Incorporated
and Option Agreement
ID: 06-1506026
200 Nyala Farms
Westport, CT 06880
- - --------------------------------------------------------------------------------
Plan: IH98
- - ------------------------
================================================================================
Effective ____________, you have been granted a non-qualified stock option to
buy ______ shares of IMS Health Incorporated (the Company) stock at $_________
per share.
Shares will vest in accordance with the following schedule:
Percent Vesting Vest Date Expiration Date
--------------- --------- ---------------
one-third
one-third
one-third
If your employment terminates for any reason, other than death or Disability (as
defined in the Plan) after the date of grant of the above options, you may
exercise any options that were vested on the date of termination for a period of
90 days after such date. All unvested options on the date of such termination of
employment shall terminate.
If your employment terminates by reason of death or Disability after the date of
grant of the above options (i) any unexercised options will vest in full and
(ii) such options may then be exercised during the shorter of (A) the remaining
stated term of such options or (B) five years after the date of death or
Disability.
- - --------------------------------------------------------------------------------
By the Company's signature below, and your acceptance of the stock option grant,
you and the Company agree that these options are governed by the terms and
conditions of the Company's Employees' Stock Incentive Plan and the Plan
Prospectus, all of which are attached and made part of this document.
================================================================================
/s/ Kenneth S. Siegel
<PAGE>
Kenneth S. Siegel
SVP, General Counsel and Secretary
IMS Health Incorporated
[GRAPHIC OMITTED][GRAPHIC OMITTED] Exhibit 10.14
IMS Health Incorporated
PURCHASED OPTIONS OPPORTUNITY
ELECTION FORM
PLEASE COMPLETE AND RETURN THIS FORM BY ___________________
TO MARIE SONDE AT THE ADDRESS SHOWN BELOW
You have been granted certain options, which will be cancelled in the event you
do not elect to purchase the options as described below.
Steps For Completion:
1. Be sure to review the attached summary of the Employee Stock Incentive
Plan describing the terms of the purchased options before making your
election.
2. Purchasing options is voluntary. You may elect to purchase options in
addition to your regular stock option grant. You may elect to purchase a
minimum of ________ additional options up to a maximum of ________
options. This is a one-time opportunity which, if not acted upon by
____________, will expire and the associated options will be cancelled.
3. The exercise price of your purchased options is the Fair Market Value of
the IMS Health Common Stock on ___________, the grant date. By signing
this form, you agree to pay 10 percent of the exercise price, which is
due by ______________. The remaining 90 percent will be payable when you
exercise the options.
4. Payment for these options should be made in U.S. dollars and payable to:
" IMS HEALTH Incorporated." Payment should be sent to:
Marie Sonde
Director - Executive Compensation
IMS International
660 West Germantown Pike
Plymouth Meeting, PA 19462
Telephone: 732-528-3188
Fax: 732-528-3616
5. Check One: [ ] The number of options I wish to purchase = _______ options
[ ] I do not wish to purchase stock options.
6. I have received, reviewed and understand the materials describing the
terms of the purchased option opportunity and agree to pay the required
amount, if any, by _________________.
________________________________
Signature
________________________________
Date
- - --------------------------------------------------------------------------------
For Office Use Only-Confirmation Notification
- - --------------------------------------- -----------------------------------
Date Election Received from Participant Signature of Program Representative
<PAGE>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
IMS Health Incorporated
PURCHASED OPTIONS OPPORTUNITY
(Summary of Employee Stock Option Incentive Plan)
Certain participants in the Plan, in addition to a stock option grant,
have been provided the opportunity to purchase stock options.
Unlike an outright option grant, a participant must commit to pay 10% of
the Option Price of a Purchased Option at the time of grant. The Option Price
will be the Fair Market Value (as defined on the Election Form) of the Common
Stock on the grant date.
By signing a Purchased Option election form the participant agrees to pay
10% of the Option Price on the date designated. The remaining 90% will be
payable if and when the options are exercised.
Purchasing options is voluntary. A participant may purchase a minimum of
1,000 Purchased Options up to a maximum number offered to the participant. This
is a one-time opportunity which, if not acted upon by the designated date, will
expire.
The 10% purchase price is non-refundable if the Purchased Options expire
without being exercised. However, there will be a refund of a portion of the
purchase price if the participant's employment is terminated voluntarily or by
the Company without "cause", as defined in the Plan. In that event, only the
portion of the purchase price attributable to those Purchased Options that have
not yet vested will be refunded. The portion of the purchase price attributable
to those Purchased Options that have vested will be forfeited.
The Purchased Options vest in equal _____ increments over _____ years.
Thus, as an example, if employment is terminated without cause after one year,
the participant will forfeit _____ of the original 10% purchase price.
Upon retirement, death or disability, the general rules set forth in the
Plan apply to determine when options vest and for what extended period (if any)
they may be exercised. If any Purchased Options remain unvested at the end of
such extended exercise period, the participant will receive only the portion of
the purchase price attributable to those Purchased Options that have not yet
vested, and will forfeit the portion attributable to those Purchased options
that have vested.
The 10% purchase price is a down payment on the full Option Price. As
such, it will bear no interest, nor can a participant borrow against it.
Payment of the 10% purchase price does not entitle a participant to any
of the rights of a Company stockholder. Only by exercising a Purchased Option
and paying the rest of the Option Price will a participant obtain any Common
Stock.
Exhibit 10.15
TIER-I
CHANGE-IN-CONTROL AGREEMENT
FOR CERTAIN EXECUTIVES
OF IMS HEALTH INCORPORATED
Date
PERSONAL AND CONFIDENTIAL
[FirstName]
[JobTitle]
[Company]
Dear [LastName]:
IMS Health Incorporated (the "Company") considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that the possibility of a change in ownership or
control of the Company may result in the departure or distraction of such
personnel to the detriment of the Company and its stockholders. As you are a
skilled and dedicated executive with important management responsibilities and
talents, the Company believes that its best interests will be served if you are
encouraged to remain with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company, and
the Company's ability to retain you as an employee, will be significantly
enhanced if you are provided with fair and reasonable protection from the risks
of a change in ownership or control of the Company. Accordingly, in order to
induce you to remain in the employ of the Company, you and the Company agree as
follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, (i) this
Agreement shall be effective as of the date on which the shares of common stock
of the Company that are owned by Cognizant Corporation ("Cognizant") are
distributed to the holders of record of shares of Cognizant (July 1, 1998), and
shall continue in effect through December 31, 2001, and (ii) commencing on
January 1, 2002, and each January 1 thereafter, this Agreement shall be
automatically extended for one additional year unless, not later than September
30th of the preceding year, either party to this Agreement gives notice to the
other that the Agreement shall not be extended under this Section 1(a);
provided, however, that no such notice by the Company shall be effective if a
Change in Control or Potential Change in Control (both as defined herein) shall
have occurred prior to the date of such notice.
(b) Upon a Change in Control. If a Change in Control shall have occurred at
any time during the period in which this Agreement is effective, this Agreement
shall continue in effect for (i) the remainder of the month in which the Change
in Control occurred and (ii) a term of 24
<PAGE>
months beyond the month in which such Change in Control occurred (such entire
period hereinafter referred to as the "Protected Period").
2. Change in Control; Potential Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if, during the
term of this Agreement:
(i) any "Person," as such term is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the effectiveness of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other
than (A) a director nominated by a Person who has entered into an agreement
with the Company to effect a transaction described in Sections (2)(a)(i),
(iii) or (iv) hereof, (B) a director nominated by any Person (including the
Company) who publicly announces an intention to take or to consider taking
actions (including, but not limited to, an actual or threatened proxy
contest) which if consummated would constitute a Change in Control or (C) a
director nominated by any Person who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election by the
Board or nomination for election by the Company's stockholders was approved
in advance by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A) which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation and (B) after which no Person holds 20%
or more of the combined voting power of the then-outstanding securities of
the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Change in Control has occurred.
(b) A "Potential Change in Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
2
<PAGE>
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
(c) Employee Covenants. You agree that, subject to the terms and conditions
of this Agreement, in the event of a Potential Change in Control, you will
remain in the employ of the Company until the earliest of (i) a date which is
180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
(d) Company Covenant Regarding Potential Change in Control. In the event of
a Potential Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit therein
cash in an amount sufficient to provide for full payment of all potential
obligations of the Company that would arise assuming consummation of a Change in
Control and a subsequent termination of your employment under Section 3(b). Such
rabbi trust(s) shall be irrevocable and shall provide that the Company may not,
directly or indirectly, use or recover any assets of the trust(s) until such
time as all obligations which potentially could arise hereunder have been
settled and paid in full, subject only to the claims of creditors of the Company
in the event of insolvency or bankruptcy of the Company.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good Reason, or by
Reason of Death or Disability. If during the Protected Period your employment by
the Company is terminated by the Company for Cause, by you without Good Reason,
or because of your death or Disability, the Company shall be relieved of its
obligation to make any payments to you other than (i) its payment of amounts
otherwise accrued and owing but not yet paid and (ii) any amounts payable under
then-existing employee benefit programs at the time such amounts are due.
(b) Termination by the Company Without Cause or by You for Good Reason. If
during the Protected Period your employment by the Company is terminated by the
Company without cause or by you for Good Reason, you shall be entitled to the
compensation and benefits described in this Section 3(b). If your employment by
the Company is terminated prior to a Change in Control at the request of a
Person engaging in a transaction or series of transactions that would result in
a Change in Control, the Protected Period shall commence upon the subsequent
occurrence of a Change in Control, your actual termination shall be deemed a
termination occurring during the Protected Period and covered by this Section
3(b), your Date of Termination shall be deemed to have occurred immediately
following the Change in Control, and Notice of Termination shall be deemed to
have been given by the Company immediately prior to your actual termination.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason hereunder. The
compensation and benefits provided under this Section 3(b) are as follows:
(i) The Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is
given, no later than the fifth day following the Date of Termination, and
you shall receive all other amounts to which you are entitled under any
compensation or benefit plan of the Company, at the time such payments are
due.
(ii) At the time specified in Section 3(d) hereof, the Company shall
pay you, in lieu of any further salary, bonus or severance payments for
periods subsequent to the Date of Termination, a lump sum amount in cash
equal to three times the sum of:
3
<PAGE>
(A) the greater of (I) your annual base salary in effect
immediately prior to the Change in Control of the Company or (II) your
annual base salary in effect at the time Notice of Termination is
given; and
(B) the greater of (I) your annual target bonus for the year in
which the Change in Control occurs or, (II) if no such target bonus
has yet been determined for such year, your annual target bonus
actually earned by you in the year immediately preceding the year in
which the Change in Control occurs.
(iii) You shall be deemed fully vested under any nonqualified pension
plan of a type described in Section 201(2) of the Employee Retirement
Income Security Act of 1974, as amended, in which you participate at the
time of the Change in Control (except for any such plan established for the
sole purpose of restoring qualified pension benefits that were reduced due
to limitations imposed by Sections 415 and 401(a)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")), and such nonqualified
pension plan shall be referred to as a "Covered Top-Hat Plan" for purposes
of this Section 3(b)(iii). The benefit to which you shall be entitled under
any Covered Top-Hat Plan (the "Covered Top-Hat Plan Benefit") shall be
determined using:
(A) the maximum credited service allowed to be taken into account
under the Covered Top-Hat Plan's benefit formula; and
(B) your salary and bonus taken into account under Section
3(b)(ii) hereof as your final average compensation.
Your Covered Top-Hat Plan benefit shall be payable upon the later of (A)
the date on which you turn 55 or (B) the date on which you terminate
employment from the Company. For purposes of calculating your Covered
Top-Hat Plan Benefit, you shall be deemed to have retired from the Company
at normal retirement age as if the Company had consented to such
retirement. Exhibit A to this Agreement sets forth an example of how the
compensation and benefits provided under this Section 3(b)(iii) shall be
determined.
(iv) At the time specified in Section 3(d) hereof, the Company shall
pay to you, in lieu of amounts which may otherwise be payable to you under
any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your annual
target bonus for the year in which the Change in Control occurs, multiplied
by a fraction, (I) the numerator of which equals the number of full or
partial days in such annual performance period during which you were
employed by the Company and (II) the denominator of which is 365, and (B)
the entire target bonus opportunity with respect to each performance period
in progress under all other Bonus Plans in effect at the time of
termination. Notwithstanding the foregoing, this Section 3(b)(iv) shall not
apply with respect to any amounts which may otherwise be payable to you
under the Company's Senior Executive Incentive Plan or any other Bonus Plan
of the Company that applies primarily to "covered employees" within the
meaning of Section 162(m) of the Code.
(v) The Company shall provide you with a cash allowance, at the time
specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial expenses)
in the amount of 20% of your annual base salary and annual target bonus
taken into account under Section 3(b)(ii) hereof, provided that (A) such
cash allowance shall not exceed $100,000 and (B) such cash allowance shall
apply only to those costs or obligations that are incurred by you during
the 36-month period following your termination of employment.
(vi) For a 36-month period following your termination of employment,
the Company shall arrange to provide you with life and health insurance
benefits no less favorable than those which you were receiving immediately
prior to the Notice of Termination. Notwithstanding the foregoing, any
benefit described in the preceding sentence shall constitute
4
<PAGE>
secondary coverage with respect to any life and health insurance benefits
actually received by you in connection with any subsequent employment (or
self-employment) during the 36-month period following your termination.
(vii) Starting at age 55, you shall receive retiree medical and life
benefits from the Company. Such benefits shall be no less favorable than
the benefits that you would have received had you, at the time Notice of
Termination is given, both (A) attained age 55 and (B) retired from the
Company. Notwithstanding the foregoing, any benefit described in the
preceding sentence shall constitute secondary coverage with respect to
retiree medical and life benefits actually received by you in connection
with any subsequent employment (or self-employment) following your
termination.
(c) Excise Tax. In the event you become entitled to any amounts payable in
connection with a Change in Control (whether or not such amounts are payable
pursuant to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code (or any similar federal, state or local tax that may hereafter be
imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any other
payments or benefits received or to be received by you in connection with a
Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
(ii) the amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the total amount of the Total
Payments and (B) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and
(iii) the value of any non-cash benefits or any deferred payments or benefit
shall be determined by a nationally-recognized accounting firm selected by you
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, you shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an
5
<PAGE>
additional gross-up payment in respect of such excess within ten days after the
time that the amount of such excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iv) and 3(c) hereof shall be made not later than the fifteenth day
following the Date of Termination; provided, however, that if the amount of such
payments cannot be finally determined on or before such day, the Company shall
pay to you on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to you,
payable on the fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code). The
payments provided in Section 3(b)(v) hereof shall be made not later than the
fifteenth day following the submission of each receipt to the Company evidencing
costs or obligations incurred by you in connection with outplacement counseling
and job search activities.
(e) Notice. During the Protected Period, any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto.
(f) Certain Definitions. Except as otherwise indicated in this Agreement,
all definitions in this Section 3(f) shall be applicable during the Protected
Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive
months as a result of your incapacity due to physical or mental illness or
disability, and within 30 days after written Notice of Termination is
thereafter given you shall not have returned to the full-time performance
of your duties.
(ii) Cause. "Cause" shall mean termination on account of (A) the
willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or disability or any failure
after the issuance of a Notice of Termination by you for Good Reason) which
failure is demonstrably and materially damaging to the financial condition
or reputation of the Company and/or its subsidiaries, and which failure
continues more than 48 hours after a written demand for substantial
performance is delivered to you by the Board, which demand specifically
identifies the manner in which the Board believes that you have not
substantially performed your duties or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. No act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was in the
best interest of the Company. Notwithstanding the foregoing, you shall not
be deemed to have been terminated for Cause unless and until there shall
have been delivered to you a copy of the resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) off the entire
membership of the Board at a meeting of the Board (after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board, you
were guilty of conduct set forth above in this Section 3(f)(ii) and
specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your express
written consent, the occurrence upon or after a Change in Control of any of
the following circumstances unless, in the case of Sections 3(f)(iii)(A),
(E), (F) or (G) hereof, such circumstances are fully corrected prior to the
Date of Termination specified in the Notice of Termination given in respect
thereof:
6
<PAGE>
(A) the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change
in Control, or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control; for this purpose,
if, at the time of the Change in Control, you held the office of Chief
Executive Officer of the Company, it shall constitute duties
inconsistent with such position if you shall be required to report to
and take direction from anyone other than the Board of Directors of
the Company, and if, at the time of the Change in Control, you held
the office of Chief Operating Officer of the Company, it shall
constitute duties inconsistent with such position if you shall be
required to report to and take direction from anyone other than the
Board of Directors or the Chief Executive Officer of the Company;
(B) a reduction by the Company in your annual base salary, any
target bonus or perquisites as in effect immediately prior to the
Change in Control or as the same may be increased from time to time
except for across-the-board perquisite reductions similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company;
(C) the relocation of the principle place of your employment to a
location outside of (I) New York City, (II) Westchester County, New
York, (III) Fairfield County, Connecticut (IV) Montgomery County,
Pennsylvania or (V) Passaic County, New Jersey; except for required
travel on the Company's business to an extent substantially consistent
with your business travel obligations prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of your
compensation or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of the
Company within seven days of the date such compensation is due;
(E) the failure by the Company to continue in effect any material
compensation or benefit plan in which you participated immediately
prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue
your participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amounts
of benefits provided and the level of your participation relative to
other participants, as existed at the time of the Change in Control;
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof; or
(G) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f)(iv) hereof (and, if applicable, the
requirements of Section 3(f)(ii) hereof), which purported termination
shall not be effective for purposes of this Agreement.
(iv) Notice of Termination. "Notice of Termination" shall mean notice
indicating the specific termination provision in this Agreement relied upon
and setting forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of your employment under the provision
so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if your
employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such 30-day period) or (B) if
your employment is terminated for any other reason, the date specified in
the Notice of
7
<PAGE>
Termination (which, in the case of a termination for Cause, shall not be
less than 30 days from the date such Notice of Termination is given and, in
the case of a termination for Good Reason, shall not be less than 15 nor
more than 60 days from the date such Notice of Termination is given).
4. Mitigation. Except as provided in Section 3(b)(vi) and (vii) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of your
death, all amounts otherwise payable to you hereunder shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be designated by the Board. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the time or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without regard to its conflicts of law
principles. All references to sections of the
8
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Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law.
The obligations of the Company under this Agreement shall survive the expiration
of this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and during the
term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
IMS HEALTH INCORPORATED
By: _______________________________________
[Chairman and Chief Executive Officer]
or
[President and Chief Operating Officer]
Agreed to this ____________________ day
of ____________________________, 199[ ].
- - ---------------------------------------
Name
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EXHIBIT A
Covered Top Hat Plan
Sample Illustration
Name of Participant Sample Employee
Social Security Number 123-45-6789
Date of Birth 01/01/48
Date of Hire 01/01/91
Current Age 50
Calculation as of: 01/01/98 01/01/98
No Change Change in
in Control Control
---------- -------
1) Final Average 250,000 300,000
Earnings*
2) Credited Service 7 15
(for Covered Top
Hat Plan)
3) Benefit 35% 60%
Percentage
(5% x (2) up to
10 years of
service plus 2%
x (2) from 10 to
15 years of
service)
4) Total Gross 87,500 180,000
Benefit
((1) x (3))
5) Retirement Plan 9,400 9,400
Offset **
6) Social Security 6,700 6,700
Benefit Offset
7) Accrued Covered 71,400 163,900
Top Hat Plan
Benefit
((4) - (5) - (6))
8) Early Retirement 50% 100%
Reduction
Factor***
9) Vested 100% 100%
Percentage ****
10) Vested Covered 35,700 163,900
Top Hat Plan
Benefit
((7) x (8) x (9))
*****
10
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- - ----------
* The calculations based on "No Change in Control" reflect the terms of the
proposed covered top hat plan including five-year final average earnings;
"Change in Control" calculations are based on earnings as determined
under Section 3(b)(ii) of the Agreement.
** The retirement plan offset is based on the terms of Cognizant's current
Master Retirement Plan. It is equal to the vested benefit payable from
that plan. For participants with less than 5 years of service, the vested
benefit is 0.
*** If a participant terminates prior to retirement eligibility (age 55 and
10 years of service) and without the Corporation's consent, benefits are
reduced 10% for each year that commencement precedes age 60.
**** "No Change in Control" calculations reflect full vesting after 5 years;
"Change in Control" calculations reflect automatic 100% vesting
regardless of service.
***** Annual benefit payable for life starting at age 55, or immediately if
over age 55.
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TIER-2
CHANGE-IN-CONTROL AGREEMENT
FOR CERTAIN EXECUTIVES
OF IMS HEALTH INCORPORATED
Date
PERSONAL AND CONFIDENTIAL
[FirstName]
[JobTitle]
[Company]
Dear [LastName]:
IMS Health Incorporated (the "Company") considers it essential to the
best interests of its stockholders to foster the continued employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that the possibility of a change in ownership or
control of the Company may result in the departure or distraction of such
personnel to the detriment of the Company and its stockholders. As you are a
skilled and dedicated executive with important management responsibilities and
talents, the Company believes that its best interests will be served if you are
encouraged to remain with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company, and
the Company's ability to retain you as an employee, will be significantly
enhanced if you are provided with fair and reasonable protection from the risks
of a change in ownership or control of the Company. Accordingly, in order to
induce you to remain in the employ of the Company, you and the Company agree as
follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, (i) this
Agreement shall be effective as of the date on which the shares of common stock
of the Company that are owned by Cognizant Corporation ("Cognizant") are
distributed to the holders of record of shares of Cognizant (July 1, 1998), and
shall continue in effect through December 31, 2001, and (ii) commencing on
January 1, 2002, and each January 1 thereafter, this Agreement shall be
automatically extended for one additional year unless, not later than September
30th of the preceding year, either party to this Agreement gives notice to the
other that the Agreement shall not be extended under this Section 1(a);
provided, however, that no such notice by the Company shall be effective if a
Change in Control or Potential Change in Control (both as defined herein) shall
have occurred prior to the date of such notice.
(b) Upon a Change in Control. If a Change in Control shall have occurred
at any time during the period in which this Agreement is effective, this
Agreement shall continue in effect for (i) the remainder of the month in which
the Change in Control occurred and (ii) a term of 24 months beyond the month in
which such Change in Control occurred (such entire period hereinafter referred
to as the "Protected Period").
2. Change in Control; Potential Change in Control.
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(a) A "Change in Control" shall be deemed to have occurred if, during the
term of this Agreement:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the effectiveness of this Agreement), individuals who at
the beginning of such period constitute the Board, and any new director
(other than (A) a director nominated by a Person who has entered into an
agreement with the Company to effect a transaction described in Sections
(2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a Change
in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A) which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and (B) after which no
Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Change in Control has occurred.
(b) A "Potential Change in Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
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<PAGE>
(c) Employee Covenants. You agree that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, you
will remain in the employ of the Company until the earliest of (i) a date which
is 180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
(d) Company Covenant Regarding Potential Change in Control. In the event
of a Potential Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit therein
cash in an amount sufficient to provide for full payment of all potential
obligations of the Company that would arise assuming consummation of a Change in
Control and a subsequent termination of your employment under Section 3(b). Such
rabbi trust(s) shall be irrevocable and shall provide that the Company may not,
directly or indirectly, use or recover any assets of the trust(s) until such
time as all obligations which potentially could arise hereunder have been
settled and paid in full, subject only to the claims of creditors of the Company
in the event of insolvency or bankruptcy of the Company.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good Reason, or
by Reason of Death or Disability. If during the Protected Period your employment
by the Company is terminated by the Company for Cause, by you without Good
Reason, or because of your death or Disability, the Company shall be relieved of
its obligation to make any payments to you other than (i) its payment of amounts
otherwise accrued and owing but not yet paid and (ii) any amounts payable under
then-existing employee benefit programs at the time such amounts are due.
(b) Termination by the Company Without Cause or by You for Good Reason.
If during the Protected Period your employment by the Company is terminated by
the Company without cause or by you for Good Reason, you shall be entitled to
the compensation and benefits described in this Section 3(b). If your employment
by the Company is terminated prior to a Change in Control at the request of a
Person engaging in a transaction or series of transactions that would result in
a Change in Control, the Protected Period shall commence upon the subsequent
occurrence of a Change in Control, your actual termination shall be deemed a
termination occurring during the Protected Period and covered by this Section
3(b), your Date of Termination shall be deemed to have occurred immediately
following the Change in Control, and Notice of Termination shall be deemed to
have been given by the Company immediately prior to your actual termination.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason hereunder. The
compensation and benefits provided under this Section 3(b) are as follows:
(i) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, no later than the fifth day following the Date of
Termination, and you shall receive all other amounts to which you are
entitled under any compensation or benefit plan of the Company, at the
time such payments are due.
(ii) At the time specified in Section 3(d) hereof, the Company
shall pay you, in lieu of any further salary, bonus or severance payments
for periods subsequent to the Date of Termination, a lump sum amount in
cash equal to three times the sum of:
(A) the greater of (I) your annual base salary in effect
immediately prior to the Change in Control of the Company or (II)
your annual base salary in effect at the time Notice of
Termination is given; and
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<PAGE>
(B) the greater of (I) your annual target bonus for the
year in which the Change in Control occurs or, (II) if no such
target bonus has yet been determined for such year, your annual
target bonus actually earned by you in the year immediately
preceding the year in which the Change in Control occurs.
(iii) At the time specified in Section 3(d) hereof, the Company
shall pay to you, in lieu of amounts which may otherwise be payable to
you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A)
your annual target bonus for the year in which the Change in Control
occurs, multiplied by a fraction, (I) the numerator of which equals the
number of full or partial days in such annual performance period during
which you were employed by the Company and (II) the denominator of which
is 365, and (B) the entire target bonus opportunity with respect to each
performance period in progress under all other Bonus Plans in effect at
the time of termination. Notwithstanding the foregoing, this Section
3(b)(iii) shall not apply with respect to any amounts which may otherwise
be payable to you under the Company's Senior Executive Incentive Plan or
any other Bonus Plan of the Company that applies primarily to "covered
employees" within the meaning of Section 162(m) of the Code.
(iv) The Company shall provide you with a cash allowance, at the
time specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial
expenses) in the amount of 20% of your annual base salary and annual
target bonus taken into account under Section 3(b)(ii) hereof, provided
that (A) such cash allowance shall not exceed $100,000 and (B) such cash
allowance shall apply only to those costs or obligations that are
incurred by you during the 36-month period following your termination of
employment.
(v) For a 36-month period following your termination of
employment, the Company shall arrange to provide you with life and health
insurance benefits no less favorable than those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, any benefit described in the preceding sentence shall
constitute secondary coverage with respect to any life and health
insurance benefits actually received by you in connection with any
subsequent employment (or self-employment) during the 36-month period
following your termination.
(vi) Starting at age 55, you shall receive retiree medical and
life benefits from the Company. Such benefits shall be no less favorable
than the benefits that you would have received had you, at the time
Notice of Termination is given, both (A) attained age 55 and (B) retired
from the Company. Notwithstanding the foregoing, any benefit described in
the preceding sentence shall constitute secondary coverage with respect
to retiree medical and life benefits actually received by you in
connection with any subsequent employment (or self-employment) following
your termination.
(c) Excise Tax. In the event you become entitled to any amounts payable
in connection with a Change in Control (whether or not such amounts are payable
pursuant to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code (or any similar federal, state or local tax that may hereafter be
imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any other
payments or benefits received or to be received by you in connection with a
Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
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payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
(ii) the amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the total amount of the Total
Payments and (B) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and
(iii) the value of any non-cash benefits or any deferred payments or benefit
shall be determined by a nationally-recognized accounting firm selected by you
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, you shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that the amount of such
excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day
following the Date of Termination; provided, however, that if the amount of such
payments cannot be finally determined on or before such day, the Company shall
pay to you on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to you,
payable on the fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code). The
payments provided in Section 3(b)(iv) hereof shall be made not later than the
fifteenth day following the submission of each receipt to the Company evidencing
costs or obligations incurred by you in connection with outplacement counseling
and job search activities.
(e) Notice. During the Protected Period, any purported termination of
your employment by the Company or by you shall be communicated by written Notice
of Termination to the other party hereto.
(f) Certain Definitions. Except as otherwise indicated in this Agreement,
all definitions in this Section 3(f) shall be applicable during the Protected
Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive
months as a result of your
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incapacity due to physical or mental illness or disability, and within 30
days after written Notice of Termination is thereafter given you shall
not have returned to the full-time performance of your duties.
(ii) Cause. "Cause" shall mean termination on account of (A) the
willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or disability or any failure
after the issuance of a Notice of Termination by you for Good Reason)
which failure is demonstrably and materially damaging to the financial
condition or reputation of the Company and/or its subsidiaries, and which
failure continues more than 48 hours after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you
have not substantially performed your duties or (B) the willful engaging
by you in conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. No act, or failure to act, on your part
shall be deemed "willful" unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of the resolution
duly adopted by the affirmative vote of not less than three-quarters
(3/4) off the entire membership of the Board at a meeting of the Board
(after reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, you were guilty of conduct set forth above in
this Section 3(f)(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your express
written consent, the occurrence upon or after a Change in Control of any
of the following circumstances unless, in the case of Sections
3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(A) the assignment to you of any duties inconsistent with
the position in the Company that you held immediately prior to the
Change in Control, or an adverse alteration in the nature or
status of your responsibilities or the conditions of your
employment from those in effect immediately prior to such Change
in Control;
(B) a reduction by the Company in your annual base salary,
any target bonus or perquisites as in effect immediately prior to
the Change in Control or as the same may be increased from time to
time except for across-the-board perquisite reductions similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company;
(C) the relocation of the principle place of your
employment to a location more than 50 miles from the location of
such place of employment on the date of this Agreement; except for
required travel on the Company's business to an extent
substantially consistent with your business travel obligations
prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of
your compensation or to pay to you any portion of an installment
of deferred compensation under any deferred compensation program
of the Company within seven days of the date such compensation is
due;
(E) the failure by the Company to continue in effect any
material compensation or benefit plan in which you participated
immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue your participation therein (or in such
substitute or alternative plan) on a basis not materially
17
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less favorable, both in terms of the amounts of benefits provided
and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
(F) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof; or
(G) any purported termination of your employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f)(iv) hereof (and, if applicable, the
requirements of Section 3(f)(ii) hereof), which purported
termination shall not be effective for purposes of this Agreement.
(iv) Notice of Termination. "Notice of Termination" shall mean
notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such 30-day period) or (B) if
your employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination for Cause,
shall not be less than 30 days from the date such Notice of Termination
is given and, in the case of a termination for Good Reason, shall not be
less than 15 nor more than 60 days from the date such Notice of
Termination is given).
4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees,
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devisees and legatees. In the event of your death, all amounts otherwise payable
to you hereunder shall, unless otherwise provided herein, be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under this Agreement shall survive the expiration of
this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
IMS HEALTH INCORPORATED
By: _______________________________________
[Chairman and Chief Executive Officer]
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or
[President and Chief Operating Officer]
Agreed to this ____________________ day
of ____________________________, 1997.
- - ---------------------------------------
Name
20
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TIER-3
CHANGE-IN-CONTROL AGREEMENT
FOR CERTAIN EXECUTIVES
OF IMS HEALTH INCORPORATED
Date
PERSONAL AND CONFIDENTIAL
[FirstName]
[JobTitle]
[Company]
Dear [LastName]:
IMS Health Incorporated (the "Company") considers it essential to the
best interests of its stockholders to foster the continued employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that the possibility of a change in ownership or
control of the Company may result in the departure or distraction of such
personnel to the detriment of the Company and its stockholders. As you are a
skilled and dedicated executive with important management responsibilities and
talents, the Company believes that its best interests will be served if you are
encouraged to remain with the Company.
The Company has determined that your ability to perform your
responsibilities and utilize your talents for the benefit of the Company, and
the Company's ability to retain you as an employee, will be significantly
enhanced if you are provided with fair and reasonable protection from the risks
of a change in ownership or control of the Company. Accordingly, in order to
induce you to remain in the employ of the Company, you and the Company agree as
follows:
1. Term of Agreement.
(a) Generally. Except as provided in Section 1(b) hereof, (i) this
Agreement shall be effective as of the date on which the shares of common stock
of the Company that are owned by Cognizant Corporation ("Cognizant") are
distributed to the holders of record of shares of Cognizant (July 1, 1998), and
shall continue in effect through December 31, 2001, and (ii) commencing on
January 1, 2002, and each January 1 thereafter, this Agreement shall be
automatically extended for one additional year unless, not later than September
30th of the preceding year, either party to this Agreement gives notice to the
other that the Agreement shall not be extended under this Section 1(a);
provided, however, that no such notice by the Company shall be effective if a
Change in Control or Potential Change in Control (both as defined herein) shall
have occurred prior to the date of such notice.
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(b) Upon a Change in Control. If a Change in Control shall have occurred
at any time during the period in which this Agreement is effective, this
Agreement shall continue in effect for (i) the remainder of the month in which
the Change in Control occurred and (ii) a term of 24 months beyond the month in
which such Change in Control occurred (such entire period hereinafter referred
to as the "Protected Period").
2. Change in Control; Potential Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if, during the
term of this Agreement:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the effectiveness of this Agreement), individuals who at
the beginning of such period constitute the Board, and any new director
(other than (A) a director nominated by a Person who has entered into an
agreement with the Company to effect a transaction described in Sections
(2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a Change
in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A) which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and (B) after which no
Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Change in Control has occurred.
(b) A "Potential Change in Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
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<PAGE>
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control; or (iii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(c) Employee Covenants. You agree that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, you
will remain in the employ of the Company until the earliest of (i) a date which
is 180 days from the occurrence of such Potential Change in Control, (ii) the
termination of your employment by reason of Disability (as defined herein) or
(iii) the date on which you first become entitled under this Agreement to
receive the benefits provided in Section 3(b) hereof.
(d) Company Covenant Regarding Potential Change in Control. In the event
of a Potential Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit therein
cash in an amount sufficient to provide for full payment of all potential
obligations of the Company that would arise assuming consummation of a Change in
Control and a subsequent termination of your employment under Section 3(b). Such
rabbi trust(s) shall be irrevocable and shall provide that the Company may not,
directly or indirectly, use or recover any assets of the trust(s) until such
time as all obligations which potentially could arise hereunder have been
settled and paid in full, subject only to the claims of creditors of the Company
in the event of insolvency or bankruptcy of the Company.
3. Termination.
(a) Termination by the Company for Cause, by You Without Good Reason, or
by Reason of Death or Disability. If during the Protected Period your employment
by the Company is terminated by the Company for Cause, by you without Good
Reason, or because of your death or Disability, the Company shall be relieved of
its obligation to make any payments to you other than (i) its payment of amounts
otherwise accrued and owing but not yet paid and (ii) any amounts payable under
then-existing employee benefit programs at the time such amounts are due.
(b) Termination by the Company Without Cause or by You for Good Reason.
If during the Protected Period your employment by the Company is terminated by
the Company without cause or by you for Good Reason, you shall be entitled to
the compensation and benefits described in this Section 3(b). If your employment
by the Company is terminated prior to a Change in Control at the request of a
Person engaging in a transaction or series of transactions that would result in
a Change in Control, the Protected Period shall commence upon the subsequent
occurrence of a Change in Control, your actual termination shall be deemed a
termination occurring during the Protected Period and covered by this Section
3(b), your Date of Termination shall be deemed to have occurred immediately
following the Change in Control, and Notice of Termination shall be deemed to
have been given by the Company immediately prior to your actual termination.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason hereunder. The
compensation and benefits provided under this Section 3(b) are as follows:
(i) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, no later than the fifth day following the Date of
Termination, and you shall receive all other amounts to which you are
entitled under any compensation or benefit plan of the Company, at the
time such payments are due.
(ii) At the time specified in Section 3(d) hereof, the Company
shall pay you, in lieu of any further salary, bonus or severance payments
for periods subsequent to the Date of Termination, a lump sum amount in
cash equal two times the sum of:
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(A) the greater of (I) your annual base salary in effect
immediately prior to the Change in Control of the Company or (II)
your annual base salary in effect at the time Notice of
Termination is given; and
(B) the greater of (I) your annual target bonus for the
year in which the Change in Control occurs or, (II) if no such
target bonus has yet been determined for such year, your annual
target bonus actually earned by you in the year immediately
preceding the year in which the Change in Control occurs.
