================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------
FORM 10-Q
---------
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
-------------
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 001-14049
---------
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, CT 06880
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 222-4200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF CLASS SHARES OUTSTANDING
------------------------ AT JUNE 30, 1999
Common Stock, ------------------
par value $.01 per share 312,823,322
================================================================================
<PAGE>
IMS HEALTH INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
PAGE(S)
-------
Condensed Consolidated Statements of Income
Three Months Ended June 30, 1999 and 1998 ........................ 3
Six Months Ended June 30, 1999 and 1998 .......................... 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended June 30, 1999 and 1998 ........................ 5
Six Months Ended June 30, 1999 and 1998 .......................... 5
Condensed Consolidated Statements of Financial Position
June 30, 1999 and December 31, 1998 .............................. 6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 .......................... 7
Notes to Condensed Consolidated Financial Statements ............... 8-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 19-29
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION ........................................ 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................... 30
SIGNATURES ......................................................... 31
2
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999 1998
----------- ---------
<S> <C> <C>
OPERATING REVENUE $332,652 $270,496
Operating Costs 142,688 151,362
Selling and Administrative Expenses 104,093 89,639
Depreciation and Amortization 23,116 21,507
Acquired In-Process Research and Development 0 21,900
- - ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME/(EXPENSE) 62,755 (13,912)
- - ------------------------------------------------------------------------------------------------------------------------
Interest Income 1,981 4,771
Interest Expense (2,276) (212)
Gain from Sale of Subsidiary Stock 0 12,777
Gains from Dispositions--Net 8,300 0
Other Income/(Expense)--Net (4,329) (2,477)
- - ------------------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 3,676 14,859
- - ------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations, Before Provision for Income Taxes 66,431 947
Provision for Income Taxes (20,257) (13,944)
- - ------------------------------------------------------------------------------------------------------------------------
INCOME/(LOSS) FROM CONTINUING OPERATIONS 46,174 (12,997)
Income from Discontinued Operations, Net of Income Taxes of $6,516 and $16,123
for June 30, 1999 and 1998, respectively 10,617 35,637
- - ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 56,791 $ 22,640
- - ------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Income/(Loss) from Continuing Operations $0.15 ($0.04)
Income from Discontinued Operations 0.03 0.11
- - ------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $0.18 $0.07
- - ------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Income/(Loss) from Continuing Operations $0.15 ($0.04)
Income from Discontinued Operations 0.03 0.11
- - ------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $0.18 $0.07
- - ------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic 314,343,000 326,610,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 5,514,000 9,478,000
Adjustment of Shares Applicable to Exercised Stock Options during the period 122,000 2,086,000
- - ------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 319,979,000 338,174,000
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The second quarter 1998 for the IMS operating units includes the
three months ended May 31, 1998. (See Note 2. Basis of Presentation).
3
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING REVENUE $645,894 $511,464
Operating Costs 281,361 270,954
Selling and Administrative Expenses 198,182 170,593
Depreciation and Amortization 48,886 43,201
Acquired In-Process Research and Development 0 21,900
- - --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 117,465 4,816
- - --------------------------------------------------------------------------------------------------------------------------
Interest Income 3,780 8,869
Interest Expense (2,534) (412)
Gain from Sale of Subsidiary Stock 0 12,777
Gains from Dispositions--Net 16,277 10,415
Other Income/(Expense)--Net (8,236) (5,247)
- - --------------------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 9,287 26,402
- - --------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations, Before Provision for Income Taxes 126,752 31,218
Provision for Income Taxes (36,785) (21,224)
- - --------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 89,967 9,994
Income from Discontinued Operations, Net of Income Taxes of $12,639 and $31,519
for June 30, 1999 and 1998, respectively 24,311 72,733
- - --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 114,278 $ 82,727
- - --------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Income from Continuing Operations $0.28 $0.03
Income from Discontinued Operations 0.08 0.22
- - --------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $0.36 $0.25
- - --------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Income from Continuing Operations $0.28 $0.03
Income from Discontinued Operations 0.07 0.21
- - --------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $0.35 $0.24
- - --------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic 316,062,000 325,686,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 6,710,000 8,694,000
Adjustment of Shares Applicable to Exercised Stock Options during the period 283,000 3,468,000
- - --------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 323,055,000 337,848,000
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The first half of 1998 for the IMS operating units includes the six
months ended May 31, 1998. (See Note 2. Basis of Presentation).
4
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
------------------ ----------------
<S> <C> <C>
Net Income $ 56,791 $ 22,640
Other Comprehensive Income, Net of Tax:
Foreign Currency Translation Adjustments (10,552) (10,499)
Unrealized Holding Gains on Securities Arising During
the Period (Net of Tax Expense of ($94)
and ($1,690) for 1999 and 1998, respectively) 248 4,478
------------------ ----------------
Total Other Comprehensive Loss (10,304) (6,021)
- - --------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $46,487 $16,619
- - --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
------------------ ----------------
<S> <C> <C>
Net Income $ 114,278 $ 82,727
Other Comprehensive Income, Net of Tax:
Foreign Currency Translation Adjustments (31,434) (9,596)
Unrealized Holding (Losses)/Gains on Securities Arising During the Period (Net
of Tax Benefit/(Expense) of $710 and ($1,717) for 1999 and 1998, respectively) (1,884) 4,549
Less: Reclassification Adjustment for Gains included in Net Income (Net of Tax
Benefit of $2,802 and $2,910 for 1999 and 1998, respectively) (7,423) (7,710)
------------------ ----------------
Net Change in Gains/(Losses) on Investments (9,307) (3,161)
------------------ ----------------
Total Other Comprehensive Loss (40,741) (12,757)
- - --------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $73,537 $69,970
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The second quarter and first half of 1998 for the IMS operating
units includes the three and six months ended May 31, 1998. (See Note 2. Basis
of Presentation).
The Company has significant investments in non-U.S. countries. Therefore,
changes in the value of foreign currencies affect the Company's Condensed
Consolidated Financial Statements when translated into U.S. dollars. The
currency translation adjustment excludes the impact of the Company's hedging
program. (See Note 7. Financial Instruments with Off-Balance Sheet Risk).
5
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------ --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 150,310 $ 206,390
Accounts Receivable-Net 263,518 324,219
Other Current Assets 106,286 103,868
- - -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 520,114 634,477
- - -----------------------------------------------------------------------------------------------------------------------
SECURITIES AND OTHER INVESTMENTS 94,092 106,276
PROPERTY, PLANT AND EQUIPMENT-NET 170,019 179,151
OTHER ASSETS-NET
Computer Software 169,597 168,994
Goodwill 351,005 363,841
Other Assets 24,076 25,928
- - -----------------------------------------------------------------------------------------------------------------------
Total Other Assets-Net 544,678 558,763
- - -----------------------------------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS 265,019 240,708
- - -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,593,922 $ 1,719,375
- - -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short Term Debt $ 109,729 $ 39,169
Accounts Payable 50,190 51,715
Accrued and Other Current Liabilities 235,180 298,625
Accrued Income Taxes 43,027 32,537
Deferred Revenues 124,126 128,272
- - -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 562,252 550,318
- - -----------------------------------------------------------------------------------------------------------------------
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS 28,014 27,577
MINORITY INTERESTS 118,398 116,225
OTHER LIABILITIES 192,062 199,985
- - -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 900,726 894,105
- - -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 693,196 825,270
- - -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,593,922 $1,719,375
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The Financial Position at December 31,1998 included the IMS
operating units as of November 30,1998. (See Note 2. Basis of Presentation).
6
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
1999 1998
--------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 114,278 $ 82,727
Less Income from Discontinued Operations (24,311) (72,733)
- - ------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 89,967 9,994
Reconciliation of Net Income to Net Cash
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 48,886 43,201
Gains from Sale of Investments, Net (16,435) (10,415)
Write-off of Purchased in Process Research and Development 0 21,900
Restructuring Cost Payments (6,252) (2,083)
Net Decrease in Accounts Receivable 2,149 3,696
Net Increase in Deferred Revenue 9,012 16,673
Gain from Sale of Subsidiary Stock 0 (12,777)
Minority Interests 3,202 4,183
Deferred Income Taxes (3,645) 7,889
Accrued Income Taxes 1,975 6,577
Other Working Capital Items (17,462) (10,479)
- - ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 111,397 78,359
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Investments and Businesses 39,157 23,165
Acquisition and Integration Payments (21,768) 0
Payments for Acquisitions of Businesses (3,100) (2,938)
Cash of Companies Acquired in Stock Purchases 0 9,480
Capital Expenditures (16,465) (13,561)
Additions to Software (28,185) (34,889)
Increase in Other Investments-Net (16,338) (12,604)
Other-Net 1,344 12,031
- - ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (45,355) (19,316)
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Purchase of Treasury Stock (222,651) (7,809)
Proceeds from Exercise of Stock Options 20,180 43,232
Proceeds from the Sale and Issuance of Subsidiary Stock 0 27,128
Dividends Paid (12,660) (9,813)
Proceeds from Employee Stock Purchase Plan 2,947 2,607
Proceeds from Debt Assumed by Nielsen Media Research 0 300,000
Short-Term Borrowings 150,540 0
Short-Term Debt Repayments (79,631) 0
Other 710 (199)
- - ------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN)/ PROVIDED BY FINANCING ACTIVITIES (140,565) 355,146
- - ------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Equivalents (12,221) (6,908)
Effect of the elimination of the one month reporting lag 30,664 0
Cash Flow from Discontinued Operations 0 (17,173)
- - ------------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (56,080) 390,108
Cash and Cash Equivalents, Beginning of Period 206,390 312,442
- - ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 150,310 $ 702,550
- - ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the Period for Interest $ 2,551 $ 412
Cash Paid during the Period for Income Taxes $ 39,634 $ 49,324
Non-Cash Investing Activities:
Stock Issued in Connection with Acquisitions $ -- $ 168,937
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The first half of 1998 for the IMS operating units includes the six
months ended May 31, 1998. (See Note 2. Basis of Presentation).
7
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X under the Securities and
Exchange Act of 1934, as amended. The condensed consolidated financial
statements and related notes should be read in conjunction with the consolidated
financial statements and related notes of IMS Health Incorporated (the "Company"
or "IMS Health") in the 1998 Annual Report on Form 10-K. Accordingly, the
accompanying condensed consolidated financial statements do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments of
a normal recurring nature considered necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented have been included. Certain prior-period amounts have been
reclassified to conform with the 1999 presentation.
NOTE 2. BASIS OF PRESENTATION
This document relates to IMS Health. The Common Stock of IMS Health was
distributed by Cognizant Corporation ("Cognizant", which subsequently changed
its name to Nielsen Media Research Inc., "NMR") to Cognizant's shareholders on
June 30, 1998 (the "Distribution"). The condensed consolidated financial
statements of the Company have been reclassified to reflect Nielsen Media
Research as a discontinued operation for periods up to and including June 30,
1998.
On July 26, 1999, having received the approval of GartnerGroup Inc. ("Gartner")
shareholders and both Boards of Directors, the Company completed the Spin-Off of
the majority of its equity investment in Gartner to IMS Health shareholders (the
"Gartner Spin-Off"). The distribution consisted of 0.1302 shares of Gartner
Class B Common Stock for each share of the Company's Common Stock outstanding on
the July 17 record date, a total of 40,689,648 Gartner Class B shares. (See Note
10. Subsequent Events). Accordingly, the condensed consolidated financial
statements of the Company have been reclassified for all periods presented to
reflect the Gartner equity investment as a discontinued operation (measurement
date July 16, 1999).
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, LLC ("Enterprises") and a 61.6% interest
in Cognizant Technology Solutions Corporation ("CTS").
A summary of Gartner and Nielsen Media Research as discontinued operations is as
follows:
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ -------------------------
1999 1998 1999 1998
-------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Operating Revenue - Nielsen Media Research $ -- $ 97,932 $ -- $193,996
Income Before Provision for Income Taxes - Nielsen
Media Research -- 29,048 -- 57,980
Equity Income and SAB 51 Gains
($5,392 and $13,379 for the three and six month
periods in 1998, respectively) Before Provision for
Income Taxes - Gartner 17,133 22,712 36,950 46,273
========= ======== ======== ========
Income from Discontinued Operations, Net of Income Taxes $ 10,617 $ 35,637 $ 24,311 $ 72,733
========= ======== ======== ========
</TABLE>
8
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 2. BASIS OF PRESENTATION (CONTINUED)
Elimination of one month reporting lag in IMS operating entities
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30 revised their reporting period to
conform to the Company's fiscal year ended December 31. The first half results
for 1998 for the IMS operating units include the six months ended May 31. The
$1,040 of net income related to the results of the IMS operating units for the
period December 1 through December 31, 1998 has been recorded directly to
Retained Earnings. In addition, December 1998 included a $3,409 credit which was
recorded as a cumulative translation adjustment. The following table presents
certain selected condensed consolidated IMS operating units financial
information for the one month ended December 31, 1998.
ONE MONTH ENDED
DECEMBER 31, 1998
(UNAUDITED)
---------------------------------------------- --------------------
Revenue $71,754
Operating Income 1,137
Income Before Provision for Income Taxes 1,432
Provision for Income Taxes (392)
-------
Net Income $ 1,040
=======
Earnings Per Share $ 0.003
=======
The following table presents selected IMS operating units cash flow information
for the one-month ended December 31, 1998:
ONE MONTH ENDED
DECEMBER 31, 1998
(UNAUDITED)
---------------------------------------------------------- ------------------
Net Cash Provided by Operating Activities $30,852
Net Cash Used in Investing Activities (3,645)
Net Cash Provided by Financing Activities 2,276
Effect of Exchange Rate Changes on Cash and Cash Equivalents 1,181
-------
Increase in Cash and Cash Equivalents $30,664
=======
NOTE 3. DISPOSITIONS
During the second quarter of 1999, the Company recorded $8,300 of pre-tax net
gains due primarily to the sale of investments in Oasis, EDR, One Source and
other investments which were part of Enterprises portfolio. Pre-tax proceeds
from dispositions received during the quarter were $22,875.
During the first quarter of 1999, the Company recorded $7,977 of pre-tax net
gains due primarily to the sale of its investments in Oasis, Pegasus, Aspect,
Internet Securities and Super Systems Japan ("SSJ"). Cash received during the
quarter as a result of dispositions was $16,282. In addition, certain operating
units of PMSI, acquired in the third quarter of 1998, were divested in December
1998, including a publishing and conference operating division in Japan.
9
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 4. ACQUISITIONS
During the first quarter of 1999 the Company acquired 100% of the stock of
PharmaFELAX Kft., a pharmaceutical information company based in Hungary. In
connection with the acquisition, the Company recorded goodwill of $3,100.
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh"). The
final purchase price of the acquisition was $193,748, including $167,148 of
common stock, $9,521 for stock options issued and $17,079 of direct acquisition
and integration costs.
Walsh shareholders received 6,454,600 shares of Cognizant common stock issued
from treasury stock, with a market value of $167,148. The direct acquisition and
integration costs consist of severance ($4,876), lease terminations ($2,569) and
other direct acquisition and integration costs ($9,634). These acquisition and
integration costs were incurred as a direct result of the 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). Incurred acquisition and integration costs to date are within original
projections. Approximately $156,557 has been 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 common stock ($75,292), stock options issued
($5,415) and direct acquisition and integration costs ($22,584).
PMSI received 2,395,926 shares of IMS Health common stock issued from treasury
stock, with a market value of $75,292. The direct acquisition and integration
costs consist of severance ($3,794), lease terminations ($1,623), contract
cancellation ($10,935), and other direct acquisition and integration costs
($6,232). The acquisitions and integration costs 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).
$115,275 was 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.
Purchase Price Allocation
In connection with both the Walsh and PMSI acquisitions, the Company made
allocations of the 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. At the date of the respective acquisitions, the development
of the IPR&D projects had not reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.
In accordance with SEC guidance in connection with acquisitions, 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 is
currently in use. 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 by an
independent appraisal firm. The allocation is summarized below:
<TABLE>
<CAPTION>
Walsh PMSI Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===============================================================================================
</TABLE>
In connection with the PMSI acquisition, the Company evaluated existing IMS
Health product offerings. Based on this strategic assessment, the Company
abandoned 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 in the third quarter of 1998 as a component of operating income.
10
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
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. 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 (85%)
interest in the partnership. The third parties' limited partnership interests
are reflected as a minority interest.
NOTE 6. 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, cash flows or consolidated financial
position when resolved in a future period. The Company has established reserves
for specific liabilities in connection with these matters to the extent the
Company currently deems them to be probable and estimateable. Management does
not expect the ultimate resolution of the foregoing proceedings, litigations and
tax matters will have a material effect on its financial condition, results of
operations or cash flows.
In addition the Company is subject to certain other contingencies not arising in
the ordinary course of business 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 IMS (the "IRI Action").
The complaint alleges various violations of the United States antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
latter claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by defendants and that the defendants induced SRG
to breach that agreement. IRI's complaint alleges damages in excess of $350,000,
which amount IRI has asked to be trebled under the antitrust laws. IRI also
seeks punitive damages in an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in the
complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to
11
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 6. CONTINGENCIES - (CONTINUED)
Information Resources Litigation - (continued)
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 The Dun & Bradstreet
Corporation ("D&B") of shares of Cognizant and ACNielsen Corporation
("ACNielsen"; the parent company of A.C. Nielsen Company) in 1996, D&B,
ACNielsen 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 Distribution Agreement dated October 28, 1996 among D&B,
Cognizant and ACNielsen (the "1996 Distribution Agreement"), as a condition to
the Distribution, IMS Health and Nielsen Media Research are jointly and
severally liable to D&B and ACNielsen for Cognizant's obligations under the 1996
Distribution Agreement.
IMS Health and Nielsen Media Research have agreed that, as between themselves,
IMS Health will assume 75%, and Nielsen Media Research will assume 25%, of any
payments to be made in respect of the IRI Action under the Indemnity and Joint
Defense Agreement or otherwise, including any legal fees and expenses related
thereto incurred in 1999 or thereafter. IMS Health agreed to be fully
responsible for any legal fees and expenses incurred during 1998. Nielsen
12
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 6. CONTINGENCIES - (CONTINUED)
Information Resources Litigation - (continued)
Media Research's aggregate liability to IMS Health for payments in respect of
the IRI Action and certain other contingent liabilities shall not exceed
$125,000.
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 the
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.
Prior to the Distribution, Cognizant and IMS Health entered into certain
agreements that govern the relationship between Nielsen Media Research and IMS
Health and provide for the allocation of tax, employee benefits and certain
other liabilities and obligations arising from periods prior to the
Distribution. Among other things, the agreements set forth principles to be
applied in allocating certain Distribution-related costs and specify portions of
contingent liabilities including those described below to be shared if certain
amounts are exceeded including certain liabilities to D&B that may arise in
connection with the 1996 Distribution Agreement.
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 were to be made and the IRS
prevail, would be approximately $435,000 for taxes and accrued interest net of
tax benefit as of June 30, 1999. Under the terms of 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 dated as of June 30, 1998 between IMS Health
and Nielsen Media Research. The Company estimates that its share of the
liability, were the IRS to prevail, would be approximately $139,000. This
liability is included in Other Liabilities.
Management does not believe that these matters will have a material adverse
effect on the Company's consolidated financial position or operating results
when they are resolved in future periods. However, should the IRS issue
assessment notices, payment of the Company's share could have a material adverse
effect on cash flows in the periods in which they are made. The Company believes
that it 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.
In connection with the Gartner Spin-Off, the Company and Gartner entered into a
Distribution Agreement and an Agreement and Plan of Merger (the "1999
Distribution Agreements"). Pursuant to the 1999 Distribution Agreements, Gartner
agreed to indemnify the Company and its stockholders for additional taxes that
may become payable as a result of certain actions which may be taken by Gartner
that adversely affect the tax-free treatment of the Gartner Spin-Off. However,
the
13
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 6. CONTINGENCIES - (CONTINUED)
Other Contingencies - (continued)
Company may become obligated for certain tax liabilities in the event the
Gartner Spin-Off is deemed to be a taxable transaction as a result of certain
Gartner share transactions that may be undertaken following the Gartner
Spin-Off. In the opinion of management, it is highly unlikely that any such
liabilities will be incurred by the Company.
NOTE 7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company transacts business in virtually every part of the world and is
subject to risks associated with foreign exchange rates. The Company's objective
is to reduce earnings and cash flow volatility associated with foreign exchange
rates 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
foreign currency revenues and non-functional currency assets and liabilities. By
policy, the Company maintains hedge coverage between minimum and maximum
percentages of its anticipated foreign exchange exposures over the next year.
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 uses a
variety of financial instruments, primarily forward contracts and purchased
currency options, to hedge committed and anticipated foreign currency
denominated revenues. The principal currencies hedged are the Euro, the Japanese
yen and the Swiss franc. The Company also uses forward contracts to hedge
non-functional currency assets and liabilities. The Company does not enter into
foreign currency transactions for speculative purposes.
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 due to fluctuations in currency exchange rates. Gains
and losses on contracts hedging non-functional currency assets and liabilities
are not deferred and are included in other income/(expense)--net. At June 30,
1999, the notional amount of committed foreign currency revenues hedged was
$74,868. In addition, at June 30, 1999, IMS had approximately $127,661 in
foreign exchange forward contracts hedging non-functional currency assets and
liabilities with various expiration dates through July 1999.
NOTE 8. SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained For Internal Use." SOP 98-1 provides
guidance on costs to be capitalized, including when capitalization of such costs
should commence. SOP 98-1 applies to costs incurred after its adoption,
including costs for software projects that are in progress at the time of the
adoption. The implementation of SOP 98-1 effective January 1, 1999 did 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 the years
beginning after December 15, 1998. The implementation of SOP 98-5 effective
January 1, 1999 did not have a material effect on the Company's financial
statements.
14
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
8. SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS - (CONTINUED)
In July 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of SFAS
No.133- an amendment of FASB Statement No. 133". Citing concerns about
companies' ability to modify their information systems in time to apply SFAS
133, the FASB delayed its effective date for one year, to fiscal years beginning
after June 15, 2000 (January 1, 2001 for the Company). In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Management continues to evaluate the
effects of this pronouncement on the Company's financial statements.
NOTE 9. OPERATIONS BY BUSINESS SEGMENT
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, the leading provider of automated sales
support technologies to the pharmaceutical industries. In 1999, the IMS segment
includes the Walsh and PMSI businesses acquired during the second and third
quarters of 1998, respectively, which have been integrated into the IMS
operations. Effective in the first quarter of 1999, the IMS operating units
revised their reporting period to conform to the Company's fiscal year ended
December 31. (See Note 2. Basis of Presentation)
The Emerging Markets segment includes Erisco, a leading supplier of
software-based administrative and analytical solutions to the managed care
industry, and Enterprises, the Company's venture capital unit focused on
investments in emerging businesses. In 1998, it included SSJ, a
marketer of financial application software products to the Japanese market,
which was divested in the first quarter of 1999.
CTS delivers life cycle software development, management and maintenance
technology consulting services through the use of a seamless on-site and
offshore project team. These services include application development and
maintenance services, Year 2000 and Eurocurrency compliance services, testing
and quality assurance services and re-hosting and re-engineering services.
15
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 9. OPERATIONS BY BUSINESS SEGMENT - (CONTINUED)
Historical results are restated to reflect Gartner and Nielsen Media Research as
discontinued operations. (See Note 2. Basis of Presentation) The Company
evaluates the performance of its operating segments based on revenue and
operating income.
