SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ]Confidential, For Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IMS HEALTH INCORPORATED
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[Logo]
IMS HEALTH INCORPORATED
200 Nyala Farms, Westport, CT 06880
February 26, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of IMS Health Incorporated on Friday, March 19, 1999 at 9:30 A.M. at 1209 Orange
Street, Wilmington, Delaware.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be acted upon at the meeting.
Please promptly vote, date, sign and return your proxy for the meeting even
if you plan to attend. You may vote in person at that time if you wish.
Sincerely,
Robert E. Weissman
Chairman and Chief Executive Officer
<PAGE>
[Logo] IMS HEALTH INCORPORATED
200 Nyala Farms, Westport, CT 06880
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders of IMS Health Incorporated will be held
on Friday, March 19, 1999 at 9:30 A.M. at 1209 Orange Street, Wilmington,
Delaware, to take action on the following matters:
1. To elect three Class III directors for a three-year term.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants to audit the Company's consolidated financial
statements for 1999.
3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's common stock, par value $0.01 per share, from 400,000,000 to
800,000,000.
4. To approve the IMS Health Incorporated Employee Stock Incentive Plan.
5. To approve the IMS Health Incorporated Executive Annual Incentive
Plan.
6. To transact such other business as may properly come before the
meeting or any adjournment. The Company knows of no other business to
be brought before the meeting.
The Board of Directors has fixed the close of business on February 1, 1999
as the record date for determination of Shareholders entitled to notice of, and
to vote at, the meeting.
By Order of the Board of Directors,
Kenneth S. Siegel
Senior Vice President, General Counsel
and Secretary
Dated: February 26, 1999
<PAGE>
PROXY STATEMENT
General
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of IMS Health Incorporated (the "Company" or "IMS
HEALTH") of proxies for the Annual Meeting of Shareholders to be held on March
19, 1999 (the "Annual Meeting"). These proxy materials are being mailed to you
and the other Shareholders on or about February 26, 1999. The principal
executive offices of IMS HEALTH are located at 200 Nyala Farms, Westport,
Connecticut 06880 and its telephone number is (203) 222-4200.
At the Annual Meeting, Shareholders will elect directors and vote on the
following proposals: ratification of the appointment of PricewaterhouseCoopers
LLP as IMS HEALTH's independent accountants for the year ending December 31,
1999 ("Proposal 1"); approval of the amendment of IMS HEALTH's Restated
Certificate of Incorporation to increase the number of authorized shares of the
Company's common stock from 400,000,000 to 800,000,000 ("Proposal 2"); approval
of the IMS Health Incorporated Employee Stock Incentive Plan ("Proposal 3"); and
approval of the IMS Health Incorporated Executive Annual Incentive Plan
("Proposal 4").
Spin-off of IMS HEALTH; Split-up of Common Stock
IMS HEALTH began operating as an independent publicly held company on July
1, 1998 (the "Spin-off Date") as a result of its spin-off (the "Spin-off") from
Cognizant Corporation ("Cognizant"). As of the date of the Spin-off, Cognizant
was renamed Nielsen Media Research, Inc. Prior to the Spin-off, IMS HEALTH was
owned by Cognizant. Cognizant, in turn, was spun-off by The Dun & Bradstreet
Corporation ("Dun & Bradstreet") in 1996.
On January 15, 1999, the Company effected a two-for-one stock split (the
"Split-up") of its common stock, par value $0.01 per share (the "Common Stock").
On that date, each Shareholder received one additional share of Common Stock for
each share held of record on December 29, 1998. Unless otherwise noted, all
information with respect to the Common Stock contained in this Proxy Statement
(including the number of shares authorized, issued and outstanding, the number
of shares that may be acquired pursuant to outstanding stock options and the
exercise price of such options) does not reflect the effect of the Split-up.
Proxy Voting
A proxy allows you as a Shareholder to vote on significant matters even if
you cannot attend the Annual Meeting. However, sending in a signed proxy will
not prevent you from attending the meeting and voting in person. You have the
right to revoke a proxy at any time before it is exercised by signing and
returning another proxy bearing a later date, by giving
<PAGE>
written notice of revocation to the Secretary of IMS HEALTH, or by attending the
meeting and voting in person. Proxies must be filed with the secretary of the
meeting prior to or at the commencement of the meeting.
All properly signed proxies not revoked will be voted at the meeting in
accordance with your instructions as specified in your proxy. A proxy which you
sign and return as a Shareholder of record without instructions marked in the
boxes will be voted, as to proposals specified in the proxy, in accordance with
the recommendations of the Board of Directors as outlined in this Proxy
Statement. If any other proposals are brought before the meeting and submitted
to a vote, all proxies will be voted in accordance with the judgment of the
persons voting those proxies.
The previous paragraph does not apply to any IMS HEALTH shares you hold in
the IMS Health Incorporated Savings Plan or the Nielsen Media Research, Inc.