(iii) At the time specified in Section 3(d) hereof, the Company
shall pay to you, in lieu of amounts which may otherwise be payable to
you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A)
your annual target bonus for the year in which the Change in Control
occurs, multiplied by a fraction, (I) the numerator of which equals the
number of full or partial days in such annual performance period during
which you were employed by the Company and (II) the denominator of which
is 365, and (B) the entire target bonus opportunity with respect to each
performance period in progress under all other Bonus Plans in effect at
the time of termination. Notwithstanding the foregoing, this Section
3(b)(iii) shall not apply with respect to any amounts which may otherwise
be payable to you under the Company's Senior Executive Incentive Plan or
any other Bonus Plan of the Company that applies primarily to "covered
employees" within the meaning of Section 162(m) of the Code.
(iv) The Company shall provide you with a cash allowance, at the
time specified in Section 3(d) hereof, for outplacement and job search
activities (including, but not limited to, office and secretarial
expenses) in the amount of 20% of your annual base salary and annual
target bonus taken into account under Section 3(b)(ii) hereof, provided
that (A) such cash allowance shall not exceed $100,000 and (B) such cash
allowance shall apply only to those costs or obligations that are
incurred by you during the 36-month period following your termination of
employment.
(v) For a 24-month period following your termination of
employment, the Company shall arrange to provide you with life and health
insurance benefits no less favorable than those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, any benefit described in the preceding sentence shall
constitute secondary coverage with respect to any life and health
insurance benefits actually received by you in connection with any
subsequent employment (or self-employment) during the 24-month period
following your termination.
(vi) Starting at age 55, you shall receive retiree medical and
life benefits from the Company. Such benefits shall be no less favorable
than the benefits that you would have received had you, at the time
Notice of Termination is given, both (A) attained age 55 and (B) retired
from the Company. Notwithstanding the foregoing, any benefit described in
the preceding sentence shall constitute secondary coverage with respect
to retiree medical and life benefits actually received by you in
connection with any subsequent employment (or self-employment) following
your termination.
(c) Excise Tax. In the event you become entitled to any amounts payable
in connection with a Change in Control (whether or not such amounts are payable
pursuant to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code (or any similar federal, state or local tax that may hereafter be
imposed), the Company shall pay to you at the time specified in Section 3(d)
hereof an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total Payments (as
hereinafter defined) and any federal, state and local income tax and Excise Tax
upon the payment provided for by this Section 3(c), shall be equal to the Total
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax: (i) any
24
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other payments or benefits received or to be received by you in connection with
a Change in Control or your termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by you such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
(ii) the amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the total amount of the Total
Payments and (B) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and
(iii) the value of any non-cash benefits or any deferred payments or benefit
shall be determined by a nationally-recognized accounting firm selected by you
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, you shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company within ten
days after the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax and/or
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that the amount of such
excess is finally determined.
(d) Time of Payment. The payments provided for in Sections 3(b)(ii),
3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day
following the Date of Termination; provided, however, that if the amount of such
payments cannot be finally determined on or before such day, the Company shall
pay to you on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to you,
payable on the fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code). The
payments provided in Section 3(b)(iv) hereof shall be made not later than the
fifteenth day following the submission of each receipt to the Company evidencing
costs or obligations incurred by you in connection with outplacement counseling
and job search activities.
(e) Notice. During the Protected Period, any purported termination of
your employment by the Company or by you shall be communicated by written Notice
of Termination to the other party hereto.
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<PAGE>
(f) Certain Definitions. Except as otherwise indicated in this Agreement,
all definitions in this Section 3(f) shall be applicable during the Protected
Period only.
(i) Disability. "Disability" shall mean your absence from the
full-time performance of your duties with the Company for six consecutive
months as a result of your incapacity due to physical or mental illness
or disability, and within 30 days after written Notice of Termination is
thereafter given you shall not have returned to the full-time performance
of your duties.
(ii) Cause. "Cause" shall mean termination on account of (A) the
willful and continued failure by you to substantially perform your duties
with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or disability or any failure
after the issuance of a Notice of Termination by you for Good Reason)
which failure is demonstrably and materially damaging to the financial
condition or reputation of the Company and/or its subsidiaries, and which
failure continues more than 48 hours after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you
have not substantially performed your duties or (B) the willful engaging
by you in conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. No act, or failure to act, on your part
shall be deemed "willful" unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of the resolution
duly adopted by the affirmative vote of not less than three-quarters
(3/4) off the entire membership of the Board at a meeting of the Board
(after reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, you were guilty of conduct set forth above in
this Section 3(f)(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" shall mean, without your express
written consent, the occurrence upon or after a Change in Control of any
of the following circumstances unless, in the case of Sections
3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(A) the assignment to you of any duties inconsistent with
the position in the Company that you held immediately prior to the
Change in Control, or an adverse alteration in the nature or
status of your responsibilities or the conditions of your
employment from those in effect immediately prior to such Change
in Control;
(B) a reduction by the Company in your annual base salary,
any target bonus or perquisites as in effect immediately prior to
the Change in Control or as the same may be increased from time to
time except for across-the-board perquisite reductions similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company;
(C) the relocation of the principle place of your
employment to a location more than 50 miles from the location of
such place of employment on the date of this Agreement; except for
required travel on the Company's business to an extent
substantially consistent with your business travel obligations
prior to the Change in Control;
(D) the failure by the Company to pay to you any portion of
your compensation or to pay to you any portion of an installment
of deferred compensation under any deferred compensation program
of the Company within seven days of the date such compensation is
due;
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<PAGE>
(E) the failure by the Company to continue in effect any
material compensation or benefit plan in which you participated
immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue your participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amounts of benefits provided and
the level of your participation relative to other participants, as
existed at the time of the Change in Control;
(F) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof;
(G) any purported termination of your employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f)(iv) hereof (and, if applicable, the
requirements of Section 3(f)(ii) hereof), which purported
termination shall not be effective for purposes of this Agreement;
or
(H) the lapse of twelve months following the last day of
the month in which the Change in Control occurs.
(iv) Notice of Termination. "Notice of Termination" shall mean
notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such 30-day period) or (B) if
your employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination for Cause,
shall not be less than 30 days from the date such Notice of Termination
is given and, in the case of a termination for Good Reason, shall not be
less than 15 nor more than 60 days from the date such Notice of
Termination is given).
4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.
5. Costs of Proceedings. The Company shall pay all costs and expenses,
including all attorneys' fees and disbursements, of the Company and, at least
monthly, you in connection with any legal proceedings, whether or not instituted
by the Company or you, relating to the interpretation or enforcement of any
provision of this Agreement; provided that if you instituted the proceeding and
a finding (no longer subject to appeal) is entered that you instituted the
proceeding in bad faith, you shall pay all of your costs and expenses, including
attorneys' fees and disbursements. The Company shall pay prejudgment interest on
any money judgment obtained by you as a result of such proceeding, calculated at
the prime rate of The Chase Manhattan Bank as in effect from time to time from
the date that payment should have been made to you under this Agreement.
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or
27
<PAGE>
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of your
death, all amounts otherwise payable to you hereunder shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.
7. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) personally delivered or (b) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement; provided that all
notice to the Company shall be directed to the attention of the Board with a
copy to the General Counsel of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be designated by the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under this Agreement shall survive the expiration of
this Agreement to the extent necessary to give effect to this Agreement.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of this Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereof with respect to the subject matter contained herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. Notwithstanding anything to the
contrary in this Agreement, the procedural provisions of this Agreement shall
apply to all benefits payable as a result of a Change in Control (or other
change in control) under any employee benefit plan, agreement, program, policy
or arrangement of the Company.
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
IMS HEALTH INCORPORATED
By:_______________________________________
[Chairman and Chief Executive Officer]
or
[President and Chief Operating Officer]
Agreed to this ____________________ day
of ____________________________, 199[ ].
- - -----------------------------------------
Name
29
Exhibit 10.16
IMS HEALTH INCORPORATED
EMPLOYEE PROTECTION PLAN
IMS Health Incorporated (the "Company") wishes to define those
circumstances under which it will provide assistance to an Eligible Employee in
the event of his or her Eligible Termination (as such terms are defined herein).
Accordingly, the Company hereby establishes the IMS Health Incorporated Employee
Protection Plan (the "Plan").
Section 1 - DEFINITIONS
1.1 "Cause" shall mean (a) willful malfeasance or willful misconduct by
the Eligible Employee in connection with his or her employment, (b) continuing
failure to perform such duties as are requested by any employee to whom the
Eligible Employee reports, directly or indirectly, or by the board of directors
of either the Company or the Participating Company which employs the Eligible
Employee, (c) failure by the Eligible Employee to observe material policies of
the Company or Participating Company applicable to the Eligible Employee or (d)
the commission by an Eligible Employee of (i) any felony or (ii) any misdemeanor
involving moral turpitude.
1.2 "Change In Control" shall mean the occurrence, after the effective
date hereof, of one of the following events:
(a) any "Person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock in the Company) becomes the
"Beneficial Owners" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(b) during any period of 24 months (not including any period prior to
the effective date of this Plan), individuals who at the beginning
of such period constitute the board of directors of the Company
(the "Board"), and any new director (other than (i) a director
nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in paragraphs (a), (c),
or (d) of this definition, (ii) a director nominated by any Person
(including the Company) who publicly announces an intention to
take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would
constitute a Change in Control, or (iii) a director nominated by
any Person who is the Beneficial Owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined
voting power of the Company's securities) whose election by the
Board or nomination for election by the Company's stockholders was
approved in advance by a vote of at least two
<PAGE>
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(c) the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (i)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation and (ii) after which no Person holds 20% or more of
the combined voting power of the then-outstanding securities of
the Company or such surviving entity;
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(e) the Board adopts a resolution to the effect that, for purposes of
this Plan, a Change in Control has occurred.
1.3 "Change in Control Period" shall mean the period beginning upon a
Change in Control and ending at the end of the 12th month following the Change
in Control.
1.4 "Cognizant" shall mean the Cognizant Corporation (which since the
Spinoff Date has been renamed Neilsen Media Research, Inc.).
1.5 "Committee" shall mean the Compensation and Benefits Committee of the
Board of Directors of the Company.
1.6 "Eligible Employee" shall mean a full-time salaried employee or
regular part-time salaried employee of (a) the Company, (b) a Participating
Company, or (c) any affiliated entity of the Company (other than a Participating
Company) which employee has been selected to participate in the Plan by the
Employee Benefits Committee; provided, however, that (i) an employee who has
entered into an agreement with the Company or a Participating Company which
expressly excludes such employee from participation in this Plan (e.g., by
naming this Plan or excluding participation in Company-sponsored severance plans
generally) and which remains in effect at the date of such employee's
termination of employment shall not be an Eligible Employee; and (ii) an
employee who otherwise would qualify but who is not on the United States payroll
shall be an Eligible Employee only if so determined by the Employee Benefits
Committee, and such Eligible Employee, and any employee who qualifies as an
Eligible Employee under clause (c) of this definition, shall be subject to such
additional terms and limitations as the Employee Benefits Committee may deem
necessary or advisable. Each Eligible Employee shall be designated as within one
of the groups specified as "Selected Executives," "Level A," "Level B," or
"Level C" on Attachment A hereto.
<PAGE>
1.7 "Eligible Termination" shall mean (a) an involuntary termination of
employment by the Company or a Participating Company for any reason, except
that, in the case of any Eligible Employee, an involuntary termination for Cause
will not constitute an Eligible Termination and, in the case of any Eligible
Employee designated as within Level A, Level B, or Level C on Attachment A
hereto, an involuntary termination due to unsatisfactory performance will not
constitute an Eligible Termination (unless otherwise determined by the Employee
Benefits Committee or a person to whom such Committee has delegated authority
under the Plan); or (b) a resignation mutually agreed to in writing by the
Company or a Participating Company and the Eligible Employee, in which writing
it is expressly agreed that benefits under this Plan will be available to the
Eligible Employee. The foregoing notwithstanding, an Eligible Termination shall
not include (x) a unilateral resignation; or (y) any termination where an offer
of employment is made to the Eligible Employee of a comparable position at the
Company or an affiliate or, if such termination occurs within six months
following the Spinoff Date, at Nielsen Media Research, Inc., in any case
concurrently with his or her termination.
1.8 "Employee Benefits Committee" shall mean a committee of Company
management employees heretofore established by the Committee.
1.9 "Participating Company" shall mean any entity affiliated with the
Company which has been designated to participate in the Plan by action of the
Employee Benefits Committee.
1.10 "Salary" shall mean an Eligible Employee's annual base salary in
effect immediately prior to his or her termination of employment, except as
otherwise provided in Section 2 hereof and Section 1 of Attachment C hereto.
1.11 "Severance Agreement and Release" shall mean an agreement signed by
the Eligible Employee substantially in the form attached hereto as Attachment D.
The foregoing notwithstanding, the Company may, by action of its chief human
resources officer or chief legal counsel or a person delegated authority by one
of such persons, modify the form of Severance Agreement and Release to be signed
by any Eligible Employee, subject to such limitations or procedures as may be
specified by the Employee Benefits Committee, and provided that, during the
Change in Control Period, such Agreement shall not be modified in a manner that
increases the obligations or decreases the rights of the Eligible Employee as
compared to the form of such Agreement in use prior to the Change in Control.
1.12 "Spinoff Date" shall mean the date on which there was effected the
distribution of common stock of the Company owned by Cognizant to holders of
record of shares of common stock, par value $0.01 per share, of Cognizant.
1.13 "Year of Service" shall mean, for purposes of applying the formula
set forth in Attachment B, each full and partial year of employment with the
Company, any Participating Company, and otherwise as specified in the final
sentence of this definition, in each case beginning with the Eligible Employee's
initial date of hire; provided, however, that (i) all partial years of service
shall be aggregated for purposes of determining the total number of Years of
Service; (ii), in the case of an Eligible Employee who was not continuously
employed, no period of employment previously taken into account, if such
Eligible Employee was eligible for severance benefits upon any prior
termination, shall be taken into account in determining Years
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<PAGE>
of Service hereunder; and (iii), in the case of an Eligible Employee who was a
regular part-time employee during any period of employment which would be taken
into account in determining his or her Years of Service, such period shall be
adjusted to equivalent full-time employment for purposes of determining Years of
Service by multiplying the total number of weeks in such period by a fraction
the numerator of which is the total number of hours such employee was scheduled
to work during each week and the denominator of which is the number of hours a
full-time employee would have been scheduled to work during such week, and
dividing the product by 52. The Eligible Employee shall continue to accrue
Service for purposes of this definition during approved leaves of absence,
military service absences, paid holidays, paid vacations, temporary absences due
to illness or injury, disability, or any other cause, if and to the extent that
service is customarily accrued for purposes of the retirement plan or plans of
the Company or Participating Company which then employs the Eligible Employee.
With respect to periods of employment with companies which are acquired or
become affiliated with the Company after the Spinoff Date, any periods of
employment of an Eligible Employee prior to the date of acquisition or
affiliation will not be taken into account in determining Years of Service
unless expressly approved in writing by the Employee Benefits Committee. Other
provisions of this Plan notwithstanding and to the extent required by any
Employee Benefits Agreement among Cognizant, Nielsen Media Research, Inc., and
the Company, "Years of Service" shall include all periods of employment prior to
the Spinoff Date to the extent such employment would have been taken into
account under the Cognizant Career Transition Plan as in existence immediately
prior to the Spinoff Date.
Section 2 - SEVERANCE BENEFITS
2.1 Subject to the provisions of this Section 2 (including the condition
set forth in Section 2.4), in the event of an Eligible Termination by an
Eligible Employee:
(a) If the Eligible Termination occurs not within a Change in Control
Period, the Eligible Employee shall be entitled to receive from the Company or a
Participating Company the Salary continuation and benefits in the amount
determined in accordance with Attachment C for the period specified on
Attachment B hereto, subject to Section 2.2 and 2.3; and
(b) If the Eligible Termination occurs within the Change in Control
Period, the Eligible Employee shall be entitled to receive from the Company or a
Participating Company the Salary continuation in an amount equal to 130% of the
amount determined in accordance with Attachment C for the period specified on
Attachment B hereto and benefits for the period specified on Attachment B
hereto, subject to Section 2.2 and 2.3; provided, however, that if the Company
or a Participating Company and the Eligible Employee have entered into a
Change-in-Control Agreement or other agreement specifically providing for
severance payments and benefits upon specified terminations following a change
in control of the Company which is in effect at the date of the Eligible
Termination (whether or not severance payments and benefits are actually payable
under such other agreement), no Salary continuation or benefits shall be payable
to the Eligible Employee under this Plan.
2.2 If, during the period that Salary and benefits continuation is to be
provided under Section 2.1 and Attachment B hereto, the Eligible Employee earns
or accrues compensation and benefits under any employment or compensatory
arrangement for services provided to any
4
<PAGE>
party other than the Company or a Participating Company (including as an
employee, consultant, owner, partner, associate, agent, independent contractor,
sole proprietor, security holder, or otherwise in an arrangement in which
anything of value is earned or accrued based on services of the Eligible
Employee), the Salary continuation payments and benefits continuation shall
terminate as of the date such services commenced. The Eligible Employee shall
inform the Employee Benefits Committee of any such employment or other
arrangement under which such services will be provided, prior to or upon
commencement of such employment or arrangement, including the date as of which
such employment or services commenced. The Company or a Participating Company
shall be entitled to recover from the Eligible Employee any payments and the
fair market value of benefits previously made or provided to the Eligible
Employee under the Plan which would not have been paid under this Section 2.2 if
the Employee Benefits Committee had adequate prior notice of the matters
specified in the preceding sentence. If, during the period that Salary and
benefits continuation is to be provided under Section 2.1 and Attachment B
hereto, the Eligible Employee becomes reemployed by the Company or a
Participating Company or enters into a compensation arrangement with the Company
or a Participating Company not contemplated at the time of his or her
termination, Salary and benefits continuation hereunder will continue only if
and to the extent determined by the Employee Benefits Committee. All
determinations under this Section 2.2 shall be made in the sole discretion of
the Employee Benefits Committee.
2.3 Unless otherwise determined by the Employee Benefits Committee, the
amount of Salary payable during the period specified in Attachment B shall be
reduced by each of the following amounts, if any, applicable to the Eligible
Employee (but not reduced to an amount less than zero pursuant to this Section
2.3):
(i) the amount of any sign-on bonus or any other amount(s) paid by the
Company or any of its affiliated entities to the Eligible Employee
(other than the payment of base salary, performance-related
bonuses, or reimbursement of business-related expenses incurred by
the Eligible Employee) in connection with the Eligible Employee's
commencement of employment, if such payment(s) occurred within
twelve months of the date of the Eligible Termination, or
(ii) the amount of any severance payments, termination payments or any
other amounts paid or payable to the Eligible Employee arising
from or relating to the termination of employment of the Eligible
Employee by the Company or any affiliated entity, whether the
rights to such payments arise from (a) severance or other benefit
plans sponsored by the Company or any of its affiliated entities,
(b) the laws of any governmental entity, (c) the requirements of
any works council or labor organization, or (d) the terms of any
agreement between the Eligible Employee and the Company and/or any
of its affiliated entities.
If reduced in accordance with this Section 2.3, the aggregate amount of Salary
payable during the period specified in Attachment B shall equal the aggregate
amount of Salary that would have been payable over the entire period (i.e.,
before any reduction) minus the amount referred to in clause (i) of this Section
and minus the amount referred to in clause (ii) of this Section. Such aggregate
amount of Salary shall be payable proportionately over the period during which
Salary continuation is to be paid, as specified in Attachment B hereto.
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<PAGE>
2.4 The grant of severance benefits pursuant to Section 2.1 hereof is
conditioned upon an Eligible Employee's signing a Severance Agreement and
Release and the expiration of any revocation period set forth therein.
2.5 Notwithstanding any other provision contained herein (except as set
forth in this Section 2.5), the Chief Executive Officer of the Company or an
officer to whom the Chief Executive Officer has delegated authority may, at any
time, take such action as such officer, in such officer's sole discretion, deems
appropriate to reduce or increase by any amount the benefits otherwise payable
to an Eligible Employee pursuant to Section 2.1, including the amount payable as
Salary during the period specified in Attachment B, or otherwise modify the
terms and conditions applicable to an Eligible Employee under this Plan provided
that the Chief Executive Officer or such delegatee reports any reduction or
increase in benefits or other modification of the terms and conditions hereof to
the Employee Benefits Committee. Notwithstanding the foregoing, during the
Change in Control Period, the Chief Executive Officer and any delegatee may not
reduce by any amount the benefits otherwise payable to an Eligible Employee
pursuant to Section 2.1(b) or otherwise modify the terms and conditions
applicable to an Eligible Employee under the Plan. Benefits granted hereunder
may not exceed an amount nor be paid over a period which would cause the Plan to
be other than a "welfare benefit plan" under section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2.6 In the event the Company or a Participating Company, in its sole
discretion, grants an Eligible Employee a period of inactive employee status,
any amounts paid to such Eligible Employee during any such period shall offset
the benefits payable under this Plan if the Eligible Employee does not resume
active employment prior to termination of employment. For this purpose, a period
of inactive employee status shall mean the period beginning on the date such
status commences (of which the Eligible Employee shall be notified) and ending
on the date of such Eligible Employee's termination of employment or resumption
of active employment.
Section 3 - AMENDMENT AND TERMINATION
3.1 The Company reserves the right to terminate the Plan at any time and
without any further obligation by action of its Board of Directors or such other
person or persons to whom the Board properly delegates such authority; provided,
however, during a Change in Control Period, the Company may not terminate the
Plan.
3.2 The Company shall have the right to modify or amend the terms of the
Plan at any time, or from time to time, to any extent that it may deem advisable
by action of its Board of Directors, the Committee or such other person or
persons to whom the Board or the Committee properly has delegated such
authority; provided, however, that during a Change in Control Period, the
Company may not modify or amend the terms of the Plan in a manner which reduces
the compensation or benefits otherwise payable hereunder; and provided further,
that the Company may not modify or amend the terms of the Plan in a manner which
materially adversely affects the rights of a person who has commenced to receive
compensation or benefits hereunder following an Eligible Termination.
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<PAGE>
3.3 All modifications of or amendments to the Plan shall be in writing.
Section 4 - ADMINISTRATION OF THE PLAN
4.1 The Employee Benefits Committee shall be the Plan Administrator and
shall have the exclusive right, power and authority to:
(a) construe and interpret any and all of the provisions of the Plan;
(b) establish a claims and appeals procedure; and
(c) consider and decide conclusively any questions (whether of fact or
otherwise) arising in connection with the administration of the
Plan or any claim for Salary and benefits continuation arising
under the Plan.
Any decision or action of the Employee Benefits Committee pursuant to this
Section 4.1 shall be in the sole discretion of the Employee Benefits Committee
and shall be conclusive and binding on any affected person.
4.2 With respect to any function of the Employee Benefits Committee under
the Plan, the Employee Benefits Committee may, in its sole discretion, delegate
its authority under the Plan to any employee(s) or committee of employees of the
Company or Participating Companies, and may designate such employee(s) or
committee to function as or act on behalf of the Employee Benefits Committee.
4.3 The Company shall indemnify any individual who is a director, officer
or employee of the Company or any affiliate, or his or her heirs and legal
representatives, against all liability and reasonable expense, including counsel
fees, amounts paid in settlement and amounts of judgments, fines or penalties,
incurred or imposed upon him or her in connection with any claim, action, suit
or proceeding, whether civil, criminal, administrative or investigative, in
connection with his or her duties with respect to the Plan, provided that any
act or omission giving rise to such claim, action, suit or proceeding does not
constitute willful misconduct or is not performed or omitted in bad faith.
Section 5 - MISCELLANEOUS
5.1 Neither the establishment of the Plan nor any action of the Company
or a Participating Company, the Committee, Employee Benefits Committee or any
fiduciary shall be held or construed to confer upon any person any legal right
to continue employment with the Company. The Company and Participating Companies
expressly reserve the right to discharge any employee whenever the interest of
the Company or a Participating Company, in its sole judgment, may so require,
without any liability on the part of the Company or a Participating Company, the
Committee, Employee Benefits Committee or any fiduciary.
5.2 Benefits payable under the Plan shall be paid out of the general
assets of the Company or a Participating Company. The Company and any
Participating Company need not
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<PAGE>
fund the benefits payable under this Plan; however, nothing in this Section 5.2
shall be interpreted as precluding the Company or any Participating Company from
funding or setting aside amounts in anticipation of paying such benefits. Any
benefits payable to an Eligible Employee under this Plan shall represent an
unsecured claim by such Eligible Employee against the general assets of the
Company or the Participating Company that employed such Eligible Employee.
5.3 The Company or a Participating Company shall deduct from the amount
of any Salary continuation or other benefits payable hereunder amounts required
by law to be withheld for the payment of any taxes and any other amount properly
to be withheld.
5.4 Benefits payable under the Plan shall not be subject to assignment,
alienation, transfer, pledge, encumbrance, commutation or anticipation by the
Eligible Employee. Any attempt to assign, alienate, transfer, pledge, encumber,
commute or anticipate Plan benefits shall be void.
5.5 This Plan shall be governed by and construed in accordance with the
laws of the State of New Jersey, without regard to principles of conflicts of
laws, except to the extent superseded by applicable federal law.
5.6 This Plan will be of no force or effect to the extent superseded by
foreign law. In addition, the terms and conditions of participation of any
Eligible Employee whose employment is subject to the laws or customs of any
jurisdiction other than the United States or a state thereof may be modified by
the Employee Benefits Committee to conform to or otherwise take into account
such laws and customs; in no event shall severance benefits be payable hereunder
if and to the extent that such benefits would duplicate severance benefits
payable in accordance with such laws and customs, although severance benefits
payable hereunder may supplement those payable under such laws and customs.
5.7 This Plan supersedes any and all prior severance arrangements,
policies, plans or practices of the Company and any predecessor (whether written
or unwritten), including any severance arrangement described in any document
setting forth an offer of employment. Notwithstanding the preceding sentence,
the Plan does not affect the severance provisions of (i) any written individual
employment agreement between an employee and the Company or a Participating
Company which results in such employee not being an Eligible Employee hereunder;
(ii) any Change-in-Control Agreement or other agreement referred to in Section
2.1(b); and (iii) any other agreement entered into between an employee and the
Company or a Participating Company after the effective date of this Plan which
expressly supersedes the provisions of this Plan (i.e., by naming this plan) and
which remains in effect at the date of such employee's termination of
employment. Benefits payable under the Plan shall be offset by any other
severance or termination payment made by the Company or any of its subsidiaries
including, but not limited to, amounts paid pursuant to any agreement or law.
5.8 This Plan shall be effective as of December 1, 1998.
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Attachment A
IMS HEALTH INCORPORATED
EMPLOYEE PROTECTION PLAN
Designated Groups of Eligible Employees
For purposes of the Employee Protection Plan (the "Plan") of IMS Health
Incorporated (the "Company"), an employee of the Company or any Participating
Company (as defined in the Plan) who is an Eligible Employee (as defined in the
Plan) shall be assigned to the Designated Group in accordance with the chart
below. An Eligible Employee's Designated Group assignment generally will
determine the period of Salary and benefits continuation upon an Eligible
Termination under Section 2 of the Plan and Attachment B thereto, subject to the
terms of the Plan.
Designated Group Participation Criteria Salary Range
Selected Executives Persons who have N/A
entered into Change
in Control Agreements
Level A Persons who have not $150,000 and greater
entered into Change in
Control Agreements
Level B Persons who have not $75,000 - $149,999
entered into Change in
Control Agreements
Level C All other Eligible Em- N/A
ployees as defined in
the Plan
<PAGE>
Attachment C
IMS HEALTH INCORPORATED
EMPLOYEE PROTECTION PLAN
Certain Terms and Conditions of Salary and Benefits Continuation
An Eligible Employee entitled to salary and benefits continuation under
the Employee Protection Plan (the "Plan") of IMS Health Incorporated (the
"Company") shall, subject to Section 2 of the Plan, receive the payments and
benefits specified below. Capitalized terms used but not defined herein shall
have the meanings as defined in the Plan.
1. Salary Continuation
The Eligible Employee shall receive Salary continuation for the period
specified under Section 2 of the Plan and Attachment B thereto (the "Salary
Continuation Period"). Salary continuation hereunder shall be paid at the times
during such Salary Continuation Period the Eligible Employee's salary would have
been paid if employment had not terminated. Solely for purposes of determining
the amount payable during the Salary Continuation Period and for no other
purposes of the Plan, the Employee Benefits Committee may, in its sole
discretion, include an additional cash amount as part of the amount of Salary
continuation, in order to reflect any periodic payment being received as
compensation by the Eligible Employee in addition to Salary immediately prior to
termination and to ensure comparability of benefits among Eligible Employees
receiving benefits under the Plan. All Salary and benefit continuation payments
shall be subject to termination upon commencement of employment or services and
otherwise as provided in Section 2.2 of the Plan.
2. Welfare Benefit Continuation
Medical, dental and life insurance benefits shall be provided throughout
the Salary Continuation Period at the levels in effect for the Eligible Employee
immediately prior to termination of employment but in no event greater than the
levels in effect for active employees generally during the Salary Continuation
Period, provided that the Eligible Employee shall pay the employee portion of
any required premium payments at the level in effect for employees generally of
the Company for such benefits. For purposes of determining an Eligible
Employee's entitlement to continuation coverage as required by Title I, Subtitle
B, Part 6 of ERISA, such employee's 18-month or other period of coverage shall
commence on his or her termination of employment.
3. Annual Bonus Payment
Subject to the provisions of this paragraph 3, a cash bonus for the
calendar year of termination shall be paid if the Eligible Employee was a
participant in the annual bonus plan of the Company or a
<PAGE>
Participating Company (the "Annual Incentive Plan") immediately prior to
termination of employment and the Eligible Employee was employed by the Company
or a Participating Company for at least six full months during the calendar year
of termination. In such event, the Eligible Employee shall receive a cash amount
equal to the actual bonus which would have been payable to the Eligible Employee
under such Annual Incentive Plan had such employee remained employed through the
end of the year of such termination multiplied by a fraction the numerator of
which is the number of full months of employment during the calendar year of
termination and the denominator of which is 12. Such bonus shall be payable at
the time otherwise payable under the Annual Incentive Plan had employment not
terminated. The foregoing notwithstanding, (i) no amount shall be paid under
this paragraph in the event the Eligible Employee incurred an Eligible
Termination by reason of unsatisfactory performance, unless otherwise determined
by the Employee Benefits Committee or, in the case of an executive officer of
the Company, by the Compensation and Benefits Committee of the Company's Board
of Directors, and (ii) no amount shall be paid under this paragraph in the event
that Salary and benefits continuation has previously ceased by operation of
Section 2.2 of the Plan. The terms of this paragraph 3 supersede those of any
Annual Incentive Plan, so that no payment shall be made under such Annual
Incentive Plan to an Eligible Employee following an Eligible Termination except
as provided hereunder. The foregoing provisions of this paragraph 3 shall be
appropriately modified in the case of any plan providing bonuses based on
12-month performance periods other than the calendar year.
4. Long-Term Bonus Payments and Other Compensation Plans
Bonus payouts under any bonus plan with a performance cycle of greater
than one year (the "Long-Term Plan") of the Company or a Participating Company
in which the Eligible Employee participates immediately prior to termination
shall be determined and governed in accordance with the terms of such Long-Term
Plan. Payments, forfeitures, and other events under any compensatory plan, other
than those referred to in paragraphs 1 through 4 hereof, of the Company or a
Participating Company shall be determined and governed in accordance with the
terms of such plan.
5. Death
Upon the death of an Eligible Employee during the Salary Continuation
Period, the benefits described in paragraphs 1, 3 and 4 of this Attachment C
shall continue to be paid to his or her estate, as applicable, at the time or
times otherwise provided for herein.
6. Other Benefits
The Eligible Employee shall be entitled to such outplacement services
during the Salary Continuation Period as may be provided by the Company or a
Participating Company. During the Salary Continuation Period, financial
planning/counseling shall be afforded to the Eligible Employee to the same
extent afforded immediately prior to termination of employment in the event the
Eligible Employee incurred an Eligible Termination other than by reason of
unsatisfactory performance.
7. No Further Grants, Etc.
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<PAGE>
Following an Eligible Employee's termination of employment, no further
grants, awards, contributions, accruals or continued participation (except as
otherwise provided for herein) shall be made to or on behalf of such employee
under any plan or program maintained by the Company including, but not limited
to, any Annual Incentive Plan, any Long-Term Plan or any qualified or
nonqualified retirement, profit sharing, stock option or restricted stock plan
of the Company. Any unexercised options (whether vested or unvested), unvested
restricted stock and all other benefits under any plan or program maintained by
the Company (including, but not limited to, any Long-Term Plan or any qualified
or nonqualified retirement, profit sharing, stock option or restricted stock
plan) which are held or accrued by an Eligible Employee at the time of his or
her termination of employment shall be treated in accordance with the terms of
such plans and programs under which such options, restricted stock or other
benefits were granted or accrued.
3
<PAGE>
Attachment D
SEVERANCE AGREEMENT AND RELEASE
THIS SEVERANCE AGREEMENT AND RELEASE, made by and between _______________
(hereinafter referred to as "Employee"), and IMS Health Incorporated
(hereinafter deemed to include its worldwide subsidiaries and affiliates and
referred to as the "Company").
WITNESSETH THAT:
WHEREAS, Employee has been employed by the Company and/or a previously
affiliated company or other predecessor since the date specified in the Appendix
to this Agreement (the "Appendix"); and
WHEREAS, the parties to this Agreement desire to enter into an agreement
in order to provide certain salary and benefits continuation to Employee;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth and of the actions taken pursuant thereto, the parties
agree as follows:
1. Employee's service with the Company, including Employee's service as
an officer and Employee's membership on any committees, is terminated effective
on the date specified in the Appendix. By execution of this Agreement, Employee
confirms his or her resignation from all such offices and committees, effective
as of the date specified as "Effective Date of Termination of Service" in the
Appendix.
2. Effective on the date set forth in the Appendix, Employee will incur
an "Eligible Termination" under the IMS Health Incorporated Employee Protection
Plan (the "Plan"), a summary plan description of which Employee hereby
acknowledges having received, and will, accordingly, be entitled to the salary
and benefits continuation specified therein subject to the terms and conditions
of such Plan. A summary of the benefits to which Employee is entitled under the
Plan is set forth in the Appendix. Subject to the terms of the Plan, the salary
and benefits continuation shall be provided during the "Severance Period," which
shall extend from the date of the Eligible Termination until the earliest of (i)
the "Severance Termination Date" specified in the Appendix, (ii) the termination
of salary continuation and benefits under Section 2.2 of the Plan as a result of
the eligible Employee earning or accruing compensation from a third party or
otherwise under Section 2.2, or (iii) cessation of salary continuation and
benefits under any other provision of the Plan or this Agreement (including
paragraph 8 hereof). Subject to the terms of the Plan, Employee's obligations
under paragraphs 3, 4 and 5 of this Agreement shall be in effect during the
"Obligation Period," which shall extend from the date of the Eligible
Termination until the later of (i) the "Severance Termination Date" specified in
the Appendix (whether or not the Severance Period expires earlier than the
Severance Termination Date) or (ii) the first anniversary of the date of the
Eligible Termination.
3. Employee agrees that , during the Obligation Period, Employee will be
reasonably available to consult on matters, and will cooperate fully with
respect to any claims,
<PAGE>
litigations or investigations, relating to the Company. No reimbursement for
expenses incurred after the commencement of a period of inactive employee
status, or if there is no such period, after termination of employment, shall be
made to Employee unless authorized in advance by the Company.
4. Employee agrees that, during the Obligation Period, Employee will not
become an employee, officer, director, member, consultant, or holder of stock or
other security (unless such stock or other security is listed on a national
securities exchange or traded on a daily basis in the over-the-counter market
and Employee's ownership interest is not in excess of 2% of the company whose
stock or other securities are being acquired), of or to a corporation,
partnership or any other business or firm, which competes with any of the
businesses owned or operated by the Company; nor, if Employee becomes associated
with a company, partnership or individual which company, partnership or
individual acts as a consultant to businesses in competition with the Company,
will Employee provide services to such competing businesses. Businesses which
compete with the Company include, but are not limited to, businesses engaged in
[specify nature of business] , including [specify companies] and their
affiliates and successors thereto. The restrictions against competition
contained in this paragraph shall apply in any state of the United States in
which the Company was doing business at the time of Employee's termination of
employment and in any territory in which, in the six months prior to Employee's
termination of employment, Employee participated in or had responsibilities with
respect to Company operations in such territory. The restrictions contained in
this paragraph shall apply whether or not Employee accepts any form of
compensation from such competing entity or consultant. Employee also agrees
that, during the Obligation Period, Employee will not recruit or solicit any
customers of the Company to become customers of any business entity which
competes with any of the businesses owned or operated by the Company. In
addition, Employee agrees that, during the Obligation Period, neither Employee
nor any company or entity Employee controls or in which Employee participates in
management, shall recruit or solicit any employee of the Company to become an
employee of any business entity.