<TABLE>
<CAPTION>
PERIODS ENDING JUNE 30, 1999
- - -----------------------------------------------------------------------------------------------------------------------
EMERGING
THREE MONTHS: IMS MARKETS CTS (1) TOTAL
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue $303,132 $ 11,620 $ 17,900 $332,652
Segment Operating Income 73,173 1,325 3,870 78,368
General Corporate Expenses (2) (15,613)
Interest Income (3) 1,557 250 1,807
Interest Expense (4) (608) (608)
Non-Operating Income/(Expense) - Net
Gains from Dispositions - Net 8,300 8,300
Other Expense - Net (5,823)
- - -----------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 66,431
Provision for Income Taxes (20,257)
- - -----------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 46,174
Income from Discontinued Operations, Net of Income Taxes (5) 10,617
- - -----------------------------------------------------------------------------------------------------------------------
Net Income $56,791
- - -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS:
Operating Revenue $588,633 $22,226 $35,035 $645,894
Segment Operating Income 130,721 2,220 7,940 140,881
General Corporate Expenses (2) (23,416)
Interest Income (3) 2,985 526 3,511
Interest Expense (4) (753) (753)
Non-Operating Income/(Expense) - Net
Gains from Dispositions - Net 16,277 16,277
Other Expense - Net (9,748)
- - ----------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 126,752
Provision for Income Taxes (36,785)
- - ----------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 89,967
Income from Discontinued Operations, Net of Income Taxes (5) 24,311
- - ----------------------------------------------------------------------------------------------------------------------
Net Income $114,278
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Operations by Business Segments on next page)
16
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 9. OPERATIONS BY BUSINESS SEGMENT - (CONTINUED)
<TABLE>
<CAPTION>
PERIODS ENDING JUNE 30, 1998
- - ------------------------------------------------------------------------------------------------------------------------
EMERGING
THREE MONTHS: IMS MARKETS CTS (1) TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenue $249,422 $12,580 $ 8,494 $270,496
Segment Operating Income (6) 28,186 103 1,582 29,871
General Corporate Expenses (2) (43,783)
Interest Income (3) 2,270 48 2,318
Interest Expense (4) (196) (196)
Non-Operating Income/(Expense) - Net
Gains from Sale of Subsidiary Stock 12,777 12,777
Gains from Dispositions - Net 0
Other Expense - Net (40)
- - ------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 947
Provision for Income Taxes (13,944)
- - ------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations $(12,997)
Income from Discontinued Operations, Net of Income Taxes (5) 35,637
- - ------------------------------------------------------------------------------------------------------------------------
Net Income $ 22,640
- - ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS:
Operating Revenue $472,823 $23,843 $14,798 $511,464
Segment Operating Income/(Loss) (6) 59,112 (101) 2,688 61,699
General Corporate Expenses (2) (56,883)
Interest Income (3) 4,400 80 4,480
Interest Expense (4) (380) (380)
Non-Operating Income/(Expense) - Net
Gains from Sale of Subsidiary Stock 12,777 12,777
Gains from Dispositions - Net 10,415 10,415
Other Expense - Net (890)
- - ------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 31,218
Provision for Income Taxes (21,224)
- - ------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations $9,994
Income from Discontinued Operations, Net of Income Taxes (5) 72,733
- - ------------------------------------------------------------------------------------------------------------------------
Net Income $82,727
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Operations by Business Segments:
(1) Excludes intersegment sales in 1999 of $3,598 and $6,889 for the three and
six months presented, respectively. Excludes intersegment sales in 1998 of
$4,173 and $7,907 for the three and six months presented, respectively.
These sales, primarily from CTS to IMS, are recognized as the service is
performed.
(2) General Corporate Expenses in 1999 includes $7,500 related to the Gartner
Spin-Off for the three and six month periods presented. General Corporate
Expenses in 1998 includes charges related to the Distribution of $30,125
and $35,025 for the three and six month periods presented, respectively. In
addition, General Corporate Expenses in 1998 includes one-time Walsh
acquisition costs of $5,000 for both the three and six month periods
presented.
(3) Interest income in 1999 excludes amounts recorded at corporate of $174 and
$269 for the three and six month periods presented, respectively. Interest
income in 1998 excludes amounts recorded at corporate of $2,453 and $4,389
for the three and six month periods presented, respectively.
(4) Interest expense in 1999 excludes amounts recorded at corporate of $1,668
and $1,781 for the three and six month periods presented, respectively.
Interest expense in 1998 excludes amounts recorded at corporate of $16 and
$32 for the three and six month periods presented, respectively.
(5) Income from Discontinued Operations, Net of Income taxes in 1999 relates to
Gartner. Income from Discontinued Operations, Net of Income taxes in 1998
includes $14,549 and $30,641 related to Gartner for the three and six month
periods presented, respectively and $21,088 and $42,093 related to Nielsen
Media Research for the three and six month periods presented, respectively.
(6) The IMS Segment operating income in 1998 includes a one-time in-process
research and development write-off of $21,900 for both the three and six
month periods presented.
17
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(UNAUDITED)
(Dollar amounts in thousands, except per share data)
NOTE 10. SUBSEQUENT EVENTS
Spin-Off of Equity Investment in Gartner
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. Pursuant to the 1999 Distribution Agreements 40,689,648 shares of
Gartner Class A Common Stock ("Gartner Class A Shares") were converted into an
equal number of shares of Class B Common Stock of Gartner ("Gartner Class B
Shares"). The Gartner Class B Shares are entitled to elect 80% of Gartner's
Board of Directors, but are otherwise identical to Gartner Class A Shares. On
July 16, 1999, the Company's Board of Directors declared a dividend of all such
Gartner Class B Shares to be distributed on July 26, 1999 to holders of the
Company's Common Stock of record as of July 17, 1999. The distribution consisted
of 0.1302 Gartner Class B Shares for each share of the Company's Common Stock.
The Spin-Off was structured as a tax-free distribution and the Company has
received a favorable ruling from the Internal Revenue Service to that effect. On
July 16, 1999 Gartner declared a special cash dividend payable on July 23, 1999
to holders of record on July 16, 1999. IMS Health's portion of the dividend was
approximately $53.0 million, net of taxes.
18
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
This discussion and analysis relates to IMS Health and should be read in
conjunction with the accompanying condensed consolidated financial statements
and related notes. 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, LLC ("Enterprises") and a
61.6% interest in Cognizant Technology Solutions Corporation ("CTS").
Spin-Off of Equity Investment in Gartner
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. Pursuant to the 1999 Distribution Agreements 40,689,648 Gartner Class A
Shares were converted into an equal number of Gartner Class B Shares. On July
16, 1999, the Company's Board of Directors declared a dividend of all such
Gartner Class B Shares to be distributed on July 26, 1999 to holders of the
Company's Common Stock of record as of July 17, 1999. The distribution consisted
of 0.1302 Gartner Class B Shares for each share of the Company's Common Stock.
The Spin-Off was structured as a tax-free distribution and the Company has
received a favorable ruling from the Internal Revenue Service to that effect. On
July 16, 1999 Gartner declared a special cash dividend payable on July 23, 1999
to holders of record on July 16, 1999. IMS Health's portion of the dividend was
approximately $53.0 million, net of taxes. These cash proceeds will be used in
the third quarter to pay down short term borrowings incurred to fund the
Company's accelerated stock repurchases during the second quarter.
At June 30, 1999, the Company owned approximately 47.6 million Gartner shares.
Approximately 40.6 million shares were distributed to IMS Health shareholders as
described above. The Company intends to monetize its remaining position in
Gartner, consisting of approximately 6.9 million Gartner Class A Shares and
warrants to purchase a further 599,400 Gartner Class A Shares, subject to the
terms of the 1999 Distribution Agreements. The Company's Gartner Class A shares
will be accounted for as an "available for sale" security under SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities". Recognition
of the unrealized gain at the spin date will be recorded as Other Comprehensive
Income and included as a component of equity. Subsequent changes in fair value
from the measurement date of the spin will also be recorded as Other
Comprehensive Income and included as a component of equity. Upon sale of these
securities, the unrealized gain related to those securities at the spin date
will be recognized in Discontinued Operations and any subsequent changes in fair
value will be recognized in Continuing Operations. In connection with the
Gartner Spin-Off, options granted under the Company's plans were adjusted to
recognize the effect of the value of the distribution, thereby slightly
increasing the number of IMS Health shares issuable on exercise.
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh").
(See Note 4. Acquisitions)
19
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Walsh Acquisition--(continued)
The severance costs relate to approximately 80 terminated Walsh employees. The
Company has restructured acquired Walsh leases at a lower cost than originally
anticipated and has incurred higher than anticipated severance costs. The
following table displays the status of such activities:
<TABLE>
<CAPTION>
Original Liability Expenditures to June 30, 1999
Estimate Date Adjustments Balance
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Separation $ 4,876 $ (4,489) 1,278 $ 1,665
Lease Terminations 2,569 (256) (1,278) 1,035
Other Direct Costs 9,634 (9,634) 0 0
-------------------------------------------------------------------------------------------------------
Total $17,079 $(14,379) 0 $ 2,700
-------------------------------------------------------------------------------------------------------
</TABLE>
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. Assets of Pharmaceutical
Marketing Services Inc. ("PMSI"). (See Note 4. Acquisitions) The severance costs
are related to 63 PMSI employees. As of June 30, 1999, the Company made payments
of $3,342, reducing the workforce by 57. The remaining terminations are
anticipated to be completed during the third quarter of 1999. The following
table displays the status of such activities:
<TABLE>
<CAPTION>
Original Liability Expenditures to June 30, 1999
Estimate Date Balance
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee Separation $ 3,794 $ (3,342) $ 452
Lease Terminations 1,623 (669) 954
Contract Cancellations 10,935 (4,259) 6,676
Other Direct Costs 6,232 (6,232) 0
------------------------------------------------------------------------------------
Total $22,584 $(14,502) $ 8,082
------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Purchase Price Allocation
In connection with both the Walsh and PMSI acquisitions, the Company made
allocations of the purchase price to acquired in-process research and
development ("IPR&D"). Management continues to support the IPR&D efforts that
were underway at the time of the Walsh and PMSI acquisitions. IMS Health is on
target to begin realizing the benefits from these various projects through
product introductions at various launch dates through January 2000. There are
currently no material variations from the underlying projections and assumptions
made at the time of the purchase price allocations.
Elimination of one month reporting lag in IMS operating segment
Effective in the first quarter of 1999, the IMS operating units that previously
reported on a fiscal year ending November 30 revised their reporting period to
conform to the Company's fiscal year ending December 31.
(the "Calendarization"). (See Note 2. Basis of Presentation).
Operations
Revenue for the second quarter increased by 23.0% to $332,652 from $270,496 for
the second quarter of the prior year. Revenue for the first six months increased
26.3% to $645,894 from $511,464 for the comparable period a year ago. Adjusting
the quarter and the first half of 1998 for the Calendarization and the sale of
Super Systems Japan ("SSJ"), revenue increased by 24.7% and 25.1%, respectively.
This increase reflected double-digit constant dollar revenue growth at IMS,
Erisco and CTS as well as the first full year impact of the Walsh and PMSI
acquisitions.
21
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Operating Results - (continued)
The impact of a stronger U.S. dollar decreased reported revenue by less than 1%
for the quarter and first half, including the impact of the Company's hedging
program.
Operating income for the second quarter was $62,755, compared to operating
losses of $13,912 for the second quarter of the prior year. Operating results in
the second quarter of 1999 and 1998 include Year 2000 costs ("Y2K costs") of
$7,923 and $12,330, respectively. Adjusting for Y2K costs; 1999 charges related
to the Gartner Spin-Off ($7,500), the Calendarization, 1998 charges related to
the Distribution ($30,125), the 1998 in-process research and development
write-off ($21,900) and one-time charge ($5,000) related to the Walsh
acquisition, operating income for the second quarter of 1999 increased by 33.5%.
First-half operating income was $117,465 compared with $4,816 for the comparable
period a year ago. First-half operating results in both years include Y2K costs
of $15,800 and $22,301, respectively. Adjusting for Y2K costs, 1999 charges
related to the Gartner Spin-Off ($7,500); the Calendarization, 1998 charges
related to the Distribution ($35,025), the 1998 research and development
write-off ($21,900) and one-time charge ($5,000) related to the Walsh
acquisition, operating income for the first-half of 1999 increased by 35.4%.
Adjusted operating income growth in the second quarter and first half of 1999
outpaced revenue growth primarily due to the Company's ability to leverage its
worldwide resources. The impact of a stronger U.S. dollar impacted adjusted
operating income growth by less than 1% in the second quarter and the first
half, including the impact of the Company's hedging program.
Non-operating income-net for the second quarter was $3,676 compared with $14,859
for the second quarter of the prior year. The decrease is due primarily to a
1998 gains related to the CTS IPO ($12,777).
Non-operating income-net for the first half was $9,287 compared with $26,402.
The decrease is due primarily to 1998 gains related to the CTS IPO ($12,777).
The second quarter 1999 effective tax rate of 30.5% was impacted by a
non-deductible one-time charge of $7,500 related to the Gartner Spin-Off. The
second quarter 1998 effective tax rate was impacted by a portion of the one-time
charge related to the Distribution ($30,125) and the research and development
write-off ($21,900) and one-time charge ($5,000) related to the Walsh
acquisition. Those items did not give rise to a tax benefit. Excluding those
items, the Company's effective tax rate from operations was 27.4% for the second
quarter of 1999 and 1998. The Company's lower effective tax rate is attributable
to numerous global tax planning initiatives. For example, to consolidate certain
of its international operations, in 1999 and 1998 the Company engaged in certain
non-U.S. reorganizations which give rise to tax deductible non-U.S. intangible
assets.
The Company's effective tax rate was 29.0% for the first half of 1999, compared
with an effective tax rate of 68.0% in the comparable period of the prior year.
The first half of 1999 effective tax rate was impacted by a non-deductible
one-time Gartner spin-related charge ($7,500). Excluding the charge related to
the Gartner Spin-Off, the 1998 charges related to the Distribution, the 1998
research and development write-off and one-time charge related to the Walsh
acquisition as noted above, the effective tax rate from operations for the first
half of 1999 and 1998 was 27.4%.
22
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Operating Results - (continued)
Income from continuing operations in the second quarter of 1999 was $46,174,
compared with a loss from continuing operations of $12,997 in the second quarter
of the prior year. Excluding the after-tax impact of Y2K costs and net gains
associated with Enterprises' from both years, charges related to the 1999
Gartner Spin-Off ($7,500), the 1998 CTS IPO gain ($12,777), 1998 charges related
to the Distribution ($30,125) and the 1998 in-process research and development
write-off ($21,900) and a one-time charge ($5,000) related to the Walsh
acquisition, income from continuing operations in the second quarter of 1999
increased 21.1%.
Income from continuing operations for the first half of 1999 was $89,967,
compared with $9,994 in the first half of the prior year. Excluding the
after-tax impact of Y2K and net gains associated with Enterprises' investments
in both years, 1999 charges related to the Gartner Spin-Off, the 1998 CTS IPO
gain, 1998 charges related to the Distribution and the 1998 in-process research
and development write-off and one-time charge related to the Walsh acquisition,
income from continuing operations increased 24.7% in the first half of 1999.
Income from discontinued operations, net of income taxes, in the second quarter
of 1999 was $10,617, compared with $35,637 in the second quarter of the prior
year. Income from discontinued operations net of income taxes represents Gartner
equity income in both years and SAB 51 gains from Gartner and the results of
Nielsen Media Research in 1998.
Income from discontinued operations, net of income taxes, in the first half of
1999 was $24,311, compared with $72,734 in the first half of the prior year.
Income from discontinued operations net of income taxes represents Gartner
equity income in both years and SAB 51 gains from Gartner and the results of
Nielsen Media Research in 1998.
Net income for the second quarter of 1999 was $56,791, an increase of 150.8%
from net income of $22,640 in the second quarter of the prior year.
Net income for the first half of 1999 increased 38.1% to $114,278 from $82,727
in the first half of the prior year.
Basic earnings per share in the second quarter of 1999 were $0.15 compared with
a per share loss of $.04 in the second quarter of the prior year. Excluding the
impact of the previously identified one-time items, basic earnings per share
from continuing operations for the quarter increased 21.4%.
Basic earnings per share in the first half of 1999 were $0.28 compared with $.03
in the first half of the prior year. Excluding the impact of the previously
identified one-time items, basic earnings per share from continuing operations
for the first half of 1999 increased 29.2%.
Diluted earnings per share in the second quarter of 1999 were $0.15 compared
with diluted loss per share of ($.04) in the second quarter of the prior year.
Excluding the impact of the previously identified one-time items, diluted
earnings per share from continuing operations for the quarter increased 30.8%.
Diluted earnings per share in the first half of 1999 were $0.28 compared with
diluted earnings per share of $.03 in the first half of the prior year.
Excluding the impact of the previously identified one-time items, diluted
earnings per share from continuing operations for the first half of 1999
increased 30.4%.
23
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IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Results by Business Segment
IMS Segment
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, the leading provider of automated sales
support technologies to the pharmaceutical industries.
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30 revised their reporting period to
conform to the Company's fiscal year ended December 31. (See Note 2. Basis of
Presentation)
IMS Segment revenue for the second quarter of 1999 increased 21.5% to $303,132
from $249,422 in the second quarter of the prior year. Adjusting 1998 revenue
for the Calendarization and the impact of a stronger U.S. dollar, revenue for
the second quarter 1999 increased by 22.7%. Market Research Products increased
7.0% to $99,347, Sales Management Products increased 29.2% to $166,755 and Other
Services increased 38.4% to $37,030. This growth was due primarily to geographic
expansion of Sales Management Products and Services and the first full year
effect of the Walsh and PMSI acquisitions.
Second quarter operating income increased 159.6% to $73,173 from $28,186 in the
prior year. Excluding Y2K costs and the Calendarization, operating income for
1999 increased 25.5%. Adjusted operating income growth outpaced revenue growth
due primarily to the segment's ability to leverage its worldwide resources.
IMS Segment revenue for the first half of 1999 increased 24.5% to $588,633 from
$472,823 in the prior year. Adjusting 1998 revenue for the Calendarization and
the impact of a stronger U.S. dollar, revenue for the second half 1999 increased
by 22.4%. Market Research Products increased 7.5% to $193,137, Sales Management
Products increased 30.1% to $325,565 and Other Services increased 31.6% to
$69,931. This growth was due primarily to geographic expansion of Sales
Management Products and Services and the first full year effect of the Walsh and
PMSI acquisitions.
IMS Segment operating income for the first half of 1999 increased 121.1% to
$130,721 from $59,112 in the first half of the prior year. Excluding Y2K costs
and the impact of the Calendarization, operating income for the first half of
1999 increased 25.6%.
Emerging Markets Segment
The Emerging Markets segment includes Erisco, a leading supplier of
software-based administrative and analytical solutions to the managed care
industry, and Enterprises, the Company's venture capital unit focused on
investments in emerging businesses. In 1998, this segment included SSJ which was
divested in the first quarter of 1999.
Emerging Markets revenue for the second quarter of 1999 decreased 7.6% to
$11,620 from $12,580 in the prior year. This decrease was due primarily to the
absence of revenues from SSJ during 1999. Excluding SSJ, Emerging Markets
revenue for the second quarter of 1999 increased by 20.1%. Operating income
increased to $1,325 in the second quarter from $103 in the second quarter of the
prior year. Excluding SSJ, operating income for the second quarter of 1999
increased 29.8%.
24
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Results by Business Segment - (continued)
Emerging Markets Segment - (continued)
Emerging Markets revenue for the first half of 1999 decreased 6.8% to $22,226
from $23,843 in the prior year. This decrease was due primarily to the absence
of revenues from SSJ during 1999. Excluding SSJ, Emerging Markets revenue
increased by 19.8% in the first half. Emerging markets operating income for the
first half of 1999 increased to $2,220 from a loss of $101 in the first half of
the prior year.
CTS Segment
CTS delivers life cycle software development, management and maintenance
technology consulting services to its customers through the use of a seamless
on-site and offshore project team. These services include application
development and maintenance services, Year 2000 and Eurocurrency compliance
services, testing and quality assurance services and re-hosting and
re-engineering services.
CTS revenue, net of intersegment sales, increased to $17,900 in the second
quarter of 1999 from $8,494 in the prior year. The increase is due to continuing
strong demand for application development, management and maintenance services
and the addition of new customers. Operating income increased to $3,870 from
$1,582 in the second quarter of the prior year.
CTS revenue for the first half of 1999, net of intersegment sales, increased
136.8% to $35,035 from $14,798 in the prior year. CTS operating income for the
first half of 1999 increased 195.4% to $7,940 from $2,688 in the first half of
the prior year.
Condensed Consolidated Statement of Cash Flows
Net Cash provided by operating activities totaled $111,397 for the six months
ended June 30, 1999 compared with $78,359 in 1998. The $33,038 increase is due
primarily to increased income from continuing operations ($79,973) which was
partially offset by the absence of the 1998 IPR&D write-off ($21,900) and higher
other working capital ($6,983). During the month of December 1998, IMS generated
$30,664 of cash, including a significant decrease in accounts receivable
($35,353). As a consequence of the Calendarization, the December 1998 cash flows
from IMS operating units are not included in the Company's first six months net
cash provided by operating activities.
Net Cash used in investing activities totaled $45,355 for the first six months
of 1999 compared with $19,316 used during the comparable period in 1998. The
$26,039 increase in cash used in investing activities is due primarily to
acquisition and integration payments ($21,768).
Net Cash (used in) / provided by financing activities was ($140,565) cash used
for the six months ended June 30, 1999 compared with $355,146 cash provided in
1998. The decrease in cash provided by financing activities of $495,711 was
primarily due to the 1998 proceeds from debt assumed by Nielsen Media Research
($300,000), proceeds from the 1998 CTS IPO ($27,128), increased payments for the
purchase of treasury stock ($214,842) and lower proceeds from the exercise of
stock options ($23,052) which were partially offset by increased proceeds from
short-term debt ($70,909, net of repayments). Short-term borrowings are used
from time to time to temporarily fund the Company's ongoing stock repurchase
program.
25
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Condensed Consolidated Statement of Cash Flows - (continued)
Cash Flow from Discontinued Operations was zero for the first six months of 1999
compared to a use of ($17,173) in the same period of 1998. There was no Cash
Flow from the Gartner Discontinued Operations in 1999 or 1998. Nielsen Media
Research accounted for all of the Discontinued Operations Cash Flow in 1998.
Subsequent to June 30, Gartner declared a Cash Dividend from which the Company
will receive approximately $53 million of after tax Cash Flow from Discontinued
Operations in the third quarter.
The Company's exisiting 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
requirements including cash dividends, acquisitions, stock repurchase programs
and other contingencies.
Changes in Financial Position at June 30, 1999 Compared to December 31, 1998
Cash & Cash Equivalents decreased to $150,310 at June 30, 1999 from $206,390 at
December 31, 1998, due primarily to the purchase of treasury stock
($222,651) which was partially offset by cash from operating activities
($111,397) and cash provided by IMS operating units during December 1998
($30,664). (See Note 2. The Basis of Presentation).
Accounts Receivable decreased to $263,518 at June 30, 1999, from $324,219 at
December 31, 1998 due primarily to increased collections. As a result, days
sales outstanding improved to 71 days for the quarter compared to 100 days' for
the year ended December 31, 1998.
Securities and Other Investments decreased to $94,092 at June 30, 1999 from
$106,276 at December 31, 1998 due primarily to the sale of certain Enterprises
investments, partially offset by additional investments.
Net-Assets of Discontinued Operations increased to $265,019 at June 30, 1999,
from $240,708 at December 31, 1998, reflecting after-tax income from
discontinued operations ($24,311).
Short Term Debt increased to $109,729 at June 30, 1999, from $39,169 at December
31, 1998 due primarily to increased borrowings used from time to time to
temporarily fund the Company's ongoing stock repurchase program. The proceeds
from the Gartner dividend will be used in the third quarter to pay down short
term borrowings incurred to fund the Company's accelerated stock repurchases
during the second quarter.
Accrued Liabilities decreased to $235,180 at June 30, 1999, from $298,625 at
December 31, 1998 due primarily to payments related to the PMSI and Walsh direct
acquisition and integration costs and accruals for salaries, wages, bonuses and
other compensation.
Shareholders' Equity decreased to $693,196 at June 30, 1999 from $825,270 at
December 31, 1998, due primarily to the purchase of treasury stock ($222,651),
change in cumulative translation adjustment ($28,031), change in unrealized
gains on investments ($9,307) and dividends paid ($12,660), partially offset by
net income ($114,278) and proceeds from stock option exercises ($20,180). Also
effecting shareholder's equity is the $1,040 of net income related to the
results of the IMS operating units for the period December 1 through December
31, 1998 and a $3,409 cumulative translation adjustment for the same period.
(See Note 2. Basis of Presentation).
Year 2000
Many existing computer systems and software applications use two digits, rather
than four, to record years (for example "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"
("Year 2000").
The Company began to address the Year 2000 issue in 1996. In 1997, the Company
created a Year 2000 Task Force (the "Task Force") to manage overall risks and to
facilitate activities across
26
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Year 2000 - (continued)
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 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. The coding and testing phase
involves code changes, using conversion rules and criteria and unit testing,
verifying and documenting the results of the conversion. The testing and
implementation phase includes system test 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
utilized throughout the Company 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 Year 2000 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. At June 30, 1999, the Company has completed 99% of Year 2000
conversions at central processing locations.
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 Year
2000 compliant. In addition, the Company has decided to replace certain
non-compliant software. These new product and replacement projects are on track
to be completed and deployed by the fourth quarter and continue to be under
close scrutiny by the Task Force.
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 Year 2000 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.
At June 30, 1999, the Company has completed 98% of Year 2000 conversions of
local systems and personal computer applications in the United States and
Europe. The rest of the world is at approximately 96% completion. Year 2000
compliance is expected to be achieved by the end of the third quarter.
The Company's Year 2000 project incorporates administrative operations systems
and software such as accounts receivable, payroll, accounts payable and the
general ledger systems and are 99% compliant.
The Company 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 the beginning
of the second quarter, audits and follow-up
27
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Year 2000 - (continued)
audits have occurred in the United States, England, Japan and Germany. The
company performs audits on the local country conversions with the assistance of
CTS and outside consultants. To date approximately 90% of IMS Health revenue has
been audited for Year 2000 compliance. These audits will continue throughout the
world until Year 2000 with several sites revisited to ensure continued
compliance.
The Company engaged TRW to conduct an audit review of the Year 2000 program for
business critical and mission critical systems in sixteen locations. These
audits were conducted in the first half of 1999 and focused on survivability,
preparedness and due diligence in addressing the Year 2000 problem. Any issues
identified as a result of these audits will be addressed in the third quarter.
The Company relies on over 16,000 suppliers of electronic data and has been
proactive in working with these suppliers to determine their Year 2000 readiness
and ability to maintain data flow continuity. A program consisting of seminars,
visits, mailings and telephone calls continues to be administered to track the
status of and assess and address risks associated with Year 2000 readiness by
the Company's key data suppliers.
In some instances, IMS Health receives data from governments and hospitals.
Continued receipt of their data will be a function of their Year 2000
compliance. Based on information from the Company's data sources, Year
2000 compliance 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 testing and the use of a detailed questionnaire
regarding Year 2000 conversion plans in order to verify 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 are pursued when the risk assessment determines the data
source to have a high risk of impacting the Company's ability to deliver
products and services.
Throughout 1999 the Company's Year 2000 efforts will focus on (i) the testing
the critical components of the Company's systems; (ii) the continued assessment
of supplier readiness to address the Year 2000 conversion; and (iii) finalizing
contingency plans to address unanticipated issues.
External and internal costs of addressing the Year 2000 issue are expensed as
incurred. It is currently estimated that the aggregate cost of the Company's
Year 2000 program will be approximately $75,000 to $80,000. Through June 30,
1999 the Company has incurred $70,541 of which $44,922 was incurred in 1998. The
Company expects to incur between $4,000 and $9,000 during the remainder of 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 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
28
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
The Year 2000 - (continued)
Company's plans are dependent on industries out of the Company's direct control
such as utilities and transportation.
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.
The Year 2000 statements set forth above are designated as "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information Readiness Disclosure Act
(P.L. 105-271).
Euro Conversion
On January 1, 1999, 11 member countries of the European Union established fixed
exchange 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 instituted plans for the introduction of the Euro and has addressed
the related issues, including the conversion of information technology systems,
recalculating currency risk, recalibrating derivatives and other financial
instruments, continuity of contracts, taxation and accounting records, and the
increased price transparency resulting from the use of a single currency in
eleven participating countries which may affect the ability of some companies to
price products differently in the various European markets. The Company believes
that differences in national market size, data collection requirements and
specific product specifications required due to the diverse market information
needs in the healthcare markets of Europe will reduce 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 number of risks and uncertainties that could cause
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 systems in a timely manner and the
actions of governmental agencies or other third parties with respect to Euro
currency issues.
29
<PAGE>
IMS HEALTH INCORPORATED
PART II. OTHER INFORMATION -(CONTINUED)
ITEM 5. OTHER INFORMATION
On July 26, 1999, the Company distributed 40,689,648 shares of Class B Common
Stock of Gartner Group Inc. to its shareholders of record on July 17, 1999. (See
Note 10. Subsequent Events and Management's Discussion and Analysis of Financial
Conditions and Results of Operations).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3 Articles of Incorporation and By-laws
.1 Restated Certificate of Incorporation of IMS Health Incorporated dated
May 29,1998.
.2 Certificate of Amendment of Restated Certificate of Incorporation of
IMS Health Incorporated dated March 22, 1999.
.3 Amended and Restated By-laws of Registrant (incorporated by reference
to Exhibit 3.1 to Registrant's Registration Statement on Form 10 filed
June 12, 1998, file number 001-14049).
10 Material Contracts
.1 Distribution Agreement between IMS Health Incorporated and GartnerGroup
Inc., dated June 17, 1999.
.2 Agreement and Plan of Merger between IMS Health Incorporated and
GartnerGroup Inc., dated June 17, 1999.
.3 Amended and Restated 1998 IMS Health Incorporated Employees' Stock
Incentive Plan dated June 17, 1999.
27 Financial Data Schedules
(b) Reports on 8-K:
There were no reports on Form 8-K filed during the quarter ended
June 30, 1999.
30
<PAGE>
IMS HEALTH INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMS Health Incorporated
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: August 10, 1999
31
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of June 17, 1999 (this "Agreement"),
between IMS HEALTH INCORPORATED, a Delaware corporation ("IMS HEALTH"), and
GARTNER GROUP, INC., a Delaware corporation ("Gartner").
WHEREAS, IMS HEALTH owns, directly and indirectly, as of the close of
business on the date hereof, 47,599,105 shares of Class A Common Stock, par
value $.0005 per share ("Class A Common Stock"), of Gartner;
WHEREAS, simultaneously with the execution hereof, Gartner, IMS HEALTH, and
GRGI, INC., a Delaware corporation and a wholly owned subsidiary of IMS HEALTH
("Merger Sub"), are entering into an Agreement and Plan of Merger in the form
attached hereto as Exhibit A-1 (the "Recapitalization Agreement"), pursuant to
which, among other things, Merger Sub will merge with and into Gartner with the
consequent capital stock changes resulting in (i) IMS HEALTH acquiring, in
exchange for 40,689,648 shares of Class A Common Stock held by it 40,689,648
shares of a new Class B Common Stock, par value $.0005 per share ("Class B
Common Stock" and, together with the Class A Common Stock, the "Gartner Common
Stock"), of Gartner, which class of stock shall be entitled to elect 80% of the
members of the board of directors of Gartner and in all other respects shall be
substantially identical to the Class A Common Stock, and (ii) IMS retaining
6,909,457 shares of Class A Common Stock (the "Retained Shares") and the
Warrants (as defined herein) to purchase 599,400 shares of Class A Common Stock,
and all other stockholders of Gartner retaining all their shares of Class A
Common Stock, which class of stock shall be entitled to elect 20% of the members
of the board of directors of Gartner (the "Recapitalization");
WHEREAS, the Board of Directors of IMS HEALTH has determined that it is
appropriate, desirable and in the best interests of IMS HEALTH and its
stockholders to distribute on the Distribution Date (as defined herein) all the
shares of Class B Common Stock that IMS HEALTH will receive in the
Recapitalization, on the terms and subject to the conditions set forth in this
Agreement, to the holders of record of the Common Stock, par value $.01 per
share, of IMS HEALTH ("IMS HEALTH Common Stock"), as of the Distribution Record
Date (as defined herein), on a pro rata basis (the "Distribution");
WHEREAS, the Board of Directors of Gartner has determined that it is
appropriate, desirable and in the best interests of Gartner and its stockholders
that the Distribution be consummated, and the Recapitalization is a necessary
and desirable means to enable the Distribution to occur;
WHEREAS, IMS HEALTH has received a ruling from the Internal Revenue Service
to the effect that the Distribution will be a tax-free distribution within the
meaning of Section 355 of the Code (as defined herein);
<PAGE>
2
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the board of directors of Gartner shall declare the Cash Dividend (as defined
herein), payable on a pro rata basis to holders of record of Gartner Common
Stock as of the date immediately preceding the Distribution Record Date;
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Gartner will commence the Stock Repurchase (as defined herein) after the
Distribution for a number of shares of Class A Common Stock and Class B Common
Stock equal to 19.99% of the total number of outstanding shares of Gartner
Common Stock; and
WHEREAS, each of IMS HEALTH and GARTNER has determined that it is necessary
and desirable to set forth the principal corporate transactions required to
effect the Distribution, the Recapitalization, the Cash Dividend and the Stock
Repurchase 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) "Agreement Disputes" shall have the meaning set forth in Section
5.1.
(d) "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.
(e) "Business Entity" shall mean any corporation, partnership, limited
liability company or other entity which may legally hold title to Assets.
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3
(f) "Cash Dividend" shall have the meaning set forth in Section
2.2(a).
(g) "Cash Dividend Date" shall mean the date immediately preceding the
Distribution Date.
(h) "Cash Dividend Record Date" shall mean the date immediately
preceding the Distribution Record Date.
(i) "Claims Administration" shall mean the processing of claims made
under the Shared Policies, including the reporting of claims to the
insurance carriers and the management of the defense of claims.
(j) "Class A Common Stock" shall have the meaning set forth in the
recitals hereto.
(k) "Class B Common Stock" shall have the meaning set forth in the
recitals hereto.
(l) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any
successor legislation.
(m) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(n) "Dataquest Agreement" shall mean that certain Acquisition
Agreement dated as of November 27, 1995 by and among Gartner Group, Inc.,
Bosa Acquisition Corp., Gartner Group U.K. Ltd., Gartner Group GMBH, The
Dun & Bradstreet Corporation, Dataquest Incorporated, Dataquest Europe
Limited and Dataquest GMBH.
(o) "Declaration Date" shall mean the date, mutually agreed between
IMS HEALTH and Gartner, on which (i) the IMS HEALTH Board of Directors
shall declare the Distribution, (ii) the Gartner Board of Directors shall
declare the Cash Dividend and (iii) the Certificate of Merger effecting the
Recapitalization shall be filed with the Secretary of State of the State of
Delaware.
(p) "DGCL" shall mean the General Corporation Law of the State of
Delaware.
(q) "Distribution" shall have the meaning set forth in the recitals
hereto.
(r) "Distribution Agent" shall mean the distribution agent selected by
IMS HEALTH to effect the Distribution, which may be Gartner's stock
transfer agent.
(s) "Distribution Date" shall mean the date determined by the Board of
Directors of IMS HEALTH following the consummation of the Recapitalization
for the
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4
mailing of certificates of Class B Common Stock to stockholders of IMS
HEALTH in the Distribution. The Distribution Date shall be a date as soon
as practicable following the Declaration Date, but not more than thirty
days after the filing of the Certificate of Merger relating to the
Recapitalization.
(t) "Distribution Record Date" shall mean the date determined by the
Board of Directors of IMS HEALTH as the record date for the determination
of the holders of record of IMS HEALTH Common Stock entitled to receive
shares of Class B Common Stock in the Distribution.
(u) "Effective Time" shall mean immediately prior to the midnight, New
York time, that ends the 24-hour period comprising the Distribution Date.
(v) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(w) "Financing Commitments" shall have the meaning set forth in
Section 2.3.
(x) "Form 8-A" shall mean a Gartner registration statement on Form 8-A
pursuant to which the Class B Common Stock shall be registered under the
Exchange Act, including all amendments thereto.
(y) "Gartner" shall have the meaning set forth in the heading of this
Agreement.
(z) "Gartner Business" shall mean each and every business conducted at
any time prior to, on or after the Effective Time by Gartner or any
current, former, or future Subsidiary of Gartner or other Business Entity
controlled by Gartner, whether or not such Subsidiary is a Subsidiary of
Gartner or such Business Entity is controlled by Gartner on the date
hereof.
(aa) "Gartner Business Entity" shall mean any Business Entity a
majority of the equity interests of which are owned, directly or
indirectly, by Gartner.
(bb) "Gartner Group" shall mean Gartner and each Person that is a
Subsidiary of Gartner immediately prior to the Effective Time.
(cc) "Gartner Indemnitees" shall mean Gartner, each member of the
Gartner 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.
(dd) "Gartner Liabilities" shall mean, collectively, any and all
Liabilities whatsoever that arise out of, result from or are related to the
operation of the Gartner Business or the ownership of the assets of the
Gartner Business by Gartner, any current,
<PAGE>
5
former or future Subsidiary of Gartner or any Business Entity controlled by
Gartner, whether such Liabilities arise before, on or after the Effective
Time and whether known or unknown, fixed or contingent, and shall include,
without limitation:
(i) any and all Liabilities to which IMS HEALTH or its predecessors
and successors may become subject arising from or based upon its status or
alleged status as a "controlling person" (as defined under Section 15 of
the Securities Act and Section 20 of the Exchange Act) of Gartner relating
to (a) the Proxy Statement (or any amendment thereto) (except for
liabilities which Gartner incurs solely as a result of written information
relating to IMS HEALTH supplied by IMS HEALTH for inclusion in the Proxy
Statement) or (b) any other report or document filed by Gartner with the
Commission at any time before, on or after the Effective Time (except for
liabilities which Gartner incurs solely as a result of written information
relating to IMS HEALTH or the IMS HEALTH Business supplied by IMS HEALTH
for inclusion in such report or document);
(ii) any and all Liabilities that are expressly contemplated by this
Agreement or the Recapitalization Agreement (or the Schedules hereto or
thereto) as Liabilities to be assumed by Gartner or any member of the
Gartner Group or to remain with Gartner or any member of the Gartner Group
and any Liabilities under this Agreement for a breach by Gartner of any
representation, warranty or covenant herein; and
(iii) any and all Liabilities which IMS HEALTH or any of its
Subsidiaries and any Affiliates may be subject to or which may be asserted
against any of them arising from or based upon any sublease by Gartner or a
Subsidiary of Gartner or other Business Entity controlled by Gartner of
office space in Nanterre, France, Paris, France or Tokyo, Japan where RHD
or any of its predecessors or any of their successors or their respective
Affiliates occupy space on the premises, including pursuant to any sublease
agreement or amendment or other agreement related thereto.
(ee) "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.
(ff) "IMS HEALTH Business" shall mean each and every business
conducted at any time by IMS HEALTH or any current, former or future
Subsidiary of IMS HEALTH (other than Gartner and its Subsidiaries) prior to
the Effective Time or other Business Entity controlled by IMS HEALTH (other
than Gartner and its Subsidiaries), whether or not such Subsidiary is a
Subsidiary of IMS HEALTH or such Business Entity is controlled by IMS
HEALTH on the date hereof, except for the Gartner Business.
(gg) "IMS HEALTH Business Entity" shall mean any Business Entity a
majority of the equity interests of which are owned, directly or
indirectly, by IMS HEALTH.
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6
(hh) "IMS HEALTH Common Stock" shall mean the common stock, par value
$.01 per share, of IMS HEALTH.
(ii) "IMS HEALTH Distribution" shall mean the distribution of the
common stock of IMS HEALTH described in Exhibit 2.1(d)(i).
(jj) "IMS HEALTH Group" shall mean IMS HEALTH and each Person (other
than any member of the Gartner Group) that is a Subsidiary of IMS HEALTH
immediately prior to the Effective Time.
(kk) "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 Gartner Indemnitees
who would not otherwise be an IMS HEALTH Indemnitee.
(ll) "IMS HEALTH Liabilities" shall mean, collectively, any and all
Liabilities whatsoever that arise out of, result from or are related to the
operation of the IMS HEALTH Business or the ownership of the assets of the
IMS HEALTH Business by IMS HEALTH, any predecessor entity of IMS HEALTH
(and all predecessors thereto) or any Subsidiary of or Business Entity
controlled by any such predecessor, any current, former, or future
Subsidiary of IMS HEALTH or any Business Entity controlled by IMS HEALTH
(other than, in each case, Gartner and its Subsidiaries) whether such
Liabilities arise before, on or after the Effective Time and whether known
or unknown, fixed or contingent, and shall include, without limitation:
(i) any and all Liabilities that are expressly contemplated by this
Agreement or the Recapitalization Agreement (or the Schedules hereto or
thereto) as Liabilities to be assumed by IMS HEALTH or any member of the
IMS HEALTH Group or to remain with IMS HEALTH or any member of the IMS
HEALTH Group and any Liabilities under this Agreement for a breach by IMS
HEALTH of any representation, warranty or covenant herein; and
(ii) any and all Liabilities which Gartner incurs solely as a result
of written information relating to IMS HEALTH or the IMS HEALTH Business
supplied by IMS HEALTH for inclusion in the Proxy Statement or any report
or document filed by Gartner with the Commission.
(mm) "Indemnifying Party" shall have the meaning set forth in Section
3.3.
(nn) "Indemnitee" shall have the meaning set forth in Section 3.3.
(oo) "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
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7
conditions of each of the Shared Policies, the reporting to insurance
carriers of any losses or claims, and the distribution of Insurance
Proceeds as contemplated by this Agreement.
(pp) "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.
(qq) "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 policy limits, deductibles,
co-insurance, uncollectibility or retrospectively-rated premium
adjustments.
(rr) "IRS" shall mean the Internal Revenue Service.
(ss) "IRS Ruling" shall have the meaning set forth in Section
2.1(b)(i).
(tt) "IRS Supplemental Ruling" shall mean a ruling from the IRS
requested by IMS HEALTH providing, among other things, that neither the
Recapitalization nor the Distribution will be taken into account in
applying Section 355(e)(2)(A)(ii) of the Code.
(uu) "Liabilities" shall mean any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions,
variances, guarantees, make whole agreements and similar obligations, and
other liabilities, including all contractual obligations, whether absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising
under any law, rule, regulation, Action, threatened or contemplated Action
(including the costs and expenses of demands, assessments, judgments,
settlements and compromises relating thereto and attorneys' fees and any
and all costs and expenses, whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or
threatened or contemplated Actions), order or consent decree of any
governmental or other regulatory or administrative agency, body or
commission or any award of any arbitrator or mediator of any kind, and
those arising under any contract, commitment or undertaking, including
those arising under this Agreement or the Recapitalization 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.
(vv) "1996 Distribution Agreement" shall mean the Distribution
Agreement among Cognizant Corporation, The Dun & Bradstreet Corporation,
which has been renamed the R.H. Donnelley Corporation ("RHD") and ACNielsen
Corporation ("ACNielsen") dated as of October 28, 1996.
<PAGE>
8
(ww) "1998 Distribution Agreement" shall mean the Distribution
Agreement between Cognizant Corporation, which has been renamed Nielsen
Media Research, Inc. ("NMR"), and IMS HEALTH dated as of June 30, 1998.
(xx) "NYSE" shall mean the New York Stock Exchange, Inc.
(yy) "NYSE Listing Application" shall mean the application to be
submitted by Gartner to the NYSE for the listing of the Class B Common
Stock.
(zz) "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.
(aaa) "Policies" shall mean insurance policies and insurance contracts
of any kind (other than life and benefits policies or contracts), including
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.
(bbb) "Proxy Statement" shall have the meaning set forth in the
Recapitalization Agreement.
(ccc) "Recapitalization" shall have the meaning set forth in the
recitals hereto.
(ddd) "Recapitalization Agreement" shall have the meaning set forth in
the recitals hereto.
(eee) "Retained Shares" shall have the meaning set forth in the
recitals hereto.
(fff) "Required Consents" shall have the meaning set forth in Section
4.5.
(ggg) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(hhh) "Share Increase" shall have the meaning set forth in the
Recapitalization Agreement.
(iii) "Shared Policies" shall mean all Policies, current or past,
which are owned or maintained by or on behalf of IMS HEALTH or any
Subsidiary of IMS HEALTH immediately prior to the Effective Time which
relate to the Gartner Business and the IMS HEALTH Business.
(jjj) "Stock Repurchase" shall have the meaning set forth in Section
2.2(b).
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9
(kkk) "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).
(lll) "Third Party Claim" shall have the meaning set forth in Section
3.3.
(mmm) "Transition Services Agreement" shall mean the Amended and
Restated Transition Services Agreement dated as of June 30, 1998, among The
Dun & Bradstreet Corporation, The New Dun & Bradstreet Corporation, NMR,
IMS HEALTH, ACNielsen Corporation and Gartner.
(nnn) "Warrants" shall mean the Warrant dated as of November 1, 1996
and amended as of February 20, 1999 issued by Gartner exercisable for
539,460 shares of Class A Common Stock as of the date hereof and the
Warrant dated as of November 1, 1996 and amended as of February 20, 1999
issued by Gartner exercisable for 59,940 shares of Class A Common Stock as
of the date hereof.
(ooo) "Warrant Shares" shall mean the shares of Class A Common Stock
issuable by Gartner pursuant to the Warrants.
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 AND
REPRESENTATIONS AND WARRANTIES
SECTION II.1 The Distribution and Other Transactions.
(a) The Distribution. Subject to the conditions set forth in Section 2.1(b)
of this Agreement, on the Declaration Date the Board of Directors of IMS HEALTH
shall declare the Distribution upon the terms set forth in this Agreement. To
effect the Distribution, IMS HEALTH shall cause the Distribution Agent to
distribute, on or as soon as practicable following
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10
the Distribution Date, on a pro rata basis and taking into account Section
2.1(c), to the holders of record of IMS HEALTH Common Stock on the Distribution
Record Date, all shares of Class B Common Stock held by IMS HEALTH on the
Distribution Date. During the period commencing on the date the certificates
representing shares of Class B Common Stock are delivered to the Distribution
Agent and ending upon the date(s) on which certificates evidencing such shares
are mailed to holders of record of IMS HEALTH Common Stock on the Distribution
Record Date or on which fractional shares of Class B Common Stock are sold on
behalf of such holders, the Distribution Agent shall hold the certificates
representing shares of Class B Common Stock on behalf of such holders. IMS
HEALTH shall deliver to the Agent the share certificates representing the shares
of Class B Common Stock held by IMS HEALTH which are to be distributed to the
holders of IMS HEALTH Common Stock in the Distribution. IMS HEALTH agrees to
reimburse the Distribution Agent for its reasonable costs, expenses and fees in
connection with the Distribution. Gartner agrees, if required by IMS HEALTH, to
provide all certificates evidencing shares of Class B Common Stock that IMS
HEALTH shall require in order to effect the Distribution.