5. If, during the Obligation Period, Employee performs services for any
party other than the Company or a Participating Company (whether or not such
entity is in competition with the Company), Employee shall notify the Company by
certified mail prior to the commencement thereof, and the salary continuation
payments and benefits continuation provided under the Plan shall terminate as of
the date such services commence. To "perform services" shall mean employment or
other service as an employee, consultant, owner, partner, associate, agent,
independent contractor, sole proprietor, security holder, or otherwise in an
arrangement in which anything of value is earned or accrued based on services of
the Eligible Employee.
6. Employee agrees that Employee will not directly or indirectly disclose
any proprietary or confidential information, records, data, formulae,
specifications and other trade secrets owned or held by the Company, whether
oral or written, to any person or use any such information, except pursuant to
court order (in which case Employee will first provide the Company with written
notice of such). All records, files, drawings, documents, models, disks,
equipment and the like relating to the businesses of the Company shall remain
the sole property of the Company and shall not be removed from the premises of
the Company. Employee further agrees to return to the Company any property of
the Company which Employee may have, no matter where located, and not to keep
any copies or portions thereof.
<PAGE>
7. Employee shall not make any derogatory or defamatory statements about
the Company and shall not make any written or oral statement, news release or
other announcement relating to Employee's employment by the Company or relating
to the Company (including its affiliates), customers or personnel, which is
designed to embarrass or criticize any of the foregoing.
8. Employee agrees that in the event of any breach of the covenants
contained in paragraphs 3, 4, 5, 6 or 7, in addition to any remedies that may be
available to the Company, the Company may cease all payments and cease providing
all other benefits required to be made or provided to Employee under the Plan
and recover all such payments and the fair market value of all such benefits
previously made to Employee pursuant to the Plan. The parties agree that any
such breach would cause injury to the Company which cannot reasonably or
adequately be quantified and that such relief does not constitute in any way a
penalty or a forfeiture.
9. Employee, for Employee, Employee's family, representatives, successors
and assigns, releases and forever discharges the Company and its successors,
assigns, subsidiaries, affiliates, directors, officers, employees, attorneys,
agents and trustees or administrators of any Company plan from any and all
claims, demands, debts, damages, injuries, actions or rights of action of any
nature whatsoever, whether known or unknown, which Employee had, now has or may
have against the Company, its successors, assigns, subsidiaries, affiliates,
directors, officers, employees, attorneys, agents and trustees or administrators
of any Company plan, from the beginning of Employee's employment to and
including the date of this Agreement, relating to or arising out of Employee's
employment with the Company or the termination of such employment other than a
claim with respect to a vested right Employee may have to receive benefits under
any plan maintained by the Company. Employee represents that Employee has not
filed any action, complaint, charge, grievance or arbitration against the
Company or any of its successors, assigns, subsidiaries, affiliates, directors,
officers, employees, attorneys, agents and trustees or administrators of any
Company plan.
10. Employee covenants that neither Employee, nor any of Employee's
respective heirs, representatives, successors or assigns, will commence,
prosecute or cause to be commenced or prosecuted against the Company or any of
its successors, assigns, subsidiaries, affiliates, directors, officers,
employees, attorneys, agents and trustees or administrators of any Company plan
any action or other proceeding based upon any claims, demands, causes of action,
obligations, damages or liabilities which are being released by this Agreement,
nor will Employee seek to challenge the validity of this Agreement, except that
this covenant not to sue does not affect Employee's future right to enforce
appropriately the terms of this Agreement in a court of competent jurisdiction.
11. Employee acknowledges that (a) Employee has been advised to consult
with an attorney at Employee's own expense before executing this Agreement and
that Employee has been advised by an attorney or has knowingly waived Employee's
right to do so, (b) Employee has had a period of at least [twenty-one (21) days]
[forty-five (45) days] within which to consider this Agreement, (c) Employee has
a period of seven (7) days from the date that Employee signs this Agreement
within which to revoke it and that this Agreement will not become effective or
enforceable until the expiration of this seven (7) day revocation period, (d)
Employee fully
3
<PAGE>
understands the terms and contents of this Agreement and freely, voluntarily,
knowingly and without coercion enters into this Agreement, (e) Employee is
receiving greater consideration hereunder than Employee would receive had
Employee not signed this Agreement and that the consideration hereunder is given
in exchange for all of the provisions hereof and (f) the waiver or release by
Employee of rights or claims Employee may have under Title VII of the Civil
Rights Act of 1964, The Employee Retirement Income Security Act of 1974, the Age
Discrimination in Employment Act of 1967, the Older Workers Benefit Protection
Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the
Rehabilitation Act, the Worker Adjustment and Retraining Act (all as amended)
and/or any other local, state or federal law dealing with employment or the
termination thereof is knowing and voluntary and, accordingly, that it shall be
a breach of this Agreement to institute any action or to recover any damages
that would be in conflict with or contrary to this acknowledgment or the
releases Employee has granted hereunder. Employee understands and agrees that
the Company's payment of money and other benefits to Employee and Employee's
signing of this Agreement does not in any way indicate that Employee has any
viable claims against the Company or that the Company admits any liability
whatsoever.
12. This Agreement constitutes the entire agreement of the parties and
all prior negotiations or representations are merged herein. It shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and legal representatives, but neither this Agreement
nor any rights hereunder shall be assignable by Employee without the Company's
written consent. In addition, this Agreement supersedes any prior employment or
compensation agreement, whether written, oral or implied in law or implied in
fact between Employee and the Company, other than those contracts and agreements
excepted from the application of Section 5.7 of the Plan pursuant to the terms
of such Section [(but subject to paragraph 15 hereof)], which prior agreements
are hereby terminated.
13. If for any reason any one or more of the provisions of this Agreement
shall be held or deemed to be inoperative, unenforceable or invalid by a court
of competent jurisdiction, such circumstances shall not have the effect of
rendering such provision invalid in any other case or rendering any other
provisions of this Agreement inoperative, unenforceable or invalid.
14. This Agreement shall be construed in accordance with the laws of the
State of New Jersey, except to the extent superseded by applicable federal law.
15. This Agreement shall terminate in its entirety the Change in Control
Agreement between the Company and Employee. [USE PROVISION IF APPLICABLE]
IN WITNESS WHEREOF, Employee and IMS Health Incorporated, by its duly
authorized agent, have hereunder executed this Agreement.
Dated:___________________ Employee:
_______________________________
4
<PAGE>
IMS HEALTH INCORPORATED
By:____________________________
Title:_________________________
<PAGE>
Appendix to Severance Agreement and Release
Summary of Terms Relating to Salary and Benefits Continuation
Under the IMS Health Incorporated Employee Protection Plan
Note: Terms have the meanings defined in the Employee Protection Plan
and in the Severance Agreement and Release
Employment with Company Since: ______________________________
Effective Date of Resignation: ______________________________
Positions Resigned: ______________________________
Effective Date of Eligible Termination ______________________________
Scheduled Date on Which Salary and
Benefits will Cease (the "Severance
Termination Date")*: ______________________________
Employee "Obligation Period" extends
through date: ______________________________
Salary Continuation*: $____ per week for ____ weeks
Welfare Benefit Continuation*: [LIST NAMES OF MEDICAL, DENTAL, LIFE PLANS
UNDER WHICH EMPLOYEE COVERED]
Annual Bonus Payment*: ___/12 of the annual bonus otherwise pay-
able to you at time of normal payment.
Long-Term Bonus Payments: [____/y of the long-term bonus otherwise
payable to you for the __________
cycles at time of normal payment.]
[CONFORM TO L-T BONUS PLAN TERMS]
Executive Outplacement: As provided by the Company.
[Financial Planning/Counseling:]
* Subject to termination in the event Employee earns or accrues
compensation from non-Company sources prior to Severance
Termination Date
<PAGE>
The description of benefits contained in this Appendix is only a summary and is
subject to the terms and conditions of the Employee Protection Plan. Refer to
your summary plan description for more detail.
<PAGE>
Attachment B
IMS HEALTH INCORPORATED
- - --------------------------------------------------------------------------------
Employee Protection Plan
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Selected Executives Level A
(Persons with Change-in-Control (Persons with no C-in-C Agreement
Agreements ("C-in-C Agreements") and Salary of $150,000 and
up)
------------------------------- ---------------------------------
Less than 1 Year of Service 26 weeks of salary and benefits 16 weeks of salary and benefits
continuation continuation
- - ----------------------------------------------------------------------------------------------------
One Year of Service and over 1.5 weeks of salary and benefits 1.5 weeks of salary and benefits
continuation per $10,000 of continuation per $10,000 of
salary salary
plus plus
3 weeks of salary and benefits 2 weeks of salary and benefits
continuation for each Year of continuation for each Year of
Service Service
Subject to minimum and maximum Subject to minimum and maximum
- - ----------------------------------------------------------------------------------------------------
Minimum - 26 weeks 16 weeks
Maximum - 104 weeks 78 weeks
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Level B Level C
(Persons with no C-in-C Agreement
Less than 1 Year of Service and Salary of (All Other Eligible Employees)
$75,000-$149,999)
- - ---------------------------- ---------------------------------- ---------------------------------
One Year of Service and over
8 weeks of salary and benefits 4 weeks of salary and benefits
continuation continuation
----------------------------------------------------------------------
1 week of salary and benefits 1 week of salary and benefits
continuation per $10,000 of continuation per $10,000 of
salary salary
plus plus
2 weeks of salary and benefits 1.5 weeks of salary and
- - ---------------------------- continuation for each Year of benefits continuation for each
Minimum - Service Year of Service
Maximum -
Subject to minimum and maximum Subject to minimum and maximum
----------------------------------------------------------------------
8 weeks 4 weeks
52 weeks 52 weeks
</TABLE>
Exhibit 10.17
IMS HEALTH INCORPORATED
EXECUTIVE ANNUAL INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company and its
stockholders by providing incentives in the form of periodic cash bonus awards
to certain management employees of the Company and its subsidiaries, thereby
motivating such employees to attain corporate performance goals articulated
under the Plan.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Award: A periodic cash bonus award granted pursuant to the Plan.
(c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
(e) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of twenty-four months (not including any period
prior to the
<PAGE>
Effective Date), individuals who at the beginning of such period
constitute the Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections (2)(e)(i), (iii)
or (iv) of the Plan, (B) a director nominated by any Person (including
the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a
Change in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by
the Company's stockholders was approved in advance by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and
(B) after which no Person holds 20% or more of the combined voting
power of the then-outstanding securities of the Company or such
surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
2
<PAGE>
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Committee: The Compensation and Benefits Committee of the Board.
(h) Company: IMS Health Incorporated, a Delaware corporation.
(i) Covered Employee: As such term is defined in Section 162(m) of the
Code (or any successor section thereto).
(j) Covered Participant: A Participant who is, or who is anticipated to
become, a Covered Employee.
(k) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 13 of the Plan.
(l) Participant: An employee of the Company or any of its Subsidiaries who
is selected by the Committee to participate in the Plan pursuant to
Section 4 of the Plan.
(m) Performance Period: The calendar year or any other period that the
Committee, in its sole discretion, may determine.
(n) Person: As such term is used for purposes of Sections 13(d) or 14(d)
of the Act (or any successor sections thereto).
(o) Plan: The IMS Health Incorporated Executive Annual Incentive Plan.
(p) Shares: Shares of common stock, par value $0.01 per Share, of the
Company.
(q) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. Administration
The Plan shall be administered by the Committee or such other persons
designated by the Board. The Committee may delegate its duties and powers in
whole or in part to any subcommittee thereof consisting solely of at least two
individuals who are each "non-employee directors" within the meaning of Rule
16b-3 of the Act (or any successor rule thereto) and "outside directors" within
the meaning of
3
<PAGE>
Section 162(m) of the Code (or any successor section thereto). The Committee
shall have the authority to select the employees to be granted Awards under the
Plan, to determine the size and terms of an Award (subject to the limitations
imposed on Awards in Section 5 below), to modify the terms of any Award that has
been granted (except for any modification that would increase the amount of the
Award payable to a Covered Participant), to determine the time when Awards will
be made and the Performance Period to which they relate, to establish
performance objectives in respect of such performance periods and to certify
that such performance objectives were attained; provided, however, that any such
action shall be consistent with the applicable provisions of Section 162(m) of
the Code. The Committee is authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make any
other determinations that it deems necessary or desirable for the administration
of the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among Participants, whether
or not such Participants are similarly situated. The Committee shall have the
right to deduct from any payment made under the Plan any federal, state, local
or foreign income or other taxes required by law to be withheld with respect to
such payment. To the extent consistent with the applicable provisions of Section
162(m) of the Code, the Committee may delegate to one or more employees of the
Company or any of its Subsidiaries the authority to take actions on its behalf
pursuant to the Plan.
4. Eligibility and Participation
The Committee shall designate those persons who shall be Participants for
each Performance Period. Participants shall be selected from among the employees
of the Company and any of its Subsidiaries who are in a position to have a
material impact on the results of the operations of the Company or of one or
more of its Subsidiaries. The designation of Participants may be made
individually or by groups or classifications of employees, as the Committee
deems appropriate.
5. Awards
4
<PAGE>
(a) Performance Goals. A Participant's Award shall be determined based on
the attainment of written performance goals approved by the Committee for a
Performance Period established by the Committee (i) while the outcome for that
Performance Period is substantially uncertain and (ii) no more than 90 days
after the commencement of the Performance Period to which the performance goal
relates or, if less than 90 days, the number of days which is equal to 25
percent of the relevant Performance Period. The performance goals, which must be
objective with respect to Covered Participants, shall be based upon one or more
of the following criteria: (i) consolidated earnings before or after taxes
(including earnings before interest, taxes, depreciation and amortization); (ii)
net income; (iii) operating income; (iv) earnings per Share; (v) book value per
Share; (vi) return on stockholders' equity; (vii) expense management; (viii)
return on investment; (ix) improvements in capital structure; (x) profitability
of an identifiable business unit or product; (xi) maintenance or improvement of
profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales;
(xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) return on assets;
(xix) customer satisfaction; and (xx) employee satisfaction. In addition, with
respect to Participants who are not Covered Participants, the Committee may
approve performance goals based on other criteria, which may or may not be
objective. The foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions, units, partnerships, joint
venturers or minority investments, product lines or products or any combination
of the foregoing, and may be applied on an absolute basis and/or be relative to
one or more peer group companies or indices, or any combination thereof, all as
the Committee shall determine. In addition, to the degree consistent with
Section 162(m) of the Code (or any successor section thereto), the performance
goals may be calculated without regard to extraordinary items. The maximum
amount of an Award to any Participant with respect to a fiscal year of the
Company shall be $3,000,000.
(b) Payment. The Committee shall determine whether, with respect to a
Performance Period, the applicable performance goals have been met with respect
to a given Participant and, if they have, to so certify and ascertain the amount
of the applicable Award. No Awards will be paid for such performance period
until such certification is made by the Committee. The amount of the Award
actually paid to a given Participant may be less or, with respect to
Participants who are not Covered Participants, more than the amount determined
by the applicable performance goal formula, at the discretion of the Committee.
The amount of the Award determined by the Committee for a performance period
shall be paid to the
5
<PAGE>
Participant at such time as determined by the Committee in its sole discretion
after the end of such Performance Period.
(c) Termination of Employment. If a Participant who is not a Covered
Participant dies, retires, is assigned to a different position, is granted a
leave of absence, or if the Participant's employment is otherwise terminated
(except with cause by the Company) during a Performance Period, a pro rata share
of the Participant's award based on the period of actual participation may, at
the Committee's discretion, be paid to the Participant after the end of the
Performance Period if it would have become earned and payable had the
Participant's employment status not changed.
(d) Compliance with Section 162(m) of the Code. The provisions of this
Section 5 shall be administered and interpreted in accordance with Section
162(m) of the Code to ensure the deductibility by the Company or its
Subsidiaries of the payment of Awards.
6. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair any of the rights
or obligations under any Award theretofore granted to a Participant under the
Plan without such Participant's consent; provided, however, that the Committee
may amend the Plan in such manner as it deems necessary to permit the granting
of Awards meeting the requirements of the Code or other applicable laws.
Notwithstanding anything to the contrary herein, the Board may not amend, alter
or discontinue the provisions relating to Section 10(b)(ii) of the Plan after
the occurrence of a Change in Control.
7. No Right to Employment
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant or other person any right to continue to be employed by
or perform services for the Company or any Subsidiary, and the right to
terminate the employment of or performance of services by any Participant at any
time and for any reason is specifically reserved to the Company and its
Subsidiaries.
8. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution.
6
<PAGE>
9. Reduction of Awards
Notwithstanding anything to the contrary herein, the Committee, in its sole
discretion (but subject to applicable law), may reduce any amounts payable to
any Participant hereunder in order to satisfy any liabilities owed to the
Company or any of its Subsidiaries by the Participant.
10. Adjustments Upon Certain Events
(a) Generally. In the event of any change in the outstanding Shares by
reason of any Share dividend or split, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of Shares or other corporate
exchange, or any distribution to stockholders of Shares other than regular cash
dividends, the Committee in its sole discretion and without liability to any
person may make such substitution or adjustment, if any, as it deems to be
equitable, as to any affected terms of outstanding Awards.
(b) Change in Control. Notwithstanding any other provision in the Plan to
the contrary, in the event of a Change in Control, (i) the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (A) the acceleration of an Award, (B) the payment of a cash amount
in exchange for the cancellation of an Award and/or (C) the requiring of the
issuance of substitute Awards that will substantially preserve the value, rights
and benefits of any affected Awards previously granted hereunder) as of the date
of the consummation of the Change in Control and (ii) any Participant who, as a
result of a Change in Control, receives payments pursuant to a Change-in-Control
agreement shall receive, subject to the same terms and conditions under which
such payments are made, an amount in cash equal to (A) the annual target bonus
under the Plan for the year in which the Change in Control occurs, multiplied by
a fraction, (I) the numerator of which equals the number of full or partial days
in such annual performance period during which he or she was employed by the
Company and (II) the denominator of which is 365, and (B) the entire target
bonus opportunity with respect to all other performance periods in progress
under this Plan at the time of his or her termination of employment from the
Company.
11. Miscellaneous Provisions
The Company is the sponsor and legal obligor under the Plan and shall make
all payments hereunder, other than any payments to be made by any of the
Subsidiaries (in
7
<PAGE>
which case shall be made by such Subsidiary, as appropriate). The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to ensure the payment of any amounts under the Plan, and
the Participants' rights to the payment hereunder shall be no greater than the
rights of the Company's (or Subsidiary's) unsecured creditors. All expenses
involved in administering the Plan shall be borne by the Company.
12. Choice of Law
The Plan 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.
13. Effectiveness of the Plan
The Plan shall be effective as of July 1, 1998.
8
Exhibit 10.18
IMS HEALTH INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of July 1, 1998
<PAGE>
IMS HEALTH INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of July 1, 1998
INTRODUCTION
Effective as of July 1, 1998, the IMS Health Incorporated Supplemental Executive
Retirement Plan (the "Plan") is established to provide a means of ensuring the
payment of a competitive level of retirement income and disability and survivor
benefits, and thereby attract, retain and motivate a select group of executives
of IMS Health Incorporated and its affiliated employers.
SECTION 1 -- DEFINITIONS
1.1 "Actuarial Equivalent Value" shall mean a benefit of equivalent value
computed on the basis of the 1983 Group Annuity Mortality Table and
interest equal to the yield on 30-year Treasury Bonds as of the last
business day of the Plan Year prior to the year in which the relevant
calculation occurs.
1.2 "Affiliated Employer" shall mean an entity affiliated with the Company.
1.3 "Average Final Compensation" shall mean a Member's average annual
Compensation during the five consecutive 12-month periods in the last ten
consecutive 12-month periods of his or her Service (or during the total
number of consecutive 12-month periods if fewer than five), immediately
prior to the month following the Member's termination of employment with
the Company or an Affiliated Employer or, if earlier, removal from
participation under this Plan, affording the highest such Average Final
Compensation. If
1
<PAGE>
actual monthly Compensation for any month during the 120-month
computational period is unavailable, Compensation for such month shall be
determined by dividing the Member's annual rate of base pay in the month
preceding such unavailable month by 12.
1.4 "Basic Disability Plan" shall mean as to any Member the long-term
disability plan of the Company or an Affiliated Employer pursuant to
which long-term disability benefits are payable to such Member.
1.5 "Basic Disability Plan Benefit" shall mean the amount of benefits payable
to a Member from the Basic Disability Plan.
1.6 "Basic Plan" shall mean as to any Member or Vested Former Member the
defined benefit pension plan of the Company or an Affiliated Employer
intended to meet the requirements of Code Section 401(a) pursuant to
which retirement benefits are payable to such Member or Vested Former
Member or to the Surviving Spouse or designated beneficiary of a deceased
Member or Vested Former Member.
1.7 "Basic Plan Benefit" shall mean the amount of benefits payable from the
Basic Plan to a Member or Vested Former Member.
1.8 "Board" shall mean the Board of Directors of IMS Health Incorporated,
except that any action authorized to be taken by the Board hereunder may
also be taken by a duly authorized committee of the Board or its duly
authorized delegees.
2
<PAGE>
1.9 "Change in Control" shall mean:
(a) any "Person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or any corporation owned, directly or indirectly, by the
stockholders of the Company), becomes the "Beneficial Owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities;
(b) during any period of 24 months (not including any period prior to
the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than (i)
a director nominated by a Person who has entered into an agreement
with the Company to effect a transaction described in Sections
1.9(a), (c), or (d) hereof, (ii) a director nominated by any
Person (including the Company) who publicly announces an intention
to take or to consider taking actions (including, but not limited
to, an actual or threatened proxy contest) which if consummated
would constitute a Change in Control, or (iii) a director
nominated by any Person who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more
of the combined voting power of the Company's securities) whose
election by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
3
<PAGE>
(c) the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (i)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, and (ii) after which no "Person" holds 20% or more
of the combined voting power of the then outstanding securities of
the Company or such surviving entity;
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(e) the Board adopts a resolution to the effect that, for purposes of
this Plan, a Change in Control has occurred.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.11 "Committee" shall mean the Compensation and Benefits Committee of the
Board, except that any action authorized to be taken by the Committee
hereunder may also be taken by the Board or by another duly authorized
committee or duly authorized delegees.
1.12 "Company" shall mean IMS Health Incorporated.
1.13 "Compensation" shall mean base salary, annual bonuses, commissions,
overtime and shift pay, in each case prior to reductions for pre-tax
contributions made to a plan or salary
4
<PAGE>
reduction contributions to a plan excludable from income under Code
Section 125. Compensation excludes, however, severance pay (including,
without limitation, severance amounts paid under any employment
agreement, salary continuation under the Company's Employee Protection
Plan, special stay-on bonuses, long-term bonuses, retirement income,
change-in-control payments, contingent payments, amounts paid under this
plan (other than Disability Benefits) income derived from stock options,
stock appreciation rights and other equity based compensation and other
forms of special remuneration).
1.14 "Covered Earnings" shall mean a Member's Compensation in the 12 months
immediately preceding the onset of the Member's Disability.
1.15 "Deferred Vested Benefit" shall mean the benefits described in Section
3.2(b) hereof.
1.16 "Disability" or "Disabled" shall mean disability or disabled for purposes
of the Basic Disability Plan.
1.17 "Disability Benefits" shall mean the benefits provided as described in
Section 4.1(b) hereof.
1.18 "Effective Date" shall mean July 1, 1998.
1.19 "Former Member" shall mean (i) a Member whose employment with the Company
or an Affiliated Employer terminates before he or she has completed five
or more years of Service, or (ii) a Member who was removed from
participation in the Plan, in accordance with Section 2.2 hereof, before
he or she has completed five or more years of Service.
5
<PAGE>
1.20 "Lump Sum Election" shall mean an election to receive all or portion of
the benefits payable hereunder in a lump sum pursuant to Section 3.4
hereof.
1.21 "Member" shall mean an employee of the Company or an Affiliated
Employer who becomes a participant in the Plan pursuant to Section 2,
but excludes any Former Member or Vested Former Member.
1.22 "Other Disability Income" shall mean (i) the disability insurance
benefit that the Member is entitled to receive under the Federal Social
Security Act while he or she is receiving the Basic Disability Plan
Benefit and (ii) the disability income payable to a Member from any
supplemental executive disability plan of the Company or any Affiliated
Employer or from any other contract, agreement or other arrangement
with the Company or an Affiliated Employer (excluding any Basic
Disability Plan).
1.23 "Other Retirement Income" shall mean:
(a) the Social Security retirement benefit that the Member or Former
Member is entitled to receive under the Federal Social Security
Act, assuming that for years prior to the Member's employment with
the Company and for years following the Member's termination of
employment with the Company until the Member attains age 62, the
Member earned compensation so as to accrue the maximum Social
Security benefits, and
(b) the retirement income payable to a Member or Vested Former Member
from any "excess benefit plan" as that term is defined in Section
3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), any plan described in Section 201(2) of ERISA,
and any other contract, agreement or other arrangement providing a
defined pension benefit or defined contribution retirement
benefit, in any case,
6
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maintained or entered into with the Company or an Affiliated
Employer (excluding any Basic Plan and any defined contribution
plan intended to meet the requirements of Code Section 401(a)).
1.24 "Plan" shall mean the IMS Health Incorporated Supplemental Executive
Retirement Plan, as embodied herein, and any amendments thereto.
1.25 "Predecessor to this Plan" shall mean the Supplemental Executive Benefit
Plan of Cognizant Corporation, effective November 1, 1996.
1.26 "Retirement" shall mean the termination of a Member's or Vested Former
Member's employment with the Company or an Affiliated Employer other than
by reason of death or Disability (i) after reaching age 55 and completing
ten years of Service, or (ii) immediately following the cessation of the
payment of Disability Benefits under the Plan to such Member or Vested
Former Member while he or she is Disabled. In determining whether age 55
has been attained under clause (i) of this definition, there shall be
included as years of age the number of additional years credited as "age"
for purposes of the Plan to the Member or Vested Former Member under a
then-effective employment agreement between the Company and such person.
1.27 "Retirement Benefits" shall mean the benefits described in Section 3.1(b)
hereof.
1.28 "Service" shall mean a Member's service defined as Vesting Service in the
Basic Plan, which is taken into account for vesting purposes thereunder
(including any such service prior to the date such individual becomes a
Member but not including any such service after participation hereunder
terminates), except that (i) Service will also include service while the
Member is
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receiving Disability Benefits under this Plan; (ii) if a Member was
employed by a company acquired by the Company or an Affiliated Employer
after the Effective Date, such Member's service with that company prior
to the date of acquisition will not constitute Service hereunder; (iii)
upon commencement of participation hereunder in accordance with Section
2.1 hereof, the CEO (as defined in such section) may limit any service
otherwise to constitute Service hereunder with respect to periods prior
to the date of participation in the Plan; and (iv) no service of a Former
Member or Vested Former Member during any period after removal from
participation under Section 2.2 shall constitute Service for purposes of
the Plan. The foregoing notwithstanding, there shall be included as
Service under the Plan the number of additional years (or other
additional period) credited as "service" for purposes of the Plan to the
Member of Former Member or Vested Former Member under an employment
agreement between the Company or an Affiliated Employer and such person
in effect at the time of such person's termination of employment.
1.29 "Surviving Spouse" shall mean the spouse of a deceased Member or Vested
Former Member to whom such Member or Vested Former Member is married
under applicable state law immediately preceding such Member or Vested
Former Member's death.
1.30 "Surviving Spouse's Benefits" shall mean the benefits described in
Section 5 hereof.
1.31 "Vested Former Member" shall mean (i) a Member whose employment with the
Company or an Affiliated Employer terminates on or after the date on
which he or she has completed five or more years of Service, or (ii) a
Member who was removed from participation in the Plan, in accordance with
Section 2.2 hereof, on or after the date on which he or she has completed
five or more years of Service.
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SECTION 2 -- PARTICIPATION
2.1 Commencement of Participation. The Chief Executive Officer ("CEO") of the
Company and such other key executives of the Corporation and its
Affiliated Employers as are designated by the CEO in writing and approved
by the Committee shall participate in the Plan as of a date determined by
the CEO.
2.2 Termination of Participation. A Member's participation in the Plan shall
terminate upon termination of his or her employment with the Company or
any Affiliated Employer. Prior to termination of employment, a Member may
be removed, upon written notice by the CEO as approved by the Committee,
from further participation in the Plan. As of the date of termination or
removal, no further benefits shall accrue to such individual hereunder.
SECTION 3 -- AMOUNT AND FORM OF BENEFITS
3.1 Retirement Benefits.
(a) Eligibility. Upon the Retirement of a Member or Vested Former
Member from the Company or an Affiliated Employer, he or she shall
be entitled to the Retirement Benefit described in Section 3.1(b)
hereof, payable in the form specified in Section 3.3.
(b) Amount. The Retirement Benefit of a Member or Vested Former Member
shall be an annual benefit equal to the difference between (i) and
the sum of (ii), (iii), (iv) and (v) where:
(i) is 50% of his or her Average Final Compensation, plus 2% of
such Average Final Compensation multiplied by the
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number of his or her years of Service over ten but not in
excess of 15 years;
(ii) is the Basic Plan Benefit payable to the Member or Vested
Former Member as of the date of his or her Retirement
expressed in the form of an annual life annuity, or, if the
Basic Plan Benefit becomes payable after the Member's or
Vested Former Member's Retirement, the Actuarial Equivalent
Value as of such date of the Basic Plan Benefit that would
become payable in the form of an annual life annuity
starting on the earliest possible date under the terms of
the Basic Plan;
(iii) is the Other Retirement Income payable to the Member or
Vested Former Member as of the date of his or her
Retirement expressed in the form of an annual life annuity,
or, if the Other Retirement Income becomes payable after
the Member's or Vested Former Member's Retirement, the
Actuarial Equivalent Value as of such date of the Other
Retirement Income that would become payable in the form of
an annual life annuity starting on the earliest possible
date under the terms of the appropriate retirement
arrangement; and
(iv) is the annual benefit payable to the Member or Vested
Former Member under the terms of the Predecessor to this
Plan as of the date of his or her Retirement, expressed in
the form of an annual life annuity.
3.2 Deferred Vested Benefit.
(a) Eligibility. Each Member and Vested Former Member who has
completed five or more years of Service and whose employment with
the Company or an Affiliated Employer terminates with the
Company's consent, prior to Retirement,
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other than by reason of death or Disability, shall be entitled to
the Deferred Vested Benefit described in Section 3.2(b) hereof,
payable in the form specified in Section 3.3.
(b) Amount. The Deferred Vested Benefit of a Member or Vested Former
Member who terminates and who meets the eligibility requirements
of Section 3.2(a) shall be an annual benefit equal to the
difference between (i) and the sum of (ii), (iii), and (iv),
where:
(i) is 25% of his or her Average Final Compensation, plus 5% of
such Average Final Compensation multiplied by the number of
his or her years of Service over five (5) but not in excess
of ten (10), plus 2% of such Average Final Compensation
multiplied by the number of his or her years of Service
over ten but not in excess of 15;
(ii) is the Basic Plan Benefit payable to the Member or Vested
Former Member as of the date his or her Deferred Vested
Benefit commences expressed in the form of an annual life
annuity, or, if the Basic Plan Benefit becomes payable
after the Member's or Vested Former Member's Deferred
Vested Benefit commences, the Actuarial Equivalent Value
as of such date of the Basic Plan Benefit that would
become payable in the form of an annual life annuity
starting on the earliest possible date under the terms of
the Basic Plan;
(iii) is the Other Retirement Income payable to the Member or
Vested Former Member as of the date his or her Deferred
Vested Benefit commences expressed in the form of an
annual life annuity, or, if the Other Retirement Income
becomes payable after the Member's or Vested Former
Member's Deferred Vested Benefit commences, the Actuarial
Equivalent Value as of such date of the Other Retirement
11
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Income that would become payable in the form of an annual
life annuity starting on the earliest possible date under
the terms of the appropriate retirement arrangement; and
(iv) is the annual benefit payable to the Member or Vested
Former Member under the terms of the Predecessor to this
Plan as of the date his or her Deferred Vested Benefit
commences, expressed in the form of an annual life
annuity.
3.3 Form of Payment.
(a) Except as provided under Section 3.3(b) or Section 3.3(c), the
Retirement Benefit or Deferred Vested Benefit under this Plan, as
the case may be, shall be payable in monthly installments in the
form of a straight life annuity and without regard to any optional
form of benefits elected under the Basic Plan. Payments shall
commence on the first day of the calendar month coinciding with or
next following (i) the Member's or Vested Former Member's
Retirement, in the case of Retirement Benefits or (ii) the later
of the date the Member or Vested Former Member attains age 55 or
terminates employment, in the case of Deferred Vested Benefits.
(b) If a Member or Vested Former Member has made a Lump Sum Election
pursuant to Section 3.4 and such Lump Sum Election becomes
effective (i) prior to the date of such Member's or Vested Former
Member's Retirement or termination of employment with the Company
or an Affiliated Employer and (ii) while he or she was still a
Member, the Retirement Benefit, or Deferred Vested Benefit under
this Plan, as the case may be, shall be payable in the form or
combination of forms of payment elected pursuant to such Lump Sum
Election under Section 3.4 and without regard to any optional form
of benefits elected under the Basic Plan. Any portion of the
benefits hereunder payable
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in a lump sum shall be paid within 60 days following (i) the
Member's or Vested Former Member's Retirement, in the case of
Retirement Benefits or (ii) the later of the date the Member or
Vested Former Member attains age 55 or terminates employment, in
the case of Deferred Vested Benefits.
(c) Notwithstanding any Lump Sum Election made (or not made) under
Section 3.3, if the lump sum value, determined in the same manner
as provided under Section 3.4(a), of a Member's or Vested Former
Member's Retirement, or Deferred Vested Benefit is $10,000 or less
at the time such benefit is payable under this Plan, such benefit
shall be payable as a lump sum.
3.4 Lump Sum Election.
(a) A Member or Vested Former Member may elect to receive all, none,
or a specified portion, as provided in Section 3.4(c), of his or
her Retirement Benefit or Deferred Vested Benefit under the Plan
as a lump sum and to receive any balance of such benefit in the
form of an annuity; provided that any such Lump Sum Election shall
be effective for purposes of this Plan only if the conditions of
Section 3.4(b) are satisfied. A Member or Vested Former Member may
elect a payment form different than the payment form previously
elected by him or her under this Section 3.4(a) by filing a
revised election form; provided that any such new election shall
be effective only if the conditions of Section 3.4(b) are
satisfied with respect to such new election. Any prior Lump Sum
Election made by a Member that has satisfied the conditions of
Section 3.4(b) shall remain effective for purposes of the Plan
until such Member has made a new election satisfying the
conditions of Section 3.4(b). The amount of any portion of a
Member's or a Vested Former Member's Retirement Benefit or
Deferred Vested Benefit payable as a lump sum under this Section
3.4 shall equal the present value
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<PAGE>
of such portion of the benefit, and such present value shall be
determined (i) based on a discount rate equal to 85% of the
average of the 15-year non-callable U.S. Treasury bond yields as
of the close of business on the last business day of each of the
three months immediately preceding the date the annuity value is
determined and (ii) using the 1983 Group Annuity Mortality Table.
(b) A Member's Election under Section 3.4(a) becomes effective only if
all of the following conditions are satisfied: (i) such Member
remains in the employment of the Company or an Affiliated
Employer, as the case may be, for the full 12 calendar months
immediately following the date of such election (the "Election
Date"), except in the case of death or Disability of such Member
(in which case Section 3.4 (d) shall apply) and (ii) such Member
complies with the administrative procedures set forth by the
Committee with respect to the making of a Lump Sum Election.
(c) A Member making an election under Section 3.4(a) may specify the
portion of his Retirement or Deferred Vested Benefit under the
Plan to be received in a lump sum as follows: 0%, 25%, 50%, 75%,
or 100%.
(d) In the event a Member who has made an Election pursuant to Section
3.4(a) dies or becomes Disabled while employed by the Company or
an Affiliated Employer and such death or total and permanent
Disability occurs during the 12 calendar-month period immediately
following the Election Date , the condition under Section
3.4(b)(i) shall be deemed satisfied with respect to such Member.