(b) Conditions to the Distribution. The IMS HEALTH Board of Directors shall
declare the Distribution on the Declaration Date following the satisfaction or
waiver by IMS HEALTH, as determined by IMS HEALTH in its sole discretion, of the
conditions set forth below:
(i) The private letter ruling received from the IRS providing that,
among other things, the Recapitalization and the Distribution will qualify
as tax-free transactions for federal income tax purposes under Sections 354
and 355 of the Code, respectively (the "IRS Ruling") shall continue in
effect; and IMS HEALTH and Gartner shall have complied with all provisions
set forth in the IRS Ruling, the request for the IRS Supplemental Ruling
and, if granted prior to such time, the IRS Supplemental Ruling, in each
case, that are required to be complied with prior to the Declaration Date;
(ii) Any material governmental approvals and consents necessary to
consummate the Distribution and the other transactions contemplated hereby
and by the Recapitalization Agreement shall have been obtained and shall be
in full force and effect;
(iii) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution and the other transactions
contemplated hereby and by the Recapitalization Agreement shall be in
effect and no other event outside the control of IMS HEALTH shall have
occurred or failed to occur that prevents the lawful consummation of the
Distribution;
(iv) The Recapitalization, the Cash Dividend, the Stock Repurchase and
the Distribution shall be in compliance with applicable federal and state
securities and other applicable laws;
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11
(v) Each of Gartner and IMS HEALTH shall have received all the
Required Consents;
(vi) All conditions to the Recapitalization shall have been satisfied
or waived and no circumstances shall exist that would reasonably be
expected to prevent the consummation of the Recapitalization immediately
following the declaration of the Distribution;
(vii) The Cash Dividend shall be declared by the Board of Directors of
Gartner substantially simultaneously with the declaration of the
Distribution and no circumstances shall exist that would reasonably be
expected to prevent the prompt payment of the Cash Dividend;
(viii) The Stock Repurchase shall have been authorized and not revoked
by the Board of Directors of Gartner, or shall be so authorized
simultaneously with the declaration of the Distribution and shall be
committed to by Gartner to the satisfaction of IMS HEALTH;
(ix) The Form 8-A shall have been filed with the Commission and there
shall be no impediment to the certification by the NYSE to the Commission
of the listing of the Class B Common Stock;
(x) The Class B Common Stock shall have been approved for listing on
the NYSE, subject to official notice of issuance;
(xi) Each of the representations and warranties of Gartner set forth
in this Agreement shall have been true and correct in all material respects
when made and shall be true and correct in all material respects as of the
Declaration Date; and Gartner shall have performed or complied in all
material respects with all agreements and covenants required to be
performed by it under this Agreement and the Recapitalization Agreement at
or prior to the Declaration Date; and IMS HEALTH shall have received a
certificate of the chief executive officer of Gartner as to the foregoing;
(xii) IMS HEALTH shall have received copies of the Financing
Commitments from Gartner, Gartner shall have complied with Section 2.3
hereof, and IMS HEALTH, acting reasonably, shall be satisfied that funds
available pursuant to such Financing Commitments, together with funds
internally available to Gartner, shall be sufficient to consummate the Cash
Dividend and the Stock Repurchase;
(xiii) All actions and other documents and instruments reasonably
necessary in connection with the transactions contemplated hereby shall
have been taken or executed, as the case may be, in form and substance
reasonably satisfactory to IMS HEALTH; and
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12
The foregoing conditions are for the sole benefit of IMS HEALTH and shall not
give rise to or create any duty on the part of IMS HEALTH to waive or not waive
any such condition.
(c) Sale of Fractional Shares. IMS HEALTH shall appoint the Distribution
Agent as agent for each holder of record of IMS HEALTH Common Stock who would
receive in the Distribution any fractional share of Class B Common Stock. The
Distribution Agent shall aggregate all such fractional shares and sell them in
an orderly manner after the Distribution Date in the open market and, after
completion of such sales, distribute a pro rata portion of the net proceeds from
such sales, based upon the gross selling price of all such fractional shares net
of all selling expenses, to each stockholder of IMS HEALTH who would otherwise
have received a fractional share. IMS HEALTH shall reimburse the Distribution
Agent for its reasonable costs, expenses and fees (other than selling expenses)
in connection with the sale of fractional shares of Class B Common Stock and the
distribution of the proceeds thereof in accordance with this Section 2.1(c).
(d) Undertaking of Gartner. On or prior to the Distribution Date, Gartner
will undertake (i) to each of RHD and ACNielsen 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(d)(i) hereto, and (ii) to Nielsen Media
Research, Inc. ("NMR") to be jointly and severally liable for all "IMS HEALTH
Liabilities" (as defined in the 1998 Distribution Agreement) under the 1998
Distribution Agreement pursuant to an undertaking substantially in the form of
Exhibit 2.1(d)(ii) hereto. IMS HEALTH (together with its successors and
permitted assigns, jointly and severally) will indemnify Gartner against any and
all liabilities to RHD, ACNielsen and NMR (including fees and expenses of
counsel, which will be reimbursed as incurred) which Gartner or its successors
and permitted assigns may become subject as a result of the undertakings
referred to herein. This provision is not intended to limit in any respect any
of Gartner's obligations under Section 3.1 hereof with respect to Gartner
Liabilities.
(e) Other Actions. (i) IMS HEALTH shall prepare and mail, at such time as
determined by IMS HEALTH, to the holders of IMS HEALTH Common Stock, such
information concerning Gartner, its business, operations and management, the
Distribution and the tax consequences thereof and such other matters as IMS
HEALTH shall reasonably determine or as may be required by law. IMS HEALTH shall
give Gartner and its counsel reasonably appropriate advance opportunity to
review such document and shall consider in good faith any comments Gartner
timely delivers to IMS HEALTH with respect to such information. Gartner agrees
to cooperate with IMS HEALTH in the preparation of, and provide any information
reasonably requested by IMS HEALTH for inclusion in, such mailing. Gartner shall
cause its officers to certify in writing to IMS HEALTH that all information
provided to IMS HEALTH for such mailing is true and accurate in all material
respects. IMS HEALTH and Gartner will prepare, and Gartner will, to the extent
required under applicable law, file with the Commission any such documentation,
including any no action letters or other requests for interpretive or regulatory
assistance, if any, which IMS HEALTH and Gartner reasonably determine are
necessary or desirable to effectuate the Distribution and the other transactions
contemplated hereby and by the Recapitalization Agreement and IMS HEALTH and
Gartner
<PAGE>
13
shall each use its commercially reasonable efforts to obtain all necessary
approvals from the Commission with respect thereto as soon as practicable.
(ii) IMS HEALTH and Gartner shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the
United States (and any comparable laws under any foreign jurisdiction) in
connection with the Distribution and the other transactions contemplated
hereby and by the Recapitalization Agreement.
(iii) Gartner shall prepare and file, and shall use its commercially
reasonable efforts to have approved, an application for the listing on the
NYSE of the Class B Common Stock to be distributed in the Distribution,
subject to official notice of issuance. IMS HEALTH shall provide, upon
request by Gartner, information reasonably necessary to Gartner for its
preparation and filing of such application.
(iv) Subject to Section 2.1(e)(vii), Gartner shall prepare and file
the Form 8-A (which may include or incorporate by reference information
contained in the Proxy Statement) with the Commission as promptly as
practicable following the execution hereof, and shall use its commercially
reasonable efforts to cause the Form 8-A to become effective under the
Exchange Act immediately following the consummation of the Recapitalization
or as soon thereafter as practicable. IMS HEALTH shall provide, upon
request by Gartner, information reasonably necessary to Gartner for its
preparation and filing of such Form 8-A.
(v) On or prior to the Distribution Date, each of IMS HEALTH and
Gartner shall take those actions and consummate those other transactions in
connection with the Distribution that are contemplated by the IRS Ruling,
the ruling request therefor or any related submissions by IMS HEALTH to the
IRS (which shall have been reviewed by Gartner), including, to the extent
applicable, the IRS Supplemental Ruling and the request therefor.
(vi) In addition to those matters specifically set forth above, IMS
HEALTH and Gartner also shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 2.1(b) to be
satisfied and to effect the Distribution on the Distribution Date.
(vii) Until the Distribution Date, Gartner agrees that prior to filing
with the Commission any report or other document that contains any
disclosure relating to the Distribution, this Agreement, the
Recapitalization Agreement or any of the transactions contemplated hereby
or thereby, it shall give IMS HEALTH and its counsel reasonably appropriate
advance opportunity to review such report or other document and shall
consider in good faith any comments IMS HEALTH may deliver to Gartner with
respect to or for inclusion in such report or document.
(viii) Prior to the Distribution Date, Gartner shall not amend, and
the Gartner Board of Directors shall not approve any amendment to,
Gartner's restated Certificate of Incorporation or By-Laws, other than the
amendments that will take effect upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware in connection
with the Recapitalization in accordance with the terms of the
Recapitalization Agreement.
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14
(ix) IMS HEALTH agrees to be present in person or by proxy at each and
every stockholders meeting of Gartner at which the Recapitalization, the
Governance Provisions and the Share Increase (each as defined in the
Recapitalization Agreement) are submitted to the stockholders of Gartner
for consideration at such meeting, and to vote, or cause to be voted, all
shares of Gartner Class A Common Stock owned directly or indirectly by it
and its Subsidiaries in favor of the Recapitalization, the Governance
Provisions and the Share Increase; provided that the Governance Provisions
and the Share Increase are to become effective solely upon the
effectiveness of the Merger; and similarly to execute any written consent
submitted to stockholders by Gartner in favor of the Recapitalization, the
Governance Provisions and the Share Increase.
(x) Effective upon the consummation of the Distribution, the
Stockholder's Agreement dated as of March 19, 1993, between Gartner and The
Dun & Bradstreet Corporation and the Amended and Restated Registration
Agreement dated as of March 19, 1993, among Gartner, The Dun & Bradstreet
Corporation, D&B Enterprises, Inc. and Gideon I. Gartner shall each
automatically terminate and become void and of no further force or effect.
(xi) Except as expressly provided otherwise herein, all agreements and
arrangements existing on the date hereof between IMS HEALTH or any of its
Subsidiaries on the one hand and Gartner and any of its Subsidiaries on the
other hand, whether written or oral, including those relating to the
purchase and sale of products and services, shall continue in full force
and effect in accordance with their terms and consistent with past practice
from the date hereof, through the Distribution Date and thereafter.
(xii) Nothing contained in this Agreement shall in any way affect the
relative rights and liabilities of the parties to the Dataquest Agreement.
SECTION II.2 The Cash Dividend and the Stock Repurchase.
(a) The Cash Dividend. Subject to the conditions set forth in Section
2.2(c) of this Agreement, on the Declaration Date the Board of Directors of
Gartner shall declare a pro rata cash dividend to all holders of record of
Gartner Common Stock as of the Cash Dividend Record Date in the aggregate amount
of $125 million (the "Cash Dividend").
(b) Stock Repurchase. Subject to the conditions set forth in Section 2.2(c)
of this Agreement, Gartner shall, as soon as practicable following completion of
the Recapitalization and the Distribution, in compliance with the rules and
regulations of the Commission, including Regulation 13E under the Exchange Act,
commence a "Dutch auction" tender offer (the "Self Tender Offer") for a number
of shares of Class A Common Stock and Class B Common Stock in the aggregate
equal to at least 15% of the total number of shares of Gartner Common Stock
outstanding immediately following the Distribution (the "Minimum Self Tender
Amount"), with such purchases allocated between shares of Class A Common Stock
and Class B Common Stock on a pro rata basis based on the relative numbers of
shares of such classes outstanding
<PAGE>
15
immediately following the Distribution ("Pro Rata"). Subject to the previous
sentence, Gartner shall acquire all shares properly tendered in response to such
Self Tender Offer as promptly as practicable following commencement thereof,
subject to reasonable and customary conditions and other terms and reasonable
range of purchase prices based on recent trading prices of Gartner Class A and
Class B Common Stock, which conditions, terms and ranges shall be determined by
the Board of Directors of Gartner in good faith. Subject to the conditions set
forth in Section 2.2(c) of this Agreement, Gartner shall, as soon as practicable
following completion of the Self Tender Offer, in compliance with the rules and
regulations of the Commission, including Rule 10b-18 under the Exchange Act,
purchase through an open-market stock purchase program an amount of shares of
Common Stock equal to (i) 4.99% of the number of shares of Gartner Common Stock
plus or minus (ii) the amount, if any, by which the Minimum Self Tender Amount
is less than or exceeds, respectively, the number of shares of Gartner Common
Stock actually purchased in the Self Tender Offer (the "Minimum Open Market
Amount"), with such purchases allocated Pro Rata between shares of Class A
Common Stock and Class B Common Stock (the "Open Market Repurchase Program" and,
together with the Self Tender Offer, the "Stock Repurchase"). Gartner shall
commence the Open Market Repurchase Program as promptly as practicable (subject
to market conditions) after the Self Tender Offer and shall in any event
complete the Open Market Repurchase Program in an orderly manner within two
years after the Distribution Date. Gartner agrees that it will not repurchase
any shares of Class A Common Stock or Class B Common Stock in the Self Tender
Offer beneficially owned by any of its directors or officers and will not
knowingly repurchase any shares of Class A Common Stock or Class B Common Stock
in the Stock Repurchase beneficially owned by any of its directors or officers
(it being understood that in the case of the Open Market Repurchase Program
effected through brokers, Gartner shall be deemed not to have knowledge of the
identity of any seller).
(c) Conditions of the Cash Dividend and Stock Repurchase. The obligation of
the Board of Directors of Gartner to declare the Cash Dividend on the
Declaration Date and consummate the Stock Repurchase following completion of the
Recapitalization and the declaration of the Distribution shall be conditioned
upon the satisfaction or waiver by Gartner, as determined by Gartner in its sole
discretion, of the following conditions:
(i) The IRS Ruling shall continue in effect; and IMS HEALTH shall have
complied with all provisions set forth in the IRS Ruling, the request for
the IRS Supplemental Ruling and, if granted prior to such time, the IRS
Supplemental Ruling that, in each case, are required to be complied with by
it prior to the Declaration Date;
(ii) All conditions to the Recapitalization shall have been satisfied
or waived and no circumstances shall exist that would reasonably be
expected to prevent the consummation of the Recapitalization immediately
following the declaration of the Cash Dividend;
(iii) The Distribution shall be declared by the Board of Directors of
IMS HEALTH substantially simultaneously with the declaration of the Cash
Dividend and no circumstances shall exist that would reasonably be expected
to prevent the prompt consummation of the Distribution;
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16
(iv) Any material governmental approvals and consents necessary to
consummate the Cash Dividend or the Stock Repurchase, as the case may be,
shall have been obtained and shall be in full force and effect;
(v) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition in each case
preventing the consummation of the Cash Dividend, the Stock Repurchase or
the Distribution shall be in effect, and no other event outside the control
of Gartner shall have occurred or failed to occur that prevents the lawful
consummation of the Cash Dividend, the Stock Repurchase or the
Distribution;
(vi) The Recapitalization, the Cash Dividend, the Stock Repurchase
and the Distribution shall be in compliance with applicable federal and
state securities and other applicable laws;
(vii) The Form 8-A shall have been filed with the Commission and
there shall be no impediment to the certification by NYSE to the
Commission of the listing of the Class B Common Stock;
(viii) The Class B Common Stock shall have been approved for listing
on the NYSE, subject to official notice of issuance;
(ix) Each of the representations and warranties of IMS HEALTH set
forth in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material respects
as of the Declaration Date; and IMS HEALTH shall have performed or
complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement and the
Recapitalization Agreement at or prior to the Declaration Date; and
Gartner shall have received a certificate of the chief executive officer
of IMS HEALTH as to the foregoing;
(x) All actions and other documents and instruments reasonably
necessary in connection with the transactions contemplated hereby shall
have been taken or executed, as the case may be, in form and substance
reasonably satisfactory to Gartner; and
(xi) Each of Gartner and IMS HEALTH shall have received all the
Required Consents.
The foregoing conditions are for the sole benefit of Gartner and shall not give
rise to or create any duty on the part of Gartner to waive or not waive any such
condition.
(d) Certain Limitations on Expenditures by Gartner. Until such time as the
Cash Dividend is paid to Gartner's stockholders, Gartner shall not, and shall
not permit any of its Subsidiaries to, without the prior written consent of IMS
HEALTH, (i) pay any other cash dividends on any of its capital stock, (ii)
repurchase any shares of its capital stock, except purchases necessary to offset
(x) exercises of pre-existing employee stock options and (y) stock issuances
under Gartner's Employee Stock Purchase Plan, or (iii) acquire any Assets or
securities
<PAGE>
17
or make any capital expenditures which, when aggregated with any acquisition of
Assets or securities or capital expenditures made since November 12, 1998,
utilize more than $120 million in cash in the aggregate, excluding (1) transfers
between Gartner and any direct or indirect wholly-owned Subsidiary of Gartner or
between direct or indirect wholly-owned Subsidiaries of Gartner, (2) cash
payments under Net Share-Settled Forward Purchase Contracts entered into with
DMG Securities as set forth in Schedule 2.2(d) into prior to November 12, 1998
and not amended subsequent to such date and (3) up to $30 million of capital
contributions to investments by the venture fund known as the SI Fund, of which
Gartner is the sole limited partner.
SECTION II.3 Financing.
(a) Gartner hereby represents and warrants to IMS HEALTH that it has
secured financing commitments which, when added to its available cash and
reasonably anticipated cash flow through the Declaration Date, will permit
payment of the Cash Dividend and the completion of the Stock Repurchase, with
sufficient cash available to meet the needs of Gartner's business, and which are
subject only to customary conditions (the "Financing Commitments") and has
provided copies of such Financing Commitments to IMS HEALTH.
(b) As promptly as practical following the date hereof, Gartner shall
negotiate and execute definitive loan agreements for the financing contemplated
by the Financing Commitments, which agreements shall make the funds to be
borrowed thereunder available to Gartner with only customary conditions. Gartner
shall provide copies of such loan agreements to IMS HEALTH and shall provide
such other documents and information in connection therewith as IMS HEALTH shall
reasonably request.
(c) Gartner shall be responsible for all fees and expenses of the lenders
and other advisors in obtaining the Financing Commitments; provided, however,
that, in the event the Financing Commitments are obtained more than 60 days in
advance of the payment date for the Cash Dividend, IMS HEALTH shall be
responsible for one-half of the amount by which the commitment fee for the
Financing Commitments exceeds the commitment fee that would have been payable
under the Financing Commitments if they were obtained 60 days in advance of the
payment date for the Cash Dividend.
SECTION II.4 Certain Limitations on Actions by IMS HEALTH. The parties
agree that under the IRS Ruling IMS HEALTH is obligated to dispose of the
Retained Shares and the Warrant Shares as quicky as feasible and in this regard
the parties agree that, subject to representations and undertakings made by IMS
HEALTH after the date hereof in order to obtain the IRS Supplemental Ruling,
(a) IMS HEALTH (i) shall not sell, transfer or otherwise dispose of, or
issue any derivative security with respect to, the Retained Shares or the
Warrant Shares for the period of 90 days following the Distribution Date and
(ii) thereafter will not sell, transfer or otherwise dispose of, or issue any
derivative security with respect to any Retained Shares or Warrant Shares,
except (x) sales on the NYSE of Retained Shares or Warrant Shares in an amount
<PAGE>
18
(collectively) in any day in excess of 25% of the average daily trading volume
of the Gartner Common Stock for the immediately preceding four weeks as reported
on the NYSE composite tape (excluding shares sold, transferred or otherwise
disposed of on the NYSE by IMS HEALTH or as to which IMS HEALTH issues a
derivative security that trades on the NYSE, in each case, during such four week
period), (y) in transactions which the parties agree in good faith would not
reasonably be expected to have an adverse impact on the trading prices of the
Gartner Common Stock as reported on the NYSE composite tape and (z) sales of
shares to any institutional investor who agrees in writing not to sell, transfer
or otherwise dispose of, or issue any derivative security with respect to, such
shares until the later of 30 days from the date of such sale or the one year
anniversary of the Declaration Date; and
(b) following the Distribution, in all matters requiring a vote of the
holders of Class A Common Stock at any stockholder meeting or by written consent
of the stockholders for such time as IMS HEALTH holds the Retained Shares, IMS
HEALTH will vote the Retained Shares and any Warrant Shares in proportion to the
votes cast by all other holders of Class A Common Stock voting.
SECTION II.5 Declaration Date; Further Assurances. (a) The parties agree
that the Declaration Date shall occur as soon as reasonably practicable
following the satisfaction or waiver of the conditions to the declaration of the
Distribution set forth in Section 2.1(b) (other than the declaration of the Cash
Dividend) and the conditions to the declaration of the Cash Dividend set forth
in Section 2.2(c) (other than the declaration of the Distribution). The parties
shall cause their respective Boards of Directors to meet telephonically or at
the same location on the Declaration Date and each shall take such corporate
action at such meeting as shall be required to effect the transactions
contemplated hereby and by the Recapitalization Agreement. Immediately following
such meetings, Gartner shall take all actions required to consummate the
Recapitalization in accordance with the terms of the Recapitalization Agreement,
including the filing of the Certificate of Merger relating to the
Recapitalization with the Secretary of State of the State of Delaware.
(b) In case at any time after the date hereof any further action is
reasonably necessary or desirable to carry out the Recapitalization, Cash
Dividend, Distribution or Stock Repurchase or any other purpose of this
Agreement or the Recapitalization Agreement, the proper officers of each party
to this Agreement shall take all such necessary action. Without limiting the
foregoing, IMS HEALTH and Gartner 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 Recapitalization Agreement, including all applicable governmental and
regulatory filings.
SECTION II.6 Representations and Warranties. (a) Gartner hereby represents
and warrants to IMS HEALTH as follows:
(i) Organization; Good Standing. Gartner is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of
<PAGE>
19
Delaware and has all corporate power required to consummate the
transactions contemplated hereby and by the Recapitalization Agreement.
(ii) Authorization. The execution, delivery and performance by Gartner
of this Agreement and the Recapitalization Agreement and the consummation
by Gartner of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Gartner,
other than the formal declaration of the Cash Dividend, formal initiation
of the Stock Repurchase and the approval of the Recapitalization by the
stockholders of Gartner. Each of this Agreement and the Recapitalization
Agreement constitutes, and each other agreement or instrument executed and
delivered or to be executed and delivered by Gartner pursuant to this
Agreement or the Recapitalization Agreement will, upon such execution and
delivery, constitute, a legal, valid and binding obligation of Gartner,
enforceable against Gartner in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
(iii) Consents and Filings. Except (w) for the NYSE Listing
Application, (x) the IRS Ruling, (y) as required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and (z) for the filing of the Proxy Statement and the Form 8-A and
any other reports or documents required to be filed under the Exchange Act,
no consent of, or filing with, any Governmental Entity which has not been
obtained or made is required for or in connection with the execution and
delivery of this Agreement or the Recapitalization Agreement by Gartner,
and the consummation by Gartner of the transactions contemplated hereby or
thereby.
(iv) Noncontravention. The execution, delivery and performance of this
Agreement and the Recapitalization Agreement by Gartner does not, and the
consummation by Gartner of the transactions contemplated hereby and thereby
will not, (x) violate any applicable federal, state or local statute, law,
rule or regulation, (y) violate any provision of the Certificate of
Incorporation or By-Laws of Gartner, or (z) violate any provision of, or
result in the termination or acceleration of, or entitle any party to
accelerate any obligation or indebtedness under, any mortgage, lease,
franchise, license, permit, agreement, instrument, law, order, arbitration
award, judgment or decree to which Gartner or any of its Subsidiaries is a
party or by which any of them are bound.
(v) Litigation. There are no actions or suits against Gartner pending,
or to the knowledge of Gartner, threatened which seek to, and Gartner is
not subject to any judgments, decrees or orders which, enjoin or rescind
the transactions contemplated by this Agreement or the Recapitalization
Agreement or otherwise prevent Gartner from complying with the terms and
provisions of this Agreement or the Recapitalization Agreement.
(vi) Change of Control Adjustments. None of the Recapitalization, Cash
Dividend, Stock Repurchase or Distribution or any of the other transactions
<PAGE>
20
contemplated hereby or by the Recapitalization Agreement will constitute a
"change of control" or otherwise result in the increase or acceleration of
any benefits, including to employees of Gartner, under any agreement to
which Gartner or any of its Subsidiaries is a party or by which it or any
of its Subsidiaries is bound.
(vii) Surplus and Solvency. Gartner has on the date hereof, and at the
Declaration Date and the Cash Dividend Date will have, surplus (as defined
in and computed in accordance with Sections 154 and 244 of the DGCL) in
excess of the amounts of cash required to effect the Cash Dividend and
Stock Repurchase. Gartner is on the date hereof, and immediately after the
payment of the Cash Dividend will be, and at all times during the period it
is effecting the Stock Repurchase will be, Solvent. For purposes of this
Section 2.7(a)(vii), "Solvent" means, at any date of determination, (x) the
fair saleable value of Gartner's consolidated assets will exceed Gartner's
consolidated liabilities as of such date, (y) Gartner will not have as of
such date an unreasonably small amount of capital with which to conduct its
business and (z) Gartner will be able to pay its debts as they mature.