3.5 Cessation of Benefits. Subject to Section 3.8 hereof, no benefits or no
further benefits, as the case may be, shall be paid to a
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Member, Vested Former Member or Surviving Spouse if the Member or Vested
Former Member has:
(a) become a stockholder (unless such stock is listed on a national
securities exchange or traded on a daily basis in the
over-the-counter market and the Member's or Vested Former Member's
ownership interest is not in excess of 2% of the company whose
shares are being purchased), employee, officer, director or
consultant of or to a Company, or a member or an employee of or a
consultant to a partnership or any other business or firm, which
competes with any of the businesses owned or operated by the
Company, or if the Member or Vested Former Member becomes
associated with a company, partnership or individual which
company, partnership or individual acts as a consultant to
businesses in competition with the Company, such Member or Vested
Former Member provided services to such competing businesses,
whether or not, in any of the foregoing cases, such Member or
Vested Former Member accepts any form of compensation from such
competing entity or consultant; or
(b) been discharged from employment with the Company or any Affiliated
Employer for "cause." "Cause" shall mean "Cause" as defined in an
employment agreement between the Company and the Member or Former
Member or Vested Former Member then in effect or, if no such
employment agreement containing a definition of Cause is then in
effect, "Cause" shall mean (i) willful malfeasance or willful
misconduct by the Member or Former Vested Member in connection
with his or her employment, (ii) continuing failure to perform
such duties as are requested by any employee to whom the Member or
Vested Former Member reports or the Board, or (iii) the commission
by a Member or Vested Former Member of (A) any felony or (B) any
misdemeanor involving moral turpitude.
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3.6 Notification of Cessation of Benefits. Subject to Section 3.8 hereof, in
any case described in Section 3.5, the Member, Vested Former Member or
Surviving Spouse shall be given prior written notice that no benefits or
no further benefits, as the case may be, will be paid to such Member,
Vested Former Member or Surviving Spouse. Such written notice shall
specify the particular act(s), or failures to act, and the basis on which
the decision to cease paying his or her benefits has been made.
3.7 Repayment of Benefits Paid as Lump Sum.
(a) Subject to Section 3.8 hereof, a Member or Vested Former Member
who receives in a lump sum any portion of his or her Retirement
Benefit or Deferred Vested Benefit pursuant to a Lump Sum
Election, shall receive such lump sum portion of such Retirement
Benefit or Deferred Vested Benefit subject to the condition that
if such Member or Vested Former Member engages in any of the acts
described in Section 3.5(a), then such Member or Vested Former
Member shall, within 60 days after written notice by the Company,
repay to the Company the amount described in Section 3.7(b).
(b) The amount described in this section shall equal the amount of the
Member's or Vested Former Member's lump sum benefit paid under
this Plan to which such Member or Vested Former Member would not
have been entitled, if such lump sum benefit had instead been
payable in the form of an annuity under this Plan and such annuity
payments were subject to the provisions of Section 3.5.
3.8 Change in Control. Notwithstanding anything to the contrary contained
herein, the provisions of Sections 3.5 through 3.7 shall be of no force
or effect from and after a Change in Control with respect to any Member
and Vested Former Member who is
16
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employed by the Company or an Affiliated Employer as of such Change in
Control.
SECTION 4 -- DISABILITY BENEFITS
4.1 (a) Eligibility. A Member who is enrolled for the maximum disability
insurance coverage available under the Basic Disability Plan and
who has become Disabled shall be entitled to the Disability
Benefit described in Section 4.1(b).
(b) Amount. The Disability Benefit of a Member entitled thereto shall
be an annual benefit payable in monthly installments under this
Plan during the same period as disability benefits are actually
paid by the Basic Disability Plan, in an amount equal to 60% of
the Member's Covered Earnings, offset by the Member's (i) Basic
Disability Plan Benefit, (ii) Basic Plan Benefit, if the Basic
Disability Plan Benefit does not already include an offset for
such Basic Plan Benefit, and (iii) Other Disability Income.
SECTION 5 -- SURVIVING SPOUSE'S BENEFITS
5.1 Death Prior to Benefit Commencement. Upon the death of a Member or Vested
Former Member, prior to the commencement of his or her Retirement Benefit
or Deferred Vested Benefit hereunder, his or her Surviving Spouse will be
entitled to a Surviving Spouse's Benefit under this Plan equal to 50% of
the Retirement or Deferred Vested Benefit that would have been provided
from the Plan had the Member or Vested Member retired from or terminated
employment with the Company or an Affiliated Employer on the date of
death.
5.2 Death On or After Benefit Commencement. Upon the death of a Vested Former
Member while he or she is receiving Retirement or Deferred Vested
Benefits, his or her Surviving Spouse shall
17
<PAGE>
receive a Surviving Spouse's Benefit equal to 50% of the Benefit he or
she was receiving at the time of death. Notwithstanding the foregoing, no
benefit shall be payable under this Section 5.2 to the extent a
Retirement Benefit or Deferred Vested Benefit was previously paid to a
Member or Vested Former Member in the form of a lump sum.
5.3 Commencement of Surviving Spouse's Benefit. Except as provided in Section
5.4, the Surviving Spouse's Benefit provided under Sections 5.1 or 5.2
will be payable monthly, commencing on the first day of the month
coincident with or next following the date of the Member's or Vested
Former Member's death, or, if the Member or Vested Former Member had not
attained age 55, on the date such Member or Vested Former Member would
have attained age 55 had he or she lived. Such benefits shall continue
until the first day of the month in which the Surviving Spouse dies.
5.4 Lump Sum Payment.
(a) If a Member or a Vested Former Member made an Election under
Section 3.4 but such Member or Vested Former Member died prior to
such lump sum payment, the Surviving Spouse's Benefit payable
under Section 5.1 hereof will be payable in the form or
combination of forms of payment so elected by such Member or
Vested Former Member pursuant to such Lump Sum Election. The
amount of any lump sum payment under the Plan shall be determined
using the actuarial assumptions set forth in Section 3.4(a).
(b) If the lump sum value, determined in the same manner as provided
under Section 3.4(a), of a Surviving Spouse's Benefit is $10,000
or less at the time such Surviving Spouse's Benefit is payable
under this Plan, such benefit shall be payable as a lump sum.
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(c) Any Surviving Spouse's Benefit which is payable as a lump sum
shall be paid within 60 days after the date when any portion of
such benefit payable in annuity form commences or would commence
if any portion of such Surviving Spouse's Benefit were payable as
an annuity as set forth in Section 5.3.
5.5 Reduction. Notwithstanding the foregoing provisions of Section 5, the
amount of a Surviving Spouse's Benefit shall be reduced by one percentage
point for each year (where a half year or more is treated as a full year)
in excess of ten years that the age of the Member or Vested Former Member
exceeds the age of the Surviving Spouse.
SECTION 6 -- COMMITTEE
6.1 Duties and Authority. The Committee shall be responsible for the
administration of the Plan and may delegate to any management committee,
employee, director or agent its responsibility to perform any act
hereunder, including, without limitation, those matters involving the
exercise of discretion; provided, that such delegation shall be subject
to revocation at any time at the Committee's discretion. The Committee
shall have the authority to determine all questions arising in connection
with the Plan, to interpret the provisions of the Plan and to construe
all of its terms, to adopt, amend, and rescind rules and regulations for
the administration of the Plan, and generally to conduct and administer
the Plan and to make all determinations in connection with the Plan as
may be necessary or advisable. All such actions of the Committee shall be
conclusive and binding upon all Members, Former Members, Vested Former
Members and Surviving Spouses.
19
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SECTION 7 -- MISCELLANEOUS
7.1 Amendment; Termination. The Committee may, in its sole discretion,
terminate, suspend or amend this Plan at any time or from time to time,
in whole or in part; provided, however, that no termination, suspension
or amendment of the Plan may adversely affect (a) a Member's or Vested
Former Member's benefit under the Plan to which he or she is entitled
hereunder or, (b) a Vested Former Member's right or the right of a
Surviving Spouse to receive or to continue to receive a benefit in
accordance with the Plan, such benefits or rights as in effect on the
date immediately preceding the date of such termination, suspension or
amendment.
7.2 No Employment Rights. Nothing contained herein will confer upon any
Member, Former Member or Vested Former Member the right to be retained in
the service of the Company or any Affiliated Employee, nor will it
interfere with the right of the Company or any Affiliated Employer to
discharge or otherwise deal with Members, Former Members or Vested Former
Members with respect to matters of employment.
7.3 Payout in Discretion of the Committee. Notwithstanding anything herein to
the contrary, at any time following the termination of service of the
Member or Vested Former Member, the Committee may authorize, under
uniform rules applicable to all Members, Vested Former Members and
Surviving Spouses under the Plan, a lump sum distribution of a Member's,
Vested Former Member's and/or Surviving Spouse's Retirement Benefit or
Surviving Spouse's Benefit under the Plan in an amount equal to the
present value of such Retirement Benefit or Surviving Spouse's Benefit,
using the actuarial assumptions then in use for funding purposes under
the IMS Health Incorporated Retirement Plan, in full satisfaction of all
present and future Plan liability with respect to such Member, Vested
Former Member and/or Surviving Spouse, if the amount of such present
value is less than $250,000. Such lump sum
20
<PAGE>
distribution may be made without the consent of the Member, Vested Former
Member or Surviving Spouse.
7.4 Unfunded Status. Members and Vested Former Members shall have the status
of general unsecured creditors of the Company, and this Plan constitutes
a mere promise by the Company to make benefit payments at the time or
times required hereunder. It is the intention of the Company that this
Plan be unfunded for tax purposes and for purposes of Title I of ERISA
and any trust created by the Company and any assets held by such trust to
assist the Company in meeting its obligations under the Plan shall meet
the requirements necessary to retain such unfunded status.
7.5 Arbitration. Any dispute or controversy arising under or in connection
with the Plan shall be settled exclusively by arbitration in New York,
New York in accordance with the rules of the American Arbitration
Association in effect at the time of such arbitration. The Company shall
pay the entire costs of any proceeding brought by a Member, Vested Former
Member, Former Member, or Surviving Spouse hereunder, including the fees
and expenses of counsel and pension experts engaged by such person, and
such expenses shall be reimbursed promptly upon evidence that such
expenses have been incurred without awaiting the outcome of the
proceedings; provided, however, that such costs and expenses shall be
repaid to the Company by the recipient of same if it is finally
determined by the arbitrators that the position taken by such person was
entirely without merit. Failure of such person to prevail in any dispute
or controversy shall not be the sole basis on which such determination
shall be made.
7.6 No Alienation. A Member's or Vested Former Member's right to benefit
payments under the Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors or
21
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such Member or Vested Former Member or his or her Surviving Spouse.
7.7 Withholding. The Company may withhold from any benefit under the Plan an
amount sufficient to satisfy its tax withholding obligations.
7.8 Governing Law. The Plan 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 such state to the extent not preempted by federal law.
22
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IN WITNESS WHEREOF, the Company has caused this document to be executed by its
officer effective July 1, 1998.
IMS Health Incorporated
By: ______________________________________________________
Its: ______________________________________________________
Date:______________________________________________________
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Table of Contents Page
INTRODUCTION 1
SECTION 1 - DEFINITIONS 1
.1 Actuarial Equivalent.................. 1
.2 Affiliated Employer................... 1
.3 Average Final Compensation............ 1
.4 Basic Disability Plan................. 2
.5 Basic Disability Plan Benefit......... 2
.6 Basic Plan............................ 2
.7 Basic Plan Benefit.................... 2
.8 Board................................. 2
.9 Change in Control..................... 3
.10 Code................................. 4
.11 Committee............................ 4
.12 Company.............................. 4
.13 Compensation......................... 4
.14 Covered Earnings..................... 5
.15 Deferred Vested Benefits............. 5
.16 Disability or Disabled............... 5
.17 Disability Benefits.................. 5
.18 Effective Date....................... 5
.19 Former Member........................ 5
.20 Lump Sum Election.................... 5
.21 Member............................... 5
.22 Other Disability Income.............. 6
.23 Other Retirement Income.............. 6
.24 Plan................................. 6
.25 Predecessor to this Plan............. 7
.26 Retirement........................... 7
.27 Retirement Benefits.................. 7
.28 Service.............................. 7
.29 Suriving Spouse...................... 7
.30 Surviving Spouse's Benefits.......... 8
.31 Vested Former Member................. 9
SECTION 2 - PARTICIPATION......................... 9
.1 Commencement of Participation......... 9
.2 Termination of Participation.......... 9
SECTION 3 - AMOUNT AND FORM OF BENEFITS........... 9
.1 Retirement Benefits.................. 9
.2 Deferred Vested Benefit.............. 10
.3 Form of Payment...................... 12
.4 Lump Sum Election.................... 13
.5 Cessation of Benefits................ 14
.6 Notification of Cessation of Benefits 15
.7 Repayment of Benefits Paid as Lump Sum 16
.8 Change in Control.................... 16
SECTION 4 - DISABILITY BENEFITS................... 17
.1(a) Eligibility........................ 17
(b) Amount............................. 17
SECTION 5 - SURVIVING SPOUSE'S BENEFITS........... 17
.1 Death Prior to Benefit Commencement.. 17
.2 Death On or After Benefit Commencement 17
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.3 Commencement of Surviving Spouse's
Benefit............................ 18
.4 Lump Sum Payment..................... 18
.5 Reduction............................ 19
SECTION 6 - COMMITTEE............................. 20
.1 Duties and Authority................. 20
SECTION 7 - MISCELLANEOUS......................... 21
.1 Amendment; Termination............... 21
.2 No Employment Rights................. 21
.3 Payout in Discretion of the Committee 21
.4 Unfunded Status...................... 22
.5 Arbitration.......................... 22
.6 No Alienation........................ 22
.7 Withholding.......................... 23
.8 Governing Law........................ 23
25
Exhibit 10.19
IMS HEALTH INCORPORATED
RETIREMENT EXCESS PLAN
Effective as of July 1, 1998
<PAGE>
IMS HEALTH INCORPORATED
RETIREMENT EXCESS PLAN
Effective as of July 1, 1998
Introduction
Effective as of July 1, 1998, the IMS Health Incorporated Retirement Excess Plan
(the "Plan") is established by IMS Health Incorporated (the "Company") to
provide participating employees with retirement benefits in excess of those
permitted to be paid under the IMS Health Incorporated Retirement Plan (the
"Qualified Plan") due to the limitations imposed by Sections 401(a)(17) and 415
of the Internal Revenue Code of 1986, as amended (the "Code"). For purposes of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), this
Plan is intended to be unfunded and maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees.
<PAGE>
Section I -- Participation in the Plan
All participants in the Qualified Plan shall participate in this Plan whenever
their benefits under the Qualified Plan as from time to time in effect would
have exceeded the limitations on benefits imposed by Sections 401(a)(17) and 415
of the Code if such benefits were determined as though no provision were
contained in the Qualified Plan incorporating such limitations.
<PAGE>
Section II -- Benefits
The Corporation shall pay to each participant in the Qualified Plan (or his or
her beneficiaries designated to receive benefits from the Qualified Plan) a
benefit equal to the excess of (a) over (b), where:
(a) equals the amount that would be payable to the participant (or his or her
beneficiaries) under the Qualified Plan in the absence of any provision
reducing benefits due to the benefit limitations imposed by Sections
401(a)(17) and 415 of the Code; and
(b) equals the sum of (i) the actual benefits payable to the participant (or
his or her beneficiaries) from the Qualified Plan and (ii) the benefits
payable to the participant (or his or her beneficiaries) from the Pension
Benefit Equalization Plan of The Dun & Bradstreet Corporation (as in
effect on October 31, 1996), as determined by the Company in accordance
with the methods and assumptions specified in Appendix A of this Plan.
Notwithstanding the foregoing, no benefits shall be payable hereunder unless the
participant has a nonforfeitable right to benefits under the Qualified Plan.
Benefits hereunder shall be payable at the same time and in the same form as the
participant's (or his or her beneficiaries') benefits under the Qualified Plan;
provided, however, if an Election (as defined in Section IV of this Plan) has
been made and becomes effective prior to the date when benefits under this Plan
would otherwise be payable to the participant, the form of payment of benefits
under this Plan shall be in the form so elected pursuant to such Election. If an
Election becomes effective prior to the date when benefits would be payable and
the participant dies prior to the date when benefits would be payable, his or
her beneficiaries designated to receive benefits from the Qualified Plan shall
receive benefits in the form so elected pursuant to such Election. If the
participant has not designated a beneficiary under the Qualified Plan, or if no
such beneficiary is living at the time of the participant's death, the amount,
if any, payable hereunder upon his or her death shall be distributed to the
person or persons who would otherwise be entitled to receive a distribution of
the participant's Qualified Plan benefits.
Notwithstanding any Election, if the lump sum value, determined in the same
manner as provided under Section IV below, of the benefits payable to the
participant (or his or her beneficiaries) under this Plan is $10,000 or less at
the time such benefits are payable under this Plan, such benefits shall be
payable as a lump sum.
<PAGE>
Any portion of the benefits payable under this Plan as a lump sum shall be paid
commencing at the same time as benefits payable in any other form hereunder
would otherwise be paid.
<PAGE>
Section III -- Unfunded Status
Participants hereunder shall have the status of general unsecured creditors of
the Company and this Plan constitutes a mere promise by the Company to make
benefit payments at the time or times required hereunder. It is the intention of
the Company that this Plan be unfunded for tax purposes and for purposes of
Title I of ERISA, and any trust created by the Company and any assets held by
such trust to assist the Company in meeting its obligations under the Plan shall
meet the requirements necessary to retain such unfunded status.
<PAGE>
Section IV -- Election of Form of Payment
(a) A participant under this Plan may elect to receive all, none, or a
specified portion, as provided below, of his benefits hereunder as a lump
sum and to receive any balance of such benefits in the form of an annuity
(an "Election"); provided that any such Election shall be effective for
purposes of this Plan only if (i) such participant remains in the
employment of the Company or an Affiliate, as the case may be, for a
period not less than the full 12 calendar months immediately following
the Election Date of such Election (except in the case of such
participant's death or disability as provided below), and (ii) such
participant complies with the administrative procedures set forth by the
Committee with respect to the making of an Election. "Affiliate" shall
mean the Company and any other employer which is a member of a
"controlled group of corporations," a group under "common control," or an
"affiliated service group," all as determined under Code Sections 414(b),
(c), (m), (o).
(b) Any portion of the benefit payable to the participant (or his or her
beneficiaries) in the form of an annuity shall be paid at the same time
and in the same form as his or her benefits under the Qualified Plan. Any
portion of the benefit payable to the participant (or his or her
beneficiaries) in the form of a lump sum shall be paid in full at the
same time as the benefits commence under the Qualified Plan, and no
subsequent lump sum benefits will be paid.
(c) A participant may elect a payment form different than the payment form
previously elected by him or her by filing a revised election form;
provided that any such new Election shall be effective only if the
conditions in clauses (i) and (ii) of Section IV(a) above are satisfied
with respect to such new Election. Any prior Election made by a
participant that has satisfied such conditions remains effective for
purposes of this Plan until such participant has made a new Election
satisfying such conditions.
(d) A participant making an election under this Section IV may specify the
portion of his benefits under this Plan to be received in a lump sum as
follows: 0 percent, 25 percent, 50 percent, 75 percent or 100 percent.
(e) In the event a participant who has made an Election dies or becomes
disabled within the meaning of the Company's long-term disability plan
while employed by the Company or an affiliate and such death or
disability occurs during the 12-calendar-month period
<PAGE>
immediately following the Election Date of such Election, the condition
that such participant remain employed with the Company or an affiliate
for such 12-month period shall be deemed to be satisfied and such
Election shall be effective with respect to benefits payable to such
participant or participant's beneficiaries under this Plan.
(f) The amount of any portion of the benefits payable as a lump sum under
this Section IV will equal the present value of such portion of such
benefits, and the present value shall be determined (i) based on a
discount rate equal to the average of 85% of the 15-year non-callable
U.S. Treasury bond yields as of the close of business on the last
business day of each of the three months immediately preceding the date
the annuity value is determined and (ii) using the 1983 Group Annuity
Mortality Table.
(g) "Election Date" for purposes of this Plan means the date that a properly
completed election form with respect to an Election is received by the
Company.
<PAGE>
Section V -- Cessation of Benefits
(a) Notwithstanding any other provision of the Plan (except as provided below
in this Section V), no benefits or no further benefits, as the case may
be, shall be paid to a participant (or his or her beneficiary) if the
participant has:
(i) become a stockholder (unless such stock is listed on a national
securities exchange or traded on a daily basis in the
over-the-counter market and the participant's ownership interest
is not in excess of 2% of the company of which the shares are
being purchased), employee, officer, director or consultant of or
to a Company, or a member or an employee of or a consultant to a
partnership or any other business or firm, which competes with any
of the businesses owned or operated by the Company, or if the
participant becomes associated with a company, partnership or
individual which company, partnership or individual acts as a
consultant to businesses in competition with the Company, such
participant provided services to such competing businesses,
whether or not, in any of the foregoing cases, such participant
accepts any form of compensation from such competing entity or
consultant; or
(ii) been discharged from employment with the Company or any affiliate
for "cause." "Cause" means (1) willful malfeasance or willful
misconduct by the participant in connection with his or her
employment, (2) continuing failure to perform such duties as are
requested by any employee to whom the participant reports or the
board of directors of the Company, or (3) the commission by a
participant of (I) any felony or (II) any misdemeanor involving
moral turpitude.
(b) In any case described in this Section V, the participant (or his or her
beneficiary) shall be given prior written notice that no benefits or no
further benefits, as the case may be, will be paid to such participant
(or his or her beneficiary). Such written notice shall specify the
particular act(s), or failures to act, on the basis of which the decision
to cease paying his or her benefits has been made.
(c) Notwithstanding any other provision of the Plan, a participant who
receives in a lump sum any portion of his or her benefits hereunder shall
receive such lump sum portion of such benefits subject to the condition
that if such participant engages in any of the acts described in this
Section V, then such participant shall within 60 days after written
notice
<PAGE>
by the Company repay to the Company the amount described in the
immediately succeeding sentence. The amount described in this sentence
shall equal the amount of the participant's lump sum benefit under this
Plan to which such participant would not have been entitled, if such lump
sum benefit had instead been payable in the form of an annuity under this
Plan and such annuity payments were subject to the provisions of this
Section V.
(d) Notwithstanding anything to the contrary contained herein, the provisions
of this Section V shall be of no further force or effect from and after a
"Change in Control" with respect to participants then employed by the
Company or its Affiliates. For this purpose, a "Change in Control" shall
mean:
(i) any "Person," as such term is used for purposes of Section 13(d)
or 14(d)of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company), becomes the
"Beneficial Owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of 24 months (not including any period prior to
the effective date of this Plan), individuals who at the beginning
of such period constitute the board of directors of the Company
(the "Board"), and any new director (other than (a) a director
nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in paragraphs (i), (iii)
or (iv) of this Section V(d), (b) a director nominated by any
Person (including the Company) who publicly announces an intention
to take or to consider taking actions (including, but not limited
to, an actual or threatened proxy contest) which if consummated
would constitute a Change in Control or (c) a director nominated
by any Person who is the Beneficial Owner, directly or indirectly,
of securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election
by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the
<PAGE>
period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (1)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 % of the combined
voting powers of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation and (2) after which no Person holds 20% or more of
the combined voting power of the then-outstanding securities of
the Company or such surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
<PAGE>
Section VI -- Funding
Benefits payable under this Plan shall not be funded and shall be made out of
the general funds of the Company; provided, however, that the Company reserves
the right to establish one or more trusts to provide alternate sources of
benefit payments under this Plan, provided, further, however, that upon the
occurrence of a "Potential Change in Control" of the Company, as defined below,
the appropriate officers of the Company are required to make contributions to
such a trust fund, established as an alternate source of benefits payable under
the Plan, as are necessary to fund the lump sum payments to Plan participants
required pursuant to Section V of this Plan in the event of a Change in Control
of the Company; provided, further, however, that if payments are made from such
trust fund, such payments will satisfy the Company's obligations under this Plan
to the extent made from such trust fund.
In determining the amount of the necessary contribution to the trust fund in the
event of a Potential Change in Control, the following actuarial assumptions
shall be used: (i) the interest rate used shall be the interest rate used by the
Pension Benefit Guaranty Corporation for determining the value of immediate
annuities as of January 1st of the year of the occurrence of the Potential
Change in Control, (ii) the 1983 Group Annuity Mortality Table shall be used;
and (iii) it shall be assumed that all participants will retire or terminate
employment with the Company as soon as practicable after the occurrence of the
Potential Change in Control.
For the purpose of this Plan, "Potential Change in Control" means:
(a) the Company enters into an agreement, the consumption of which would
result in the occurrence of a Change in Control of the Company;
(b) any person (including the Company) publicly announces its intention to
take or to consider taking actions which if consummated would constitute
a Change in Control of the Company;
(c) any person, other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company (or a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), who is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 9.5% or more of the combined
voting power of
<PAGE>
the Company's then outstanding securities, increases his or her
beneficial ownership of such securities by 5% or more over the percentage
so owned by such person; or
(d) The Board of Directors of the Company adopts a resolution to the effect
that, for purposes of this Plan, a Potential Change in Control of the
Company has occurred.
<PAGE>
Section VII -- Miscellaneous
(a) The Compensation and Benefits Committee of the board of directors of the
Company shall be responsible for the administration of the Plan and may
delegate to any management committee, employee, director or agent its
responsibility to perform any act hereunder, including without limitation
those matters involving the exercise of discretion, provided that such
delegation shall be subject to revocation at any time at the Committee's
discretion. The Committee shall have the authority to determine all
questions arising in connection with the Plan, to interpret the
provisions of the Plan and construe all of its terms, to adopt, amend,
and rescind rules and regulations for the administration of the Plan, and
generally to conduct and administer the Plan and to make all
determinations in connection with the Plan as may be necessary or
advisable. All such actions of the Committee shall be conclusive and
binding upon all participants and beneficiaries.
(b) The Committee may, in its sole discretion, terminate, suspend or amend
this Plan at any time or from time to time, in whole or in part;
provided, however, that in the event of termination, the rights of
participants to their accrued benefits hereunder shall become
nonforfeitable. No termination, suspension or amendment of the Plan may
adversely affect a participant's or beneficiary's benefit to which he or
she is entitled under the Plan as in effect on the date immediately
preceding the date of such termination, suspension or amendment.
(c) Nothing contained herein will confer upon any participant the right to be
retained in the service of the Company or any affiliate, nor will it
interfere with the right of the Company or any affiliate to discharge or
otherwise deal with participants with respect to matters of employment.
(d) A participant's right to benefit payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of such participant or his or her beneficiary.
(e) The Company may withhold from any benefit under the Plan an amount
sufficient to satisfy its tax withholding obligations.
<PAGE>
(f) The Plan 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 such state to the extent not preempted by federal law.
In witness whereof, the Company has caused this document to be executed by its
officer effective July 1, 1998.
IMS Health Incorporated
By:
Its:
Date:
<PAGE>
APPENDIX A
The benefits payable from the Retirement Benefit and Equalization Plan of The
Dun & Bradstreet Corporation (the "Excess Plan") to participants of this Plan
shall be determined as amounts payable monthly in the form of a single life
annuity commencing on the first day of the month coincident with or next
following the date the participant attains age 65 (the "Normal Retirement
Date").
In the event a participant's benefit from this Plan is paid in a form other than
a single life annuity, however, the benefits payable from the PBEP shall be
adjusted to equal the actuarial equivalent value of the single life annuity
amount computed on the basis of mortality rates shown in Appendix B of this Plan
and 6.75% interest. In the event a participant's benefit from this Plan
commences prior to the participant's Normal Retirement Date, and the participant
terminated employment with the Company on or after he or she attained age 55,
the benefits payable from the PBEP commencing on the first day of the month
coincident with or next following the participant's Normal Retirement Date shall
be reduced by 3/12% for each month prior to the Normal Retirement Date (or age
60 if the participant has 35 years of service on his or her Early Retirement
Date) that benefits commence. In the event a participant's benefit from this
Plan commences prior to the participant's Normal Retirement Date, and the
participant terminated employment with the Company before he or she attained age
55, the benefits payable from the PBEP as determined in accordance with the
provisions set forth above shall be adjusted to equal the actuarial equivalent
value of such amount computed on the basis of mortality rates shown in Appendix
B of this Plan and 6.75% interest.
<PAGE>
APPENDIX B
MORTALITY RATES
Age Participant Beneficiary Age Participant Beneficiary
25 .000581 .000470 68 .024559 .018359
26 .000610 .000497 69 .026871 .020335
27 .000644 .000526 70 .029559 .022766
28 .000681 .000557 71 .032952 .025919
29 .000720 .000591 72 .036762 .029529
30 .000763 .000629 73 .040907 .033496
31 .000811 .000669 74 .045427 .037808
32 .000866 .000714 75 .050298 .042428
33 .000923 .000762 76 .055809 .047551
34 .000988 .000814 77 .062080 .053217
35 .001059 .000873 78 .069068 .059419
36 .001136 .000936 79 .076746 .066152
37 .001223 .001077 80 .084955 .073330
38 .001318 .001084 81 .093582 .080901
39 .001423 .001168 82 .102603 .088868
40 .001539 .001261 83 .111984 .097236
41 .001682 .001369 84 .121754 .106074
42 .001869 .001497 85 .131910 .115436
43 .002097 .001647 86 .142522 .125403
44 .002364 .001815 87 .153693 .136075
45 .002670 .002005 88 .165518 .147557
46 .003011 .002216 89 .178093 .159954
47 .003388 .002449 90 .191529 .173397
48 .003797 .002705 91 .203702 .185997
49 .004241 .002983 92 .216646 .199614
50 .004717 .003289 93 .230478 .214387
51 .005216 .003594 94 .245331 .230463
52 .005746 .003926 95 .261353 .248008
53 .006310 .004288 96 .278704 .267202
<PAGE>
54 .006907 .004683 97 .297562 .288242
55 .007538 .005112 98 .318124 .311344
56 .008206 .005588 99 .340598 .336741
57 .008916 .006123 100 .365204 .364688
58 .009679 .006729 101 .392179 .395460
59 .010510 .007415 102 .421772 .429358
60 .011426 .008190 103 .455805 .467222
61 .012449 .009063 104 .496440 .510917
62 .013608 .010042 105 .545840 .562310
63 .014928 .011131 106 .606167 .623265
64 .016449 .012338 107 .679585 .695646
65 .018207 .013671 108 .768255 .781319
66 .020245 .015129 109 .874340 .882150
67 .022388 .016662 110 .999999 .999999
<PAGE>
Table of Contents Page
- - ----------------- ----
Introduction 1
Section I - Participation in the Plan 2
Section II - Benefits 3
Section III - Unfunded Status 5
Section IV - Election of Form of Payment 6
Section V - Cessation of Benefits 8
Section VI - Funding 11
Section VII - Miscellaneous 13
Exhibit 10.20
RIGHTS AGREEMENT
Agreement, dated as of June 15, 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 29, 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.
<PAGE>
2
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section Certain Definitions. For purposes of this Agreement, the following
terms have the meaning indicated:
"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
<PAGE>
3
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 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
<PAGE>
4
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 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.
"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.
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:
which such Person or any of such Person's Affiliates or
Associates is deemed to
<PAGE>
5
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;
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 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
<PAGE>
6
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 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
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
<PAGE>
7
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of
any securities of the Company.
"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.
"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.
"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.
"Distribution Date" shall have the meaning set forth in Section 3
hereof.
<PAGE>
8
"equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
"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.
"Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
"Institutional Investor" shall mean a Person (i) which is principally
engaged in the business of managing 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, (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 and (iii) which, if such Person is a Person
included in Rule 13d
<PAGE>
9
-1(b)(ii), does not file a Schedule 13D with respect to securities of
the Company.
"New York Stock Exchange" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"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.
"Record Date" shall have the meaning set forth in the preamble to this
Agreement.
"Redemption Date" shall have the meaning set forth in Section 7
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"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.
"Subsidiary" of any Person shall mean any corporation or other entity
of which securities or
<PAGE>
10
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 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 Issue of Right Certificates. 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
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
<PAGE>
11
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 of Common Stock so held. As of the Distribution Date, the
Rights will be evidenced solely by such Right Certificates.
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
<PAGE>
12
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 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
15, 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
<PAGE>
13
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 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 Form of Right Certificates. The Right Certificates (and the forms
of election to purchase shares
<PAGE>
14
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.
Section Countersignature and Registration. 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
<PAGE>
15
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.
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 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 Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
provisions
<PAGE>
16
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 or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
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
<PAGE>
17
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 Exercise of Rights, Purchase Price; Expiration Date of Rights.
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 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
<PAGE>
18
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
The Purchase Price shall be initially $225 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.
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 (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
<PAGE>
19
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.
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.
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
<PAGE>
20
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 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 such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section Availability of Shares of Preferred Stock. The Company covenants
and agrees that it
<PAGE>
21
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.
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.
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 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),
<PAGE>
22
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.
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 Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.
<PAGE>
23
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 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 duly
surrendered and payment of
<PAGE>
24
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 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.
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
<PAGE>
25
in a reclassification of 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.
Subject to Section 24 of this Agreement, in the event that any Person
becomes an Acquiring Person, then (A) the Purchase Price
<PAGE>
26
shall be adjusted to be the Purchase Price in effect immediately prior to
such 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
<PAGE>
27
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 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
<PAGE>
28
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 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
<PAGE>
29
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 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
<PAGE>
30
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, 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
<PAGE>
31
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 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
<PAGE>
32
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 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).
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
<PAGE>
33
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 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
<PAGE>
34
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
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.
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
<PAGE>
35
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 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.
<PAGE>
36
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 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
<PAGE>
37
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 listed or admitted to trading on any
national securities exchange, a Business Day.
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
<PAGE>
38
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.
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 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
<PAGE>
39
date of the expiration of the right to exercise any Rights.
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.
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.
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
<PAGE>
40
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.
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 dividing the
Purchase Price
<PAGE>
41
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
<PAGE>
42
record of Right Certificates on the record date specified in the public
announcement.
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.
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.
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 capital stock or
securities of the Company, if any, issuable upon such exercise
<PAGE>
43
over and above the Preferred Stock and other 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.
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.
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
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44
Distribution Date, the Company shall (i) declare or pay any dividend on the
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.
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.
<PAGE>
45
Section 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 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 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
<PAGE>
46
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
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),
<PAGE>
47
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
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
<PAGE>
48
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, 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
<PAGE>
49
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 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
<PAGE>
50
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.
(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
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51
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
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
<PAGE>
52
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 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
<PAGE>
53
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 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 Fractional Rights and Fractional Shares. 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
<PAGE>
54
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
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
<PAGE>
55
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.
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 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
<PAGE>
56
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.
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.
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).
Section 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
<PAGE>
57
(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 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:
prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Stock;
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
<PAGE>
58
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 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 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
<PAGE>
59
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section Concerning the Rights Agent. 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.
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 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,
<PAGE>
60
verified or acknowledged, by the proper Person or Persons, or otherwise upon the
advice of counsel as set forth in Section 20 hereof.
Section Merger or Consolidation or Change of Name of Rights Agent. 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 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
<PAGE>
61
force provided in the Right Certificates and in this Agreement.
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 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:
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.
Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or
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62
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.
The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.
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.
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 countersignature
thereof); nor
<PAGE>
63
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.
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.
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64
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
<PAGE>
65
in response to such application specifying the action to be taken or
omitted.
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.
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.
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
<PAGE>
66
Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent
shall not take any further action with respect to such requested exercise
or transfer without first consulting with the Company.
Section 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
<PAGE>
67
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 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
<PAGE>
68
or the appointment of the successor Rights Agent, as the case may be.
Section 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 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 Redemption. 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
<PAGE>
69
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, 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.
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
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70
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 Exchange. The Board of Directors 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
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71
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.
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 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
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72
become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each
holder of Rights.
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 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 Notice of Certain Events. 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
<PAGE>
73
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 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.
In case any event described in Section 11(a)(ii) or Section 13 shall occur
then the Company shall as soon as
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74
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 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:
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
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75
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 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 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
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76
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 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 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 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 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
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77
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 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 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 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.
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78
Section 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 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.