(viii) Certain Transactions. Except for transactions or other actions
that occurred prior to July 1, 1997 or that are described in Schedule
2.6(a), neither Gartner nor any other member of the Gartner Group has
engaged in any transaction or taken any other action through the date
hereof involving or relating to the stock of Gartner or options, warrants
or other rights to acquire stock of Gartner. None of the transactions and
other actions described in Schedule 2.6(a) which occurred prior to October
1, 1998 (the "Proposal Date") were undertaken by Gartner in contemplation
of the Distribution or are related to the Distribution (the parties agree
that the concept of the Distribution was solely conceived by IMS HEALTH and
first communicated to Gartner on the Proposal Date), and all transactions
and actions by Gartner described in Schedule 2.6(a) which occurred between
the Proposal Date and the date hereof were undertaken in the ordinary
course of business, and if other than compensatory stock plan issuances,
were pursuant to a letter of intent which was executed by Gartner prior to
the Proposal Date.
(b) IMS HEALTH hereby represents and warrants to Gartner as follows:
(i) Organization; Good Standing. IMS HEALTH is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate power required to consummate the
transactions contemplated hereby and by the Recapitalization Agreement.
(ii) Authorization. The execution, delivery and performance by IMS
HEALTH of this Agreement and the Recapitalization Agreement and the
consummation by IMS HEALTH of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of IMS HEALTH, other than the formal declaration of the Distribution.
Each of this Agreement and the Recapitalization Agreement constitutes, and
each other agreement or instrument executed and delivered or
<PAGE>
21
to be executed and delivered by IMS HEALTH pursuant to this Agreement will,
upon such execution and delivery, constitute, a legal, valid and binding
obligation of IMS HEALTH, enforceable against IMS HEALTH in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing.
(iii) Consents and Filings. Except (x) for the IRS Ruling, and (y) as
required under the HSR Act and any other reports or documents required to
be filed under the Exchange Act, no material consent of, or filing with,
any Governmental Entity which has not been obtained or made is required to
be obtained or made by IMS HEALTH for or in connection with the execution
and delivery of this Agreement or the Recapitalization Agreement by IMS
HEALTH, and the consummation by IMS HEALTH of the transactions contemplated
hereby or thereby.
(iv) Noncontravention. The execution, delivery and performance of this
Agreement and the Recapitalization Agreement by IMS HEALTH does not, and
the consummation by IMS HEALTH of the transactions contemplated hereby and
thereby will not, (x) violate any applicable federal, state or local
statute, law, rule or regulation, (y) violate any provision of the
Certificate of Incorporation or By-Laws of IMS HEALTH or (z) violate any
provision of, or result in the termination or acceleration of, or entitle
any party to accelerate any obligation or indebtedness under, any mortgage,
lease, franchise, license, permit, agreement, instrument, law, order,
arbitration award, judgment or decree to which IMS HEALTH or any of its
Subsidiaries is a party or by which any of them are bound.
(v) Litigation. There are no actions or suits against IMS HEALTH
pending, or to the knowledge of IMS HEALTH, threatened which seek to, and
IMS HEALTH is not subject to any judgments, decrees or orders which, enjoin
or rescind the transactions contemplated by this Agreement or the
Recapitalization Agreement or otherwise prevent IMS HEALTH from complying
with the terms and provisions of this Agreement or the Recapitalization
Agreement.
Section 2.7. Certain Post-Distribution Transactions. (a)(i) Gartner and IMS
HEALTH shall each comply and shall cause its Subsidiaries to comply with and
otherwise not take action inconsistent with each representation made by such
respective party to the IRS in connection with the requests by IMS HEALTH for
the IRS Ruling and the IRS Supplemental Ruling, if any, and (ii) until two years
after the Distribution Date, Gartner 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) If Gartner (or any of its Subsidiaries) fails to comply with any of its
obligations under Section 2.7(a) above or takes any action or fails to take any
required action, and such failure to comply, action or omission contributes to a
determination that the
<PAGE>
22
Distribution fails to qualify under Section 355(a) of the Code or that the
Gartner 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 Gartner
shall indemnify and hold harmless IMS HEALTH and each member of the consolidated
group of which IMS HEALTH is a member and the shareholders of IMS HEALTH from
and against any and all federal, state and local taxes, including any interest,
penalties or additions to tax, imposed upon or incurred by IMS HEALTH, any
member of its group or any stockholder of IMS HEALTH 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) (any such tax, interest, penalty or addition to
tax, an "IMS HEALTH Tax Liability"); provided however that, notwithstanding any
other provision of this Agreement, Gartner shall not be required to indemnify
and hold harmless, and shall have no liability to, IMS HEALTH or any member of
the consolidated group of which IMS HEALTH is a member or any stockholder of IMS
Health for any such IMS HEALTH Tax Liability imposed or incurred (or that would
have been imposed or incurred) solely as a result of
(i) the Recapitalization and the Distribution,
(ii) sales or other dispositions of Gartner Common Stock or warrants
to purchase Gartner Common Stock by IMS HEALTH or any affiliate or IMS
HEALTH after the Distribution Date,
(iii) repurchases by Gartner pursuant to and in compliance with
Section 2.2(b) of this Agreement or the repurchases that are set forth in
the IRS Ruling, or the request for the IRS Supplemental Ruling or, if
granted at such time, the IRS Supplemental Ruling or any other IRS ruling
that may be obtained by IMS HEALTH substantially similar to the requested
IRS Supplemental Ruling,
(iv) issuances by Gartner after the date hereof through the second
anniversary of the Distribution Date of stock options and other stock
awards under compensatory stock programs, in the ordinary course of
business and consistent with past practice, to acquire an amount of Class A
Common Stock equal to or less than 4% of the outstanding Gartner Common
Stock on the date hereof,
(v) issuances by Gartner after the second anniversary of the
Distribution Date of stock options and other stock awards under
compensatory stock programs, unless, in the case of any such issuance, such
issuance was pursuant to a plan, undertaking or understanding adopted or
entered into during such two-year period and not exempt under clause (iv)
hereof,
(vi) issuances by Gartner of Class A Common Stock after the date
hereof pursuant to the exercise of outstanding stock options and other
rights under compensatory stock programs existing at the date hereof,
(vii) issuances by Gartner of Class A Common Stock after the date
hereof pursuant to the exercise of stock options and other rights referred
to in clauses (iv) or (v) hereof,
<PAGE>
23
(viii) issuances by Gartner of Class A Common Stock after the date
hereof and within two years following the Distribution Date (other than
issuances excluded under clauses (vi) or (vii)) that, in the aggregate,
amount to 1% or less of the outstanding Gartner Common Stock on the date
hereof,
(ix) issuances by Gartner of Class A Common Stock after the second
anniversary of the Distribution Date, unless, in the case of any such
issuance, such issuance was pursuant to a plan, undertaking or
understanding adopted or entered into during such two-year period and not
exempt under clause (viii) hereof,
(x) transactions prior to the date hereof that are described in
Schedule 2.6(a),
(xi) transactions or any series of related transactions in Gartner
Common Stock before or after the Distribution Date by any person or group
(as defined under the Exchange Act) unless such transactions result in such
person or group acquiring holdings of Gartner capital stock sufficient to
allow such person or group to elect a majority of the Board of Directors of
Gartner,
(xii) issuances of Gartner Common Stock upon any exercise or exercises
of the Warrants,
(xiii) dispositions of shares of Gartner Common Stock by the holders
thereof, or
(xiv) any combination of the transactions described in clauses (i)
through (xiii) of this Section 2.7(b).
Notwithstanding the foregoing, Gartner shall not indemnify IMS HEALTH for
any IMS HEALTH Tax Liability that results from any inaccuracy or incompleteness
in any representation made by IMS HEALTH to the IRS in connection with the
requests for the IRS Ruling or the IRS Supplemental Ruling or failure by IMS
HEALTH to comply with any representation or undertaking by IMS HEALTH to the IRS
in connection with the IRS Ruling, the IRS Supplemental Ruling or any requests
therefor.
(c) In the event the IRS Supplemental Ruling is issued providing that
grants and exercises of stock options and other stock rights under compensatory
benefit plans of Gartner will not be taken into account in applying Section
355(e)(2)(A)(ii) (the "Stock Award Relief"), then (i) the limitation of Section
2.7(b)(iv) shall be expanded to permit the unlimited grant of stock options and
other stock awards after the date hereof in the ordinary course of business and
(ii) the limitation on issuances of Class A Common Stock in Section 2.7(b)(viii)
shall be expanded from 1% or less to 3.5% or less of the outstanding Gartner
Common Stock on the Distribution Date. Gartner agrees not to seek any private
letter ruling seeking the relief sought in the IRS Supplemental Ruling request
other than a private letter ruling (i) seeking the Stock Award Relief or (ii)
providing that section (b)(4)(B) of the certificate of incorporation of Gartner
to be effective upon consummation of the Recapitalization, which relates to the
voting ability of any person or group beneficially owning 15% of more of the
outstanding shares of the Class B Common Stock, will not have any adverse effect
on the IRS Ruling and any other private letter
<PAGE>
24
ruling issued by the IRS to IMS HEALTH or any predecessor or former parent of
IMS HEALTH. Subject to the last sentence of this Section 2.7(c), in the event a
private letter ruling is issued by the IRS to Gartner providing the Stock Award
Relief and such ruling is in form and substance satisfactory to IMS HEALTH in
its good faith judgment, then (i) the limitation of Section 2.7(b)(iv) shall be
expanded to permit the unlimited grant of stock options and other stock awards
after the date hereof in the ordinary course of business and (ii) the limitation
on issuances of Class A Common Stock in Section 2.7(b)(viii) shall be expanded
from 1% or less to 3.5% or less of the outstanding Gartner Common Stock on the
date hereof. In no event shall Gartner file with, or otherwise make to, the IRS
a request for a private letter ruling providing for the Stock Award Relief prior
to the Distribution Date.
ARTICLE III. INDEMNIFICATION
SECTION III.1 Indemnification by Gartner. (a) Gartner shall indemnify,
defend and hold harmless the IMS HEALTH Indemnitees from and against any and all
Gartner Liabilities or third party allegations of Gartner Liabilities.
(b) Gartner shall indemnify, defend and hold harmless the IMS HEALTH
Indemnitees and the shareholders of IMS HEALTH from and against any liability of
any member of the IMS HEALTH Group or any shareholder of IMS HEALTH arising from
any inaccuracy in, or failure by Gartner to comply with, any representation made
by Gartner to the IRS in connection with the requests by IMS HEALTH for the IRS
Ruling and the IRS Supplemental Ruling; provided, however, that, notwithstanding
the foregoing, Gartner shall not indemnify IMS HEALTH, any IMS HEALTH Indemnitee
or any shareholder of IMS HEALTH for any liability that results from any
inaccuracy or incompleteness in any representation made by IMS HEALTH to the IRS
in connection with requests for the IRS Ruling or the IRS Supplemental Ruling or
failure by IMS HEALTH to comply with any representation made by IMS HEALTH to
the IRS in connection with the requests for the IRS Ruling or the IRS
Supplemental Ruling.
SECTION III.2 Indemnification by IMS HEALTH. (a) Except as otherwise
specifically set forth in any provision of this Agreement, IMS HEALTH shall
indemnify, defend and hold harmless the Gartner Indemnitees from and against any
and all IMS HEALTH Liabilities or third party allegations of IMS HEALTH
Liabilities.
(b) IMS HEALTH shall indemnify, defend and hold harmless the Gartner
Indemnitees from and against (i) any and all federal, state and local taxes,
including any interest, penalties or additions to tax, that result solely from
the Recapitalization or from the application of Treasury Regulation Section
1.1502-6 or any similar provision of state, local or other tax law and (ii) any
liability of any member of the Gartner Group arising solely from any inaccuracy
in, or failure by IMS Health to comply with, any representation made by IMS
Health to the IRS in connection with the requests by IMS Health for the IRS
Ruling and the IRS Supplemental Ruling; provided, however, that, notwithstanding
the foregoing, IMS HEALTH shall not indemnify Gartner or any Gartner Indemnitee
for any liability that results from any inaccuracy or incompleteness in any
representation made by Gartner to the IRS in connection with requests for
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25
the IRS Ruling or the IRS Supplemental Ruling or failure by Gartner to comply
with any representation made by Gartner to the IRS in connection with the
requests for the IRS Ruling or the IRS Supplemental Ruling.
SECTION III.3 Procedures for Indemnification in Third Party Claims.
(a) Third Party Claims. If a claim or demand is made against a Gartner
Indemnitee or an 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 the
terms 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 with respect to which
a claim for indemnification is made pursuant to Section 3.1 or Section 3.2
hereof, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses and acknowledges in writing its obligation to
indemnify the Indemnitee therefor, to assume the defense thereof with counsel
selected by the Indemnifying Party; provided that such counsel is not reasonably
objected to by the Indemnitee. Should the Indemnifying Party so elect to assume
the defense of a Third Party Claim, the Indemnifying Party shall, within 30 days
(or sooner if the nature of the Third Party Claim so requires), notify the
Indemnitee of its intent to do so, and the Indemnifying Party shall thereafter
not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof; provided,
that such Indemnitee shall have the right to employ counsel to represent such
Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of interest
between such Indemnitee and such Indemnifying Party exists in respect of such
claim which would make representation of both such parties by one counsel
inappropriate, and in such event the fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, subject to the proviso of the preceding sentence,
at its own expense, separate from the counsel employed by the Indemnifying
Party, it being understood that the Indemnifying Party shall control such
defense. The Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during the period
prior to the time the Indemnitee shall have given notice of the Third Party
Claim as provided above). If the Indemnifying Party so elects to assume the
defense of any Third Party Claim, all of the Indemnitees shall cooperate
<PAGE>
26
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.
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 (which will not be unreasonably withheld);
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 (as between the Indemnifying Party and the
Indemnitee), 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.
(b) Subrogation. 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.
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27
(c) Remedies Not Exclusive. 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. COVENANTS
SECTION IV.1 Access to Information. (a) 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 Gartner 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 such other
party's performance of its obligations under this Agreement or the
Recapitalization Agreement or such party's financial, tax and other reporting
obligations.
(b) A party providing information 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 information or access to information.
SECTION IV.2 Confidentiality. Each of Gartner and its Subsidiaries and IMS
HEALTH and its Subsidiaries shall keep, and shall cause its employees,
consultants, advisors and agents 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 is then in the public domain
through no fault of such party or (B) such information has been lawfully
acquired from other sources by such party or (C) this Agreement or the
Recapitalization Agreement or any other agreement entered into pursuant hereto
or thereto permits the use or disclosure of such information) to the extent such
information (i) relates to or was acquired during the period up to the Effective
Time or pursuant to Section 4.1, or (ii) is based upon or is derived from
information described in the preceding clause (i), 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.
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28
SECTION IV.3 Standstill. (a) Subject to Sections 4.3(b) and 4.3(c), each of
IMS HEALTH and Gartner agree not to solicit, initiate or encourage the
commencement of negotiations or continue any current negotiations regarding any
proposal for the acquisition by any third party of any shares of capital stock
of Gartner (other than issuances of common stock by Gartner pursuant to employee
stock plans in the ordinary course of business) or the acquisition of Gartner
through any other means including a merger or purchase of assets (an
"Acquisition Proposal") until the earlier to occur of the termination of this
Agreement or the time at which the Distribution is consummated; provided,
however, that IMS HEALTH may respond to any unsolicited inquiries or proposals
solely to indicate that it is bound by this Section 4.3.
(b) IMS HEALTH shall be relieved of its obligations under Section 4.3(a) if
any of the following occur:
(i) Gartner fails to comply with its obligations with respect to the
Financing Commitments set forth in Section 2.3 hereof in a manner that
would reasonably be expected to permit consummation of the Distribution (A)
on or prior to July 31, 1999 or (B) if, without violation of the foregoing,
the Distribution is not consummated by such date, as promptly as possible
thereafter;
(ii) Gartner fails to comply with Section 2.2(d) herein;
(iii) Gartner fails to use commercially reasonable efforts to obtain
the approval for listing of the Class B Common Stock on the NYSE in a
manner that would reasonably be expected to permit consummation of the
Distribution (A) on or prior to July 31, 1999 or (B) if, without violation
of the foregoing, the Distribution is not consummated by such date, as
promptly as possible thereafter;
(iv) Gartner fails to use commercially reasonable efforts to obtain
clearance from the SEC to mail the Proxy Statement as promptly as
practicable after the date hereof;
(v) Gartner fails to use commercially reasonable efforts to call a
special meeting of stockholders to seek approval of the Recapitalization
and the Governance Proposals to be held on or prior to July 16, 1999,
except that the meeting so noticed may be adjourned solely to the extent
necessary to obtain sufficient votes for approval;
(vi) Pursuant to Section 4.3(c)(ii), Gartner takes any action that
would otherwise be prohibited by Section 4.3(a); provided, however, if
Gartner takes any action permitted under Section 4.3(c)(ii) to evaluate any
Acquisition Proposal and Gartner promptly provides to IMS HEALTH (A) copies
of any correspondence and other documents received from the person making
such Acquisition
<PAGE>
29
Proposal (including the identity of such person, but excluding confidential
business information of such person provided for due diligence unless IMS
HEALTH executes an appropriate nondisclosure agreement acceptable to such
person making the Acquisition Proposal), (B) copies of analyses, advice and
other information provided in writing to the Board of Directors of Gartner
in connection with such Acquisition Proposal, (C) copies of analyses,
advice and other information provided in writing to management of Gartner
by financial advisors to Gartner in connection with such Acquisition
Proposal, (D) any advice regarding any revised proposal provided to Gartner
by the person making such Acquisition Proposal (other than changes in terms
or structure that are not material), and (E) any determination made by the
Board of Directors of Gartner in response to such proposal, then IMS HEALTH
shall not be relieved of its obligations under Section 4.3(a) until the
earliest of (x) any public disclosure by the Gartner Board of Directors'
approval or recommendation of any Acquisition Proposal, (y) any public
disclosure by the Gartner Board of Directors of the withdrawal of its
approval or recommendation of any of the transactions contemplated hereby
or by the Recapitalization Agreement or (z) ten business days from receipt
by Gartner of the Acquisition Proposal; provided further that IMS HEALTH
shall not be ------- relieved of its obligations under Section 4.3(a) if,
prior to the expiration of such 10-business day period, Gartner shall have
ceased to evaluate, discuss or negotiate or take any other action with
respect to such Acquisition Proposal and delivers to IMS HEALTH a
certificate executed by an executive officer of Gartner to the foregoing
effect;
(vii) Gartner fails (x) to take any affirmative action or consummate
any affirmative transaction specified by the terms of the IRS Ruling, the
request for the IRS Supplemental Ruling or, if granted prior to such time,
the IRS Supplemental Ruling or (y) takes any action or pursues any
transaction (other than any action or transaction contemplated by this
Agreement) or fails to take any actions or consummate any transaction which
would reasonably be expected to adversely affect the IRS Ruling, the
request for the IRS Supplemental Ruling or, if granted prior to such time,
the IRS Supplemental Ruling;
(viii) Gartner fails to use commercial reasonable efforts to obtain the
approval of its stockholders of the Recapitalization or takes any action or
makes any public statement inconsistent with the foregoing; or
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30
(ix) Gartner breaches or fails to comply with any of its material
obligations set forth in this Agreement or the Recapitalization Agreement
and fails to cure such breach or failure within 15 days following notice
from IMS HEALTH.
(c) Gartner shall be relieved of its obligations under Section 4.3(a) if:
(i) IMS HEALTH breaches or fails to comply with any of its material
obligations set forth in this Agreement or the Recapitalization Agreement
and fails to cure such breach or failure within 15 days following notice
from Gartner; or
(ii) After receipt of a bona fide written Acquisition Proposal, the
Board of Directors of Gartner in good faith determines, based upon the
advice of its outside counsel regarding the Board's duties, that the Board
will breach its fiduciary duties to stockholders of Gartner if it does not
commence discussions or negotiations with the person making such
Acquisition Proposal.
SECTION IV.4 Public Announcements. Each of IMS HEALTH and Gartner agrees
that no public release or announcement concerning the Recapitalization, Cash
Dividend, or Stock Repurchase shall be issued by either party without the prior
written consent of the other (which shall not be unreasonably withheld), except
as such release or announcement may be required by law or the rules or
regulations of any United States securities exchange, in which case the party
required to make the release or announcement shall use its commercially
reasonable efforts to allow each other party reasonable time to comment on each
release or announcement in advance of such issuance.
SECTION IV.5 Required Consents. Each of IMS HEALTH and Gartner shall use
commercially reasonable efforts to obtain all of the consents, waivers or
authorizations required in connection with the completion of the
Recapitalization and the Distribution as are listed on Schedule 4.5 (the
"Required Consents").
ARTICLE V. DISPUTE RESOLUTION
SECTION V.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 the
Recapitalization Agreement or otherwise arising out of, or in any way related to
this Agreement or the Recapitalization Agreement or the transactions
contemplated hereby and thereby, including any claim based on contract, tort,
statute or constitution (but excluding any controversy, dispute or claim between
a party hereto and a third-party beneficiary hereof) (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
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31
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 5.2 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 the Recapitalization Agreement to which such
Agreement Dispute relates shall not be deemed to have passed until such
Agreement Dispute has been resolved.
SECTION V.2 Arbitration. If after such reasonable period such general
counsels are unable to settle such Agreement Dispute (and in any event, unless
otherwise agreed in writing by the parties, after 60 days have elapsed from the
time the parties began such negotiations), such Agreement Dispute shall be
determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing International Arbitration
Rules of the American Arbitration Association (the "Rules"). In any dispute
between the parties hereto, the number of arbitrators shall be one. Any judgment
or award rendered by the arbitrator shall be final, binding and nonappealable
(except upon grounds specified in 9 U.S.C. ss.10(a) as in effect on the date
hereof). If the parties are unable to agree on the arbitrator, the arbitrator
shall be selected in accordance with the Rules; provided that the arbitrator
shall be a U.S. national. Any controversy concerning whether an Agreement
Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived,
whether an assignee of this Agreement is bound to arbitrate, or as to the
interpretation of enforceability of this Article V 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 6.17 hereof. The arbitrator shall be entitled, if
appropriate, to award any remedy in such proceedings, including 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
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 V.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, the Transition Services Agreement, and the
Recapitalization Agreement during
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32
the course of dispute resolution pursuant to the provisions of this Article V
with respect to all matters not subject to such dispute, controversy or claim.
ARTICLE VI. INSURANCE
SECTION VI.1 Separation of Insurance Coverages. Gartner shall take all
reasonable steps necessary and appropriate to have in effect, on or prior to the
Distribution Date or as soon thereafter as reasonably practicable, separate
Policies in respect of Gartner Liabilities (including without limitation
Liabilities which exist on the date of this Agreement or which arise prior to
the Effective Time) to replace any insurance coverage provided to Gartner and
its Subsidiaries under the Shared Policies.
SECTION VI.2 Policy Rights. Each of IMS HEALTH and Gartner shall retain any
and all rights of an insured party under each of the remaining Shared Policies,
subject to the terms of such Shared Policies and any limitations or obligations
contemplated by this Article VI, 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, 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.
SECTION VI.3 Post-Distribution Date Claims. (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 Gartner 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 6.3 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 6.3(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
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33
longer be in effect with respect to insurance and risk management, then each of
Gartner and IMS HEALTH shall be responsible for its own Claims Administration
and Insurance Administration.