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79
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: /s/ Robin Nance IMS HEALTH INCORPORATED
Robin Nance
Assistant Secretary
By /s/ Kenneth S. Siegel
--------------------------------
Name: Kenneth S. Siegel
Title: Senior Vice President
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By /s/ Joanne Gorostiola
--------------------------------
Name: Joanne Gorostiola
Title: Assistant Vice President
<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)
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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 15, 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 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.
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Section Dividends and Distributions.
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 15, 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.
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.
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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 Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights;
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 15, 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.
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
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similar stock, and except as otherwise required by law, the holders of shares of
Series A Preferred Stock and the 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.
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 Certain Restrictions.
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:
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;
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;
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;
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 Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and
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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.
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 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 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 15, 1998 declare or pay any dividend on the
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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 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
15, 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 No Redemption. The shares of Series A Preferred Stock shall not be
redeemable from any holder.
Section 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 Amendment. If any proposed amendment to the Certificate of
Incorporation (including
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this Certificate of Designations) would alter, change or repeal any of the
preferences, powers or special rights given to the Series A 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 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.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Company by its and attested by its Secretary this day of June, 1998.
-----------------------------------
[Title]
Attest:
- - -----------------------------------
Secretary
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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 15, 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 $225 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 15, 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
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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.
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
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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 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.
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WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of _____________________.
ATTEST: IMS HEALTH INCORPORATED
By By
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Countersigned:
- - -----------------------------------,
as Rights Agent
By
---------------------------------
Authorized Signature
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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:
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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).
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Signature
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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.
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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.
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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 15, 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 29, 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 $225 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 15, 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
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(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 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 30, 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
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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 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
3
<PAGE>
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 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 23, 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
<PAGE>
Exhibit 1
IMS HEALTH INCORPORATED
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK,
as Rights Agent
Rights Agreement
Dated as of June 15, 1998
<PAGE>
TABLE OF CONTENTS
Page
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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
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<PAGE>
Page
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Section 21. Change of Rights Agent 63
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
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Exhibit 10.21
IMS HEALTH INCORPORATED
SAVINGS EQUALIZATION PLAN
I. Purpose of the Plan
The purpose of the IMS Health Incorporated Savings Equalization Plan (the
"Plan") is to provide a means of equalizing the benefits of those employees
participating in the IMS Health Incorporated Savings Plan (the "401(k) Plan")
whose matching contributions under the 401(k) Plan are or will be limited by the
application of sections 401(a)(17) or 415 of the Internal Revenue Code of 1986,
as amended (the "Code"). The Plan is intended to be an "excess benefit plan" as
that term is defined in section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") with respect to those participants whose
benefits under the 401(k) Plan have been limited by Section 415 of the Code, and
a plan which is unfunded and is maintained by an employer primarily for the
purposes of providing deferred compensation for a select group of management or
highly compensated employees for purposes of ERISA.
II. Administration of the Plan
The Compensation Committee of the Board of Directors (the "Committee") of
IMS Health Incorporated (the "Corporation" or the "Company") shall administer
the Plan and may delegate to any committee, employee, director or agent its
responsibility to perform any act hereunder, including without limitation those
matters involving the exercise of discretion, provided that such delegation
shall be subject to revocation at any time at its discretion. The Committee
shall have full authority to determine all questions arising in connection with
the Plan, other than those determinations delegated to employees or independent
third parties by the Board of Directors, including interpreting its provisions
and construing all of its terms; may adopt procedural rules; and may employ and
rely on such legal counsel, such actuaries, such accountants and such agents as
it may deem advisable to assist in the administration of the Plan. All of its
rules, interpretations and decisions shall be applied in a uniform manner to all
participants similarly situated and decisions of the Committee shall be
conclusive and binding on all persons.
III. Participation in the Plan
All members of the 401(k) Plan shall be eligible to participate in this
Plan whenever their benefits under the 401(k) Plan as from time to time in
effect would exceed the limitations on benefits and contributions imposed by
sections 401(a)(17) or 415 of the Code. For purposes of this Plan, benefits of a
participant in this Plan shall be determined as though no provision were
contained in the 401(k) Plan incorporating limitations imposed by Sections
401(a)(17) or 415 of the Code.
<PAGE>
IV. Equalized Benefits
If member participating contributions or Company contributions to the
401(k) Plan are suspended during any calendar year because any such
contributions would cause the participant's account under such plan to exceed
the benefit limitations related to such plan as described in Section III of this
Plan, the Corporation shall pay the participant, on or about March 1st of the
following year, an amount equal to:
(1) the Company matching contributions that otherwise would have
been credited to such to such participant's account under the 401(k) Plan
for the balance of the year in which such suspension occurs, as if no
provision were set forth therein incorporating limitations imposed by
section 401(a)(17) or 415 of the Code, and the participant had continued
his elective deferrals to the 401(k) Plan at the rate in effect at the
time such contributions were suspended for the balance of the year in
which such suspension occurs, plus
(2) an interest factor equal to one-half of the annual return
which would have been received by the participant had such payment been
invested eighty percent (80%) in the Special Fixed Income Fund (Fund C)
of the 401(k) Plan and twenty percent (20%) in the BZW Equity Index Fund
(Fund A) of the 401(k) plan during the year which such suspension occurs,
less
(3) any applicable withholding taxes.
V. Miscellaneous
This Plan may be terminated at any time by the Board of Directors of the
Corporation, in which event the rights of participants to their accrued benefits
shall become nonforfeitable. This Plan may also be amended at any time by the
Board of Directors of the Corporation, except that no such amendment shall
deprive any participant of benefits accrued at the time of such amendment.
Benefits payable under this Plan shall not be funded and shall be made
out of the general funds of the Corporation; provided, however, that the
Corporation reserves the right to establish a trust fund as an alternate source
of benefits payable under the Plan and to the extent payments are made from such
trust, such payments will satisfy he Corporation's obligations under this Plan.
No right to payment or any other interest under this Plan may be
alienated, sold, transferred, pledged, assigned, or made subject to attachment,
execution, or levy of any kind.
<PAGE>
Nothing in this Plan shall be construed as giving any employee the right
to be retained in the employ of the Corporation. The Corporation expressly
reserves the right to dismiss any employee at any time without regard to the
effect which such dismissal might have upon him under the Plan.
This Plan shall be construed, administered and enforced according to the
laws of the State of Connecticut unless preempted by federal law.
VI. Effective Date
This Plan shall be effective as of the date on which shares of common
stock of the Company that are owned by Cognizant Corporation ("Cognizant") are
distributed to the holders of record of shares of Cognizant.
Exhibit 10.22
IMS HEALTH INCORPORATED
- - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
- - --------------------------------------------------------------------------------
IMS HEALTH INCORPORATED
- - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
- - --------------------------------------------------------------------------------
Page
1. Employment.......................................................... 1
2. Term................................................................ 1
3. Offices and Duties.................................................. 2
(a) Generally..................................................... 2
(b) Place of Employment........................................... 2
(c) Rank of Executive Within Company.............................. 2
4. Salary and Annual Incentive Compensation............................ 2
(a) Base Salary................................................... 2
(b) Annual Incentive Compensation................................. 3
5. Long Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement........................... 3
(a) Executive Compensation Plans.................................. 3
(b) Employee and Executive Benefit Plans.......................... 3
(c) Acceleration of Awards Upon a Change in Control .............. 4
(d) Deferral of Compensation...................................... 4
(e) Company Registration Obligations.............................. 4
(f) Reimbursement of Expenses..................................... 5
6. Termination Due to Retirement, Death, or Disability................. 5
(a) Retirement.................................................... 5
(b) Death......................................................... 5
(c) Disability.................................................... 6
(d) Other Terms of Payment Following Retirement, Death, or Disability.. 7
<PAGE>
7. Termination of Employment For Reasons Other Than Retirement,
Death, or Disability.............................................. 8
(a) Termination by the Company for Cause.......................... 8
(b) Termination by Executive Other Than For Good Reason........... 8
(c) Termination by the Company Without Cause Prior to or More than Two
Years After a Change in Control............................. 8
(d) Termination by Executive for Good Reason Prior to or More than Two
Years After a Change in Control............................. 10
(e) Termination by the Company Without Cause Within Two Years After
a Change in Control......................................... 12
(f) Termination by Executive for Good Reason Within Two Years After
a Change in Control......................................... 14
(g) Other Terms Relating to Certain Terminations of Employment.... 17
8. Definitions Relating to Termination Events.......................... 17
(a) "Cause"....................................................... 17
(b) "Change in Control"........................................... 17
(c) "Compensation Accrued at Termination"......................... 18
(d) "Disability".................................................. 19
(e) "Good Reason"................................................. 19
(f) "Potential Change in Control"................................. 20
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise
Tax Related Provisions............................................ 21
(a) Rabbi Trust Funded Upon Potential Change in Control........... 21
(b) Gross-up If Excise Tax Would Apply............................ 21
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement................................................. 23
(a) Non-Competition............................................... 23
(b) Non-Disclosure; Ownership of Work............................. 23
(c) Cooperation With Regard to Litigation......................... 24
(d) Non-Disparagement............................................. 24
(e) Release of Employment Claims.................................. 24
(f) Forfeiture of Outstanding Options............................. 24
(g) Survival...................................................... 25
11. Governing Law; Disputes; Arbitration................................ 25
(a) Governing Law................................................. 25
(b) Reimbursement of Expenses in Enforcing Rights................. 25
(c) Arbitration................................................... 25
(d) Interest on Unpaid Amounts.................................... 25
<PAGE>
12. Miscellaneous....................................................... 26
(a) Integration................................................... 26
(b) Successors; Transferability................................... 26
(c) Beneficiaries................................................. 26
(d) Notices....................................................... 26
(e) Reformation................................................... 27
(f) Headings...................................................... 27
(g) No General Waivers............................................ 27
(h) No Obligation To Mitigate..................................... 27
(i) Offsets; Withholding.......................................... 27
(j) Successors and Assigns........................................ 27
(k) Counterparts.................................................. 27
13. Indemnification..................................................... 28
IMS HEALTH INCORPORATED
- - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
- - --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH INCORPORATED, a
Delaware corporation (the "Company"), and Robert E. Weissman ("Executive") shall
become effective as of July 1, 1998 (the "Effective Date").
WITNESSETH
WHEREAS, Executive has served the Company and its predecessors in the
position of Chairman of the Board and Chief Executive Officer since April 1995,
and in senior executive capacities since January 1985;
WHEREAS, the Company desires to continue to employ Executive as Chairman
of the Board and Chief Executive Officer of the Company, and Executive desires
to accept such employment on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, and other good and valuable consideration the receipt and
adequacy of which the Company and Executive each hereby acknowledge, the Company
and Executive hereby agree as follows:
1. Employment.
The Company hereby agrees to employ Executive as its Chairman of the
Board and Chief Executive Officer, and Executive hereby agrees to accept such
employment and serve in such capacities, during the Term as defined in Section 2
(subject to Section 7(c) and
<PAGE>
7(e)) and upon the terms and conditions set forth in this Employment Agreement
(the "Agreement").
2. Term.
The term of employment of Executive under this Agreement (the "Term")
shall be the period commencing on the Effective Date and ending on June 30, 2001
and any period of extension thereof in accordance with this Section 2, except
that the Term will end at a date, prior to the end of such period or extension
thereof, specified in Section 6 or 7 in the event of termination of Executive's
employment. The Term, if not previously ended, shall be extended automatically
without further action by either party by one additional year (added to the end
of the Term) first on June 30, 2001 (extending the Term to June 30, 2002) and on
each succeeding June 30 thereafter, unless either party shall have served
written notice in accordance with Section 12(d) upon the other party on or
before the December 31 preceding a June 30 extension date electing not to extend
the Term further as of that June 30 extension date, in which case employment
shall terminate on that June 30 and the Term shall end at that date, subject to
earlier termination of employment and earlier termination of the Term in
accordance with Section 6 or 7. The foregoing notwithstanding, in the event
there occurs a Potential Change in Control during the period of 180 days prior
to the June 30 on which the Term will terminate as a result of notice given by
Executive hereunder, the Term shall be extended automatically at that June 30 by
an additional period such that the Term will extend until the 180th day
following such Potential Change in Control.
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term, except as
otherwise provided in Section 7(c) and 7(e):
(a) Generally. Executive shall serve as the Chief Executive Officer and
Chairman of the Board of the Company and, if elected, shall serve as a member of
the Board of Directors of the Company (the "Board") and, for so long as he is
serving on the Board, Executive agrees to serve as a member of any Board
committee if the Board shall elect Executive to such committee. In any and all
such capacities, Executive shall report only to the Board of Directors of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as are customary for the chairman of the board and chief executive
officer of a publicly held corporation of the size, type, and nature of the
Company as they may exist from time to time and consistent with such position
and status, but in no event shall such duties, responsibilities, and authorities
be reduced from those of Executive at the Effective Date. Executive shall devote
his full business time and attention, and his best efforts, abilities,
experience, and talent, to the positions of Chairman of the Board and Chief
Executive Officer and for the businesses of the Company without commitment to
other business endeavors, except that Executive (i) may make personal
investments which are not in conflict with his duties to the Company and manage
personal and family financial and legal affairs, (ii) may serve as a member of
the board of directors of each of State Street Corporation, Gartner Group, Inc.,
and the New York Stock Exchange, Inc., (iii) undertake public speaking
engagements, and (iv) serve as a director of (or similar position with) any
other business or an
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<PAGE>
educational, charitable, community, civic, religious, or similar type of
organization with the approval of the Board of Directors of the Company, so long
as such activities (i.e., those listed in clauses (i) through (iv)) do not
preclude or render unlawful Executive's employment or service to the Company or
otherwise materially inhibit the performance of Executive's duties under this
Agreement or materially impair the business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of employment shall
be at the Corporate Offices of the Company which shall be in (i) New York City,
(ii) Westchester County, New York, (iii) Fairfield County, Connecticut (iv)
Montgomery County, Pennsylvania, (v) Passaic County, New Jersey, or (vi) London,
England.
(c) Rank of Executive Within Company. As Chairman of the Board and Chief
Executive Officer of the Company, Executive shall be the highest-ranking
executive of the Company.
4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder by
Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the Term a base
salary at the initial annual rate of $775,000, payable in cash in substantially
equal semi-monthly installments commencing at the beginning of the Term, and
otherwise in accordance with the Company's usual payroll practices with respect
to senior executives (except to the extent deferred under Section 5(d)).
Executive's annual base salary shall be reviewed by the Compensation and
Benefits Committee of the Board (the "Committee") at least once in each calendar
year and may be increased above, but may not be reduced below, the then-current
rate of such base salary. For purposes of this Agreement, "Base Salary" means
Executive's then-current base salary.
(b) Annual Incentive Compensation. The Company will pay to Executive
during the Term annual incentive compensation which shall offer to Executive an
opportunity to earn additional compensation based upon performance in amounts
determined by the Committee in accordance with the applicable plan and
consistent with past practices of the Company; provided, however, that the
annual target incentive opportunity shall be not less than the greater of 100%
of Base Salary or the annual target incentive opportunity for the prior year for
achievement of target level performance, with the nature of the performance and
the levels of performance triggering payments of such annual target incentive
compensation for each year to be established and communicated to Executive
during the first quarter of such year by the Committee. In addition, the
Committee (or the Board) may determine, in its discretion, to increase the
Executive's annual target incentive opportunity or provide an additional annual
incentive opportunity, in excess of the annual target incentive opportunity,
payable for performance in excess of or in addition to the performance required
for payment of the annual target incentive amount. Any annual incentive
compensation payable to Executive shall be paid in accordance with the Company's
usual practices with respect to payment of incentive
-3-
<PAGE>
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. Executive shall be entitled during the
Term to participate, without discrimination or duplication, in all executive
compensation plans and programs intended for general participation by senior
executives of the Company, as presently in effect or as they may be modified or
added to by the Company from time to time, subject to the eligibility and other
requirements of such plans and programs, including without limitation any stock
option plans, plans under which restricted stock/restricted stock units,
performance-based restricted stock/restricted stock units ("PERS") or
performance-accelerated restricted stock/restricted stock units ("PARS") may be
awarded, other annual and long-term cash and/or equity incentive plans, and
deferred compensation plans; provided, however, that such plans and programs, in
the aggregate, shall provide Executive with compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
to Executive under such plans and programs as in effect on the Effective Date.
(b) Employee and Executive Benefit Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
employee and executive benefit plans and programs of the Company, as presently
in effect or as they may be modified or added to by the Company from time to
time, to the extent such plans are available to other senior executives or
employees of the Company, subject to the eligibility and other requirements of
such plans and programs, including without limitation plans providing pensions,
supplemental pensions, supplemental and other retirement benefits, medical
insurance, life insurance, disability insurance, and accidental death or
dismemberment insurance, as well as savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs, in the
aggregate, shall provide Executive with benefits and compensation substantially
no less favorable than those provided by the Company to Executive under such
plans and programs as in effect on the Effective Date. The foregoing
notwithstanding, Executive shall not be eligible to participate or receive
benefits under the Company's Employee Protection Plan.
In furtherance of and not in limitation of the foregoing, during the
Term:
(i) Executive will participate as Chief Executive Officer in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as Chief
Executive Officer with respect to long-term disability insurance
and benefits substantially no less favorable (including any
required contributions by Executive) than such insurance and
benefits in effect on the Effective Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit no less than the
death benefit provided under Company-paid insurance in effect at
the Effective Date; provided,
-4-
<PAGE>
however, that, with the consent of Executive, such insurance may
be combined with a supplementary retirement funding vehicle;
(iv) Executive will be entitled to retirement benefits substantially no
less favorable than those under the defined benefit pension plans
and programs of the Company, including the IMS Health Incorporated
Supplemental Executive Retirement Plan (the "SERP"), as in effect
on the Effective Date; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause" (as
defined in Section 8(a)) or Executive terminates voluntarily and not for "Good
Reason" (as defined in Section 8(e)), Executive may elect continued
participation after termination of employment in the Company's health and
medical coverage for himself and his spouse and dependent children after such
coverage would otherwise end until such time as Executive becomes eligible for
similar coverage with a subsequent employer or other entity to which Executive
provides services or becomes eligible for Medicare (under rules in effect at the
Effective Date hereof); provided, however, that in the event of such election,
Executive shall pay the Company each year an amount equal to the then-current
annual COBRA premium being paid (or payable) by any other former employee of the
Company, unless otherwise provided under Section 6 or 7.
(c) Acceleration of Awards Upon a Change in Control. In the event of a
Change in Control (as defined in Section 8(b)), all outstanding stock options
and restricted stock then held by Executive shall become vested and exercisable.
(d) Deferral of Compensation. If the Company has in effect or adopts any
deferral program or arrangement permitting executives to elect to defer any
compensation, Executive will be eligible to participate in such program on terms
no less favorable than the terms of participation of any other executive officer
of the Company.
(e) Company Registration Obligations. The Company will use its best
efforts to file with the Securities and Exchange Commission and thereafter
maintain the effectiveness of one or more registration statements registering
under the Securities Act of 1933, as amended (the "1933 Act"), the offer and
sale of shares by the Company to Executive pursuant to stock options or other
equity-based awards granted to Executive under Company plans or otherwise or, if
shares are acquired by Executive in a transaction not involving an offer or sale
to Executive but resulting in the acquired shares being "restricted securities"
for purposes of the 1933 Act, registering the reoffer and resale of such shares
by Executive.
(f) Reimbursement of Expenses. The Company will promptly reimburse
Executive for all reasonable business expenses and disbursements incurred by
Executive in the performance of Executive's duties during the Term in accordance
with the Company's reimbursement policies as in effect from time to time.
-5-
<PAGE>
6. Termination Due to Retirement, Death, or Disability.
(a) Retirement. Executive may elect to terminate employment hereunder by
retirement at or after age 55 or at such earlier age as may be approved by the
Board (in either case, "Retirement"). At the time Executive's employment
terminates due to Retirement, the Term will terminate, all obligations of the
Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease except for obligations which expressly continue after
termination of employment due to Retirement, and the Company will pay Executive,
and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of annual incentive compensation that would
have become payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for that year
if his employment had not terminated, based on performance
actually achieved in that year (determined by the Committee
following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iii) The vesting and exercisability of stock options held by Executive
at termination and all other terms of such options shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted (subject to
Section 10(f) hereof); and
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards, and
all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or
governing the deferral, and all rights under the SERP and any
other benefit plan shall be governed by such plan.
(b) Death. In the event of Executive's death which results in the
termination of Executive's employment, the Term will terminate, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease except for obligations which expressly continue after death,
and the Company will pay Executive's beneficiary or estate, and Executive's
beneficiary or estate will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's death occurred, an amount equal
to the portion of annual incentive compensation that would have
become payable in cash to Executive
-6-
<PAGE>
(i.e., excluding the portion payable in PERS or in other non-cash
awards) for that year if his employment had not terminated, based
on performance actually achieved in that year (determined by the
Committee following completion of the performance year),
multiplied by a fraction the numerator of which is the number of
days Executive was employed in the year of his death and the
denominator of which is the total number of days in the year of
death;
(iii) The vesting and exercisability of stock options held by Executive
at death and all other terms of such options shall be governed by
the plans and programs and the agreements and other documents
pursuant to which such options were granted; and
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards, and
all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or
governing the deferral, and all rights under the SERP and any
other benefit plan shall be governed by such plan.
(c) Disability. The Company may terminate the employment of Executive
hereunder due to the Disability (as defined in Section 8(d)) of Executive. Such
employment shall terminate at the expiration of the 30-day period referred to in
the definition of Disability set forth in Section 8(d), unless Executive has
returned to service and presented to the Company a certificate of good health
prior to such termination as specified in Section 8(d). Upon termination of
employment, the Term will terminate, all obligations of the Company and
Executive under Sections 1 through 5 of this Agreement will immediately cease
except for obligations which expressly continue after termination of employment
due to Disability, and the Company will pay Executive, and Executive will be
entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of annual incentive compensation that would
have become payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for that year
if his employment had not terminated, based on performance
actually achieved in that year (determined by the Committee
following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iii) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination during which such options may be
exercised), such options shall be governed by the plans and
programs and the agreements and other documents pursuant to
-7-
<PAGE>
which such options were granted;
(iv) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(v) Disability benefits shall be payable in accordance with the
Company's plans, programs and policies (including the SERP), and
all deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral; and
(vi) For the period extending from the date of termination due to
Disability until the date Executive reaches age 65, Executive
shall continue to participate in those employee and executive
benefit plans and programs under Section 5(b) to the extent such
plans and programs provide medical insurance, disability insurance
and life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b)) in
which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if the terms of such plans or
programs do not allow Executive's continued participation,
Executive shall be paid a cash payment equivalent on an after-tax
basis to the value of the additional benefits (of the type
described in this Section 6(c)(vi)) Executive would have received
under such plans or programs had Executive continued to be
employed during such period following Executive's termination
until age 65, with such benefits provided by the Company at the
same times and in the same manner as such benefits would have been
provided to Executive under such plans and programs (it being
understood that the value of any insurance-provided benefits will
be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment
grade or better credit rating); provided, however, that Executive
must continue to satisfy the conditions set forth in Section 10 in
order to continue receiving the benefits provided under this
Section 6(c)(vi).
(d) Other Terms of Payment Following Retirement, Death, or Disability.
Nothing in this Section 6 shall limit the benefits payable or provided In the
event Executive's employment terminates due to Retirement, death, or Disability
under the terms of plans or programs of the Company more favorable to the
Executive (or his beneficiaries) than the benefits payable or provided under
this Section 6 (except in the case of annual incentives in lieu
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of which amounts are paid hereunder), including plans and programs adopted after
the date of this Agreement. Amounts payable under this Section 6 following
Executive's termination of employment, other than those expressly payable
following determination of performance for the year of termination for purposes
of annual incentive compensation or otherwise expressly payable on a deferred
basis, will be paid as promptly as practicable after such termination of
employment.
7. Termination of Employment For Reasons Other Than Retirement,
Death, or Disability.
(a) Termination by the Company for Cause. The Company may terminate the
employment of Executive hereunder for Cause (as defined in Section 8(a)) at any
time. At the time Executive's employment is terminated for Cause the Term will
terminate, all obligations of the Company and Executive under Sections 1 through
5 of this Agreement will immediately cease, and the Company will pay Executive,
and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral, and
all rights under the SERP and any other benefit plan shall be
governed by such plan.
(b) Termination by Executive Other Than For Good Reason. Executive may
terminate his employment hereunder voluntarily for reasons other than Good
Reason (as defined in Section 8(e)) at any time. An election by Executive not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a termination
of employment by Executive for reasons other than Good Reason at the date of
expiration of the Term, unless a Change in Control (as defined in Section 8(b))
occurs prior to, and there exists Good Reason at, such date of expiration. At
the time Executive's employment is terminated by Executive other than for Good
Reason the Term will terminate, all obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease, and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
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<PAGE>
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral, and
all rights under the SERP and any other benefit plan shall be
governed by such plan.
(c) Termination by the Company Without Cause Prior to or More than Two
Years After a Change in Control. The Company may terminate the employment of
Executive hereunder without Cause, if at the date of termination no Change in
Control has occurred or such date of termination is at least two years after the
most recent Change in Control, upon at least 90 days' written notice to
Executive. The foregoing notwithstanding, the Company may elect, by written
notice to Executive, to terminate Executive's positions specified in Sections 1
and 3 and all other obligations of Executive and the Company under Section 3 at
a date earlier than the expiration of such 90-day period, if so specified by the
Company in the written notice, provided that Executive shall be treated as an
employee of the Company (without any assigned duties) for all other purposes of
this Agreement, including for purposes of Sections 4 and 5, from such specified
date until the expiration of such 90-day period. An election by the Company not
to extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of Executive's employment by the Company without Cause at the date
of expiration of the Term and shall be subject to this Section 7(c) if at the
date of such termination no Change in Control has occurred or such date of
termination is at least two years after the most recent Change in Control;
provided, however, that, if Executive has attained age 65 at such date of
termination, such termination shall be deemed a Retirement of Executive. At the
time Executive's employment is terminated by the Company (i.e., at the
expiration of such notice period), the Term will terminate, all remaining
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease (except as expressly provided below), and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(c)(ii) shall be
payable in monthly installments over the 24 months following
termination, without interest, except the Company may elect to
accelerate payment of the remaining balance of such amount and to
pay it as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to
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<PAGE>
Executive (i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination during which such options may be
exercised), such options shall be governed by the plans and
programs and the agreements and other documents pursuant to which
such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(c)(vii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(c)(vii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would
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<PAGE>
have been provided to Executive under such plans and programs (it
being understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall not
exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however, that
Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the benefits provided
under this Section 7(c)(vii). Executive agrees to promptly notify
the Company of any employment or other arrangement by which
Executive provides services during the benefits-continuation
period and of the nature and extent of benefits for which
Executive becomes eligible during such period which would reduce
or terminate benefits under this Section 7(c)(vii); and the
Company be entitled to recover from Executive any payments and the
fair market value of benefits previously made or provided to
Executive hereunder which would not have been paid under this
Section 7(c)(vii) if the Company had received adequate prior
notice as required by this sentence.
(d) Termination by Executive for Good Reason Prior to or More than Two
Years After a Change in Control. Executive may terminate his employment
hereunder for Good Reason, prior to a Change in Control or after the second
anniversary of the most recent Change in Control, upon 90 days' written notice
to the Company; provided, however, that, if the Company has corrected the basis
for such Good Reason within 30 days after receipt of such notice, Executive may
not terminate his employment for Good Reason, and therefore Executive's notice
of termination will automatically become null and void. At the time Executive's
employment is terminated by Executive for Good Reason (i.e., at the expiration
of such notice period), the Term will terminate, all obligations of the Company
and Executive under Sections 1 through 5 of this Agreement will immediately
cease (except as expressly provided below), and the Company will pay Executive,
and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(d)(ii) shall be
payable in monthly installments over the 24 months following
termination, without interest, except the Company may elect to
accelerate payment of the remaining balance of such amount and to
pay it as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in
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<PAGE>
which Executive's employment terminated, an amount equal to the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination, multiplied by a fraction the numerator of which is
the number of days Executive was employed in the year of
termination and the denominator of which is the total number of
days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination during which such options may be
exercised), such options shall be governed by the plans and
programs and the agreements and other documents pursuant to which
such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(d)(vii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(d)(vii) Executive
would have received under such plans or programs had Executive
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<PAGE>
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(d)(vii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(d)(vii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would not
have been paid under this Section 7(d)(vii) if the Company had
received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(d) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or benefit
was the basis for Executive's termination for Good Reason, then the Base Salary
or other level of compensation in effect before such reduction shall be used to
calculate payments or benefits under this Section 7(d).
(e) Termination by the Company Without Cause Within Two Years After a
Change in Control. The Company may terminate the employment of Executive
hereunder without Cause, simultaneously with or within two years after a Change
in Control, upon at least 90 days' written notice to Executive. The foregoing
notwithstanding, the Company may elect, by written notice to Executive, to
terminate Executive's positions specified in Sections 1 and 3 and all other
obligations of Executive and the Company under Section 3 at a date earlier than
the expiration of such 90-day notice period, if so specified by the Company in
the written notice, provided that Executive shall be treated as an employee of
the Company (without any assigned duties) for all other purposes of this
Agreement, including for purposes of Sections 4 and 5, from such specified date
until the expiration of such 90-day period. An election by the Company not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a termination
of Executive's employment by the Company without Cause at the date of expiration
of the Term and shall be subject to this Section 7(e) if the date of such
termination coincides with or is within two years after a Change in Control;
provided, however, that, if Executive has attained age 65 at such date of
termination, such termination shall be deemed a Retirement of Executive. At the
time Executive's employment is terminated by the Company (i.e., at the
expiration of such notice period), the Term will terminate, all remaining
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease (except as expressly provided below), and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
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<PAGE>
(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(e)(ii) shall be paid
by the Company not later than 15 days after Executive's
termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the year of termination, multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total
number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and any such options granted on or after
the date hereof shall remain outstanding and exercisable until the
stated expiration date of the Option as though Executive's
employment did not terminate, and, in other respects, such options
shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent
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<PAGE>
required so that Executive's termination will qualify as a
"Retirement" within the meaning of the SERP and so that Executive
will be entitled the maximum "Retirement Benefit" in accordance
with Section 3.1 of the SERP.
(viii) For a period of three years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(e)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(e)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(e)(viii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(e)(viii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would not
have been paid under this Section 7(e)(viii) if the Company had
received adequate prior notice as required by this sentence.
(f) Termination by Executive for Good Reason Within Two Years After a
Change in Control. Executive may terminate his employment hereunder for Good
Reason, simultaneously with or within two years after a Change in Control, upon
90 days' written notice to the Company; provided, however, that, if the Company
has corrected the basis for such Good Reason within 30 days after receipt of
such notice, Executive may not terminate his employment for Good Reason, and
therefore Executive's notice of termination will automatically become null and
void. At the time Executive's employment is terminated by Executive for Good
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<PAGE>
Reason (i.e., at the expiration of such notice period), the Term will terminate,
all obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease (except as expressly provided below), and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(f)(ii) shall be paid
by the Company not later than 15 days after Executive's
termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the year of termination, multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total
number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and any such options granted on or after
the date hereof shall remain outstanding and exercisable until the
stated expiration date of the Option as though Executive's
employment did not terminate, and, in other respects, such options
shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
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<PAGE>
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the SERP.
(viii) For a period of three years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(f)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(f)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(f)(viii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(f)(viii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would not
have been paid under this Section 7(f)(viii) if the Company had
received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(f) is based on Base Salary or
other level of
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compensation or benefits at the time of Executive's termination and if a
reduction in such Base Salary or other level of compensation or benefit was the
basis for Executive's termination for Good Reason, then the Base Salary or other
level of compensation in effect before such reduction shall be used to calculate
payments or benefits under this Section 7(f).
(g) Other Terms Relating to Certain Terminations of Employment. Whether a
termination is deemed to be at or within two years after a Change in Control for
purposes of Sections 7(c), (d), (e), or (f) is determined at the date of
termination, regardless of whether the Change in Control had occurred at the
time a notice of termination was given. In the event Executive's employment
terminates for any reason set forth in Section 7(b) through (f), Executive will
be entitled to the benefit of any terms of plans or agreements applicable to
Executive which are more favorable than those specified in this Section 7
(except in the case of annual incentives in lieu of which amounts are paid
hereunder). Amounts payable under this Section 7 following Executive's
termination of employment, other than those expressly payable on a deferred
basis, will be paid as promptly as practicable after such a termination of
employment, and such amounts payable under Section 7(e) or 7(f) will be paid in
no event later than 15 days after Executive's termination of employment unless
not determinable within such period.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall mean
Executive's
(i) willful and continued failure to substantially perform his duties
hereunder (other than any such failure resulting from incapacity
due to physical or mental illness or disability or any failure
after the issuance of a notice of termination by Executive for
Good Reason) which failure is demonstrably and materially damaging
to the financial condition or reputation of the Company and/or its
subsidiaries, and which failure continues more than 48 hours after
a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the
manner in which the Board believes that Executive has not
substantially performed his duties hereunder and the demonstrable
and material damage caused thereby; or
(ii) the willful engaging by Executive in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise.
No act, or failure to act, on the part of Executive shall be deemed "willful"
unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board (after reasonable notice to Executive and an opportunity
for Executive, together with Executive's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board,
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Executive was guilty of conduct set forth above in this definition and
specifying the particulars thereof in detail.
(b) "Change in Control." For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if, during the term of this Agreement:
(i) any "Person," as such term is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company), becomes the
"Beneficial Owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the effectiveness of this Agreement), individuals who at
the beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who has
entered into an agreement with the Company to effect a transaction
described in Sections (8)(b)(i), (iii) or (iv) hereof, (B) a
director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking
actions (including, but not limited to, an actual or threatened
proxy contest) which if consummated would constitute a Change in
Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 10% or more of the combined voting power of
the Company's securities) whose election by the Board or
nomination for election by the Company's stockholders was approved
in advance by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of
the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at
least a majority thereof;
(iii) the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation and (B) after which no Person holds 20% or more of
the combined voting power of the then-outstanding securities of
the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or
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substantially all of the Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Change in Control has occurred.
(c) "Compensation Accrued at Termination." For purposes of this
Agreement, "Compensation Accrued at Termination" means the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of Executive's
termination of employment, pro rated through such date of
termination, payable in accordance with the Company's regular pay
schedule;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
Executive's termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or referred to
in Sections 4(b) and 5(a) and 5(b) hereof (including any earned
and vested annual incentive compensation and long-term incentive
award) in which Executive theretofore participated, payable in
accordance with the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted or
accrued; and
(iii) Reasonable business expenses and disbursements incurred by
Executive prior to Executive's termination of employment, to be
reimbursed to Executive, as authorized under Section 5(f), in
accordance the Company's reimbursement policies as in effect at
the date of such termination.
(d) "Disability." For purposes of this Agreement, "Disability" means
Executive's absence from the full-time performance of Executive's duties
hereunder for six consecutive months as a result of his incapacity due to
physical or mental illness or disability, and, within 30 days after written
notice of termination is thereafter given by the Company, Executive shall have
not returned to the full-time performance of such duties.