(b) Exceeding Policy Limits. Gartner and IMS HEALTH shall not be liable to
one another for claims not reimbursed by insurers for any reason not within the
control of Gartner or IMS HEALTH, as the case may be, including 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 Gartner 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 remaining Shared Policies shall
be paid to IMS HEALTH, which shall thereafter administer such Policies by paying
the Insurance Proceeds to Gartner with respect to Gartner Liabilities and by
retaining the Insurance Proceeds with respect to IMS HEALTH Liabilities. Payment
of the allocable portions of Insurance Proceeds resulting from such Policies
will be made by IMS HEALTH to Gartner as appropriate upon receipt from the
insurance carrier (except as provided below in subclause (B) of clause (ii) of
this Section 6.3(c)) and following consultation with Gartner. 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: (i)
to allocate the first $150 million (or, to the extent the aggregate limits on
such Shared Policies are reinstated, $150 million plus such amount reinstated)
of Insurance Proceeds received based upon the respective percentage of the total
of their premiums paid for Shared Policies, except that in no event shall a
party be entitled to Insurance Proceeds in excess of its Insured Claims and any
amount recovered by such party in excess of such Insured Claims shall be
available to the other party to the extent of its Insured Claims; and (ii) that
all Insurance Proceeds in excess of $150 million (or, to the extent the
aggregate limits on such Shared Policies are reinstated, $150 million plus such
amount reinstated) shall be payable to and retained by IMS HEALTH: (A) first, to
the full extent of any Insured Claims of IMS HEALTH not satisfied by the first
$150 million (or, to the extent the aggregate limits on such Shared Policies are
reinstated, $150 million plus such amount reinstated) of Insurance Proceeds; and
(B) second, to the full extent of any Insured Claims of Gartner, to be paid to
Gartner only when and to the extent that (1) the aggregate Insurance Proceeds
received by IMS Health in excess of $150 million (or, to the extent the
aggregate limits on such Shared Policies are reinstated, $150 million plus such
amount reinstated) exceed the sum of (A) the aggregate amount of such proceeds
that have been paid to IMS Health in respect of Insured Claims of IMS Health
(not Gartner) and (B) the aggregate amount of Insured Claims of IMS Health (not
Gartner) that (x) IMS Health has previously submitted to the insurance carrier
or carriers, (y) have not yet been paid to IMS Health, and (z) IMS Health
continues to claim a right to receive payment on; and (2) it would be impossible
for IMS Health to submit additional Insured Claims under the Shared Policies.
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
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34
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 any such party (without giving effect to any deductible)
bears to the total Insurance Proceeds received under the applicable Shared
Policy, 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.
SECTION VI.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
VI 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 VI.5 Cooperation. The parties agree to use their commercially
reasonable efforts to cooperate with respect to the various insurance matters
contemplated by this Agreement.
ARTICLE VII. MISCELLANEOUS
SECTION VII.1 Complete Agreement; Construction. This Agreement and the
Recapitalization Agreement, including the Exhibits and Schedules hereto and
thereto, shall constitute the entire agreement between the parties with respect
to the subject matter hereof and thereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
SECTION VII.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION VII.3 Survival of Agreements. Except as otherwise contemplated by
this Agreement, all covenants, representations, warranties and agreements of the
parties contained in this Agreement shall survive the Distribution Date.
SECTION VII.4 Expenses. Except as set forth on Schedule 7.4 or as otherwise
set forth in this Agreement or in the Recapitalization Agreement, all costs and
expenses incurred in connection with the preparation, execution, delivery and
implementation of this Agreement and the Recapitalization Agreement, and the
Distribution and the other transactions contemplated hereby and thereby shall be
charged to and paid by the party incurring such costs and expenses.
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SECTION VII.5 Notices. All notices and other communications hereunder shall
be in writing, shall be effective when received, and shall in any event be
deemed to have been received (i) upon hand delivery, (ii) three (3) days after
deposit in U.S. mail, postage prepaid, for first class delivery, (iii) one (1)
business day following the business day of timely deposit with Federal Express
or similar carrier, freight prepaid, for next business day delivery, and (iv)
one (1) business day after the date of the transmission if sent by facsimile,
provided that confirmation of transmission and receipt is confirmed and copy is
promptly sent by first class mail, postage prepaid, and shall be sent to each
party at the following respective address (or at such other address for a party
as shall be specified by like notice):
To IMS HEALTH:
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
Attn: General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 455-2502
Attn: Joel S. Hoffman, Esq.
To Gartner:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, CT 06904
Telecopy: (203) 316-6488
Attn: Michael Fleisher
Chief Financial Officer
<PAGE>
36
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Telecopy: (650) 493-6811
Attn: Larry W. Sonsini, Esq.
Howard S. Zeprun, Esq.
SECTION VII.6 Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION VII.7 Amendments. Subject to the terms of Section 7.10 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
SECTION VII.8 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 party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
(b) Gartner will not distribute to its stockholders any material interest
in any material Gartner Business Entity, by way of a spin-off distribution,
split-off or exchange of interests in a Gartner Business Entity for any interest
in Gartner held by Gartner stockholders, or any similar transaction or
transactions, unless the distributed Gartner Business Entity undertakes to IMS
HEALTH to be jointly and severally liable for all Gartner Liabilities hereunder.
(c) IMS HEALTH will not distribute to its stockholders any material
interest in any material IMS HEALTH Business Entity (other than Cognizant
Technology Solutions Corporation), by way of a spin-off distribution, split-off
or exchange of interests in an IMS HEALTH Business Entity (other than Cognizant
Technology Solutions Corporation) 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 Gartner to be jointly and
severally liable for all IMS HEALTH Liabilities hereunder.
SECTION VII.9 Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
SECTION VII.10 Termination. (a) Prior to the filing of the Certificate of
Merger, this Agreement may be terminated
(i) by IMS HEALTH and Gartner by mutual consent;
<PAGE>
37
(ii) by IMS HEALTH or Gartner if the other party is materially in
breach of any of its obligations or warranties herein or under
the Recapitalization Agreement, and following notice from the
other party fails to substantially correct such breach within 15
days;
(iii) by Gartner if, following receipt of an Acquisition Proposal, the
Board of Directors of Gartner in good faith determines, based
upon the advice of its outside counsel regarding the Board's
duties (which advice may be oral and later confirmed in writing),
that the Board will breach its fiduciary duties to stockholders
of Gartner if this Agreement is not terminated; provided that in
such event Gartner shall pay the reasonable out-of-pocket fees
and expenses of counsel to IMS HEALTH incurred in connection with
this Agreement, the Recapitalization Agreement and the
transactions contemplated hereby and thereby;
(iv) by IMS HEALTH if the Board of Directors of Gartner shall or shall
resolve to (i) not recommend, or withdraw its approval or
recommendation of, the Recapitalization, the Recapitalization
Agreement, this Agreement or any of the transactions contemplated
thereby or hereby, (ii) modify any such approval or
recommendation in a manner adverse to IMS HEALTH or (iii)
approve, recommend or enter into an agreement for any Acquisition
Proposal; provided that in such event Gartner shall pay the
reasonable out-of-pocket fees and expenses of counsel to IMS
HEALTH incurred in connection with this Agreement, the
Recapitalization Agreement and the transactions contemplated
hereby or thereby;
(v) by IMS HEALTH if IMS HEALTH is relieved of its obligations under
Section 4.3(a) pursuant to Section 4.3(b)(vi);
(vi) by IMS HEALTH if IMS HEALTH in good faith believes that the IRS
Supplemental Ruling in form and content substantially identical
to the rulings requested in the request for the IRS Supplemental
Ruling submitted to the IRS will not be forthcoming prior to the
Declaration Date; or
(vii) by IMS HEALTH or Gartner if the Recapitalization is not
consummated by July 31, 1999.
(b) Except (x) as set forth in paragraphs (a)(iii) or (a)(iv) above or (y)
for any liability in respect of any breach of this Agreement by either party, no
party shall have any liability of any kind to any other party or any other
person as a result of the termination of this Agreement under paragraphs (a)(i),
(a)(iii), (a)(iv), (a)(v) or (a)(vi) above. After the filing of the Certificate
of Merger relating to the Recapitalization, this Agreement may not be terminated
except by an agreement in writing signed by both parties.
<PAGE>
38
SECTION VII.11 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, except that, for purposes of this Section 7.11, Gartner
shall not be considered a Subsidiary of IMS HEALTH.
SECTION VII.12 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 VII.13 Title and Headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION VII.14 Exhibits and Schedules. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
SECTION VII.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION VII.16 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 7.16. 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>
39
SECTION VII.17 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby; provided, however, that the consummation of the
Recapitalization, Cash Dividend and Stock Purchase are conditioned upon and are
not severable from the Distribution, and that the Distribution is not severable
from the Recapitalization, Cash Dividend and Stock Repurchase. 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>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
IMS HEALTH INCORPORATED
By:
-----------------------------------------
Name:
Title:
GARTNER GROUP, INC.
By:
------------------------------------------
Name:
Title:
EXHIBIT 10.2
EXECUTION COPY
DISTRIBUTION AGREEMENT
between
IMS HEALTH INCORPORATED
and
GARTNER GROUP, INC.
Dated as of June 17, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.DEFINITIONS...................................................... 2
SECTION 1.1 General................................................. 2
SECTION 1.2 References; Interpretation.............................. 9
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS AND
REPRESENTATIONS AND WARRANTIES................................. 10
SECTION 2.1 The Distribution and Other Transactions ................ 10
SECTION 2.2 The Cash Dividend and the Stock Repurchase ............. 14
SECTION 2.3 Financing............................................... 17
SECTION 2.4 Certain Limitations on Actions by IMS HEALTH ........... 18
SECTION 2.5 Declaration Date; Further Assurances ................... 18
SECTION 2.6 Representations and Warranties ......................... 19
ARTICLE III. INDEMNIFICATION.............................................. 24
SECTION 3.1 Indemnification by Gartner.. ........................... 24
SECTION 3.2 Indemnification by IMS HEALTH .......................... 25
SECTION 3.3 Procedures for Indemnification in Third Party Claims ... 25
SECTION 3.4 Indemnification Payments................................ 27
ARTICLE IV. COVENANTS..................................................... 28
SECTION 4.1 Access to Information................................... 28
SECTION 4.2 Confidentiality......................................... 28
SECTION 4.3 Standstill.............................................. 28
SECTION 4.4 Public Announcements.................................... 31
SECTION 4.5 Required Consents....................................... 31
ARTICLE V. DISPUTE RESOLUTION....................... ..................... 31
SECTION 5.1 Negotiation............................................. 31
SECTION 5.2 Arbitration............................................. 32
SECTION 5.3 Continuity of Service and Performance .................. 32
ARTICLE VI. INSURANCE..................................................... 33
SECTION 6.1 Separation of Insurance Coverages ...................... 33
SECTION 6.2 Policy Rights........................................... 33
SECTION 6.3 Post-Distribution Date Claims .......................... 33
SECTION 6.4 Agreement for Waiver of Conflict and Shared Defense .... 35
SECTION 6.5 Cooperation............................................. 35
<PAGE>
ARTICLE VII. MISCELLANEOUS................................................ 35
SECTION 7.1 Complete Agreement; Construction ....................... 35
SECTION 7.2 Counterparts............................................ 35
SECTION 7.3 Survival of Agreements.................................. 35
SECTION 7.4 Expenses................................................ 35
SECTION 7.5 Notices................................................. 36
SECTION 7.6 Waivers................................................. 37
SECTION 7.7 Amendments.............................................. 37
SECTION 7.8 Assignment.............................................. 37
SECTION 7.9 Successors and Assigns.................................. 37
SECTION 7.10 Termination............................................ 37
SECTION 7.11 Subsidiaries........................................... 39
SECTION 7.12 Third Party Beneficiaries.............................. 39
SECTION 7.13 Title and Headings..................................... 39
SECTION 7.14 Exhibits and Schedules................................. 39
SECTION 7.15 GOVERNING LAW.......................................... 39
SECTION 7.16 Consent to Jurisdiction................................ 39
SECTION 7.17 Severability........................................... 40
Exhibits
Exhibit 2.1(d)(i) Undertaking of Gartner Group, Inc. under 1996 Distribution
Agreement.
Exhibit 2.1(d)(ii) Undertaking of Gartner Group, Inc. under 1998 Distribution
Agreement.
<PAGE>
Exhibit 2.1(d)(i)
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, CT 06904
July ______, 1999
R.H. Donnelley Corporation
One Manhattanville Road
Purchase, NY 10577
ACNielsen Corporation
177 Broad Street
Stamford, CT 06901
Dear Sirs:
Reference is made to (i) the Distribution Agreement (the "1996 Distribution
Agreement"), dated as of October 28, 1996, among Cognizant Corporation, which
has been renamed Nielsen Media Research, Inc. ("NMR"), The Dun & Bradstreet
Corporation, which has been renamed the R.H. Donnelley Corporation ("RHD") and
ACNielsen Corporation ("ACNielsen") and (ii) the letter of undertaking dated
June 29, 1998 from IMS Health Incorporated ("IMS HEALTH") to RHD and ACNielsen.
In June 1998, NMR distributed to its stockholders all of the outstanding shares
of common stock of IMS HEALTH (the "IMS HEALTH Distribution"). IMS HEALTH has
announced its intention to distribute (the "Gartner Distribution") to its
stockholders all of the shares of the Class B Common Stock of Gartner Group,
Inc. ("Gartner") that IMS HEALTH will hold following the recapitalization of
Gartner contemplated by the Merger Agreement dated June 17, 1999, between
Gartner and GRGI, INC. In connection with the IMS HEALTH Distribution, IMS
HEALTH undertook (the "IMS HEALTH Undertaking") to both RHD and ACNielsen to be
jointly and severally liable for all Cognizant Liabilities (as defined in the
1996 Distribution Agreement). Under Section 8.9(c) of the 1996 Distribution
Agreement, as applicable to IMS HEALTH pursuant to the IMS HEALTH Undertaking,
IMS HEALTH may not make a distribution such as the Gartner Distribution unless
it causes the distributed entity to undertake to both RHD and ACNielsen to be
jointly and severally liable for all Cognizant Liabilities under 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 Gartner Distribution, Gartner undertakes to each of
RHD and ACNielsen to be jointly and severally liable for all Cognizant
Liabilities under the 1996 Distribution Agreement.
Very truly yours,
GARTNER GROUP, INC.
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit 2.1(d)(ii)
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, CT 06904
July _____, 1999
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Dear Sirs:
Reference is made to the Distribution Agreement (the "1998 Distribution
Agreement"), dated as of June 30, 1998, among Cognizant Corporation, which has
been renamed Nielsen Media Research, Inc. ("NMR"), and IMS Health Incorporation
("IMS HEALTH"). In June 1998, NMR distributed to its stockholders all of the
outstanding shares of common stock of IMS HEALTH. IMS HEALTH has announced its
intention to distribute (the "Gartner Distribution") to its stockholders all of
the shares of the Class B Common Stock of Gartner Group, Inc. ("Gartner") that
IMS HEALTH will hold following the recapitalization of Gartner contemplated by
the Merger Agreement dated June 17, 1999 between Gartner and GRGI, INC. In
Section 8.9(c) of the 1998 Distribution Agreement, IMS HEALTH agreed not to make
a distribution such as the Gartner Distribution unless it causes the distributed
entity to undertake to NMR to be jointly and severally liable for all IMS HEALTH
Liabilities under the 1998 Distribution Agreement. Therefore, in accordance with
Section 8.9(c) of the 1998 Distribution Agreement and intending to be legally
bound hereby, from and after the effective time of the Gartner Distribution,
Gartner undertakes to NMR to be jointly and severally liable for all IMS HEALTH
Liabilities under the 1998 Distribution Agreement.
Very truly yours,
GARTNER GROUP, INC.
By:
-----------------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
EXHIBIT 10.2
AGREEMENT AND PLAN OF MERGER dated as of June 17, 1999 (this
"Agreement"), among GARTNER GROUP, INC., a Delaware corporation (the "Company"),
IMS HEALTH INCORPORATED ("IMS HEALTH"), a Delaware corporation and GRGI, INC.
("Merger Sub"), a Delaware corporation and a wholly owned subsidiary of IMS
HEALTH.
WHEREAS, IMS HEALTH owns all of the issued and outstanding shares of
Common Stock, par value $.01 per share ("Merger Sub Common Stock"), of Merger
Sub and 47,599,105 shares (approximately 46% of the total number of issued and
outstanding shares) of Class A Common Stock, par value $.0005 per share ("Class
A Common Stock"), of the Company;
WHEREAS, prior to the effectiveness of the Merger (as defined
below), IMS HEALTH plans to contribute to Merger Sub 40,689,648 shares
(approximately 39% of the total number of issued and outstanding shares) of
Class A Common Stock (the "Contributed Shares") and retain (x) 6,909,457 shares
(approximately 7% of the total number of issued and outstanding shares) of Class
A Common Stock (the "Retained Shares") and (y) warrants to purchase an aggregate
of 599,400 shares of Class A Common Stock;
WHEREAS, the Company and IMS HEALTH desire that Merger Sub merge
with and into the Company (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), pursuant to which all the
issued and outstanding shares of Merger Sub Common Stock shall be converted into
shares of a new Class B Common Stock, par value $.0005 per share ("Class B
Common Stock"), of the Company and all the issued and outstanding shares of
Class A Common Stock (other than the Contributed Shares held by Merger Sub,
which shall be canceled with no securities or other consideration issued in
exchange therefor) shall remain issued and outstanding;
WHEREAS, IMS HEALTH has agreed, subject to certain conditions, to
distribute all the shares of Class B Common Stock, on a pro rata basis, to the
holders of the common stock of IMS HEALTH promptly following consummation of the
Merger (the "Distribution") pursuant to the terms and conditions of a
Distribution Agreement entered into between the Company and IMS HEALTH dated as
of the date hereof (the "Distribution Agreement"), which provides for the
Distribution and certain other matters;
WHEREAS, the Boards of Directors of the Company and Merger Sub by
resolutions duly adopted have approved the terms of this Agreement and of the
Merger, and have declared the advisability of this Agreement and of the Merger;
Merger Sub has obtained the approval of its sole shareholder; and the Company
has directed the submission of this Agreement to its shareholders for approval;
and
WHEREAS, the Merger is intended to constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986,
as amended (the "Code").
<PAGE>
2
NOW, THEREFORE in consideration of the premises and the mutual
agreements and provisions herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION I.1. The Merger. (a) Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined below), Merger
Sub shall be merged with and into the Company in accordance with the DGCL,
whereupon the separate corporate existence of Merger Sub shall cease, and the
Company shall be the surviving corporation (the "Surviving Corporation").
(b) Following satisfaction or waiver of all conditions to the
Merger, the Company and Merger Sub shall file a Certificate of Merger with the
Secretary of State of the State of Delaware and make all other filings or
recordings required by the DGCL in connection with the Merger. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time").
(c) At and after the Effective Time, the Merger shall have the
effects set forth in the DGCL. Without limiting the foregoing and subject
thereto, from and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger Sub, all
as provided under the DGCL.
SECTION I.2. Effect on Capital Stock. At the Effective Time:
(a) All of the shares of Merger Sub Common Stock outstanding
immediately prior to the Effective Time shall be converted in the aggregate into
and become 40,689,648 fully paid and non-assessable shares of Class B Common
Stock of the Surviving Corporation, and shall have the rights and privileges as
set forth in the Surviving Corporation Certificate of Incorporation, as amended
hereby;
(b) each of the Contributed Shares shall automatically be canceled
and retired and shall cease to exist, and no stock of the Surviving Corporation
or other consideration shall be delivered in exchange therefor;
(c) each share of Class A Common Stock (other than shares to be
canceled in accordance with Section 1.2(b)) shall remain issued and outstanding
and not be affected by the Merger, except that all shares of Class A Common
Stock remaining outstanding at the Effective Time shall have the rights and
privileges as set forth in the Surviving Corporation Certificate of
Incorporation, as amended hereby; and
<PAGE>
3
(d) each share of Class A Common Stock that is held in the treasury
of the Company shall remain in the treasury of the Company and not be affected
by the Merger, except that all shares of Class A Common Stock held in the
treasury of the Company at the Effective Time shall have the rights and
privileges as set forth in the Surviving Corporation Certificate of
Incorporation, as amended hereby.
SECTION I.3. Share Certificates. (a) As soon as practicable after
the Effective Time,
(i) the Surviving Corporation shall deliver, or cause to be
delivered, to IMS HEALTH a number of certificates issued in the names of
such persons, in each case, as IMS HEALTH shall direct, representing in
the aggregate 40,689,648 shares of Class B Common Stock which IMS HEALTH
has the right to receive upon conversion of shares of Merger Sub Common
Stock pursuant to the provisions of Section 1.2 (a) hereof;
(ii) the Surviving Corporation shall cancel the share certificate or
certificates representing the shares of Class A Common Stock owned
directly by Merger Sub; and
(iii) the share certificates representing shares of Class A Common
Stock that remain issued and outstanding under Section 1.2(c) hereof or
that remain treasury shares under Section 1.2(d) hereof shall not be
exchanged and shall continue to represent an equal number of shares of
Class A Common Stock of the Surviving Corporation without physical
substitution of share certificates of the Surviving Corporation for
existing share certificates of the Company.
(b) Any dividend or other distribution declared or made with respect
to any shares of capital stock of the Company, whether the record date for such
dividend or distribution is before or after the Effective Time, shall be paid to
the holder of record of such shares of capital stock on such record date,
regardless of whether such holder has surrendered its certificates representing
Class A Common Stock or received certificates representing Class B Common Stock
pursuant to Section 1.3(a)(i).
ARTICLE II
THE SURVIVING CORPORATION
SECTION II.1. Certificate of Incorporation. (a) In the event the
adoption of the Governance Provisions (as defined below) is approved by the
stockholders of the Company at the Stockholders Meeting (as defined below), at
the Effective Time, the Certificate of Incorporation of the Company as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, except that such Certificate of
Incorporation shall be amended as set forth in Exhibit A-1(a) hereto.
(b) In the event the adoption of the Governance Provisions is not
approved by the stockholders of the Company at the Stockholders Meeting, at the
Effective Time, the
<PAGE>
4
Certificate of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, except that such Certificate of Incorporation shall be amended as
set forth in Exhibit A-1(b) hereto.
(c) The Certificate of Incorporation of the Surviving Corporation
that becomes effective pursuant to either Section 2.1(a) or 2.1(b) hereof is
herein referred to as the "Surviving Corporation Certificate of Incorporation."
SECTION II.2. By-laws. (a) In the event the adoption of the
Governance Provisions is approved by the stockholders of the Company at the
Stockholders Meeting, at the Effective Time, the By-laws of the Company as in
effect immediately prior to the Effective Time shall be the By-laws of the
Surviving Corporation, except that such By-laws shall be amended as set forth in
Exhibit A-1(c) hereto.
(b) In the event the adoption of the Governance Provisions is not
approved by the stockholders of the Company at the Stockholders Meeting at the
Effective Time, the By-laws of the Company as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation, except that
such By-laws shall be amended as set forth in Exhibit A-1(d) hereto.
(c) The By-laws of the Surviving Corporation as amended pursuant to
either Section 2.2(a) or 2.2(b) hereof are herein referred to as the "Surviving
Corporation By-laws".
SECTION II.3. Directors and Officers. (a) The Surviving
Corporation's board of directors initially shall consist of ten members. From
and after the Effective Time, until the earlier of their removal or resignation
or until their successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of the Surviving Corporation shall
consist of the directors of the Company in office at the Effective Time, except
for Robert E. Weissman, whose resignation shall become effective as of the
Effective Time, plus certain other persons as specified in Exhibit A-1(e) hereto
and each such director shall be designated to serve as a Class A Director or a
Class B Director (each as defined in the Surviving Corporation By-laws) as
specified in Exhibit A-1(e) hereto; provided, however, that John P. Imlay may be
a director of the Company following the Merger only if, prior to the Effective
Time, IMS HEALTH receives an opinion of counsel from Wilson Sonsini Goodrich &
Rosati or such other counsel acceptable to IMS HEALTH to the effect that,
following the consummation of the Merger and the Distribution, IMS HEALTH will
not be an affiliate of the Company for purposes of the disposition by IMS HEALTH
of shares of Class A Common Stock under the federal securities laws. The Company
shall use its best efforts to obtain the written resignation of any member of
its Board of Directors necessary to give effect to the foregoing.
(b) In the event the adoption of the Governance Provisions is
approved by the stockholders of the Company at the Stockholders Meeting, then at
the Effective Time the directors of the Surviving Corporation shall be divided
into three classes pursuant to the Surviving Corporation Certificate of
Incorporation as amended pursuant to Section 2.1(a) hereof, and each such
director shall be designated to serve as a Class I Director, Class II Director
or
<PAGE>
5
Class III Director (each as defined in the Surviving Corporation By-laws), as
specified in Exhibit C hereto.
(c) From and after the Effective Time, until the earlier of their
removal or resignation or until their successors are duly appointed and
qualified in accordance with applicable law and the Surviving Corporation
By-laws, the officers of the Company shall be the officers of the Surviving
Corporation.
ARTICLE III
COVENANTS AND REPRESENTATIONS AND WARRANTIES
SECTION III.1. Stockholders Meeting. The Company shall, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold, a meeting of its stockholders (the "Stockholders Meeting") for
the purpose of considering, as three separate proposals, (i) the approval of the
Merger and this Agreement which, subject to the Distribution Agreement, will
commit the Directors of the Company to authorize the Cash Dividend (as defined
in the Distribution Agreement) and Stock Repurchase (as defined in the
Distribution Agreement); (ii) the approval of amendments to the Company's
Certificate of Incorporation providing for the proposed classified board,
director removal and replacement and related provisions in Articles IV and V of
the Certificate of Incorporation of the Company as set forth in Exhibit A-1(a)
hereto to become effective solely upon effectiveness of the Merger (the
"Governance Provisions"); and (iii) the approval of amendments to the Company's
Certificate of Incorporation providing for the increase of authorized stock
which the Company may issue as set forth in Exhibits A-1(a) and A-1(b) hereto to
become effective solely upon the effectiveness of the Merger (the "Share
Increase"). The Company shall, through its Board of Directors, continue to
recommend to its stockholders approval of the Merger and this Agreement and
shall not withdraw such recommendation; provided, however, that the Company's
Board of Directors may withdraw such recommendation if it determines in good
faith, based upon the advice of outside counsel, that the Board will violate its
fiduciary duties to the stockholders of the Company if such recommendation is
not withdrawn.
SECTION III.2. Filings; Other Actions. (a) Subject to the provisions
of this Agreement and the Distribution Agreement, the Company shall prepare and
file with the Securities and Exchange Commission (the "SEC") a proxy statement
for the solicitation of proxies in favor of (i) the approval and adoption of
this Agreement and the Merger, (ii) the approval of the Governance Provisions as
amendments to the Company's Certificate of Incorporation to become effective
solely upon the effectiveness of the Merger, and (iii) the approval of the Share
Increase as amendments to the Company's Certificate of Incorporation to become
effective solely upon the effectiveness of the Merger (the "Proxy Statement").
The Company shall not propose to its stockholders the adoption of the Governance
Provisions or the Share Increase as independent amendments to the Company's
Certificate of Incorporation, but only as amendments to become effective solely
upon the effectiveness of the Merger. The Company shall use all reasonable
efforts to have the Proxy Statement cleared by the SEC for mailing in definitive
form as promptly as practicable after such filing. The Company and IMS
<PAGE>
6
HEALTH shall cooperate with each other in the preparation of the Proxy Statement
and any amendment or supplement thereto, and the Company shall notify IMS HEALTH
of the receipt of any comments of the SEC with respect to the Proxy Statement
and of any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall provide to IMS HEALTH promptly copies of all
correspondence between the SEC and the Company or any of its advisors with
respect to the Proxy Statement. The Company shall give IMS HEALTH and its
counsel appropriate advance opportunity to review the Proxy Statement and all
responses to requests for additional information by and replies to comments of
the SEC, and shall incorporate therein any reasonable comments IMS HEALTH may
deliver to the Company with respect thereto, before such Proxy Statement,
response or reply is filed with or sent to the SEC. The Company agrees to use
commercially reasonable efforts, after consultation with IMS HEALTH and its
advisors, to respond promptly to all such comments of, and requests by, the SEC
and to cause the Proxy Statement to be mailed to the holders of the Company's
common stock entitled to vote at the Stockholders Meeting as soon as reasonably
possible following the execution hereof. IMS HEALTH shall provide the Company
such information concerning the business and affairs of IMS HEALTH and Merger
Sub as is reasonably required for inclusion in the Proxy Statement.
(b) Each of the Company and IMS HEALTH shall promptly, and in any
event within five business days after the execution and delivery of this
Agreement, make all filings or submissions as are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and any other applicable law.
(c) Each of the Company and IMS HEALTH agrees promptly to furnish to
the other all copies of written communications (and summaries of the substance
of all oral communications) received by it, or any of its affiliates or
representatives from, or delivered by any of the foregoing to, any federal,
state or local or international court, commission, governmental body, agency,
authority, tribunal, board or other governmental entity (each a "Governmental
Entity") in respect of the transactions contemplated hereby.
(d) At the stockholders' meeting, IMS HEALTH agrees to vote, or
cause to be voted, all shares of Class A Common Stock of the Company owned by it
and any of its subsidiaries or affiliates in favor of the Merger, the other
transactions contemplated by this Agreement, the Governance Provisions and the
Share Increase.
SECTION III.3. Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties hereto agrees to use
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to obtain the approval and
adoption of this Agreement by the stockholders of Gartner as contemplated by
Section 4.1(a) and Section 4.2(a) and to consummate, as soon as practicable
following such approval, the Merger and the other transactions contemplated by
this Agreement and the Distribution Agreement, including, but not limited to (i)
the obtaining of all necessary actions or non-actions, waivers, consents and
approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to
<PAGE>
7
avoid an action or proceeding by, any Governmental Entity (including those in
connection with the HSR Act), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any lawsuits or
other legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity with respect to the Merger or this Agreement vacated
or reversed, (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by this Agreement and (v)
causing all conditions to the parties' obligations to consummate the Merger set
forth in Article IV (other than those set forth in Section 4.1(i)) to be
satisfied. The Company and IMS HEALTH, upon the other's request, shall provide
all such reasonably necessary information concerning the party's business and
affairs to the other party.
SECTION III.4. Representations and Warranties of the Company. The
Company hereby represents and warrants to IMS HEALTH and Merger Sub that:
(a) the Company's Board of Directors has approved and declared
advisable the Merger and this Agreement, has determined that the Merger and the
other transactions contemplated by the Distribution Agreement are fair to the
stockholders of the Company, and has recommended that the stockholders of the
Company vote in favor of the approval of the Merger and this Agreement;
(b) the Company's Proxy Statement, the form of proxy and any other
solicitation material used in connection therewith and any oral solicitations of
proxies made by the Company shall not contain any statement which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to any solicitation of a proxy for any of the matters to be voted
upon at the Stockholders Meeting which has become false or misleading, except
that no representation or warranty as made by the Company with respect to
written information relating to IMS HEALTH or IMS HEALTH Business for inclusion
in the Proxy Statement or any such proxy material or oral solicitation;
(c) this Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding agreement of the Company,
enforceable in accordance with its terms; and
(d) subject to the changes in the Company's capitalization
contemplated by this Agreement, the capitalization of the Company is as follows:
(i) 200,000,000 authorized shares of Class A Common Stock
of which 103,856,296 shares were outstanding at the close of business on
May 31, 1999;
(ii) 1,600,000 authorized shares of Class B Common Stock of which
zero (0) shares are outstanding on the date of this Agreement;
<PAGE>
8
(iii) 2,500,000 authorized shares of preferred stock of which zero
(0) shares are outstanding on the date of this Agreement; and
(iv) no shares of any other class or series of capital stock are
authorized, issued or outstanding.
SECTION III.5. Representations and Warranties of IMS HEALTH and
Merger Sub. Each of IMS HEALTH and Merger Sub jointly and severally represent
and warrant to the Company that:
(a) the Distribution Agreement and this Agreement have been duly
approved by the Board of Directors of each of IMS HEALTH and Merger Sub; IMS
HEALTH, as sole stockholder of Merger Sub, has approved the Merger and this
Agreement; and no stockholder approval or other further corporate action is
required on the part of IMS HEALTH or Merger Sub;
(b) this Agreement has been duly executed and delivered by IMS
HEALTH and Merger Sub and constitutes the valid and binding agreement of each
such corporation, enforceable in accordance with its terms;
(c) IMS HEALTH owns all outstanding equity securities of Merger Sub
free and clear of any claims, liens or encumbrances and no other person holds
any equity securities of Merger Sub nor has any right to acquire any equity
interest in Merger Sub;
(d) as of immediately prior to the Effective Time, all of the
Contributed Shares shall be owned beneficially and of record by Merger Sub, free
and clear of any claims, liens or encumbrances, and upon consummation of the
Merger the Contributed Shares shall automatically be canceled and retired and
shall cease to exist, and no stock of the surviving corporation or other
consideration shall be delivered or be required to be delivered in exchange
therefor, as provided in Section 1.2(b) hereof; and
(e) Merger Sub was formed by IMS HEALTH solely for the purposes of
effectuating the Merger upon the terms and subject to the conditions of this
Agreement; Merger Sub has no employees, will have no assets other than the
Contributed Shares, has not entered into any contract, agreement or other
commitments with any person except for customary corporate organizational
matters or as specifically set forth in this Agreement, and has no liabilities,
commitments or obligations of any kind (known or unknown, fixed or contingent)
except only for those obligations specifically set forth in this Agreement.
<PAGE>
9
ARTICLE IV
CONDITIONS TO THE MERGER
SECTION IV.1. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction (or waiver by the Company, except that the condition set forth in
Section 4.1(a) may not be waived) of the following conditions:
(a) a proposal to adopt this Agreement has been approved by the
holders of (i) a majority of the Class A Common Stock outstanding and entitled
to vote thereon and (ii) a majority of the shares of Class A Common Stock (other
than shares held of record or beneficially owned by IMS HEALTH) present in
person or by proxy at the Stockholders Meeting and voting on such proposal;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated;
(c) no court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Merger or the
Distribution and no proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Merger or the Distribution shall have been instituted by any Governmental
Entity before any court, arbitrator or governmental body, agency or official and
be pending;
(d) the private letter ruling from the Internal Revenue Service,
providing that, among other things, the Recapitalization and the Distribution
will qualify as tax-free transactions for federal income tax purposes under
Sections 354 and 355 of the Code, respectively (the "IRS Ruling"), shall
continue in effect and IMS HEALTH and Gartner shall have complied with all
provisions set forth in (i) the IRS Ruling, (ii) the request for a supplemental
ruling from the Internal Revenue Service (providing, among other things, that
neither the Recapitalization nor the Distribution will be taken into account in
applying Section 355(e)(2)(A)(ii) of the Code (the "IRS Supplemental Ruling"))
and (iii) if granted prior to such time, the IRS Supplemental Ruling, that in
each case are required to be complied with prior to the Declaration Date (as
defined in the Distribution Agreement);
(e) all actions by or in respect of or filings with any Governmental
Entity required to permit the consummation of the Merger shall have been
obtained, except those that would not reasonably be expected to have a material
adverse affect on any party's ability to consummate the transactions
contemplated by this Agreement;
(f) the Distribution Agreement shall remain in full force and
effect;
(g) all representations and warranties of IMS HEALTH set forth in
the Distribution Agreement and all representations and warranties of IMS HEALTH
and Merger Sub
<PAGE>
10
set forth in this Agreement shall have been true and correct in all material
respects when made, and shall remain true and correct in all material respects
as of immediately prior to the Effective Time and the Company shall have
received a certificate executed by the chief executive officer of IMS HEALTH to
such effect;
(h) all covenants to have been performed prior to the Effective Time
by IMS HEALTH and Merger Sub pursuant to this Agreement and all covenants to
have been performed prior to the Effective Time by IMS HEALTH pursuant to the
Distribution Agreement shall have been performed by IMS HEALTH and Merger Sub in
all material respects to the reasonable satisfaction of the Company and the
Company shall have received a certificate executed by the chief executive
officer of IMS HEALTH to such effect; and
(i) the Board of Directors of IMS HEALTH shall have declared, or
simultaneously shall be declaring, the Distribution.
SECTION IV.2. Conditions to the Obligations of IMS HEALTH and Merger
Sub. The obligations of IMS HEALTH and Merger Sub to consummate the Merger are
subject to the satisfaction (or waiver by IMS HEALTH and Merger Sub, except that
the condition set forth in Section 4.2(a) may not be waived) of the following
conditions:
(a) a proposal to adopt this Agreement has been approved by the
holders of (i) a majority of the Class A Common Stock outstanding and entitled
to vote thereon and (ii) a majority of the shares of Class A Common Stock (other
than shares held of record or beneficially owned by IMS HEALTH) present in
person or by proxy at the Stockholders Meeting and voting on such proposal;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated;
(c) the IRS Ruling shall continue in effect and IMS HEALTH and
Gartner shall have complied with all provisions set forth in (i) the IRS Ruling,
(ii) the request for the IRS Supplemental Ruling and (iii) if granted prior to
such time, the IRS Supplemental Ruling, that in each case are required to be
complied with prior to the Declaration Date;
(d) no court, arbitrator or Governmental Entity shall have issued
any order, and there shall not be any statute, rule or regulation, restraining
or prohibiting the consummation of the Merger or the Distribution and no
proceeding challenging this Agreement or the transactions contemplated hereby or
seeking to prohibit, alter, prevent or materially delay the Merger or the
Distribution shall have been instituted by any Governmental Entity before any
court, arbitrator or governmental body, agency or official and be pending;
(e) all actions by or in respect of or filings with any governmental
body, agency, official, or authority required to permit the consummation of the
Merger and the Distribution shall have been obtained, except those that would
not reasonably be expected to have a material adverse affect on any party's
ability to consummate the transactions contemplated by this Agreement;
<PAGE>
11
(f) the Distribution Agreement shall remain in full force and
effect;
(g) all representations and warranties of the Company set forth in
the Distribution Agreement and this Agreement shall have been true and correct
in all material respects when made, and shall remain true and correct in all
material respects as of immediately prior to the Effective Time and IMS HEALTH
shall have received a certificate executed by the chief executive officer of the
Company to such effect; and
(h) all covenants to have been performed prior to the Effective Time
by the Company pursuant to this Agreement or the Distribution Agreement shall
have been performed by the Company in all material respects to the reasonable
satisfaction of IMS Health and Merger Sub and IMS HEALTH shall have received a
certificate executed by the chief executive officer of the Company to such
effect.
ARTICLE V
TERMINATION
SECTION V.1. Termination. (a) This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this agreement by the stockholders of the
Company):
(i) by mutual written consent of the Company and IMS HEALTH;
(ii) by either the Company or IMS HEALTH, if there shall be any law
or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
Company or Merger Sub from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and
nonappealable;
(iii) by IMS HEALTH, if there shall be any law or regulation that
makes consummation of the Distribution illegal or otherwise prohibited or
if any judgment, injunction, order or decree enjoining IMS HEALTH from
consummating the Distribution is entered; or
(iv) by IMS HEALTH or the Company in the event the Distribution
Agreement is terminated.
(b) This Agreement shall terminate automatically without any action
on the part of the Company, IMS HEALTH or Merger Sub if:
<PAGE>
12
(i) after a vote on the matter by the Company's stockholders at the
Stockholders Meeting, the condition set forth in Sections 4.1(a) and
4.2(a) is not satisfied; or
(ii) the Merger is not consummated by July 31, 1999.
SECTION V.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 5.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
ARTICLE VI
MISCELLANEOUS
SECTION VI.1. Notices. All notices and other communications
hereunder shall be in writing, shall be effective when received and shall in any
event be deemed to have been received (i) upon hand delivery, (ii) three (3)
days after deposit in U.S. Mail, postage prepaid, for first class delivery,
(iii) one (1) business day following the business day of timely deposit with
Federal Express or similar carrier, freight prepaid, for next business day
delivery, and (iv) one (1) business day after the date of transmission if sent
by facsimile, provided that confirmation of transmission and receipt is
confirmed and copy is promptly sent by first class mail, postage prepaid, and
shall be sent to each party at the following address (or at such other address
for a party as shall be specified by like notice):
To IMS HEALTH:
IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
Telecopy: (203)222-4313
Attn: General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 455-2502
Attn: Joel S. Hoffman, Esq.
To Merger Sub:
GRGI, INC.
c/o IMS Health Incorporated
200 Nyala Farms
Westport, CT 06880
Telecopy: (203) 222-4313
<PAGE>
13
Attn: General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 455-2502
Attn: Joel S. Hoffman, Esq.
To the Company:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, CT 06904
Telecopy: (203) 316-6488
Attn: Michael Fleisher
Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Telecopy: (650) 493-6811
Attn: Larry W. Sonsini, Esq.
Howard S. Zeprun, Esq.
SECTION VI.2. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto.
SECTION VI.3. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, except as to
those matters herein which are controlled by the DGCL, and such matters shall be
construed in accordance with and governed by the laws of the State of Delaware.
SECTION VI.4. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by the other party hereto.
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
GARTNER GROUP, INC.
By ___________________________________
Name:
Title:
IMS HEALTH, INCORPORATED
By ___________________________________
Name:
Title:
GRGI, INC.
By___________________________________
Name:
Title:
<PAGE>
EXHIBIT A-1(A)
CERTIFICATE OF INCORPORATION AMENDMENTS
(WITH GOVERNANCE PROVISIONS)
The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time (the "Existing Certificate of
Incorporation") shall be amended by deleting in its entirety Article IV thereof
and replacing it with the following1:
"ARTICLE IV
(a) Authorized Stock. The Corporation is authorized to issue
two classes of stock to be designated, respectively, "common stock" and
"preferred stock." The total number of shares which this corporation is
authorized to issue is two hundred four million, one hundred thousand
(204,100,000) shares [two hundred fifty-five million (255,000,000)
shares]*. Two hundred one million, six hundred thousand (201,600,000) [Two
hundred fifty million (250,000,000)]* shares shall be designated common
stock (the "Common Stock"), of which one hundred twenty million, nine
hundred sixty thousand (120,960,000) [one hundred sixty-six million
(166,000,000)]* shares shall be designated Class A Common Stock (the
"Class A Common Stock") and eighty million, six hundred forty thousand
(80,640,000) [eighty-four million (84,000,000)]* shares shall be
designated Class B Common Stock (the "Class B Common Stock"). Two million,
five hundred thousand (2,500,000) [Five million (5,000,000)]* shares shall
be designated preferred stock (the "Preferred Stock"), all of which are
presently undesignated as to series. Each share of Preferred Stock shall
have a par value of $0.01 and each share of Common Stock shall have a par
value of $0.0005.
(b) Common Stock. The Class A Common Stock and the Class B
Common Stock shall be identical in all respects, except as otherwise
expressly provided herein, and the relative powers, preferences, rights,
qualifications, limitations and restrictions of the shares of Class A
Common Stock and Class B Common Stock shall be as follows:
(1) Cash or Property Dividends. Subject to the rights and
preferences of the Preferred Stock as set forth in any resolution or
resolutions of the Board of Directors providing for the issuance of such
stock pursuant to this Article IV, and except as otherwise provided for
herein, the holders of Class A Common Stock and Class B
- - -----------------
1 The amount of shares designated by an asterisk ("*") in Section (a) of
Article IV will be in effect in lieu of the number of shares appearing
immediately prior to such bracketed number bearing an asterisk if the Share
Increase is approved in accordance with the terms of the Agreement and Plan
of Merger.
<PAGE>
2
Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such per share amounts as the
Board of Directors may from time to time determine; provided that whenever
a cash dividend is paid, the same amount shall be paid in respect of each
outstanding share of Class A Common Stock and Class B Common Stock.
(2) Stock Dividends. If at any time a dividend is to be paid in
shares of Class A Common Stock or shares of Class B Common Stock (a "stock
dividend"), such stock dividend may be declared and paid only as follows:
only Class A Common Stock may be paid to holders of Class A Common Stock
and only Class B Common Stock may be paid to holders of Class B Common
Stock, and whenever a stock dividend is paid, the same rate or ratio of
shares shall be paid in respect of each outstanding share of Class A
Common Stock and Class B Common Stock.
(3) Stock Subdivisions and Combinations. The Corporation shall not
subdivide, reclassify or combine stock of either class of Common Stock
without at the same time making a proportionate subdivision or combination
of the other class.
(4) Voting. Voting power shall be divided between the classes and
series of stock as follows:
(A) With respect to the election of directors, holders of
Class A Common Stock and holders of Voting Preferred Stock (as defined
below), voting together, shall be entitled to elect that number of
directors which constitutes 20% of the authorized number of members of the
Board of Directors (or, if such 20% is not a whole number, then the
nearest lower whole number of directors that is closest to 20% of such
membership) (the "Class A Directors"). Each share of Class A Common Stock
shall have one vote in the election of the Class A Directors and each
share of Voting Preferred Stock shall have a number of votes in the
election of the Class A Directors as specified in the resolution of the
Board of Directors authorizing such Voting Preferred Stock. Holders of
Class B Common Stock shall be entitled to elect the remaining directors
(the "Class B Directors"). Each share of Class B Common Stock shall have
one vote in the election of such directors. For purposes of this Section
(b)(4) and Section (b) (5) of this Article IV, references to the
authorized number of members of the Board of Directors (or the remaining
directors) shall not include any directors which the holders of any shares
of Preferred Stock may have the right to elect upon the failure of the
Corporation to pay regular dividends on such Preferred Stock as and when
due for a specified period of time. For purposes of this Section (b)(4),
"Special Voting Rights" means the different voting rights of the holders
of Class A Common Stock, holders of Class B Common Stock and holders of
Voting Preferred Stock with respect to the election of the applicable
percentage of the authorized number of members of the Board of Directors
as described in this Section (b)(4)(A). "Voting Preferred Stock" means
shares of each series of Preferred Stock upon which the right to vote for
directors has been conferred in accordance with Section (c) of this
Article IV, except for any right to elect directors which may be provided
upon the failure of the Corporation to pay regular dividends on such
Preferred Stock as and when due for a specified period of time.
<PAGE>
3
(B) Subject to the last sentence of this Section (b)(4)(B),
notwithstanding anything to the contrary contained in Section (a)(4)(A) of
this Article IV, for so long as any person or entity or group of persons
or entities acting in concert beneficially own 15% or more of the
outstanding shares of Class B Common Stock, then in any election of
directors or other exercise of voting rights with respect to the election
or removal of directors, such person, entity or group shall only be
entitled to vote (or otherwise exercise voting rights with respect to) a
number of shares of Class B Common Stock that constitutes a percentage of
the total number of shares of Class B Common Stock then outstanding which
is less than or equal to such person, entity or group's Entitled Voting
Percentage. For the purposes hereof, a person, entity or group's "Entitled
Voting Percentage" at any time shall mean the percentage of the then
outstanding shares of Class A Common Stock beneficially owned by such
person, entity or group at such time. For purposes of this Section
(b)(4)(B), a "beneficial owner" of Common Stock includes any person or
entity or group of persons or entities who, directly or indirectly,
including through any contract, arrangement, understanding, relationship
or otherwise, written or oral, formal or informal, control the voting
power (which includes the power to vote or to direct the voting) of such
Common Stock. The provisions of this Section (b)(4)(B) shall be effective
only following (i) the distribution by IMS Health Incorporated ("IMS
HEALTH") to its stockholders of all of the Class B Common Stock owned by
it, (ii) the receipt of a private letter ruling from the Internal Revenue
Service (the "IRS") to the effect that the terms of this Section (b)(4)(B)
will not have any adverse effect on the private letter ruling issued by
the IRS to IMS HEALTH on April 14, 1999 and any other private letter
ruling issued by the IRS to IMS HEALTH or any predecessor or former parent
of IMS HEALTH and (iii) the approval of the terms of this Section
(b)(4)(B) by the New York Stock Exchange, Inc. or any other national
securities exchange or automated quotation service on which the Common
Stock is then listed or admitted for trading.
(C) Any Class A Director may be removed only for cause, by a
vote of a majority of the votes held by the holders of Class A Common
Stock and holders of Voting Preferred Stock, voting together as a class.
Any Class B Director may be removed only for cause, by a vote of a
majority of the votes held by the holders of Class B Common Stock, voting
separately as a class.
(D) Except as otherwise specified herein, the holders of Class
A Common Stock and holders of Class B Common Stock (i) shall in all
matters not otherwise specified in this Section (b)(4) of this Article IV
vote together (including, without limitation, with respect to increases or
decreases in the authorized number of shares of any class of Common
Stock), with each share of Class A Common Stock and Class B Common Stock
having one vote, and (ii) shall be entitled to vote as separate classes
only when required by law to do so under mandatory statutory provisions
that may not be excluded or overridden by a provision in the Certificate
of Incorporation or as provided herein.
<PAGE>
4
(E) Except as set forth in this Section (b)(4) of this Article
IV, the holders of Class A Common Stock shall have exclusive voting power
(except for any voting powers of any Preferred Stock) on all matters at
any time when no Class B Common Stock is issued and outstanding, and the
holders of Class B Common Stock shall have exclusive voting power (except
for any voting powers of any Preferred Stock) on all matters at any time
when no Class A Common Stock is issued and outstanding.