(e) "Good Reason." For purposes of this Agreement, "Good Reason" shall
mean, without Executive's express written consent, the occurrence of any of the
following circumstances unless, in the case of subsections (i), (iv), (vi) or
(viii) hereof, such circumstances are fully corrected prior to the date of
termination specified in the notice of termination given in respect thereof:
(i) the assignment to Executive of duties inconsistent with
Executive's position and status hereunder, or an alteration,
adverse to Executive, in the nature of Executive's duties,
responsibilities, and authorities, Executive's positions or the
conditions of Executive's employment from those specified in
Section 3 or otherwise hereunder (other than inadvertent actions
which are promptly remedied); for this purpose, it shall
constitute "Good Reason" under this subsection (e)(i) if (A)
Executive shall be required to report to and take direction
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from any person or body other than the Board of Directors of the
Company; and (B) if Executive shall be removed from the Board,
from the office of Chairman of the Board, or from any Board
committee on which Executive has served during the Term, or there
occurs any failure of Executive to be nominated, reappointed or
reelected as a member of the Board, as Chairman of the Board, or
as a member of any Board committee on which he has served during
the Term, including a failure of the Board or stockholders to take
such actions (notwithstanding their legal right to do so), except
the foregoing shall not constitute Good Reason if occurring in
connection with the termination of Executive's employment for
Cause, Disability, Retirement, as a result of Executive's death,
or as a result of action by or with the consent of Executive; for
purposes of this Section 8(e)(i), references to the Company (and
the Board and stockholders of the Company) refer to the ultimate
parent company (and its board and stockholders) succeeding the
Company following an acquisition in which the corporate existence
of the Company continues, in accordance with Section 12(b);
(ii) (A) a reduction by the Company in Executive's Base Salary, (B) the
setting of Executive's annual target incentive opportunity or
payment of earned annual incentive in amounts less than specified
under or otherwise not in conformity with Section 4 hereof, (C) a
change in compensation or benefits not in conformity with Section
5, or (D) a reduction, after a Change in Control, in perquisites
from the level of such perquisites as in effect immediately prior
to the Change in Control or as the same may have been increased
from time to time after the Change in Control except for
across-the-board perquisite reductions similarly affecting all
senior executives of the Company and all senior executives of any
Person in control of the Company;
(iii) the relocation of the principle place of Executive's employment
not in conformity with Section 3(b) hereof; for this purpose,
required travel on the Company's business will not constitute a
relocation so long as the extent of such travel is substantially
consistent with Executive's customary business travel obligations
in periods prior to the Effective Date;
(iv) the failure by the Company to pay to Executive any portion of
Executive's compensation or to pay to Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company within seven days of the date
such compensation is due;
(v) the failure by the Company to continue in effect any material
compensation or benefit plan in which Executive participated
immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amounts of benefits provided
and the level of Executive's participation relative to
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other participants, as existed at the time of the Change in
Control;
(vi) the failure of the Company to obtain a satisfactory agreement from
any successor to the Company to fully assume the Company's
obligations and to perform under this Agreement, as contemplated
in Section 12(b) hereof, in a form reasonably acceptable to
Executive;
(vii) any election by the Company not to extend the Term of this
Agreement at the next possible extension date under Section 2
hereof, unless Executive will have attained age 65 at or before
such extension date; or
(viii) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement.
(f) "Potential Change in Control" For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if, during the term of this
Agreement:
(i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an intention
to take or to consider taking actions which if consummated would
constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred.
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise
Tax-Related Provisions.
(a) Rabbi Trust Funded Upon Potential Change in Control. In the event of
a Potential Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit therein
cash in an amount sufficient to provide for full payment of all potential
obligations of the Company that would arise assuming consummation of a Change in
Control and a subsequent termination of Executive's employment under Section
7(e) or 7(f). Such rabbi trust(s) shall be irrevocable and shall provide that
the Company may not, directly or indirectly, use or recover any assets of the
trust(s) until such time as all obligations which potentially could arise
hereunder have been settled and paid in full, subject only to the claims of
creditors of the Company in the event of insolvency or bankruptcy of the
Company; provided, however, that if no Change in Control has occurred within two
years after such Potential Change in Control, such rabbi trust(s) shall at the
end of such two-year period become revocable and may thereafter be revoked by
the Company.
(b) Gross-up If Excise Tax Would Apply. In the event Executive becomes
entitled to any amounts payable in connection with a Change in Control or other
change in control (whether or not such amounts are payable pursuant to this
Agreement) (the "Severance
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Payments"), if any of such Severance Payments are subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state
or local tax that may hereafter be imposed), the Company shall pay to Executive
at the time specified in Section 9(b)(iii) hereof an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the Total Payments (as hereinafter defined) and
any federal, state and local income tax and Excise Tax upon the payment provided
for by Section 9(b)(i), shall be equal to the Total Payments.
(i) For purposes of determining whether any of the Severance Payments
will be subject to the Excise Tax and the amount of such Excise
Tax:
(A) any other payments or benefits received or to be received
by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with
the Company or such Person) (which, together with the
Severance Payments, constitute the "Total Payments") shall
be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, unless
in the opinion of nationally-recognized tax counsel
selected by Executive such other payments or benefits (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;
(B) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(x) the total amount of the Total Payments and (y) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying Section
9(b)(i)(A) hereof); and
(C) the value of any non-cash benefits or any deferred payments
or benefit shall be determined by a nationally-recognized
accounting firm selected by Executive in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the
state and locality of Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes
which could
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be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to
the Company within ten days after the time that the amount of such
reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax and federal
and state and local income tax imposed on the Gross-Up Payment
being repaid by Executive if such repayment results in a reduction
in Excise Tax and/or federal and state and local income tax
deduction) plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event
that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of Executive's
employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional gross-up payment in
respect of such excess within ten days after the time that the
amount of such excess is finally determined.
(iii) The payments provided for in this Section 9(b) shall be made not
later than the fifteenth day following the date of Executive's
termination of employment; provided, however, that if the amount
of such payments cannot be finally determined on or before such
day, the Company shall pay to Executive on such day an estimate,
as determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the
date of Executive's termination of employment. In the event that
the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to Executive, payable on the
fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(iv) All determinations under this Section 9(b) shall be made at the
expense of the Company by a nationally recognized public
accounting firm selected by Executive, and such determination
shall be binding upon Executive and the Company.
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement.
(a) Non-Competition. Without the consent in writing of the Board,
Executive will not, at any time during the Term and for a period of two years
following termination of Executive's employment for any reason, acting alone or
in conjunction with others, directly or indirectly (i) engage (either as owner,
investor, partner, stockholder, employer, employee, consultant, advisor, or
director) in any business in which he has been directly engaged on
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behalf of the Company or any affiliate, or has supervised as an executive
thereof, during the last two years prior to such termination, or which was
engaged in or planned by the Company or an affiliate at the time of such
termination, in any geographic area in which such business was conducted or
planned to be conducted; (ii) induce any customers of the Company or any of its
affiliates with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of her employment with the Company or
any of its affiliates, to curtail or cancel their business with the Company or
any such affiliate; (iii) induce, or attempt to influence, any employee of the
Company or any of its affiliates to terminate employment; or (iv) solicit, hire
or retain as an employee or independent contractor, or assist any third party in
the solicitation, hire, or retention as an employee or independent contractor,
any person who during the previous 12 months was an employee of the Company or
any affiliate; provided, however, that the limitation contained in clause (i)
above shall not apply if Executive's employment is terminated as a result of a
termination by the Company without Cause within two years following a Change in
Control or is terminated by Executive for Good Reason within two years following
a Change in Control; and provided further, that activities engaged in by or on
behalf of the Company are not restricted by this covenant. The provisions of
subparagraphs (i), (ii), (iii), and (iv) above are separate and distinct
commitments independent of each of the other subparagraphs. It is agreed that
the ownership of not more than one percent of the equity securities of any
company having securities listed on an exchange or regularly traded in the
over-the-counter market shall not, of itself, be deemed inconsistent with clause
(i) of this Section 10(a).
(b) Non-Disclosure; Ownership of Work. Executive shall not, at any time
during the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any proprietary
information, secrets, organizational or employee information, or other
confidential information belonging or relating to the Company and its affiliates
and customers so long as such information has not otherwise been disclosed or is
not otherwise in the public domain, except as required by law or pursuant to
legal process. In addition, upon termination of employment for any reason,
Executive will return to the Company or its affiliates all documents and other
media containing information belonging or relating to the Company or its
affiliates. Executive will promptly disclose in writing to the Company all
inventions, discoveries, developments, improvements and innovations
(collectively referred to as "Inventions") that Executive has conceived or made
during the Term; provided, however, that in this context "Inventions" are
limited to those which (i) relate in any manner to the existing or contemplated
business or research activities of the Company and its affiliates; (ii) are
suggested by or result from Executive's work at the Company; or (iii) result
from the use of the time, materials or facilities of the Company and its
affiliates. All Inventions will be the Company's property rather than
Executive's. Should the Company request it, Executive agrees to sign any
document that the Company may reasonably require to establish ownership in any
Invention.
(c) Cooperation With Regard to Litigation. Executive agrees to cooperate
with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil,
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criminal, administrative, or investigative, and to assist the Company, or any
subsidiary or affiliate of the Company, in any such action, suit, or proceeding,
by providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during the Term
and thereafter, make statements or representations, or otherwise communicate,
directly or indirectly, in writing, orally, or otherwise, or take any action
which may, directly or indirectly, disparage or be damaging to the Company or
any of its subsidiaries or affiliates or their respective officers, directors,
employees, advisors, businesses or reputations. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from making truthful
statements that are required by applicable law, regulation or legal process.
(e) Release of Employment Claims. Executive agrees, as a condition to
receipt of any termination payments and benefits provided for in Sections 6 and
7 herein (other than Compensation Accrued at Termination), that he will execute
a general release agreement, in a form satisfactory to the Company, releasing
any and all claims arising out of Executive's employment (other than enforcement
of this Agreement).
(f) Forfeiture of Outstanding Options. The provisions of Sections 6 and 7
notwithstanding, if Executive willfully and materially fails to substantially
comply with any restrictive covenant under this Section 10 or willfully and
materially fails to substantially comply with any material obligation under this
Agreement, all options to purchase Common Stock granted by the Company and then
held by Executive or a transferee of Executive shall be immediately forfeited
and thereupon such options shall be cancelled. Notwithstanding the foregoing,
Executive shall not forfeit any option unless and until there shall have been
delivered to him, within six months after the Board (i) had knowledge of conduct
or an event allegedly constituting grounds for such forfeiture and (ii) had
reason to believe that such conduct or event could be grounds for such
forfeiture, a copy of a resolution duly adopted by a majority affirmative vote
of the membership of the Board (excluding Executive) at a meeting of the Board
called and held for such purpose (after giving Executive reasonable notice
specifying the nature of the grounds for such forfeiture and not less than 30
days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive has engaged and continues to engage in conduct set forth in this
Section 10(f) which constitutes grounds for forfeiture of Executive's options;
provided, however, that if any option is exercised after delivery of such notice
and the Board subsequently makes the determination described in this sentence,
Executive shall be required to pay to the Company an amount equal to the
difference between the aggregate value of the shares acquired upon such exercise
at the date of the Board determination and the aggregate exercise price paid by
Executive. Any such forfeiture shall apply to such options notwithstanding any
term or provision of any option agreement.
(g) Survival. The provisions of this Section 10 shall survive the
termination
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of the Term and any termination or expiration of this Agreement.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be construed,
administered, and enforced in accordance with the laws of the State of
Connecticut, without regard to conflicts of law principles, except insofar as
federal laws and regulations and the Delaware General Corporation Law may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All reasonable costs
and expenses (including fees and disbursements of counsel) incurred by Executive
in seeking to interpret this Agreement or enforce rights pursuant to this
Agreement shall be paid on behalf of or reimbursed to Executive promptly by the
Company, whether or not Executive is successful in asserting such rights;
provided, however, that no reimbursement shall be made of such expenses relating
to any unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
arbitrators in accordance with Section 11(c) or a court having jurisdiction over
the matter.
(c) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Westport CT by three arbitrators in accordance with the rules of the American
Arbitration Association in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. For purposes of entering any judgment upon an award rendered by
the arbitrators, the Company and Executive hereby consent to the jurisdiction of
any or all of the following courts: (i) the United States District Court for the
District of Connecticut, (ii) any of the courts of the State of Connecticut, or
(iii) any other court having jurisdiction. The Company and Executive further
agree that any service of process or notice requirements in any such proceeding
shall be satisfied if the rules of such court relating thereto have been
substantially satisfied. The Company and Executive hereby waive, to the fullest
extent permitted by applicable law, any objection which it may now or hereafter
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to Section 11(b), the Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 11. Notwithstanding any provision in this Section 11,
Executive shall be entitled to seek specific performance of Executive's right to
be paid during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
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(d) Interest on Unpaid Amounts. Any amount which has become payable
pursuant to the terms of this Agreement or any decision by arbitrators or
judgment by a court of law pursuant to this Section 11 but which has not been
timely paid shall bear interest at the prime rate in effect at the time such
amount first becomes payable, as quoted by the Company's principal bank.
12. Miscellaneous.
(a) Integration. This Agreement cancels and supersedes any and all prior
agreements and understandings between the parties hereto with respect to the
employment of Executive by the Company, any parent or predecessor company, and
the Company's subsidiaries during the Term, except for contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and its subsidiaries. The foregoing notwithstanding, Executive shall not
participate in the Company's Employee Protection Plan. This Agreement
constitutes the entire agreement among the parties with respect to the matters
herein provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment or benefit under this Agreement which duplicates
a payment or benefit received or receivable by Executive under such prior
agreements and understandings or under any benefit or compensation plan of the
Company.
(b) Successors; Transferability. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise,
and whether or not the corporate existence of the Company continues) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise and, in the case of an acquisition of the Company in which the
corporate existence of the Company continues, the ultimate parent company
following such acquisition. Subject to the foregoing, the Company may transfer
and assign this Agreement and the Company's rights and obligations hereunder.
Neither this Agreement nor the rights or obligations hereunder of the parties
hereto shall be transferable or assignable by Executive, except in accordance
with the laws of descent and distribution or as specified in Section 12(c).
(c) Beneficiaries. Executive shall be entitled to designate (and change,
to the extent permitted under applicable law) a beneficiary or beneficiaries to
receive any compensation or benefits provided hereunder following Executive's
death.
(d) Notices. Whenever under this Agreement it becomes necessary to give
notice, such notice shall be in writing, signed by the party or parties giving
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set
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forth below or at such other address as may be designated by such party by like
notice:
If to the Company:
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
If to Executive:
Robert E. Weissman
200 Nyala Farms
Westport, CT 06880
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective two days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this Agreement shall
not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for convenience of
reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time to require
performance by any other party of any provision hereof or to resort to any
remedy provided herein or at law or in equity shall in no way affect the right
of such party to require such performance or to resort to such remedy at any
time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by the Company
to Executive pursuant to this Agreement shall not be subject to offset other
than with respect to any amounts that are owed to the Company by Executive due
to his receipt of funds as a result of his fraudulent activity. The foregoing
and other provisions of this Agreement notwithstanding, all payments to be made
to Executive under this Agreement, including under Sections 6 and 7, or
otherwise by the Company, will be subject to withholding to satisfy required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon and
shall
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inure to the benefit of Executive, his heirs, executors, administrators and
beneficiaries, and shall be binding upon and inure to the benefit of the Company
and its successors and assigns.
(k) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. Indemnification.
All rights to indemnification by the Company now existing in favor of the
Executive as provided in the Company's Certificate of Incorporation or By-laws
or pursuant to other agreements in effect on or immediately prior to the
Effective Date shall continue in full force and effect from the Effective Date
(including all periods after the expiration of the Term), and the Company shall
also advance expenses for which indemnification may be ultimately claimed as
such expenses are incurred to the fullest extent permitted under applicable law,
subject to any requirement that the Executive provide an undertaking to repay
such advances if it is ultimately determined that the Executive is not entitled
to indemnification; provided, however, that any determination required to be
made with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company
has caused this instrument to be duly executed as of the day and year first
above written.
IMS HEALTH INCORPORATED
By:________________________________
Name:
Title:
EXECUTIVE
________________________________
Robert E. Weissman
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Exhibit 10.23
IMS HEALTH INCORPORATED
Employment Agreement for Victoria R. Fash
IMS HEALTH INCORPORATED
Employment Agreement for Victoria R. Fash
Page
1. Employment ............................................................ 1
2. Term .................................................................. 1
3. Offices and Duties .................................................... 2
(a) Generally ......................................................... 2
(b) Place of Employment ............................................... 2
4. Salary and Annual Incentive Compensation .............................. 2
(a) Base Salary ....................................................... 2
(b) Annual Incentive Compensation ..................................... 3
5. Long Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement ............................. 3
(a) Executive Compensation Plans ...................................... 3
(b) Employee and Executive Benefit Plans .............................. 3
(c) Acceleration of Awards Upon a Change in Control ................... 4
(d) Deferral of Compensation .......................................... 4
(e) Company Registration Obligations .................................. 4
(f) Reimbursement of Expenses ......................................... 5
6. Termination Due to Retirement, Death, or Disability ................... 5
(a) Retirement ........................................................ 5
(b) Death ............................................................. 5
(c) Disability ........................................................ 6
(d) Other Terms of Payment Following Retirement, Death, or Disability . 7
7. Termination of Employment For Reasons Other Than Retirement,
Death, or Disability ................................................ 8
<PAGE>
(a) Termination by the Company for Cause .............................. 8
(b) Termination by Executive Other Than For Good Reason ............... 8
(c) Termination by the Company Without Cause Prior to or More than Two
Years After a Change in Control ................................. 8
(d) Termination by Executive for Good Reason Prior to or More than Two
Years After a Change in Control ................................. 11
(e) Termination by the Company Without Cause Within Two Years After
a Change in Control ............................................. 13
(f) Termination by Executive for Good Reason Within Two Years After
a Change in Control ............................................. 15
(g) Other Terms Relating to Certain Terminations of Employment ........ 17
8. Definitions Relating to Termination Events ............................ 17
(a) "Cause" ........................................................... 17
(b) "Change in Control" ............................................... 18
(c) "Compensation Accrued at Termination" ............................. 19
(d) "Disability" ...................................................... 19
(e) "Good Reason" ..................................................... 19
(f) "Potential Change in Control" ..................................... 21
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise
Tax Related Provisions .............................................. 21
(a) Rabbi Trust Funded Upon Potential Change in Control ............... 21
(b) Gross-up If Excise Tax Would Apply ................................ 21
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement ................................................... 23
(a) Non-Competition ................................................... 23
(b) Non-Disclosure; Ownership of Work ................................. 23
(c) Cooperation With Regard to Litigation ............................. 24
(d) Non-Disparagement ................................................. 24
(e) Release of Employment Claims ...................................... 24
(f) Forfeiture of Outstanding Options ................................. 24
(g) Survival .......................................................... 25
11. Governing Law; Disputes; Arbitration .................................. 25
(a) Governing Law ..................................................... 25
(b) Reimbursement of Expenses in Enforcing Rights ..................... 25
(c) Arbitration ....................................................... 25
(d) Interest on Unpaid Amounts ........................................ 26
12. Miscellaneous ......................................................... 26
<PAGE>
(a) Integration ....................................................... 26
(b) Successors; Transferability ....................................... 26
(c) Beneficiaries ..................................................... 26
(d) Notices ........................................................... 27
(e) Reformation ....................................................... 27
(f) Headings .......................................................... 27
(g) No General Waivers ................................................ 27
(h) No Obligation To Mitigate ......................................... 27
(i) Offsets; Withholding .............................................. 27
(j) Successors and Assigns ............................................ 28
(k) Counterparts ...................................................... 28
13. Indemnification ....................................................... 28
IMS HEALTH INCORPORATED
Employment Agreement for Victoria R. Fash
THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH INCORPORATED, a
Delaware corporation (the "Company"), and Victoria R. Fash ("Executive") shall
become effective as of July 1, 1998 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served the Company and its predecessors in executive
and senior executive capacities since September 1991;
WHEREAS, the Company desires to continue to employ Executive as President
and Chief Operating Officer of the Company, and Executive desires to accept such
employment on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, and other good and valuable consideration the receipt and
adequacy of which the Company and Executive each hereby acknowledge, the Company
and Executive hereby agree as follows:
1. Employment.
The Company hereby agrees to employ Executive as its President and Chief
Operating Officer, and Executive hereby agrees to accept such employment and
serve in such capacities, during the Term as defined in Section 2 (subject to
Section 7(c) and 7(e)) and upon the terms and conditions set forth in this
Employment Agreement (the "Agreement").
<PAGE>
2. Term.
The term of employment of Executive under this Agreement (the "Term") shall
be the period commencing on the Effective Date and ending on June 30, 2001 and
any period of extension thereof in accordance with this Section 2, except that
the Term will end at a date, prior to the end of such period or extension
thereof, specified in Section 6 or 7 in the event of termination of Executive's
employment. The Term, if not previously ended, shall be extended automatically
without further action by either party by one additional year (added to the end
of the Term) first on June 30, 2001 (extending the Term to June 30, 2002) and on
each succeeding June 30 thereafter, unless either party shall have served
written notice in accordance with Section 12(d) upon the other party on or
before the December 31 preceding a June 30 extension date electing not to extend
the Term further as of that June 30 extension date, in which case employment
shall terminate on that June 30 and the Term shall end at that date, subject to
earlier termination of employment and earlier termination of the Term in
accordance with Section 6 or 7. The foregoing notwithstanding, in the event
there occurs a Potential Change in Control during the period of 180 days prior
to the June 30 on which the Term will terminate as a result of notice given by
Executive hereunder, the Term shall be extended automatically at that June 30 by
an additional period such that the Term will extend until the 180th day
following such Potential Change in Control.
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term, except as
otherwise provided in Section 7(c) and 7(e):
(a) Generally. Executive shall serve as the President and Chief
Operating Officer of the Company and, if elected, shall serve as a member
of the Board of Directors of the Company (the "Board") and, for so long as
she is serving on the Board, Executive agrees to serve as a member of any
Board committee if the Board shall elect Executive to such committee. In
any and all such capacities, Executive shall report only to the Chairman of
the Board and Chief Executive Officer of the Company and to the Board.
Executive shall have and perform such duties, responsibilities, and
authorities as are customary for the president and chief operating officer
of a publicly held corporation of the size, type, and nature of the Company
as they may exist from time to time and consistent with such position and
status, but in no event shall such duties, responsibilities, and
authorities be reduced from those of Executive at the Effective Date.
Executive shall devote her full business time and attention, and her best
efforts, abilities, experience, and talent, to the positions of President
and Chief Operating Officer and for the businesses of the Company without
commitment to other business endeavors, except that Executive (i) may make
personal investments which are not in conflict with her duties to the
Company and manage personal and family financial and legal affairs, (ii)
may serve as a member of the board of directors of each of Orion Capital
Corporation and Ligand Pharmaceuticals Incorporated, (iii) undertake public
speaking engagements, and (iv) serve as a director of (or similar position
with) any other business or an educational, charitable, community, civic,
religious, or similar type of organization with the approval of the Chief
Executive Officer and the Board, so long as such activities (i.e., those
listed in clauses (i) through (iv)) do not preclude or render unlawful
Executive's employment or service to the Company or otherwise materially
inhibit the performance of Executive's duties under this Agreement or
materially impair the business of the Company or its subsidiaries.
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(b) Place of Employment. Executive's principal place of employment
shall be at the Corporate Offices of the Company which shall be in (i) New
York City, (ii) Westchester County, New York, (iii) Fairfield County,
Connecticut (iv) Montgomery County, Pennsylvania, (v) Passaic County, New
Jersey, or (vi) London, England.
4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder by
Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the Term a
base salary at the initial annual rate of $600,000, payable in cash in
substantially equal semi-monthly installments commencing at the beginning
of the Term, and otherwise in accordance with the Company's usual payroll
practices with respect to senior executives (except to the extent deferred
under Section 5(d)). Executive's annual base salary shall be reviewed by
the Compensation and Benefits Committee of the Board (the "Committee") at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary. For purposes of
this Agreement, "Base Salary" means Executive's then-current base salary.
(b) Annual Incentive Compensation. The Company will pay to Executive
during the Term annual incentive compensation which shall offer to
Executive an opportunity to earn additional compensation based upon
performance in amounts determined by the Committee in accordance with the
applicable plan and consistent with past practices of the Company;
provided, however, that the annual incentive opportunity shall be not less
than the greater of 58% of Base Salary or the annual target incentive
opportunity for the prior year for achievement of target level performance,
with the nature of the performance and the levels of performance triggering
payments of such annual target incentive compensation for each year to be
established and communicated to Executive during the first quarter of such
year by the Committee. In addition, the Committee (or the Board) may
determine, in its discretion, to increase the Executive's annual target
incentive opportunity or provide an additional annual incentive
opportunity, in excess of the annual target incentive opportunity, payable
for performance in excess of or in addition to the performance required for
payment of the annual target incentive amount. Any annual incentive
compensation payable to Executive shall be paid in accordance with the
Company's usual practices with respect to payment of incentive compensation
to senior executives (except to the extent deferred under Section 5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. Executive shall be entitled during
the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general
participation by senior executives of the Company, as presently in effect
or as they may be modified or added to by the Company from time to time,
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subject to the eligibility and other requirements of such plans and
programs, including without limitation any stock option plans, plans under
which restricted stock/restricted stock units, performance-based restricted
stock/restricted stock units ("PERS") or performance-accelerated restricted
stock/restricted stock units ("PARS") may be awarded, other annual and
long-term cash and/or equity incentive plans, and deferred compensation
plans; provided, however, that such plans and programs, in the aggregate,
shall provide Executive with compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to
Executive under such plans and programs as in effect on the Effective Date.
(b) Employee and Executive Benefit Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in
all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company
from time to time, to the extent such plans are available to other senior
executives or employees of the Company, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, supplemental pensions, supplemental and other
retirement benefits, medical insurance, life insurance, disability
insurance, and accidental death or dismemberment insurance, as well as
savings, profit-sharing, and stock ownership plans; provided, however, that
such benefit plans and programs, in the aggregate, shall provide Executive
with benefits and compensation substantially no less favorable than those
provided by the Company to Executive under such plans and programs as in
effect on the Effective Date. The foregoing notwithstanding, Executive
shall not be eligible to participate or receive benefits under the
Company's Employee Protection Plan.
In furtherance of and not in limitation of the foregoing, during the Term:
(i) Executive will participate as President and Chief Operating
Officer in all executive and employee vacation and time-off
programs;
(ii) The Company will provide Executive with coverage as President and
Chief Operating Officer with respect to long-term disability
insurance and benefits substantially no less favorable (including
any required contributions by Executive) than such insurance and
benefits in effect on the Effective Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit no less than the
death benefit provided under Company-paid insurance in effect at
the Effective Date; provided, however, that, with the consent of
Executive, such insurance may be combined with a supplementary
retirement funding vehicle;
(iv) Executive will be entitled to retirement benefits substantially no
less favorable than those under the defined benefit pension plans
and programs of the Company, including the IMS Health Incorporated
Supplemental Executive Retirement Plan (the "SERP"), as in effect
on the Effective Date; and
(v) The Company will provide Executive with health and medical
benefits consistent
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with its policies for other senior executives.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause"
(as defined in Section 8(a)) or Executive terminates voluntarily and not
for "Good Reason" (as defined in Section 8(e)), Executive may elect
continued participation after termination of employment in the Company's
health and medical coverage for herself and her spouse and dependent
children after such coverage would otherwise end until such time as
Executive becomes eligible for similar coverage with a subsequent employer
or other entity to which Executive provides services or becomes eligible
for Medicare (under rules in effect at the Effective Date hereof);
provided, however, that in the event of such election, Executive shall pay
the Company each year an amount equal to the then-current annual COBRA
premium being paid (or payable) by any other former employee of the
Company, unless otherwise provided under Section 6 or 7.
(c) Acceleration of Awards Upon a Change in Control. In the event of a
Change in Control (as defined in Section 8(b)), all outstanding stock
options and restricted stock then held by Executive shall become vested and
exercisable.
(d) Deferral of Compensation. If the Company has in effect or adopts
any deferral program or arrangement permitting executives to elect to defer
any compensation, Executive will be eligible to participate in such program
on terms no less favorable than the terms of participation of any other
executive officer of the Company.
(e) Company Registration Obligations. The Company will use its best
efforts to file with the Securities and Exchange Commission and thereafter
maintain the effectiveness of one or more registration statements
registering under the Securities Act of 1933, as amended (the "1933 Act"),
the offer and sale of shares by the Company to Executive pursuant to stock
options or other equity-based awards granted to Executive under Company
plans or otherwise or, if shares are acquired by Executive in a transaction
not involving an offer or sale to Executive but resulting in the acquired
shares being "restricted securities" for purposes of the 1933 Act,
registering the reoffer and resale of such shares by Executive.
(f) Reimbursement of Expenses. The Company will promptly reimburse
Executive for all reasonable business expenses and disbursements incurred
by Executive in the performance of Executive's duties during the Term in
accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Retirement, Death, or Disability.
(a) Retirement. Executive may elect to terminate employment hereunder
by retirement at or after age 55 or at such earlier age as may be approved
by the Board (in either case, "Retirement"). At the time Executive's
employment terminates due to Retirement, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly
continue after termination of employment due to Retirement, and the Company
will pay Executive, and Executive will be entitled to receive, the
following:
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(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of annual incentive compensation that would
have become payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for that year
if her employment had not terminated, based on performance
actually achieved in that year (determined by the Committee
following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iii) The vesting and exercisability of stock options held by Executive
at termination and all other terms of such options shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted (subject to
Section 10(f) hereof); and
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards, and
all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or
governing the deferral, and all rights under the SERP and any
other benefit plan shall be governed by such plan.
(b) Death. In the event of Executive's death which results in the
termination of Executive's employment, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly
continue after death, and the Company will pay Executive's beneficiary or
estate, and Executive's beneficiary or estate will be entitled to receive,
the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's death occurred, an amount equal
to the portion of annual incentive compensation that would have
become payable in cash to Executive (i.e., excluding the portion
payable in PERS or in other non-cash awards) for that year if her
employment had not terminated, based on performance actually
achieved in that year (determined by the Committee following
completion of the performance year), multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of her death and the denominator of which is the total
number of days in the year of death;
(iii) The vesting and exercisability of stock options held by Executive
at death and all other terms of such options shall be governed by
the plans and programs and
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the agreements and other documents pursuant to which such options
were granted; and
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards, and
all deferral arrangements under Section 5(d), shall be governed by
the plans and programs under which the awards were granted or
governing the deferral, and all rights under the SERP and any
other benefit plan shall be governed by such plan.
(c) Disability. The Company may terminate the employment of Executive
hereunder due to the Disability (as defined in Section 8(d)) of Executive.
Such employment shall terminate at the expiration of the 30-day period
referred to in the definition of Disability set forth in Section 8(d),
unless Executive has returned to service and presented to the Company a
certificate of good health prior to such termination as specified in
Section 8(d). Upon termination of employment, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly
continue after termination of employment due to Disability, and the Company
will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of annual incentive compensation that would
have become payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for that year
if her employment had not terminated, based on performance
actually achieved in that year (determined by the Committee
following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iii) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination during which such options may be
exercised), such options shall be governed by the plans and
programs and the agreements and other documents pursuant to which
such options were granted;
(iv) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the
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date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements and
other documents pursuant to which such awards were granted;
(v) Disability benefits shall be payable in accordance with the
Company's plans, programs and policies (including the SERP), and
all deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral; and
(vi) For the period extending from the date of termination due to
Disability until the date Executive reaches age 65, Executive
shall continue to participate in those employee and executive
benefit plans and programs under Section 5(b) to the extent such
plans and programs provide medical insurance, disability insurance
and life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b)) in
which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if the terms of such plans or
programs do not allow Executive's continued participation,
Executive shall be paid a cash payment equivalent on an after-tax
basis to the value of the additional benefits (of the type
described in this Section 6(c)(vi)) Executive would have received
under such plans or programs had Executive continued to be
employed during such period following Executive's termination
until age 65, with such benefits provided by the Company at the
same times and in the same manner as such benefits would have been
provided to Executive under such plans and programs (it being
understood that the value of any insurance-provided benefits will
be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment
grade or better credit rating); provided, however, that Executive
must continue to satisfy the conditions set forth in Section 10 in
order to continue receiving the benefits provided under this
Section 6(c)(vi).
(d) Other Terms of Payment Following Retirement, Death, or Disability.
Nothing in this Section 6 shall limit the benefits payable or provided In
the event Executive's employment terminates due to Retirement, death, or
Disability under the terms of plans or programs of the Company more
favorable to the Executive (or her beneficiaries) than the benefits payable
or provided under this Section 6 (except in the case of annual incentives
in lieu of which amounts are paid hereunder), including plans and programs
adopted after the date of this Agreement. Amounts payable under this
Section 6 following Executive's termination of employment, other than those
expressly payable following determination of performance for the year of
termination for purposes of annual incentive compensation or otherwise
expressly payable on a deferred basis, will be paid as promptly as
practicable after such termination of employment.
7. Termination of Employment For Reasons Other Than Retirement, Death, or
Disability.
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(a) Termination by the Company for Cause. The Company may terminate
the employment of Executive hereunder for Cause (as defined in Section
8(a)) at any time. At the time Executive's employment is terminated for
Cause the Term will terminate, all obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease, and
the Company will pay Executive, and Executive will be entitled to receive,
the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral, and
all rights under the SERP and any other benefit plan shall be
governed by such plan.
(b) Termination by Executive Other Than For Good Reason. Executive may
terminate her employment hereunder voluntarily for reasons other than Good
Reason (as defined in Section 8(e)) at any time. An election by Executive
not to extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of employment by Executive for reasons other than Good Reason
at the date of expiration of the Term, unless a Change in Control (as
defined in Section 8(b)) occurs prior to, and there exists Good Reason at,
such date of expiration. At the time Executive's employment is terminated
by Executive other than for Good Reason the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, and the Company will pay Executive, and
Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral, and
all rights under the SERP and any other benefit plan shall be
governed by such plan.
(c) Termination by the Company Without Cause Prior to or More than Two
Years After a Change in Control. The Company may terminate the employment
of Executive hereunder without Cause, if at the date of termination no
Change in Control has occurred or such date of termination is at least two
years after the most recent Change in Control, upon at least 90 days'
written notice to Executive. The foregoing notwithstanding, the Company may
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elect, by written notice to Executive, to terminate Executive's positions
specified in Sections 1 and 3 and all other obligations of Executive and
the Company under Section 3 at a date earlier than the expiration of such
90-day period, if so specified by the Company in the written notice,
provided that Executive shall be treated as an employee of the Company
(without any assigned duties) for all other purposes of this Agreement,
including for purposes of Sections 4 and 5, from such specified date until
the expiration of such 90-day period. An election by the Company not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of Executive's employment by the Company without Cause at the
date of expiration of the Term and shall be subject to this Section 7(c) if
at the date of such termination no Change in Control has occurred or such
date of termination is at least two years after the most recent Change in
Control; provided, however, that, if Executive has attained age 65 at such
date of termination, such termination shall be deemed a Retirement of
Executive. At the time Executive's employment is terminated by the Company
(i.e., at the expiration of such notice period), the Term will terminate,
all remaining obligations of the Company and Executive under Sections 1
through 5 of this Agreement will immediately cease (except as expressly
provided below), and the Company will pay Executive, and Executive will be
entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(c)(ii) shall be
payable in monthly installments over the 24 months following
termination, without interest, except the Company may elect to
accelerate payment of the remaining balance of such amount and to
pay it as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the year of termination, multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total
number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination
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during which such options may be exercised), such options shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP, so that Executive will be entitled to not less than the
minimum "Retirement Benefit" determined in accordance with Section
3.1 of the SERP.
(viii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(c)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(c)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on
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<PAGE>
the premium cost to Executive, which shall not exceed the highest
risk premium charged by a carrier having an investment grade or
better credit rating); provided, however, that Executive must
continue to satisfy the conditions set forth in Section 10 in
order to continue receiving the benefits provided under this
Section 7(c)(viii). Executive agrees to promptly notify the
Company of any employment or other arrangement by which Executive
provides services during the benefits-continuation period and of
the nature and extent of benefits for which Executive becomes
eligible during such period which would reduce or terminate
benefits under this Section 7(c)(viii); and the Company be
entitled to recover from Executive any payments and the fair
market value of benefits previously made or provided to Executive
hereunder which would not have been paid under this Section
7(c)(viii) if the Company had received adequate prior notice as
required by this sentence.
(d) Termination by Executive for Good Reason Prior to or More than Two
Years After a Change in Control. Executive may terminate her employment
hereunder for Good Reason, prior to a Change in Control or after the second
anniversary of the most recent Change in Control, upon 90 days' written
notice to the Company; provided, however, that, if the Company has
corrected the basis for such Good Reason within 30 days after receipt of
such notice, Executive may not terminate her employment for Good Reason,
and therefore Executive's notice of termination will automatically become
null and void. At the time Executive's employment is terminated by
Executive for Good Reason (i.e., at the expiration of such notice period),
the Term will terminate, all obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and
Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(d)(ii) shall be
payable in monthly installments over the 24 months following
termination, without interest, except the Company may elect to
accelerate payment of the remaining balance of such amount and to
pay it as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to
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<PAGE>
Executive (i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and, in other respects (including the
period following termination during which such options may be
exercised), such options shall be governed by the plans and
programs and the agreements and other documents pursuant to which
such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP, so that Executive will be entitled to not less than the
minimum "Retirement Benefit" determined in accordance with Section
3.1 of the SERP.