(5) Vacancies; Increase or Decreases in Size of the Board of
Directors. Any vacancy in the office of a director created by the death,
resignation or removal of a director elected by (or appointed on behalf
of) the holders of the Class B Common Stock or the holders of the Class A
Common Stock and Voting Preferred Stock voting together as a class, as the
case may be, may be filled by the vote of the majority of the directors
(or the sole remaining director) elected by (or appointed on behalf of)
such holders of Class B Common Stock or Class A Common Stock and Voting
Preferred Stock (or on behalf of whom that director was appointed), as the
case may be, whose death, resignation or removal created the vacancy,
unless there are no such directors, in which case such vacancy may be
filled by the vote of the majority of the directors or by the sole
remaining director, regardless, in each instance, of any quorum
requirements set out in the By-laws. Any director elected by some or all
of the directors to fill a vacancy shall hold office for the remainder of
the full term of the director whose vacancy is being filled and until such
director's successor shall have been elected and qualified unless removed
and replaced pursuant to Section (b)(4)(C) of this Article IV and this
Section (b)(5). All newly-created directorships resulting from an increase
in the authorized number of directors shall be allocated between Class A
Directors and Class B Directors such that at all times the number of
directorships reserved for Class A Directors shall be 20% of the
authorized number of members of the Board of Directors (or, if such 20% is
not a whole number, then the nearest lower whole number of directors that
is closest to 20% of such membership) and the remaining directorships are
reserved for Class B Directors. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes of directors established
pursuant to Article V so that the number of directors in each class is as
nearly equal as possible.
(6) Merger or Consolidation. In case of any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation, each holder of a share of Class A
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation or merger by a holder
of a share of Class B Common Stock, and each holder of a share of Class B
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation or merger by a holder
of a share of Class A Common Stock; provided that, in any such
transaction, the holders of shares of Class A Common Stock and the holders
of shares of Class B Common Stock may receive different kinds of shares of
stock if the only difference in such shares is the inclusion of voting
rights which continue the Special Voting Rights.
<PAGE>
5
(7) Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, the holders of the Class A Common Stock and
Class B Common Stock shall participate equally per share in any
distribution to stockholders, without distinction between classes.
(c) Preferred Stock. Any Preferred Stock not previously
designated as to series may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue
duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board), and such resolution or resolutions shall
also set forth the voting powers, full or limited or none, of each such
series of Preferred Stock and shall fix the designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each such series of
Preferred Stock; provided that, except for any right to elect directors
upon the failure of the Corporation to pay regular dividends on such
Preferred Stock as and when due for a specified period of time, no series
of Preferred Stock shall be entitled to vote generally in the election of
any directors of the Corporation other than Class A Directors or to vote
separately to elect one or more directors of the Corporation. The Board of
Directors is authorized to alter the designation, rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated
in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series of Preferred Stock, to
increase or decrease (but not below the number of shares of any such
series than outstanding) the number of shares of any such subsequent to
the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if
reacquired by the Corporation (whether by redemption, repurchase,
conversion to Common Stock or other means), shall upon such reacquisition
resume the status of authorized and unissued shares of Preferred Stock,
undesignated as to series and available for designation and issuance by
the Corporation in accordance with the immediately preceding paragraph."
The Existing Certificate of Incorporation shall be amended by
deleting in its entirety Article V thereof and replacing it with the following:
"ARTICLE V
The directors, other than those who may be elected solely by
the holders of any class or series of Preferred Stock, if any, shall be
classified, with respect to the time for which they severally hold office,
into three classes, as nearly equal in number as possible, as determined
by the Board of Directors, one class ("Class I") to hold office initially
for a term expiring at the first annual meeting of stockholders to be held
after the date this Article V becomes effective (the "Classified Board
Effective Date"), another class ("Class II") to hold office initially for
a term expiring at the second annual meeting of stockholders to be held
after the Classified Board Effective Date, and another class ("Class III")
to hold office initially for a term expiring at the third annual meeting
of
<PAGE>
6
stockholders to be held after the Classified Board Effective Date, with
the members of each class to hold office until their successors are
elected and qualified. Directors elected by a class or series of stock, or
if applicable, classes or series of stock voting together, shall be
divided as evenly as possible, and shall be allocated by the Board of
Directors, among Class I, Class II and Class III. At each annual meeting
of stockholders, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election."
<PAGE>
EXHIBIT A-1(B)
CERTIFICATE OF INCORPORATION AMENDMENTS
(WITHOUT GOVERNANCE PROVISIONS)
The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time (the "Existing Certificate of
Incorporation") shall be amended by deleting in its entirety Article IV thereof
and replacing it with the following(1):
"ARTICLE IV
(a) Authorized Stock. The Corporation is authorized to issue
two classes of stock to be designated, respectively, "common stock" and
"preferred stock." The total number of shares which this corporation is
authorized to issue is two hundred four million, one hundred thousand
(204,100,000) shares [two hundred fifty-five million (255,000,000)
shares]*. Two hundred one million, six hundred thousand (201,600,000) [Two
hundred fifty million (250,000,000)]* shares shall be designated common
stock (the "Common Stock"), of which one hundred twenty million, nine
hundred sixty thousand (120,960,000) [one hundred, sixty six million
(166,000,000)]* shares shall be designated Class A Common Stock (the
"Class A Common Stock") and eighty million, six hundred forty thousand
(80,640,000) [eighty-four million (84,000,000)]* shares shall be
designated Class B Common Stock (the "Class B Common Stock"). Two million,
five hundred thousand (2,500,000) [Five million (5,000,000)]* shares shall
be designated preferred stock (the "Preferred Stock"), all of which are
presently undesignated as to series. Each share of Preferred Stock shall
have a par value of $0.01 and each share of Common Stock shall have a par
value of $0.0005.
(b) Common Stock. The Class A Common Stock and the Class B
Common Stock shall be identical in all respects, except as otherwise
expressly provided herein, and the relative powers, preferences, rights,
qualifications, limitations and restrictions of the shares of Class A
Common Stock and Class B Common Stock shall be as follows:
(1) Cash or Property Dividends. Subject to the rights and
preferences of the Preferred Stock as set forth in any resolution or
resolutions of the Board of Directors providing for the issuance of such
stock pursuant to this Article IV, and except as otherwise provided for
herein, the holders of Class A Common Stock and Class B
- - -----------------
1 The amount of shares designated by an asterisk ("*") in Section (a) of
Article IV will be in effect in lieu of the number of shares appearing
immediately prior to such bracketed number bearing an asterisk if the Share
Increase is approved in accordance with the terms of the Agreement and Plan
of Merger.
<PAGE>
2
Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such per share amounts as the
Board of Directors may from time to time determine; provided that whenever
a cash dividend is paid, the same amount shall be paid in respect of each
outstanding share of Class A Common Stock and Class B Common Stock.
(2) Stock Dividends. If at any time a dividend is to be paid in
shares of Class A Common Stock or shares of Class B Common Stock (a "stock
dividend"), such stock dividend may be declared and paid only as follows:
only Class A Common Stock may be paid to holders of Class A Common Stock
and only Class B Common Stock may be paid to holders of Class B Common
Stock, and whenever a stock dividend is paid, the same rate or ratio of
shares shall be paid in respect of each outstanding share of Class A
Common Stock and Class B Common Stock.
(3) Stock Subdivisions and Combinations. The corporation shall not
subdivide, reclassify or combine stock of either class of Common Stock
without at the same time making a proportionate subdivision or combination
of the other class.
(4) Voting. Voting power shall be divided between the classes and
series of stock as follows:
(A) With respect to the election of directors, holders of
Class A Common Stock and holders of Voting Preferred Stock (as defined
below), voting together, shall be entitled to elect that number of
directors which constitutes 20% of the authorized number of members of the
Board of Directors (or, if such 20% is not a whole number, then the
nearest lower whole number of directors that is closest to 20% of such
membership) (the "Class A Directors"). Each share of Class A Common Stock
shall have one vote in the election of the Class A Directors and each
share of Voting Preferred Stock shall have a number of votes in the
election of the Class A Directors as specified in the resolution of the
Board of Directors authorizing such Voting Preferred Stock. Holders of
Class B Common Stock shall be entitled to elect the remaining directors
(the "Class B Directors"). Each share of Class B Common Stock shall have
one vote in the election of such directors. For purposes of this Section
(b)(4) and Section (b) (5) of this Article IV, references to the
authorized number of members of the Board of Directors (or the remaining
directors) shall not include any directors which the holders of any shares
of Preferred Stock may have the right to elect upon the failure of the
Corporation to pay regular dividends on such Preferred Stock as and when
due for a specified period of time. For purposes of this Section (b)(4),
"Special Voting Rights" means the different voting rights of the holders
of Class A Common Stock, holders of Class B Common Stock and holders of
Voting Preferred Stock with respect to the election of the applicable
percentage of the authorized number of members of the Board of Directors
as described in this Section (b)(4)(A). "Voting Preferred Stock" means
shares of each series of Preferred Stock upon which the right to vote for
directors has been conferred in accordance with Section (c) of this
Article IV, except for any right to elect directors which may be provided
upon the failure of the Corporation to pay regular dividends on such
Preferred Stock as and when due for a specified period of time.
<PAGE>
3
(B) Subject to the last sentence of this Section (b)(4)(B),
notwithstanding anything to the contrary contained in Section (a)(4)(A) of
this Article IV, for so long as any person or entity or group of persons
or entities acting in concert beneficially own 15% or more of the
outstanding shares of Class B Common Stock, then in any election of
directors or other exercise of voting rights with respect to the election
or removal of directors, such person, entity or group shall only be
entitled to vote (or otherwise exercise voting rights with respect to) a
number of shares of Class B Common Stock that constitutes a percentage of
the total number of shares of Class B Common Stock then outstanding which
is less than or equal to such person, entity or group's Entitled Voting
Percentage. For the purposes hereof, a person, entity or group's "Entitled
Voting Percentage" at any time shall mean the percentage of the then
outstanding shares of Class A Common Stock beneficially owned by such
person, entity or group at such time. For purposes of this Section
(b)(4)(B), a "beneficial owner" of Common Stock includes any person or
entity or group of persons or entities who, directly or indirectly,
including through any contract, arrangement, understanding, relationship
or otherwise, written or oral, formal or informal, control the voting
power (which includes the power to vote or to direct the voting) of such
Common Stock. The provisions of this Section (b)(4)(B) shall be effective
only following (i) the distribution by IMS Health Incorporated ("IMS
HEALTH") to its stockholders of all of the Class B Common Stock owned by
it, (ii) the receipt of a private letter ruling from the Internal Revenue
Service (the "IRS") to the effect that the terms of this Section (b)(4)(B)
will not have any adverse effect on the private letter ruling issued by
the IRS to IMS HEALTH on April 14, 1999 and any other private letter
ruling issued by the IRS to IMS HEALTH or any predecessor or former parent
of IMS HEALTH and (iii) the approval of the terms of this Section
(b)(4)(B) by the New York Stock Exchange, Inc. or any other national
securities exchange or automated quotation service on which the Common
Stock is then listed or admitted for trading.
(C) Any Class A Director may be removed, with or without
cause, by a vote of a majority of the votes held by the holders of Class A
Common Stock and holders of Voting Preferred Stock, voting together as a
class. Any Class B Director may be removed, with or without cause, by a
vote of a majority of the votes held by the holders of Class B Common
Stock, voting separately as a class.
(D) Except as otherwise specified herein, the holders of Class
A Common Stock and holders of Class B Common Stock (i) shall in all
matters not otherwise specified in this Section (b)(4) of this Article IV
vote together (including, without limitation, with respect to increases or
decreases in the authorized number of shares of any class of Common
Stock), with each share of Class A Common Stock and Class B Common Stock
having one vote, and (ii) shall be entitled to vote as separate classes
only when required by law to do so under mandatory statutory provisions
that may not be excluded or overridden by a provision in the Certificate
of Incorporation or as provided herein.
(E) Except as set forth in this Section (b)(4) of this Article
IV, the holders of Class A Common Stock shall have exclusive voting power
(except for any voting
<PAGE>
4
powers of any Preferred Stock) on all matters at any time when no Class B
Common Stock is issued and outstanding, and the holders of Class B Common
Stock shall have exclusive voting power (except for any voting powers of
any Preferred Stock) on all matters at any time when no Class A Common
Stock is issued and outstanding.
(5) Increase or Decreases in Size of the Board of Directors. All
newly-created directorships resulting from an increase in the authorized
number of directors shall be allocated between Class A Directors and Class
B Directors such that at all times the number of directorships reserved
for Class A Directors shall be 20% of the authorized number of members of
the Board of Directors (or, if such 20% is not a whole number, then the
nearest lower whole number of directors that is closest to 20% of such
membership) and the remaining directorships are reserved for Class B
Directors. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
(6) Merger or Consolidation. In case of any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation, each holder of a share of Class A
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation or merger by a holder
of a share of Class B Common Stock, and each holder of a share of Class B
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation or merger by a holder
of a share of Class A Common Stock; provided that, in any such
transaction, the holders of shares of Class A Common Stock and the holders
of shares of Class B Common Stock may receive different kinds of shares of
stock if the only difference in such shares is the inclusion of voting
rights which continue the Special Voting Rights.
(7) Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, the holders of the Class A Common Stock and
Class B Common Stock shall participate equally per share in any
distribution to stockholders, without distinction between classes.
(c) Preferred Stock. Any Preferred Stock not previously
designated as to series may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue
duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board), and such resolution or resolutions shall
also set forth the voting powers, full or limited or none, of each such
series of Preferred Stock and shall fix the designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each such series of
Preferred Stock; provided that, except for any right to elect directors
upon the failure of the Corporation to pay regular dividends on such
Preferred Stock as and when due for a specified period of time, no series
of Preferred Stock shall be entitled to vote generally in the election of
any directors of the Corporation other than Class A Directors or to vote
separately to elect one or more directors of the Corporation. The Board of
<PAGE>
5
Directors is authorized to alter the designation, rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated
in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series of Preferred Stock, to
increase or decrease (but not below the number of shares of any such
series than outstanding) the number of shares of any such subsequent to
the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if
reacquired by the Corporation (whether by redemption, repurchase,
conversion to Common Stock or other means), shall upon such reacquisition
resume the status of authorized and unissued shares of Preferred Stock,
undesignated as to series and available for designation and issuance by
the Corporation in accordance with the immediately preceding paragraph."
The Existing Certificate of Incorporation shall be amended by
deleting in its entirety Article V thereof and renumbering Articles VI, VII,
VIII and IX thereof as Articles V, VI, VII and VIII, respectively.
The Existing Certificate of Incorporation shall be amended by
deleting the reference to Article VIII in Article VIII thereof and replacing it
with "Article VII".
<PAGE>
EXHIBIT A-1(C)
BY-LAW AMENDMENTS
(WITH GOVERNANCE PROVISIONS)
The By-laws of the Corporation in effect at the Effective Time (the
"Existing By-laws") shall be amended by adding the phrase "class and"
immediately preceding the phrase "number of shares" in the first sentence of
Section 5 of Article II thereof.
The Existing By-laws shall be amended by deleting in its entirety Section
2 of Article III thereof and replacing it with the following:
"The number of directors which shall constitute the board of
directors shall be ten (10). The number of directors may be changed
from time to time by resolution of the board of directors or the
stockholders, although in no event shall the number of directors be
less than five (5) for so long as the Special Voting Rights (as
defined in Article IV, Section (b)(4)(A) of the Certificate of
Incorporation) shall be in effect. Each director shall be elected by
a plurality of the votes of the shares of one or more class or
classes or series of stock (as provided in the Certificate of
Incorporation), as the case may be, entitled to vote for such
director that are present in person or represented by proxy at the
annual meeting of stockholders. At each annual meeting of the
stockholders, the stockholders shall elect the successors of the
class of directors whose terms expire at such meeting, to hold
office until their successors are duly elected and qualified at the
third annual meeting of stockholders following the year of their
election or until their earlier death, resignation or removal as
herein or in the Certificate of Incorporation provided. The
directors shall be elected in this manner, except as provided in
Section 4 of this Article III and the Certificate of Incorporation."
The Existing By-laws shall be amended by deleting the first sentence of
Section 4 of Article III thereof and replacing it with the following:
"Vacancies resulting from newly created directorships resulting from
an increase in the authorized number of directors and vacancies
resulting from the death, resignation or removal of a director
elected by (or appointed on behalf of) the holders of one or more
class or classes or series of stock (as provided in the Certificate
of Incorporation), voting together as a class, as the case may be,
shall be filled by the vote of the majority of the directors (or the
sole remaining director) elected by (or appointed on behalf of) such
holders of one or more class or classes or series of stock (as
provided in the Certificate of Incorporation) (or on whose behalf
the director was appointed), as the case may be, whose
<PAGE>
death, resignation or removal created the vacancy, or to which the
newly-created directorship has been allocated."
The Existing By-laws shall be amended by deleting the phrase "each
newly-elected board of directors" in Section 5 of Article III thereof and
replacing it with the phrase "the board of directors."
<PAGE>
EXHIBIT A-1(D)
BY-LAW AMENDMENTS
(WITHOUT GOVERNANCE PROVISIONS)
The By-laws of the Corporation in effect at the Effective Time (the
"Existing By-laws") shall be amended by adding the phrase "class and"
immediately preceding the phrase "number of shares" in the first sentence of
Section 5 of Article II thereof.
The Existing By-laws shall be amended by deleting in its entirety Section
2 of Article III thereof and replacing it with the following:
"The number of directors which shall constitute the board of
directors shall be ten (10). The number of directors may be changed
from time to time by resolution of the board of directors or the
stockholders, although in no event shall the number of directors be
less than five (5) for so long as the Special Voting Rights (as
defined in Article IV, Section (b)(4)(A) of the Certificate of
Incorporation) shall be in effect. Each director shall be elected by
a plurality of the votes of the shares of one or more class or
classes or series of stock (as provided in the Certificate of
Incorporation), as the case may be, entitled to vote for such
director that are present in person or represented by proxy at the
annual meeting of stockholders. Each director elected shall hold
office until a successor is duly elected and qualified or until his
earlier death, resignation or removal as herein and in the
Certificate of Incorporation provided. The directors shall be
elected in this manner, except as provided in Section 4 of this
Article III and the Certificate of Incorporation."
The Existing By-laws shall be amended by deleting the first sentence of
Section 4 of Article III thereof and replacing it with the following:
"Vacancies resulting from newly created directorships resulting from
an increase in the authorized number of directors and vacancies
resulting from the death, resignation or removal of a director
elected by (or appointed on behalf of) the holders of one or more
class or classes or series of stock (as provided in the Certificate
of Incorporation), voting together as a class, as the case may be,
shall be filled by the vote of the majority of the directors (or the
sole remaining director) elected by (or appointed on behalf of) such
holders of one or more class or classes or series of stock (as
provided in the Certificate of Incorporation) (or on whose behalf
the director was appointed), as the case may be, whose death,
resignation or removal created the vacancy, or to which the
newly-created directorship has been allocated."
<PAGE>
The Existing By-laws shall be amended by deleting the phrase "each
newly-elected board of directors" in Section 5 of Article III thereof and
replacing it with the phrase "the board of directors."
<PAGE>
EXHIBIT A-1(E)
DIRECTORS AT THE EFFECTIVE TIME
(if Governance
Directors Designated as Provisions Approved)
Name of Director Class A or Class B Director Class
- - ----------------------- ------------------------ ---------------------
John P. Imlay Class B Term Expiring 2000
Stephen G. Pagliuca Class B Term Expiring 2000
Charles B. McQuade Class B Term Expiring 2000
Manuel A. Fernandez Class A Term Expiring 2001
Dennis G. Sisco Class B Term Expiring 2001
Anne Sutherland Fuchs Class B Term Expiring 2001
William O. Grabe Class A Term Expiring 2002
Max D. Hopper Class B Term Expiring 2002
Kenneth Roman Class B Term Expiring 2002
William T. Clifford Class B Term Expiring 2002
<PAGE>
Exhibit 10.3
1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
(As amended and restated effective July 20, 1999)
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
beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a
<PAGE>
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.
(h) Cognizant: Cognizant Corporation, a Delaware corporation.
2
<PAGE>
(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.
(q) Option Price: The purchase price per Share of an Option, as
determined pursuant to Section 7(a) of the Plan.
3
<PAGE>
(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 after such Participant has attained age 65 or age 55
and five years of service with the Company. The foregoing
notwithstanding, in the case of Awards granted under this Plan
prior to July 21, 1999, the term "Retirement" shall mean
termination of employment after the Participant has attained age
65 or with the prior written consent of the Committee that a
termination prior to age 65 be treated as a Retirement, except
that the Committee (or other committee authorized by the Board)
may determine that the term Retirement as used in respect of
specified Awards granted prior to July 21, 1999 shall be defined
as set forth in the first sentence of this definition.
(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; provided however,
that in no event may more than 1,000,000 shares be issued as restricted stock or
similar 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
4
<PAGE>
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 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
(a) 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 minimum statutory
withholding requirements 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. No
authority to withhold shares is conferred under the Plan to the extent that,
solely due to such authority, an Award would be accounted for as a "variable"
award under APB 25. 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);
5
<PAGE>
provided, however, that such chief executive officer shall notify the Committee
of any such grants made pursuant to this Section 4.
(b) Without the prior approval of the Company's stockholders, Options
granted under the Plan will not be repriced, replaced or regranted through
cancellation, or by lowering the Option exercise price of a previously granted
Option.
5. ELIGIBILITY
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
except to the extent set forth in a Participant's original option
agreement.
(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)
6
<PAGE>
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 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) Exercisability Upon Termination of Employment by Death or
Disability. If a Participant's employment with the Company and its Subsidiaries
terminates by reason by death or Disability after the date of grant of an
Option, (i) the unexercised portion of such Option shall immediately vest in
full (i.e., become non-forfeitable) 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 or Disability.
(f) Exercisability Upon Termination of Employment by Retirement. If
a Participant's employment with the Company and its Subsidiaries terminates by
reason of Retirement after the date of grant of an Option, the Participant's
unexercised Option may thereafter be exercised only during the period ending at
the earlier of five years after such Retirement or the stated expiration date of
such Option (the "Post-Retirement Exercise Period"), provided that such Option
shall be exercisable during such Post-Retirement Exercise Period only to the
extent such Option was exercisable at the time of such Retirement. The foregoing
notwithstanding, (i) the Committee may, in its sole discretion, accelerate the
vesting of the unvested portion of such Option held by a Participant upon such
Participant's Retirement, in which case such Option shall not be forfeited as
provided herein but thereafter shall become exercisable to the extent and at
such times as such portion of the Option would have become both vested and
exercisable during the Post-Retirement Exercise Period had the Participant's
employment not been terminated, unless the Committee specifies otherwise; and
(ii), if a Participant dies within a period of five years after such Retirement,
the Participant's unexercised Option (to the extent not previously forfeited)
may thereafter be exercised during the shorter of (i) the remaining stated term
of the Option or (ii) the period that is
7
<PAGE>
the longer of (A) five years after the date of such termination of employment or
(B) one year after the date of death.
(g) Effect of Other Termination of Employment. If a Participant'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, the Participant's unexercised Option may thereafter be
exercised during the period ending 90 days after the date of such termination of
employment, but only to the extent such Option was exercisable at the time of
such termination of employment, and in no event may such Option be exercised
after its stated expiration date. The foregoing notwithstanding, the Committee
may, in its sole discretion, accelerate the vesting of unvested Options held by
a Participant if such Participant 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
(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 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.
8
<PAGE>
(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 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
9
<PAGE>
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
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
10
<PAGE>
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
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
11
<PAGE>
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 (x) 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 or (y) such amendment or alteration would materially increase the
number of shares reserved for the purposes of the Plan, materially broaden the
employees or class of employees eligible to receive Awards under the Plan or
materially increase benefits accruing to employees participating in the Plan;
(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 and except that the Committee may not amend or
alter an Award theretofore granted if such action would result in an Award
having terms that would not have been authorized or permitted for a new grant or
Award under 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
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.
12
<PAGE>
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.
13
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