(viii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period
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<PAGE>
providing comparable benefits. If the terms of the Company plans
and programs referred to in this Section 7(d)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(d)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(d)(viii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(d)(viii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would not
have been paid under this Section 7(d)(viii) if the Company had
received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(d) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or benefit
was the basis for Executive's termination for Good Reason, then the Base Salary
or other level of compensation in effect before such reduction shall be used to
calculate payments or benefits under this Section 7(d).
(e) Termination by the Company Without Cause Within Two Years After a
Change in Control. The Company may terminate the employment of Executive
hereunder without Cause, simultaneously with or within two years after a
Change in Control, upon at least 90 days' written notice to Executive. The
foregoing notwithstanding, the Company may elect, by written notice to
Executive, to terminate Executive's positions specified in Sections 1 and 3
and all other obligations of Executive and the Company under Section 3 at a
date earlier than the expiration of such 90-day notice period, if so
specified by the Company in the written notice, provided that Executive
shall be treated as an employee of the Company (without any assigned
duties) for all other purposes of this Agreement, including for purposes of
Sections 4 and 5, from such specified date until the expiration of such
90-day period. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of Executive's
employment by the Company without Cause at the date of expiration of the
Term and shall be subject to this Section 7(e) if the date of such
termination coincides with or is within two years after a Change in
Control; provided, however, that, if Executive has attained age 65 at such
date of termination, such termination shall be deemed a Retirement of
Executive. At the time Executive's employment is terminated by the Company
(i.e., at the expiration of such notice period), the Term will terminate,
all remaining obligations of the
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<PAGE>
Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease (except as expressly provided below), and the Company
will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(e)(ii) shall be paid
by the Company not later than 15 days after Executive's
termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the year of termination, multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total
number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and any such options granted on or after
the date hereof shall remain outstanding and exercisable until the
stated expiration date of the Option as though Executive's
employment did not terminate, and, in other respects, such options
shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or previously
earned, in the case of performance-based awards) shall become
fully vested and non-forfeitable at the date of such termination,
and, in other respects, such awards shall be governed by the plans
and programs and the agreements and other documents pursuant to
which such awards were granted;
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<PAGE>
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the SERP.
(viii) For a period of three years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(e)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(e)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(e)(viii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(e)(viii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would not
have been paid under this Section 7(e)(viii) if the Company had
received adequate prior notice as required by this sentence.
(f) Termination by Executive for Good Reason Within Two Years After a
Change in Control. Executive may terminate her employment hereunder for
Good Reason,
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<PAGE>
simultaneously with or within two years after a Change in Control, upon 90
days' written notice to the Company; provided, however, that, if the
Company has corrected the basis for such Good Reason within 30 days after
receipt of such notice, Executive may not terminate her employment for Good
Reason, and therefore Executive's notice of termination will automatically
become null and void. At the time Executive's employment is terminated by
Executive for Good Reason (i.e., at the expiration of such notice period),
the Term will terminate, all obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and
Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the year
of termination or (y) the portion of Executive's annual incentive
compensation that became payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the latest year preceding the year of termination based on
performance actually achieved in that latest year. The amount
determined to be payable under this Section 7(f)(ii) shall be paid
by the Company not later than 15 days after Executive's
termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an amount
equal to the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash awards)
for the year of termination, multiplied by a fraction the
numerator of which is the number of days Executive was employed in
the year of termination and the denominator of which is the total
number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then vested
and exercisable, will become fully vested and exercisable at the
date of such termination, and any such options granted on or after
the date hereof shall remain outstanding and exercisable until the
stated expiration date of the Option as though Executive's
employment did not terminate, and, in other respects, such options
shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term
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<PAGE>
incentive awards (to the extent then or previously earned, in the
case of performance-based awards) shall become fully vested and
non-forfeitable at the date of such termination, and, in other
respects, such awards shall be governed by the plans and programs
and the agreements and other documents pursuant to which such
awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in the
SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the SERP.
(viii) For a period of three years after such termination (but not after
Executive attains age 65), Executive shall continue to participate
in those employee and executive benefit plans and programs under
Section 5(b) to the extent such plans and programs provide medical
insurance, disability insurance and life insurance benefits (but
not other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had continued
in employment with the Company during such period; provided,
however, that such participation shall terminate, or the benefits
under such plans and programs shall be reduced, if and to the
extent Executive becomes covered (or is eligible to become
covered) by plans of a subsequent employer or other entity to
which Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(f)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of the
additional benefits described in this Section 7(f)(viii) Executive
would have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under such
plans and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided, however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving
the benefits provided under this Section 7(f)(viii). Executive
agrees to promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(f)(viii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
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previously made or provided to Executive hereunder which would not
have been paid under this Section 7(f)(viii) if the Company had
received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(f) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or benefit
was the basis for Executive's termination for Good Reason, then the Base Salary
or other level of compensation in effect before such reduction shall be used to
calculate payments or benefits under this Section 7(f).
(g) Other Terms Relating to Certain Terminations of Employment.
Whether a termination is deemed to be at or within two years after a Change
in Control for purposes of Sections 7(c), (d), (e), or (f) is determined at
the date of termination, regardless of whether the Change in Control had
occurred at the time a notice of termination was given. In the event
Executive's employment terminates for any reason set forth in Section 7(b)
through (f), Executive will be entitled to the benefit of any terms of
plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7 (except in the case of annual incentives
in lieu of which amounts are paid hereunder). Amounts payable under this
Section 7 following Executive's termination of employment, other than those
expressly payable on a deferred basis, will be paid as promptly as
practicable after such a termination of employment, and such amounts
payable under Section 7(e) or 7(f) will be paid in no event later than 15
days after Executive's termination of employment unless not determinable
within such period.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall mean
Executive's
(i) willful and continued failure to substantially perform her duties
hereunder (other than any such failure resulting from incapacity due
to physical or mental illness or disability or any failure after the
issuance of a notice of termination by Executive for Good Reason)
which failure is demonstrably and materially damaging to the financial
condition or reputation of the Company and/or its subsidiaries, and
which failure continues more than 48 hours after a written demand for
substantial performance is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board believes
that Executive has not substantially performed her duties hereunder
and the demonstrable and material damage caused thereby; or
(ii) the willful engaging by Executive in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
No act, or failure to act, on the part of Executive shall be deemed "willful"
unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that her action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Executive
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<PAGE>
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Executive a copy of the resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after reasonable notice to
Executive and an opportunity for Executive, together with Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this definition and
specifying the particulars thereof in detail.
(b) "Change in Control." For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if, during the term of this
Agreement:
(i) any "Person," as such term is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company), becomes the
"Beneficial Owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the effectiveness of this Agreement), individuals who at
the beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who has
entered into an agreement with the Company to effect a transaction
described in Sections (8)(b)(i), (iii) or (iv) hereof, (B) a
director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking
actions (including, but not limited to, an actual or threatened
proxy contest) which if consummated would constitute a Change in
Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 10% or more of the combined voting power of
the Company's securities) whose election by the Board or
nomination for election by the Company's stockholders was approved
in advance by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of
the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at
least a majority thereof;
(iii) the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation and (B) after which
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no Person holds 20% or more of the combined voting power of the
then-outstanding securities of the Company or such surviving
entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Change in Control has occurred.
(c) "Compensation Accrued at Termination." For purposes of this
Agreement, "Compensation Accrued at Termination" means the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of Executive's
termination of employment, pro rated through such date of
termination, payable in accordance with the Company's regular pay
schedule;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
Executive's termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or referred to
in Sections 4(b) and 5(a) and 5(b) hereof (including any earned
and vested annual incentive compensation and long-term incentive
award) in which Executive theretofore participated, payable in
accordance with the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted or
accrued; and
(iii) Reasonable business expenses and disbursements incurred by
Executive prior to Executive's termination of employment, to be
reimbursed to Executive, as authorized under Section 5(f), in
accordance the Company's reimbursement policies as in effect at
the date of such termination.
(d) "Disability." For purposes of this Agreement, "Disability" means
Executive's absence from the full-time performance of Executive's duties
hereunder for six consecutive months as a result of her incapacity due to
physical or mental illness or disability, and, within 30 days after written
notice of termination is thereafter given by the Company, Executive shall
have not returned to the full-time performance of such duties.
(e) "Good Reason." For purposes of this Agreement, "Good Reason" shall
mean, without Executive's express written consent, the occurrence of any of
the following circumstances unless, in the case of subsections (i), (iv),
(vi) or (viii) hereof, such circumstances are fully corrected prior to the
date of termination specified in the notice of termination given in respect
thereof:
(i) the assignment to Executive of duties inconsistent with
Executive's position and status hereunder, or an alteration,
adverse to Executive, in the nature of
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Executive's duties, responsibilities, and authorities, Executive's
positions or the conditions of Executive's employment from those
specified in Section 3 or otherwise hereunder (other than
inadvertent actions which are promptly remedied); for this
purpose, it shall constitute "Good Reason" under this subsection
(e)(i) if (A) Executive shall be required to report to and take
direction from any person or body other than the Chairman of the
Board and Chief Executive Officer of the Company and the Board;
and (B) if Executive shall be removed from the Board or from any
Board committee on which Executive has served during the Term, or
there occurs any failure of Executive to be nominated, reappointed
or reelected as a member of the Board or as a member of any Board
committee on which she has served during the Term, including a
failure of the Board or stockholders to take such actions
(notwithstanding their legal right to do so), except the foregoing
shall not constitute Good Reason if occurring in connection with
the termination of Executive's employment for Cause, Disability,
Retirement, as a result of Executive's death, or as a result of
action by or with the consent of Executive; for purposes of this
Section 8(e)(i), references to the Company (and the Board and
stockholders of the Company) refer to the ultimate parent company
(and its board and stockholders) succeeding the Company following
an acquisition in which the corporate existence of the Company
continues, in accordance with Section 12(b);
(ii) (A) a reduction by the Company in Executive's Base Salary, (B) the
setting of Executive's annual target incentive opportunity or
payment of earned annual incentive in amounts less than specified
under or otherwise not in conformity with Section 4 hereof, (C) a
change in compensation or benefits not in conformity with Section
5, or (D) a reduction, after a Change in Control in perquisites
from the level of such perquisites as in effect immediately prior
to the Change in Control or as the same may have been increased
from time to time after the Change in Control except for
across-the-board perquisite reductions similarly affecting all
senior executives of the Company and all senior executives of any
Person in control of the Company;
(iii) the relocation of the principle place of Executive's employment
not in conformity with Section 3(b) hereof; for this purpose,
required travel on the Company's business will not constitute a
relocation so long as the extent of such travel is substantially
consistent with Executive's customary business travel obligations
in periods prior to the Effective Date;
(iv) the failure by the Company to pay to Executive any portion of
Executive's compensation or to pay to Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company within seven days of the date
such compensation is due;
(v) the failure by the Company to continue in effect any material
compensation or benefit plan in which Executive participated
immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or
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alternative plan) has been made with respect to such plan, or the
failure by the Company to continue Executive's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amounts of
benefits provided and the level of Executive's participation
relative to other participants, as existed at the time of the
Change in Control;
(vi) the failure of the Company to obtain a satisfactory agreement from
any successor to the Company to fully assume the Company's
obligations and to perform under this Agreement, as contemplated
in Section 12(b) hereof, in a form reasonably acceptable to
Executive;
(vii) any election by the Company not to extend the Term of this
Agreement at the next possible extension date under Section 2
hereof, unless Executive will have attained age 65 at or before
such extension date; or
(viii) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement.
(f) "Potential Change in Control" For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if, during the term of
this Agreement:
(i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an intention
to take or to consider taking actions which if consummated would
constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred.
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise Tax-Related
Provisions.
(a) Rabbi Trust Funded Upon Potential Change in Control. In the event
of a Potential Change in Control, the Company shall, not later than 15 days
thereafter, have established one or more rabbi trusts and shall deposit
therein cash in an amount sufficient to provide for full payment of all
potential obligations of the Company that would arise assuming consummation
of a Change in Control and a subsequent termination of Executive's
employment under Section 7(e) or 7(f). Such rabbi trust(s) shall be
irrevocable and shall provide that the Company may not, directly or
indirectly, use or recover any assets of the trust(s) until such time as
all obligations which potentially could arise hereunder have been settled
and paid in full, subject only to the claims of creditors of the Company in
the event of insolvency or bankruptcy of the Company; provided, however,
that if no Change in Control has occurred within two years after such
Potential Change in Control, such rabbi trust(s) shall at the end of such
two-year period become revocable and may thereafter be revoked by the
Company.
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(b) Gross-up If Excise Tax Would Apply. In the event Executive becomes
entitled to any amounts payable in connection with a Change in Control or
other change in control (whether or not such amounts are payable pursuant
to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (or any similar federal, state or local tax that may hereafter
be imposed), the Company shall pay to Executive at the time specified in
Section 9(b)(iii) hereof an additional amount (the "Gross-Up Payment") such
that the net amount retained by Executive, after deduction of any Excise
Tax on the Total Payments (as hereinafter defined) and any federal, state
and local income tax and Excise Tax upon the payment provided for by
Section 9(b)(i), shall be equal to the Total Payments.
(i) For purposes of determining whether any of the Severance Payments
will be subject to the Excise Tax and the amount of such Excise
Tax:
(A) any other payments or benefits received or to be received
by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with
the Company or such Person) (which, together with the
Severance Payments, constitute the "Total Payments") shall
be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, unless
in the opinion of nationally-recognized tax counsel
selected by Executive such other payments or benefits (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;
(B) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(x) the total amount of the Total Payments and (y) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying Section
9(b)(i)(A) hereof); and
(C) the value of any non-cash benefits or any deferred payments
or benefit shall be determined by a nationally-recognized
accounting firm selected by Executive in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the
highest marginal rate of
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federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of
Executive's residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that
the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of
Executive's employment, Executive shall repay to the Company
within ten days after the time that the amount of such reduction
in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the Gross-Up Payment being
repaid by Executive if such repayment results in a reduction in
Excise Tax and/or federal and state and local income tax
deduction) plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event
that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of Executive's
employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional gross-up payment in
respect of such excess within ten days after the time that the
amount of such excess is finally determined.
(iii) The payments provided for in this Section 9(b) shall be made not
later than the fifteenth day following the date of Executive's
termination of employment; provided, however, that if the amount
of such payments cannot be finally determined on or before such
day, the Company shall pay to Executive on such day an estimate,
as determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the
date of Executive's termination of employment. In the event that
the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to Executive, payable on the
fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(iv) All determinations under this Section 9(b) shall be made at the
expense of the Company by a nationally recognized public
accounting firm selected by Executive, and such determination
shall be binding upon Executive and the Company.
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement.
(a) Non-Competition. Without the consent in writing of the Board,
Executive
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will not, at any time during the Term and for a period of two years
following termination of Executive's employment for any reason, acting
alone or in conjunction with others, directly or indirectly (i) engage
(either as owner, investor, partner, stockholder, employer, employee,
consultant, advisor, or director) in any business in which he has been
directly engaged on behalf of the Company or any affiliate, or has
supervised as an executive thereof, during the last two years prior to such
termination, or which was engaged in or planned by the Company or an
affiliate at the time of such termination, in any geographic area in which
such business was conducted or planned to be conducted; (ii) induce any
customers of the Company or any of its affiliates with whom Executive has
had contacts or relationships, directly or indirectly, during and within
the scope of her employment with the Company or any of its affiliates, to
curtail or cancel their business with the Company or any such affiliate;
(iii) induce, or attempt to influence, any employee of the Company or any
of its affiliates to terminate employment; or (iv) solicit, hire or retain
as an employee or independent contractor, or assist any third party in the
solicitation, hire, or retention as an employee or independent contractor,
any person who during the previous 12 months was an employee of the Company
or any affiliate; provided, however, that the limitation contained in
clause (i) above shall not apply if Executive's employment is terminated as
a result of a termination by the Company without Cause within two years
following a Change in Control or is terminated by Executive for Good Reason
within two years following a Change in Control; and provided further, that
activities engaged in by or on behalf of the Company are not restricted by
this covenant. The provisions of subparagraphs (i), (ii), (iii), and (iv)
above are separate and distinct commitments independent of each of the
other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on
an exchange or regularly traded in the over-the-counter market shall not,
of itself, be deemed inconsistent with clause (i) of this Section 10(a).
(b) Non-Disclosure; Ownership of Work. Executive shall not, at any
time during the Term and thereafter (including following Executive's
termination of employment for any reason), disclose, use, transfer, or
sell, except in the course of employment with or other service to the
Company, any proprietary information, secrets, organizational or employee
information, or other confidential information belonging or relating to the
Company and its affiliates and customers so long as such information has
not otherwise been disclosed or is not otherwise in the public domain,
except as required by law or pursuant to legal process. In addition, upon
termination of employment for any reason, Executive will return to the
Company or its affiliates all documents and other media containing
information belonging or relating to the Company or its affiliates.
Executive will promptly disclose in writing to the Company all inventions,
discoveries, developments, improvements and innovations (collectively
referred to as "Inventions") that Executive has conceived or made during
the Term; provided, however, that in this context "Inventions" are limited
to those which (i) relate in any manner to the existing or contemplated
business or research activities of the Company and its affiliates; (ii) are
suggested by or result from Executive's work at the Company; or (iii)
result from the use of the time, materials or facilities of the Company and
its affiliates. All Inventions will be the Company's property rather than
Executive's. Should the Company request it, Executive agrees to sign any
document that the Company may reasonably require to establish ownership in
any Invention.
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(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including
following Executive's termination of employment for any reason), by making
herself available to testify on behalf of the Company or any subsidiary or
affiliate of the Company, in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, and to assist the
Company, or any subsidiary or affiliate of the Company, in any such action,
suit, or proceeding, by providing information and meeting and consulting
with the Board or its representatives or counsel, or representatives or
counsel to the Company, or any subsidiary or affiliate of the Company, as
requested. The Company agrees to reimburse the Executive, on an after-tax
basis, for all expenses actually incurred in connection with her provision
of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during the
Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or
take any action which may, directly or indirectly, disparage or be damaging
to the Company or any of its subsidiaries or affiliates or their respective
officers, directors, employees, advisors, businesses or reputations.
Notwithstanding the foregoing, nothing in this Agreement shall preclude
Executive from making truthful statements that are required by applicable
law, regulation or legal process.
(e) Release of Employment Claims. Executive agrees, as a condition to
receipt of any termination payments and benefits provided for in Sections 6
and 7 herein (other than Compensation Accrued at Termination), that she
will execute a general release agreement, in a form satisfactory to the
Company, releasing any and all claims arising out of Executive's employment
(other than enforcement of this Agreement).
(f) Forfeiture of Outstanding Options. The provisions of Sections 6
and 7 notwithstanding, if Executive willfully and materially fails to
substantially comply with any restrictive covenant under this Section 10 or
willfully and materially fails to substantially comply with any material
obligation under this Agreement, all options to purchase Common Stock
granted by the Company and then held by Executive or a transferee of
Executive shall be immediately forfeited and thereupon such options shall
be cancelled. Notwithstanding the foregoing, Executive shall not forfeit
any option unless and until there shall have been delivered to her, within
six months after the Board (i) had knowledge of conduct or an event
allegedly constituting grounds for such forfeiture and (ii) had reason to
believe that such conduct or event could be grounds for such forfeiture, a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board (excluding Executive) at a meeting of the Board
called and held for such purpose (after giving Executive reasonable notice
specifying the nature of the grounds for such forfeiture and not less than
30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with her counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive has engaged and continues to engage in conduct set forth in this
Section 10(f) which constitutes grounds for forfeiture of Executive's
options; provided, however, that if any option is exercised after delivery
of such notice and the Board subsequently makes the determination described
in this sentence, Executive shall be required to pay to the Company an
amount equal to the difference between the aggregate value of the shares
acquired upon such exercise at the date of the Board determination and the
aggregate exercise price paid by Executive. Any such
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forfeiture shall apply to such options notwithstanding any term or
provision of any option agreement.
(g) Survival. The provisions of this Section 10 shall survive the
termination of the Term and any termination or expiration of this
Agreement.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the
State of Connecticut, without regard to conflicts of law principles, except
insofar as federal laws and regulations and the Delaware General
Corporation Law may be applicable. If under the governing law, any portion
of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation, ordinance, or other principle of law,
such portion shall be deemed to be modified or altered to the extent
necessary to conform thereto or, if that is not possible, to be omitted
from this Agreement. The invalidity of any such portion shall not affect
the force, effect, and validity of the remaining portion hereof. If any
court determines that any provision of Section 10 is unenforceable because
of the duration or geographic scope of such provision, it is the parties'
intent that such court shall have the power to modify the duration or
geographic scope of such provision, as the case may be, to the extent
necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred
by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to
Executive promptly by the Company, whether or not Executive is successful
in asserting such rights; provided, however, that no reimbursement shall be
made of such expenses relating to any unsuccessful assertion of rights if
and to the extent that Executive's assertion of such rights was in bad
faith or frivolous, as determined by arbitrators in accordance with Section
11(c) or a court having jurisdiction over the matter.
(c) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
in Westport CT by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to
the jurisdiction of any or all of the following courts: (i) the United
States District Court for the District of Connecticut, (ii) any of the
courts of the State of Connecticut, or (iii) any other court having
jurisdiction. The Company and Executive further agree that any service of
process or notice requirements in any such proceeding shall be satisfied if
the rules of such court relating thereto have been substantially satisfied.
The Company and Executive hereby waive, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to such
jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the
arbitrators may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Subject to Section 11(b), the
Company shall
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bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 11. Notwithstanding any provision in
this Section 11, Executive shall be entitled to seek specific performance
of Executive's right to be paid during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amount which has become payable
pursuant to the terms of this Agreement or any decision by arbitrators or
judgment by a court of law pursuant to this Section 11 but which has not
been timely paid shall bear interest at the prime rate in effect at the
time such amount first becomes payable, as quoted by the Company's
principal bank.
12. Miscellaneous.
(a) Integration. This Agreement cancels and supersedes any and all
prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company, any parent or predecessor
company, and the Company's subsidiaries during the Term, except for
contracts relating to compensation under executive compensation and
employee benefit plans of the Company and its subsidiaries. The foregoing
notwithstanding, Executive shall not participate in the Company's Employee
Protection Plan. This Agreement constitutes the entire agreement among the
parties with respect to the matters herein provided, and no modification or
waiver of any provision hereof shall be effective unless in writing and
signed by the parties hereto. Executive shall not be entitled to any
payment or benefit under this Agreement which duplicates a payment or
benefit received or receivable by Executive under such prior agreements and
understandings or under any benefit or compensation plan of the Company.
(b) Successors; Transferability. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of
the Company to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise and, in
the case of an acquisition of the Company in which the corporate existence
of the Company continues, the ultimate parent company following such
acquisition. Subject to the foregoing, the Company may transfer and assign
this Agreement and the Company's rights and obligations hereunder. Neither
this Agreement nor the rights or obligations hereunder of the parties
hereto shall be transferable or assignable by Executive, except in
accordance with the laws of descent and distribution or as specified in
Section 12(c).
(c) Beneficiaries. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits provided hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes necessary to
give notice, such notice shall be in writing, signed by the party or
parties giving or making the same,
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and shall be served on the person or persons for whom it is intended or who
should be advised or notified, by Federal Express or other similar
overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set
forth below or at such other address as may be designated by such party by
like notice:
If to the Company:
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
If to Executive:
Victoria R. Fash
200 Nyala Farms
Westport, CT 06880
If the parties by mutual agreement supply each other with telecopier
numbers for the purposes of providing notice by facsimile, such notice
shall also be proper notice under this Agreement. In the case of Federal
Express or other similar overnight service, such notice or advice shall be
effective when sent, and, in the cases of certified or registered mail,
shall be effective two days after deposit into the mails by delivery to the
U.S. Post Office.
(e) Reformation. The invalidity of any portion of this Agreement shall
not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for convenience of
reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a
breach of any of the provisions hereof be deemed to be a waiver of any
subsequent breach of such provisions. No such waiver shall be effective
unless in writing and signed by the party against whom such waiver is
sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that
are substantially similar to the benefits referred to in Section 5(b)
hereof, any such benefits to be provided by the Company to Executive
following the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by the
Company to Executive pursuant to this Agreement shall not be subject to
offset other than with respect to any amounts that are owed to the Company
by Executive due to her receipt of funds as a result of her fraudulent
activity. The foregoing and other provisions of this Agreement
notwithstanding, all payments to be made to Executive under this Agreement,
including under Sections 6 and 7, or otherwise by the Company, will be
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subject to withholding to satisfy required withholding taxes and other
required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of Executive, her heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to
the benefit of the Company and its successors and assigns.
(k) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. Indemnification.
All rights to indemnification by the Company now existing in favor of the
Executive as provided in the Company's Certificate of Incorporation or By-laws
or pursuant to other agreements in effect on or immediately prior to the
Effective Date shall continue in full force and effect from the Effective Date
(including all periods after the expiration of the Term), and the Company shall
also advance expenses for which indemnification may be ultimately claimed as
such expenses are incurred to the fullest extent permitted under applicable law,
subject to any requirement that the Executive provide an undertaking to repay
such advances if it is ultimately determined that the Executive is not entitled
to indemnification; provided, however, that any determination required to be
made with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
IN WITNESS WHEREOF, Executive has hereunto set her hand and the Company has
caused this instrument to be duly executed as of the day and year first above
written.
IMS HEALTH INCORPORATED
By: ______________________________
Name:
Title:
EXECUTIVE
______________________________
Victoria R. Fash
-31-
Exhibit 10.25
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
June 29, 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: /s/ Kenneth S. Siegel
Name: Kenneth S. Siegel
Title: Senior Vice President,
General Counsel and
Secretary
<TABLE>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1998
<CAPTION>
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -------------
<S> <C> <C>
CLARK-O'NEILL, INC. New Jersey
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Delaware 61.70
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
COORDINATED MANAGEMENT SYSTEMS, INC. Delaware
DBHC, INC. Delaware
LexHealth, Inc. Illinois
ENTERPRISE ASSOCIATES, INC. Delaware
ERISCO MANAGED CARE TECHNOLOGIES, INC. New York
IMS ASIA (1989) PTE. LTD. Singapore
IMS OF CANADA LTD. Nova Scotia
IMS CHINAMETRIK LIMITED Hong Kong
IMS CHINAMETRIK INCORPORATED Delaware
IMS DEUTSCHLAND GMBH Germany
IMS-MIDOC Medizinische Informations, Dokumentations
und Consultinggesellschaft mbH Germany
GIC Gesellschaft fur Informationstechnologie und Consulting mbH Germany
Infor-med Gesellschaft fur Marketing mbH Germany
IMS Holding Deutschland GmbH Germany
IFNS Marktforschung GmbH Germany
IMS GmbH Institut fur 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 im Health Care-Markt
IMS HEALTH INDIA HOLDING CORPORATION Delaware
RX India Corporation Delaware
IMS Health India Private Limited India
</TABLE>
<PAGE>
<TABLE>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1998
<CAPTION>
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -------------
<S> <C> <C>
IMS HEALTH STRATEGIC TECHNOLOGIES, INC. Delaware
IMSH L.L.C. Delaware
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
Walsh International Pty. Ltd. Australia
Walsh New Zealand Ltd. New Zealand
PMS Pty. Ltd. Australia
IMS Health HQ Limited United Kingdom
IMS H Nederland BV Netherlands
Walsh European Holdings BV Netherlands
Walsh Belgium BV Belgium
Walsh Hispania S.A. Spain
IMS HEALTH STRATEGIC TECHNOLOGIES S.A France
Walsh Italy S.r.L. Italy
Walsh Nederland BV Netherlands
Walsh International Holdings GmbH Germany
Walsh International Holdings GesmbH Austria
Walsh Ltd. United Kingdom
PMSI Database B.V. Netherlands
IMS Services Nederland B.V. Netherlands
Walsh Asia Pacific (Pte.) Ltd. Singapore 51.00
Walsh Pharmaceutical Marketing Services Ltd. Ontario
IMS HEALTH TRADING CORPORATION Delaware
IMS South Africa (Pty.) Ltd. South Africa
Decision Surveys International(Pty.) Ltd. South Africa
IPRA (Pty.) Ltd. South Africa
PMSA (Pty.) Ltd. South Africa
IMS HEALTH TRANSPORTATION SERVICES CORPORATION Delaware
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 INFORMATION MEDICAL STATISTICS (ISRAEL) LTD. Israel
IMS INTERNATIONAL (SOUTH AFRICA) (PTY.) LTD. South Africa
IMS South Africa (Pty.) Ltd. South Africa
IMS ITALIA S.P.A. Italy
IMS Holding (Belgium) S.A. Belgium
IMS JAPAN K.K. Japan
SSJ K.K. Japan
IMS KOREA LTD. Korea
</TABLE>
<PAGE>
<TABLE>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1998
<CAPTION>
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -------------
<S> <C> <C>
IMS (NZ) LIMITED New Zealand
IMS PHARMINFORM HOLDING AG Switzerland
IMS Health Licensing Associates, L.P. Delaware 84.52
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. Colombia 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
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 Anonima 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 Brazil
e Mala Direta Ltda.
IMS Tunisia Tunisia
IMS Tibbi Istatistik Ticaret ve Musavirlik Ltd Sirketi Turkey
Pharma Data Uruguaya S.A. Uruguay
PMV De Venezuela, C.A. Venezuela
IMS PHILIPPINES, INC. Philippines 99.96
I.M.S. PORTUGAL-CONSULTORES INTERNACIONAIS DE
MARKETUNG FARMACEUTICO, LDA Portugal
IMS SOFTWARE SERVICES, LTD. Delaware
IMS TAIWAN COMPANY LTD. Taiwan 99.99
</TABLE>
<PAGE>
<TABLE>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1998
<CAPTION>
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- --------------- -------------
<S> <C> <C>
IMSH MEDICAL S.A. France
INFORMATIONS MEDICALES ET STATISTIQUES S.A. France
INTERCONTINENTAL MEDICAL STATISTICS INTERNATIONAL, LTD. Delaware
INTERCONTINENTAL MEDICAL STATISTICS IRELAND LIMITED Ireland 99.99
LOGIMED S.A.R.L. France
MEDICARE AUDIT LIMITED United Kingdom 50.00
MEDI-DIFF S.A. France
PMSI HISPANIA S.A. Spain
PMSI JAPAN K.K. Japan
PMSI MEDILOG GESUNDHEITSFORSCHUNG
DEUTSCHLAND G.M.B.H. Germany
PMSI UK LIMITED United Kingdom
PMSI Medical Research Factors Limited United Kingdom
Mediphase Limited United Kingdom
Pharmacy Systems Limited United Kingdom
Docpal Systems Limited United Kingdom
Specialist Media Services Limited United Kingdom
CMA Data Services Limited United Kingdom
CMA Medical Data Limited United Kingdom 98.50
SOURCE INFORMATICS FRANCE S.A. France
SOURCE INFORMATICS DEUTSCHLAND GMBH Germany
SOURCE INFORMATICS EUROPE B.V. Netherlands
SOURCE INFORMATICS ITALIA S.R.L. Italy
SOURCE INFORMATICS LIMITED United Kingdom
SOURCE INFORMATICS NEDERLAND B.V. Netherlands
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of IMS Health Incorporated ("accounting successor to Cognizant
Corporation") on Forms S-8 (File Nos. 333-69195, 333-67779 and 333-58361) of our
reports dated February 16, 1999 on our audits of the consolidated financial
statements and financial statement schedule of IMS Health Incorporate as of
December 31, 1998 and 1997 and for each of the years in the three year period
ended December 31, 1998, which reports are incorporated by reference or included
in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
February 24, 1999
The Board of Directors and Stockholder
Gartner Group, Inc.:
We consent to the incorporation by reference of our report dated October 30,
1998, except with respect to Note 18 which is as of November 12, 1998, and the
eighth paragraph of Note 3 (Interpose acquisition), which is as of December 10,
1998, with respect to the consolidated balance sheets of Gartner Group, Inc.,
and subsidiaries as of September 30, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1998, which
report appears in the September 30, 1998 Form 10-K Gartner Group, Inc., in the
December 31, 1998 Form 10-K of IMS Health, Incorporated.
KPMG LLP
St. Petersburg, Florida
February 26, 1999
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
GARTNER GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ...............................................F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997 ..............F-3
Consolidated Statements of Operations
for Fiscal Years Ended September 30, 1998 and 1997 ........................F-4
Consolidated Statements of Changes in Stockholders' Equity
for Fiscal Years Ended September 30, 1998, 1997 and 1996 ..................F-5
Consolidated Statements of Cash Flows
for Fiscal Years Ended September 30, 1998, 1997 and 1996 ..................F-6
Notes to the Consolidated Financial Statements .............................F-7
Independent Auditors' Report on Schedule ...................................F-21
Schedule II--Valuation and Qualifying Accounts,
Fiscal Years Ended September 30, 1998, 1997 and 1996 ......................F-22
F-1
<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 subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1998.
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.
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 financial position of Gartner Group, Inc.
and subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
October 30, 1998, except as to note 18 which is
as of November 12, 1998, and the eighth paragraph
of note 3 (Interpose acquisition), which is as of
December 10, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
GARTNER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
-----------------------
1998 1997
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................... $157,744 $142,415
Marketable securities ....................................................................... 60,940 28,639
Fees receivable, net of allowances of $4,125 and $5,340 ..................................... 239,243 205,760
Deferred commissions ........................................................................ 28,287 23,019
Prepaid expenses and other current assets ................................................... 24,865 25,775
-------- --------
Total current assets ...................................................................... 511,079 425,608
Long-term marketable securities .............................................................. 43,610 17,691
Property, equipment and leasehold improvements, net .......................................... 50,801 44,102
Intangible assets, net ....................................................................... 155,786 132,195
Other assets ................................................................................. 71,595 25,716
-------- --------
Total assets .............................................................................. $832,871 $645,312
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................................................... $ 96,151 $ 85,411
Commissions payable ......................................................................... 20,422 16,979
Accrued bonuses payable ..................................................................... 10,249 15,722
Deferred revenues ........................................................................... 288,013 254,071
-------- --------
Total current liabilities ................................................................. 414,835 372,183
-------- --------
Long-term deferred revenues .................................................................. 3,098 3,259
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 113,719,037 shares of Class A
Common (108,334,601 in 1997) and 0 shares of Class B Common Stock ......................... 57 54
Additional paid-in capital ................................................................... 262,776 179,017
Cumulative translation adjustment ............................................................ (2,155) (1,098)
Accumulated earnings ......................................................................... 193,485 105,138
Treasury stock, at cost, 12,540,576 and 11,624,805 shares .................................... (39,225) (13,241)
-------- --------
Total stockholders' equity ................................................................. 414,938 269,870
-------- --------
Total liabilities and stockholders' equity ................................................ $832,871 $645,312
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
<TABLE>
<CAPTION>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED SEPTEMBER 30, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Advisory and measurement ............................................ $494,701 $396,219 $306,542
Learning ............................................................ 18,076 21,314 12,219
Other, principally consulting and conferences ....................... 129,180 93,706 75,911
-------- -------- --------
Total revenues .... ............................................... 641,957 511,239 394,672
Costs and expenses:
Cost of services and product development ............................ 247,913 202,815 152,982
Selling, general and administrative ................................. 215,928 173,610 144,473
Acquisition-related charges ......................................... 4,494 -- 34,898
Nonrecurring charges ................................................ 2,819 -- --
Depreciation ........................................................ 17,909 11,758 9,064
Amortization of intangibles ......................................... 9,357 6,443 3,815
-------- -------- --------
Total costs and expenses .......................................... 498,420 394,626 345,232
-------- -------- --------
Operating income ..................................................... 143,537 116,613 49,440
Minority interest .................................................... -- -- 25
Loss on sale of GartnerLearning ...................................... (1,973) -- --
Interest income, net ................................................. 9,557 7,260 3,665
-------- -------- --------
Income before provision for income taxes ............................. 151,121 123,873 53,130
Provision for income taxes ........................................... 62,774 50,743 36,692
-------- -------- --------
Net income ........................................................... $ 88,347 $ 73,130 $ 16,438
======== ======== ========
Net income per common share:
Basic ............................................................... $ .88 $ .77 $ .18
======== ======== ========
Diluted ............................................................. $ .84 $ .71 $ .17
======== ======== ========
Weighted average shares outstanding:
Basic ............................................................... 100,194 94,742 89,739
======== ======== ========
Diluted ............................................................. 105,699 102,751 98,854
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
<TABLE>
<CAPTION>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at September 30, 1995 ............................ $ 0 $51 $ 73,278
Net income ................................................ -- -- --
Issuance of 3,036,403 shares of Class A Common
Stock upon exercise of stock options ..................... -- 1 5,752
Issuance of 199,648 shares of Class A Common
Stock from purchases by employees ........................ -- -- 2,407
Issuance from treasury stock of 117,470 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 2,140
Tax benefits of stock transactions with employees ......... -- -- 29,415
Net transfers to D&B by Dataquest ......................... -- -- --
Cumulative translation adjustment ......................... -- -- --
Acquisition of Dataquest, Inc. ............................ -- -- (15,000)
Acquisition of J3 Learning, Inc. .......................... -- -- 36,719
--- --- --------
Balances at September 30, 1996 ............................ 0 52 134,711
Net income ................................................ -- -- --
Issuance of 4,036,862 shares of Class A Common
Stock upon exercise of stock options ..................... -- 2 13,594
Issuance from treasury stock of 195,721 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 5,883
Conversion of 1,600,000 shares of Class B
Common Stock into Class A Common Stock ................... -- -- --
Tax benefits of stock transactions with employees ......... -- -- 36,833
Net share settlement of 449,932 shares of Class A
Common Stock on forward purchase agreement ............... -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- (12,004)
Cumulative translation adjustment ......................... -- -- --
--- --- --------
Balances at September 30, 1997 ............................ 0 54 179,017
Net Income ................................................ -- -- --
Issuance of 5,370,690 shares of Class A Common
Stock upon exercise of stock options ..................... -- 3 35,727
Issuance from treasury stock of 195,904 shares
of Class A Common Stock from purchases
by employees ............................................. -- -- 5,885
Tax benefits of stock transactions with employees ......... -- -- 47,273
Net share settlement of 365,949 shares of Class A
Common Stock on forward purchase agreement ............... -- -- --
Net cash settlement paid on forward purchase
agreement ................................................ -- -- (12,045)
Acquisition of 655,800 shares of Class A Common
Stock .................................................... -- -- --
302,003 shares of Class A Common stock received
in settlement of officer loans ........................... -- -- --
Issuance of 225,927 shares of Class A Common
Stock related to acquisitions ............................ -- -- 6,919
Cumulative translation adjustment ......................... -- -- --
--- --- --------
Balances at September 30, 1998 ............................ $ 0 $57 $262,776
=== === ========
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION ACCUMULATED TREASURY STOCKHOLDER'S
ADJUSTMENT EARNINGS STOCK EQUITY
----------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Balances at September 30, 1995 .................................... $(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 ............................. -- -- -- 5,753
Issuance of 199,648 shares of Class A Common
Stock from purchases by employees ................................ -- -- -- 2,407
Issuance from treasury stock of 117,470 shares
of Class A Common Stock from purchases
by employees ..................................................... -- -- 264 2,404
Tax benefits of stock transactions with employees ................. -- -- -- 29,415
Net transfers to D&B by Dataquest ................................. -- (1,687) -- (1,687)
Cumulative translation adjustment ................................. (465) -- -- (465)
Acquisition of Dataquest, Inc. .................................... -- -- -- (15,000)
Acquisition of J3 Learning, Inc. .................................. -- -- -- 36,719
------- -------- -------- --------
Balances at September 30, 1996 .................................... (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 ............................. -- -- -- 13,596
Issuance from treasury stock of 195,721 shares
of Class A Common Stock from purchases
by employees ..................................................... -- -- 330 6,213
Conversion of 1,600,000 shares of Class B
Common Stock into Class A Common Stock ........................... -- -- -- --
Tax benefits of stock transactions with employees ................. -- -- -- 36,833
Net share settlement of 449,932 shares of Class A
Common Stock on forward purchase agreement ....................... -- -- -- --
Net cash settlement paid on forward purchase
agreement ........................................................ -- -- -- (12,004)
Cumulative translation adjustment ................................. 1,867 -- -- 1,867
------- -------- -------- --------
Balances at September 30, 1997 .................................... (1,098) 105,138 (13,241) 269,870
Net Income ........................................................ -- 88,347 -- 88,347
Issuance of 5,370,690 shares of Class A Common
Stock upon exercise of stock options ............................. -- -- -- 35,730
Issuance from treasury stock of 195,904 shares
of Class A Common Stock from purchases
by employees ..................................................... -- -- 184 6,069
Tax benefits of stock transactions with employees ................. -- -- -- 47,273
Net share settlement of 365,949 shares of Class A
Common Stock on forward purchase agreement ....................... -- -- -- --
Net cash settlement paid on forward purchase
agreement ........................................................ -- -- -- (12,045)
Acquisition of 655,800 shares of Class A Common
Stock ............................................................ -- -- (16,187) (16,187)
302,003 shares of Class A Common stock received
in settlement of officer loans ................................... -- -- (9,985) (9,985)
Issuance of 225,927 shares of Class A Common
Stock related to acquisitions .................................... -- -- 4 6,923
Cumulative translation adjustment ................................. (1,057) -- -- (1,057)
------- -------- -------- --------
Balances at September 30, 1998 .................................... $(2,155) $193,485 $(39,225) $414,938
======= ======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
<TABLE>
<CAPTION>
GARTNER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income ......................................................................... $ 88,347 $ 73,130 $ 16,438
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of intangibles ....................................... 27,266 18,201 12,879
Acquisition-related charges ........................................................ 4,494 -- 34,898
Provision for doubtful accounts .................................................... 4,051 3,421 3,295
Equity in losses of minority owned company ......................................... 512 202 (25)
Deferred revenues .................................................................. 30,292 41,750 35,800
Deferred tax expense (benefit) ..................................................... 906 1,554 (1,394)
Pre-acquisition tax benefit applied to reduce goodwill ............................. -- 275 517
Loss on sale of GartnerLearning .................................................... 1,973 -- --
Changes in assets and liabilities, net of effects of acquisitions:
Increase in fees receivable ........................................................ (39,737) (60,378) (31,779)
Increase in deferred commissions ................................................... (5,132) (4,262) (1,154)
Increase in prepaid expenses and other current assets .............................. (10,645) (7,915) (1,995)
(Increase) decrease in other assets ................................................ (5,100) (2,707) 116
Increase (decrease) in accounts payable and accrued liabilities .................... 2,311 23,058 (5,414)
Increase in commissions payable .................................................... 3,566 1,785 2,160
(Decrease) increase in accrued bonuses payable ..................................... (5,309) (957) 1,347
--------- -------- --------
Cash provided by operating activities ............................................... 97,795 87,157 65,689
--------- -------- --------
Investing activities:
Proceeds from sale of GartnerLearning .............................................. 5,000 -- --
Payment for businesses acquired (excluding cash acquired) .......................... (45,418) (33,306) (46,176)
Investments in unconsolidated subsidiaries ......................................... (19,814) (9,089) (750)
Addition of property, equipment and leasehold improvements ......................... (24,269) (21,513) (15,614)
Marketable securities purchased, net ............................................... (58,220) (13,229) (4,268)
Loans to officers .................................................................. (2,475) (7,163) --
--------- -------- --------
Cash used for investing activities .................................................. (145,196) (84,300) (66,808)
--------- -------- --------
Financing activities:
Principal payments on long-term debt and capital lease obligations ................. -- -- (6,725)
Issuance of common stock and warrants .............................................. 35,730 13,596 5,753
Proceeds from Employee Stock Purchase Plan offering ................................ 5,885 5,883 4,547
Tax benefits of stock transactions with employees .................................. 47,273 36,833 29,415
Distributions of capital between Dataquest and former parent ....................... -- -- (1,687)
Net cash settlement on forward purchase agreement .................................. (12,045) (12,004) --
(Purchase) sale of treasury stock .................................................. (13,931) 330 264
--------- -------- --------
Cash provided by financing activities ............................................... 62,912 44,638 31,567
--------- -------- --------
Net increase in cash and cash equivalents ........................................... 15,511 47,495 30,448
Effect of exchange rates on cash and cash equivalents ............................... (182) (1,835) (274)
Cash and cash equivalents, beginning of period ...................................... 142,415 96,755 66,581
--------- -------- --------
Cash and cash equivalents, end of period ............................................ $ 157,744 $142,415 $ 96,755
========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................................................... -- -- $ 437
Income taxes ....................................................................... $ 7,721 $ 6,597 $ 8,463
Supplemental schedule of non-cash investing and financing activities:
Stock received in settlement of officer loans and related interest ................. $ 9,985 -- --
Equity interest received in connection with sale of GartnerLearning ................ $ 42,500 -- --
Stock and options issued in connection with acquisitions ........................... $ 6,923 -- $ 36,719
Treasury stock transactions settled subsequent to year end ......................... $ 2,072 -- --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
GARTNER GROUP, INC.
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 stockholder'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. Revenue from advisory, measurement
and learning ("AML") contracts is recognized as products and services are
delivered, and as the Company's obligation to the client is completed over the
contract, 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. Government contracts have not produced
material cancellations to date. All contracts are billable upon signing, absent
special terms granted on a limited basis. 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. Revenue from software
licensing fees is recognized when the products have been delivered,
collectibility is probable, and the related software license fees are fixed or
determinable. Components of revenues attributable to future service are deferred
and recognized as such services are performed. 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. The Company's marketable securities consist of marketable debt
securities which are classified as 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 have primarily consisted of finished goods
related to the Company's training business, GartnerLearning, 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 expenses and other current assets". Inventories were $0
and $2.1 million at September 30, 1998 and 1997, 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. Amortization of capitalized computer software development costs
begins when the products are available for general release to customers.
Software development costs, subsequent to technological feasibility and prior to
general release, have not been material and have been expensed.
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 being amortized on a straight-line basis over their estimated
useful lives ranging from four to thirty years. At the end of each quarter, the
Company reviews events and
F-7
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
changes in circumstances to determine whether the recoverability of the carrying
value of the intangible asset should be assessed. Should events or circumstances
indicate that the carrying value may not be recoverable based on undiscounted
future cash flows, an impairment loss 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 would be recognized by the
Company.
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. 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 $12.1 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 INCOME PER SHARE OF COMMON STOCK. In February 1997, Statement of
Financial Accounting Standards No. 128 "Earning per Share" ("FAS 128") was
issued. The Statement sets forth guidance on the presentation of earnings per
share ("EPS") and requires dual presentation of basic and diluted earnings per
share on the face of the income statement. Basic EPS is computed by dividing
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in earnings, including stock options and
warrants. EPS amounts have been calculated and presented under the provisions of
FAS 128.
The following table sets forth the required disclosures of the
reconciliation of the basic and diluted net earnings per share computations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income ......................................................................... $ 88,347 $ 73,130 $16,438
======== ======== =======
Denominator
Denominator for basic earnings per share--weighted average number of
common shares outstanding ......................................................... 100,194 94,742 89,739
Effect of dilutive securities:
Weighted average number of common shares under warrant outstanding ................ 298 274 310
Weighted average number of option shares outstanding .............................. 5,207 7,735 8,805
-------- -------- -------
Dilutive potential common shares .................................................. 5,505 8,009 9,115
-------- -------- -------
Denominator for diluted earnings per share--adjusted weighted average
number of common shares outstanding .............................................. 105,699 102,751 98,854
======== ======== =======
Basic earnings per common share ..................................................... $ 0.88 $ 0.77 $ 0.18
======== ======== =======
Diluted earnings per common share ................................................... $ 0.84 $ 0.71 $ 0.17
======== ======== =======
</TABLE>
For the fiscal year ended September 30, 1998, options to purchase 2.2
million shares of Class A Common Stock of the Company with exercise prices
greater than the average fair market value of the Company's stock for the period
of
F-8
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$32.67 were not included in the calculation because the effect would have been
antidilutive. All outstanding options for the fiscal years ended September 30,
1997 and 1996 were dilutive and were included in the calculation of diluted
earnings per share.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1997, Statement of Financial
Accounting Standards 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 stockholders 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 disclosure
standards in the first quarter of fiscal 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use and amortize such costs over the software's estimated useful
life. The Company is required to adopt SOP 98-1 in fiscal 2000. The Company is
currently evaluating the effect of adoption of SOP 98-1 on the Company's
financial position and results of operations.
In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities " ("FAS 133") was
issued. FAS 133 establishes a new model for accounting for derivatives and
hedging activities. The Statement requires all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. The Company is required to adopt FAS 133 in fiscal 2000. The Company
is currently evaluating the effect of adoption of FAS 133 on the Company's
financial position and results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Most of Company's financial instruments,
including cash, marketable securities, trade receivables and payables, and
accruals are short-term in nature. Accordingly, the carrying amount of these
financial instruments approximates its fair value (see Note 11 regarding forward
purchase agreements).
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.
Estimates are used when accounting for such items as allowance for doubtful
accounts, depreciation, amortization, income taxes and certain accrued
liabilities.
2--RELATED PARTIES
The Dun and Bradstreet Corporation ("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 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 30, 1998, Cognizant transferred its ownership in the Company to IMS
Health Incorporated, ("IMS Health"), a spin-off of Cognizant and an independent
public company. (See Note 18--Subsequent Event.)
F-9
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 loans proceeds
were not used to fund the option exercise price of the common stock acquired.
The loans were full recourse obligations to the officers and were secured by
shares of the Company's stock. The loans bore interest at an annual rate of
6.1%. The principal amount of the loans totaling $7.2 million are included in
other assets on the September 30, 1997 Consolidated Balance Sheets. On December
18, 1997, with the Board of Directors approval, the Company provided additional
loans for the same purpose to certain officers totaling $2.5 million. The loans
bore interest at an annual rate of 5.6%. On July 23, 1998, with Board of
Directors' approval, the Company received 302,003 shares of Class A Common Stock
in settlement of the loan balance and accrued interest due.
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 GGI end user focus.
The Company has accounted for the acquisition as a transfer and 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 the Company and Dataquest during the
periods preceding the merger were as follows (in thousands):
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) GGI DATAQUEST COMBINED
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues ................................... $76,005 $20,469 $96,474
Net income ....................................... $10,570 $ 923 $11,493
</TABLE>
There were no intercompany transactions between the two companies for the
period.
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 (collectively known
as "technology based 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 substantially all of
the remaining excess purchase price was allocated to goodwill and tradename.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the fiscal year ended September 30, 1996 as if
the acquisition of J3 had occurred at the beginning of the year and does not
purport to be indicative of what would have occurred had the acquisition been
made as of that date (in thousands, except per share data):
Total revenue ................................ $401,329
Net income ................................... $ 11,749
Net income per diluted common share ........ $ 0.12
F-10
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 1, 1998, the Company sold its technology based training
business (see Note 4--Sale of GartnerLearning).
On August 1, 1997, the Company acquired all of the outstanding shares of
Datapro Information Services ("Datapro"), a unit of McGraw-Hill Companies for
consideration of approximately $25.0 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 the 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 year 1996, consolidated total revenues
on a pro forma basis would have been $536.6 million and $431.4 million for
fiscal years 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 net income and net income per common share for fiscal 1997 and
1996 is not material.
On October 22, 1997, the Company acquired a 32% membership interest in
Jupiter Communications, LLC ("Jupiter") for $8.0 million in cash. On September
16, 1998, the Company increased its membership interest in Jupiter to 37% for an
additional $1.3 million in cash. Jupiter is a provider of analyst-based research
and strategic planning services to the consumer and Internet and interactive
industries. This investment is accounted for under the equity method of
accounting. The excess of the cost of the investment over the underlying
proportionate share of net assets (goodwill) in Jupiter totaling $9.3 million is
being amortized over 30 years and is included in other assets in the
Consolidated Balance Sheets.
On January 30, 1998, the Company acquired all the assets and assumed the
liabilities of Interpose, Inc. ("Interpose"), for $7.5 million in cash and
13,746 shares of Class A Common Stock of the Company which had an approximate
fair market value of $0.5 million. Interpose is a provider of total cost of
ownership (TCO) measurement and analysis tools and 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 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 $7.5 million. Of such
amount, $6.3 million was expensed during the second quarter of 1998 as purchased
in-process research and development costs and is presented as the
acquisition-related charge in the Consolidated Statements of Operations. On
December 10, 1998, the Company revised the amount of expensed purchased
in-process research and development costs from $6.3 million to $4.5 million. The
change was in response to recently developed guidance from the Securities and
Exchange Commission. Of the remaining excess purchase price, $2.3 million was
allocated to goodwill which is being amortized over 12 years and $0.9 million
was allocated to a non-compete agreement which is being amortized over 5 years.
On May 18, 1998, the Company acquired all the assets and assumed the
liabilities of The Research Board, Inc., for $6.4 million in cash and 183,945
shares of Class A Common Stock of the Company which had an approximate fair
market value of $5.7 million. The Research Board compiles and provides
information technology ("IT") research on suppliers and new technologies,
validated management practices and IT best practices to its membership, which
consist principally of senior IT executives. The acquisition was accounted for
by the purchase method, and the purchase price has been allocated to the assets
acquired and the liabilities assumed, based upon 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 $13.5 million, of which $12.9
million has been recorded as goodwill, which is being amortized over 30 years.
In addition, $0.6 million of the purchase price was allocated to a non-compete
agreement which is being amortized over 5 years.
On September 4, 1998, the Company acquired all of the outstanding shares of
Vision Events International, Inc., for $20.5 million in cash. Vision Events
International, Inc. produces premiere channel events that serve to bring
information technology vendors, value-added resellers, and system integrators
together with vendors and distributors selling through these channels. The
acquisition was accounted for by the purchase method, and the purchase price has
been allocated to the assets acquired and the liabilities assumed, based upon
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 $24.0
million of which $23.6 million has been recorded as goodwill which is being
amortized over 30 years. In addition, $0.4 million of the purchase price was
allocated to a non-compete agreement which is being amortized over 3 years.
During fiscal 1998, the Company completed additional acquisitions for
consideration of $12.8 million in cash and 28,236 shares of Class A Common Stock
of the Company which had an approximate fair market value of $0.7 million.
F-11
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During fiscal 1997, the Company completed additional acquisitions for $8.1
million in cash. These acquisitions have been accounted for under the purchase
method and substantially all of the purchase price has been assigned to
goodwill.
The pro forma results of operations for fiscal years 1998 and 1997,
assuming the fiscal 1998 acquisitions were made at the beginning of each year
would not differ significantly from the historical results.
On October 7, 1998, the Company acquired all the assets and assumed the
liabilities of Griggs-Anderson, Inc., for $10.9 million in cash and 306,475
shares of Class A Common Stock of the Company which had an approximate fair
market value of $7.3 million. Griggs-Anderson, Inc. provides custom market
research to vendors in the technology marketplace, research and surveys for the
evaluation of Web sites for effectiveness of content, technical performance,
ease of navigation, impact of graphics, and demographic profiles of users. The
acquisition was accounted for by the purchase method.
4--SALE OF GARTNERLEARNING
On September 1, 1998, the Company sold GartnerLearning, a division of the
Company that provides technology based training and services for information
technology professionals to Netg Inc. ("Netg"), a subsidiary of Harcourt Brace &
Company, for $5.0 million in cash and an 8% equity interest in Netg. In
addition, the Company received a put option which allows the Company to sell its
8% equity interest to an affiliate of Harcourt Brace & Company for $48.0 million
in cash. This put option may be exercised for two years beginning on September
1, 2002, if certain conditions are met. The Company's 8% interest in Netg has an
independently appraised fair value of $42.5 million and is included in other
assets in the Consolidated Balance Sheets. Including transaction costs related
to the sale of $3.8 million, the pre-tax loss on sale of GartnerLearning was
approximately $2.0 million (also see Note 10--Income Taxes for the impact of the
sale on the income tax provision).
5--NONRECURRING CHARGES
During fiscal 1998, the Company recorded nonrecurring charges, primarily
consisting of relocation and severance costs, totaling approximately $2.8
million related to the Company's relocation of certain accounting and order
processing operations from Stamford, Connecticut to a new financial services
center in Ft. Myers, Florida. These expenses are recorded as nonrecurring
charges in the Consolidated Statements of Operations.
6--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, carried at cost, less
accumulated depreciation and amortization consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
USEFUL ------------------
LIFE (YEARS) 1998 1997
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment ............................................. 3-8 $ 27,278 $ 25,568
Computer equipment .................................................. 2-3 60,809 56,979
Leasehold improvements .............................................. 2-15 21,916 19,257
-------- --------
110,003 101,804
Less--accumulated depreciation and amortization ..................... (59,202) (57,702)
-------- --------
$ 50,801 $ 44,102
======== ========
</TABLE>
7--INTANGIBLE ASSETS, NET
Intangible assets, net, carried at cost, less accumulated amortization consist
of the following (in thousands):
SEPTEMBER 30,
AMORTIZATION ---------------------
PERIOD (YEARS) 1998 1997
- - ----------------------------------------------------------------------------
Goodwill ...................... 7-30 $168,936 $138,537
Non-compete agreements ........ 3-5 5,489 3,462
Tradenames .................... 12 778 6,978
Title library ................. 4 -- 1,900
-------- --------
175,203 150,877
Less--accumulated amortization (19,417) (18,682)
-------- --------
$155,786 $132,195
======== ========
F-12
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8--COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture and computer equipment under
lease arrangements expiring between fiscal 1999 and 2022.
Future minimum annual payments under operating lease agreements as of
September 30, 1998 are as follows (in thousands):
FISCAL YEAR
--------------------------------------------------
1999 ................................. $ 16,259
2000 ................................. 13,973
2001 ................................. 11,140
2002 ................................. 8,546
2003 ................................. 7,225
Thereafter ........................... 52,840
--------
Total minimum lease payments ......... $109,983
========
Rental expense for operating leases, net of sublease income, was $21.3
$16.8, and $11.0 million for the fiscal years ended September 30, 1998, 1997 and
1996, 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 $4.8 million for
fiscal 1998, 1999, and 2000, $4.2 million for fiscal 2001 and 2002, and $1.1
million for fiscal year 2003.
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.
9--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 .25% 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, 1998 and 1997.
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 $4.1 million and $2.0 million with The Bank of New York as of September
30, 1998.
10--INCOME TAXES
Following is a summary of the components of income before provision for income
taxes (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
- - --------------------------------------------------------------
U.S. ................. $113,589 $ 93,758 $40,650
Non-U.S. ............. 37,532 30,115 12,480
-------- -------- -------
Consolidated ......... $151,121 $123,873 $53,130
======== ======== =======
F-13
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income on the above income consists of the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
U.S. federal .................................................. $ 2,081 $ 797 $ 1,775
State and local ............................................... 2,257 1,872 2,178
Foreign ....................................................... 8,927 8,208 3,164
------- ------- -------
Total current .................................................. 13,265 10,877 7,117
Deferred tax expense (benefit): ................................
U.S. federal .................................................. 921 434 58
State and local ............................................... 552 912 (1,347)
Foreign ....................................................... (567) 208 (105)
------- ------- -------
Total deferred ................................................. 906 1,554 (1,394)
------- ------- -------
Total current and deferred ..................................... 14,171 12,431 5,723
Benefit of stock transactions with employees allocated
to additional paid-in capital ................................. 48,603 38,037 30,452
Benefit of purchased tax benefits credited to goodwill ......... -- 275 517
------- ------- -------
Total provision for income taxes ............................... $62,774 $50,743 $36,692
======= ======= =======
</TABLE>
Current and long-term deferred tax assets and liabilities are comprised of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
- - ------------------------------------------------------------------------
<S> <C> <C>
Depreciation ............................... $ 666 $ 895
Expense accruals for book purposes ......... 4,285 6,992
Loss and credit carryforwards .............. 11,456 9,380
Intangible assets .......................... 1,814 --
Other ...................................... 1,104 1,706
------- -------
Gross deferred tax asset ................... 19,325 18,973
Intangible assets .......................... (2,299) (3,383)
Equity interest ............................ (2,477) --
Other ...................................... (89) (858)
------- -------
Gross deferred tax liability ............... (4,865) (4,241)
Valuation allowance ........................ (6,444) (4,962)
------- -------
Net deferred tax asset ..................... $ 8,016 $ 9,770
======= =======
</TABLE>
Current and long-term net deferred tax assets are $1.8 million and $6.2
million as of September 30, 1998 and $5.1 million and $4.7 million as of
September 30, 1997, respectively, and are included in Prepaid expenses and other
current assets and other assets, respectively, in the Consolidated Balance
Sheets.
The valuation allowance relates to domestic and foreign tax loss
carryforwards that more likely than not will expire unutilized. The net increase
in the valuation allowance of approximately $1.5 million in the current year
results primarily from the increase in state tax carryforwards of approximately
$2.0 million and the net utilization of foreign tax loss carryforwards of
approximately $0.5 million. The net decrease in the valuation allowance of
approximately $1.6 million in fiscal 1997 was due primarily from the utilization
of foreign tax loss carryforwards. The tax benefit from such tax loss
carryforwards was $1.2, $1.7, and $1.0 million for fiscal years 1998, 1997, and
1996, respectively. Approximately $3.4 million of the valuation allowance would
reduce paid-in-capital upon subsequent recognition of any related tax benefits.
F-14
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the U.S. federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------
1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate ..................................................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ............................................. 4.3 4.5 5.3
Foreign income taxed at a different rate ............................................... 0.7 0.6 1.5
Non-deductible goodwill and direct acquisition costs ................................... 3.5 0.9 0.9
Non-taxable interest income ............................................................ (1.3) (0.9) (1.3)
Exempt foreign trading gross receipts .................................................. (1.4) (1.0) --
Other items ............................................................................ 0.7 1.9 1.6
---- ---- ----
Effective rate without write-off of purchased in-process research and development costs 41.5 41.0 43.0
Non-deductible write-off of purchased in-process research and development costs ........ -- -- 26.1
---- ---- ----
Effective tax rate ..................................................................... 41.5% 41.0% 69.1%
==== ==== ====
</TABLE>
The sale of GartnerLearning resulted in an additional tax provision of $4.2
million primarily due to the reversal of non-deductible goodwill. The effective
tax rate, less the impact of the sale of GartnerLearning, was 39%.
As of September 30, 1998, the Company had U.S. federal tax loss
carryforwards of $10.0 million which will expire in ten to twelve years and
state and local tax loss carryforwards of $57.6 million, the majority of which
will expire in three 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 $4.6 million, of
which $0.5 million will expire within three to five years, and $4.1 million can
be carried forward indefinitely.
11--CAPITAL STOCK AND STOCK REPURCHASE PROGRAM
The Company effected a two-for-one stock split of its Class A and Class B Common
Stock by means of a stock dividend 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 had
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 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.
Beginning in fiscal 1997, the Company has entered into a series of forward
purchase agreements on its Class A Common Stock. These agreements are settled
quarterly at the Company's option on a net basis in either shares of its own
Class A Common Stock or cash. To the extent that the market price of the
Company's Class A Common Stock on a settlement date is higher (lower) than the
forward purchase price, the net differential is received (paid) by the Company.
During fiscal 1997, two settlements resulted in the Company receiving 449,932
shares of Class A 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). During fiscal 1998, four settlements resulted in
the Company receiving 365,949 shares of Class A Common Stock and paying
approximately $12.0 million in cash. As of September 30, 1998, a forward
purchase agreement in place covered approximately $27.2 million or 984,119
shares of Class A Common Stock having forward purchase prices established at
$27.63 per share. If the market priced portion of this agreement was settled
based on the September 30, 1998 market price of Class A Common Stock ($21.94 per
share), the Company would settle under the terms of the forward purchase
agreement with a payment of either $5.6 million in cash or 255,142 shares of
Class A Common Stock.
On August 24, 1998, the Company's Board of Directors approved the
repurchase of up to 2,500,000 shares of Class A Common Stock. The stock
repurchase program is intended to offset the dilutive effect of the Company's
stock-based employee compensation plans. As of September 30, 1998, the Company
has repurchased 655,800 shares of Class A Common Stock at a cost of
approximately $16.2 million.
F-15
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12--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 NYSE at the
beginning or end of each offering period, whichever is lower. During fiscal year
1998, 195,904 shares were issued from treasury stock at an average purchase
price of $30.98 per share in conjunction with this plan. At September 30, 1998,
2,078,933 shares were available for offering under the plan.
13--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 options, entitling employees to
purchase shares of the Company's common stock at the fair market value on the
date of grant. The Board can determine the date on which options vest and become
exercisable. A total of 32,800,000 and 22,800,000 shares of Class A Common Stock
were reserved for issuance under the Option Plan as of September 30, 1998 and
1997, respectively. In April 1998, the Board of Directors adopted an amendment,
subject to final shareholder approval, to the Option Plan to increase the number
of shares reserved for issuance thereunder by 10,000,000 shares. At September
30, 1998 and 1997, 9,001,508 and 2,955,416 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 terms will not be adjusted
for any future stock splits. At September 30, 1998 and 1997, 603,000 and 621,000
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 6,560,000 shares of Class A Common
Stock for issuance thereunder. The purpose of the plan is to provide to 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 timely 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
1996, 1997 and 1998 performance, 1,048,280 shares were exercisable on September
30, 1998. An additional 1,475,000 options became exercisable on October 10,
1998. At September 30, 1998 and 1997, 287,500 and 810,000 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. A total of 1,800,000 shares of Class A Common Stock was 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 achieve-
F-16
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ment of certain financial performance targets determined by the Board of
Directors. If all financial performance targets are met timely 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 1997 and 1998 performance, 815,250 options
will be exercisable on February 24, 2000. At September 30, 1998 and 1997,
169,500 and 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 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, 1998 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE
OPTION PRICE
- - -------------------------------------------------------------------------
<S> <C> <C>
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
Granted .................................. 5,060,949 $33.329
Exercised ................................ (5,370,690) $ 6.716
Canceled ................................. (1,380,577) $20.539
---------- -------
Outstanding at September 30, 1998 ......... 16,131,032 $19.086
========== =======
</TABLE>
Options for the purchase of 4,317,310 and 3,492,390 shares were exercisable
at September 30, 1998 and 1997, respectively.
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
RANGE OF AVERAGE CONTRACTUAL
EXERCISE PRICES NUMBER OUTSTANDING NUMBER EXERCISABLE EXERCISE PRICE LIFE (YEARS)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0.63 - 0.94 401,673 401,673 $ 0.82 1.0
$ 1.13 - 4.83 1,144,180 625,140 $ 3.07 2.1
$ 5.84 - 9.50 4,500,270 1,563,750 $ 7.20 5.9
$10.28 - 13.88 361,798 361,798 $12.07 5.5
$16.63 - 21.09 3,957,508 950,173 $20.02 8.0
$25.15 - 38.44 5,765,603 414,776 $32.49 9.2
---------- ---------
16,131,032 4,317,310
========== =========
</TABLE>
F-17
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A warrant expiring December 1, 2000 to purchase 600,000 shares of Class A
Common Stock at $16.42 per share is held by IMS Health. 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 plans. Accordingly, no compensation cost
has been recognized for the fixed stock option plans. Pursuant to the
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", (FAS 123), the following are the pro forma net
income and net income per share for the years ended September 30, 1998, 1997 and
1996 had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for grants under those
plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $88,347 $73,130 $16,438
Pro forma $58,480 $62,497 $10,616
Net Income Per Diluted Common Share As reported $ 0.84 $ 0.71 $ 0.17
Pro forma $ 0.55 $ 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 plans used to compute pro forma net
income and diluted 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 for stock options granted or modified:
<TABLE>
<CAPTION>
1998 1997 1996
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (in years) 2.4 - 6.4 2.4 - 6.4 2.4 - 6.4
Expected volatility .40 .40 .38
Risk free interest rate 4.22% - 4.39% 6.00% - 6.09% 6.00%
Expected dividend yield 0.00% 0.00% 0.00%
</TABLE>
The weighted average fair values of the Company's stock options granted in
fiscal 1998, 1997 and 1996 are $12.00, $12.32 and $5.56, respectively.
14--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 the 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 $5.4, $4.6, and $3.2 million for the years ended September 30,
1998, 1997 and 1996, respectively.
15--GEOGRAPHIC DATA
The Company's consolidated 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-18
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized information by geographic location is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
- - -------------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Revenues $402,957 $333,038 $253,451
Operating Income $ 74,191 $ 62,884 $ 26,359
Identifiable tangible assets $551,030 $407,262 $282,201
Europe:
Revenues $183,803 $121,971 $ 98,789
Operating Income $ 52,879 $ 36,800 $ 15,968
Identifiable tangible assets $ 93,409 $ 73,974 $ 50,564
Other International:
Revenues $ 55,197 $ 56,230 $ 42,432
Operating Income $ 16,467 $ 16,929 $ 7,113
Identifiable tangible assets $ 31,888 $ 27,654 $ 18,199
</TABLE>
Excluding acquisition-related and nonrecurring charges, operating income in
the United States was $81.5 million for fiscal 1998 and $61.3 million for fiscal
1996.
16--SELECTED CONSOLIDATED BALANCE SHEET 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
---------------------------- ---------------------------------------
TOTAL
GROSS FEES DEFERRED AML OTHER FISCAL YEAR
RECEIVABLE REVENUES REVENUE REVENUES REVENUES
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1995 ........... $ 115,849 $ 164,449 $237,168 $ 57,978 $295,146
Billings ................................... 420,037 340,474 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 as of 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 as of September 30, 1997 ........... 211,100 257,330 417,533 93,706 511,239
======== ======== ========
Billings ................................... 685,082 539,530 24,940 106,821
Acquisition balances ....................... 2,365 7,646 -- --
Cash collections ........................... (647,602) -- -- --
AML revenue amortization ................... -- (487,837) 487,837 --
Other service revenue amortization ......... -- (22,359) -- 22,359
Sale of GartnerLearning .................... (7,577) (3,199) -- --
--------- --------- -------- --------
Balance as of September 30, 1998 ........... $ 243,368 $ 291,111 $512,777 $129,180 $641,957
========= ========= ======== ======== ========
</TABLE>
For a description of the Company's revenue recognition policies, see Note
1--Significant Accounting Policies. AML revenues shown above of $512.8, $417.5,
and $318.7 million for fiscal 1998, 1997 and 1996, respectively, are recognized
as services and products are delivered, and the Company's obligation to the
client is completed over the contract period. Included in AML revenue are
catch-up adjustments also shown above for the fiscal years 1998, 1997, and 1996
of $24.9,
F-19
<PAGE>
GARTNER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$18.2, and $22.1 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.
17--QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Fiscal Year 1998 1st 2nd 3rd 4th
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $162,667 $149,565 $160,992 $168,733
Operating Income $ 41,145 $ 31,083 $ 35,462 $ 35,847
Net Income $ 25,644 $ 20,099 $ 22,982 $ 19,622
Diluted earnings per common share(1) $ 0.25 $ 0.19 $ 0.22 0.19
<CAPTION>
Fiscal Year 1997 1st 2nd 3rd 4th
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $125,367 $119,125 $126,349 $140,398
Operating Income $ 31,519 $ 29,620 $ 28,842 $ 26,632
Net Income $ 19,042 $ 18,200 $ 18,455 $ 17,433
Diluted earnings per common share(1) $ 0.19 $ 0.18 $ 0.18 $ 0.17
</TABLE>
(1) The aggregate of the four quarters' diluted earnings per common share does
not total the reported full fiscal year amount due to rounding.
18--SUBSEQUENT EVENT
On November 12, 1998, the Company's Board of Directors approved an agreement in
principle with IMS Health Inc. ("IMS Health") which owns 47.6 million or 47% of
the Company's Class A Common Stock to undertake a recapitalization of the
Company and facilitate a tax-free spin-off by IMS Health of its equity position
in Gartner Group Inc. to its shareholders. As part of the recapitalization, IMS
Health will exchange 40.7 million shares of Class A Common Stock for an equal
number of shares of new Class B Common Stock of the Company prior to the
spin-off. This new class of common stock will be entitled to elect at least 80%
of the Company's Board of Directors, but will otherwise be substantially
identical to existing Class A Common Stock. The Class B Common Stock will be
distributed to IMS Health shareholders in a tax-free distribution. IMS Health
will continue to hold 6.9 million shares of Class A Common Stock after the
spin-off. It is the intention of IMS Health to sell these shares within one year
of the spin-off, subject to certain conditions. In addition, the Company agreed
that it would pay a one-time special cash dividend of $300.0 million to its
shareholders of record immediately prior to the IMS Health spin-off. Further,
the Company also agreed that it would repurchase $300.0 million of its Class A
Common Stock on the open market after the spin-off. The exchange, spin-off and
special cash dividend are expected to be completed in the third quarter of
fiscal 1999, subject to approval by the IRS of the tax-free status of the
spin-off and approval of the recapitalization plan by the non-IMS Health
shareholders of the Company. The share repurchase program will commence after
the spin-off and is expected to be completed within one year.
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
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</TABLE>