Savings Plan (the "Savings Plans"). If you have contributions invested under
either Savings Plan in IMS HEALTH Common Stock, the proxy will serve as a voting
instruction for the trustee of such Savings Plan, as well as a proxy for any
shares registered in your own name. If a proxy covering shares in a Savings Plan
has not been received prior to March 9, 1999 or if you sign and return the proxy
without instructions marked in the boxes, the trustee will vote those Savings
Plan shares in the same proportion as the respective Savings Plan shares in such
Savings Plan for which it has received instructions, except as otherwise
required by law.
Record Date, Quorum and Voting Requirements
Only holders of record of Common Stock at the close of business on February
1, 1999 will be eligible to vote at the Annual Meeting. As of the close of
business on February 1, 1999, IMS HEALTH had outstanding __________ shares of
Common Stock (which reflects the effect of the Split-up). Each share of Common
Stock is entitled to one vote.
IMS HEALTH's by-laws provide that a majority of the shares entitled to
vote, present in person or represented by proxy, will constitute a quorum at
meetings of Shareholders. Shares that abstain from voting, as well as shares
that a broker holds in "street name" and votes on some matters but not others
("broker non-votes"), will be counted for purposes of establishing a quorum.
Proxy Solicitation
Employees of IMS HEALTH may communicate with you and other Shareholders to
solicit your proxies. The Company has also retained Georgeson & Company Inc. to
assist in the solicitation of proxies for a fee estimated at $8,500 plus
expenses. The Company will pay all expenses related to proxy solicitation. IMS
HEALTH and Georgeson & Company Inc. will
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<PAGE>
request banks and brokers to solicit proxies from their customers where
appropriate and will reimburse them for reasonable out-of-pocket expenses.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth the number of shares of Common Stock, the
only outstanding equity security (other than stock options) or voting security
of IMS HEALTH, beneficially owned by each of the directors, each of the
executive officers named in the Summary Compensation Table below, and all
present directors and executive officers of the Company as a group, at December
31, 1998. The table also sets forth the name and address of the only persons
known to the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock (the "5% Owners") and the number of shares so owned, to
IMS HEALTH's knowledge, on December 31, 1998. This information is based upon
information furnished by each such person (or, in the case of the 5% Owners,
based upon a Schedule 13G filed by the 5% Owners with the Securities and
Exchange Commission ("SEC")). Please note that in certain cases shares required
under rules of the SEC to be shown as beneficially owned are shares as to which
the indicated person holds only rights to acquire within 60 days through
exercise of stock options. Unless otherwise stated, the indicated persons have
sole voting and investment power over the shares listed. All directors and
executive officers as a group own less than 1% of the Common Stock. Percentages
are based upon the number of shares of Common Stock outstanding at December 31,
1998, plus, where applicable, the number of shares that the indicated person or
group had a right to acquire within 60 days of such date.
3
<PAGE>
Name Number of Shares and Nature of Ownership
---- ----------------------------------------
Clifford L. Alexander, Jr.......... 6,472 Direct
966 Restricted Stock Grant (1)
-------
7,438
J. Michal Conaway.................. 17,500 Restricted Stock Grant (2)
Victoria R. Fash................... 49,618 Direct
30,000 Restricted Stock Grant (3)
4,910 Right to Acquire Within 60
------- Days by Exercise of Options
84,528(4)
John P. Imlay, Jr.................. 10,000 Direct
966 Restricted Stock Grant (1)
2,206 Right to Acquire Within 60
------- Days by Exercise of Options
13,172
<PAGE>
Robert Kamerschen.................. 8,500 Direct
966 Restricted Stock Grant (1)
2,206 Right to Acquire Within 60
------- Days by Exercise of Options
11,672
Alan J. Klutch..................... 59,303 Direct
6,132 Right to Acquire Within 60
------- Days by Exercise of Options
65,435
Robert J. Lanigan.................. 7,100 Direct (5)
966 Restricted Stock Grant (1)
2,206 Right to Acquire Within 60
------- Days by Exercise of Options
10,272
H. Eugene Lockhart................. 1,900 Direct
966 Restricted Stock Grant (1)
2,206 Right to Acquire Within 60
------- Days by Exercise of Options
5,072
4
<PAGE>
M. Bernard Puckett................. 3,600 Direct
899 Restricted Stock Grant (1)
2,052 Right to Acquire Within 60
------- Days by Exercise of Options
6,551
Kenneth S. Siegel.................. 59,900 Right to Acquire Within 60
Days by Exercise of Options
William C. Van Faasen.............. 800 Direct
598 Restricted Stock Grant (1)
-------
1,398
Robert E. Weissman................. 346,092 Direct
32,413 Right to Acquire Within 60
------- Days by Exercise of Options
378,505
All Directors and Executive
Officers as a Group............ 781,770 (6)
FMR Corp.
82 Devonshire Street
Boston, MA 02109................... (7) (8)
-------
- ----------
(1) Represents shares of restricted stock granted under the IMS Health
Incorporated Non-Employee Directors' Stock Incentive Plan, which shares are
scheduled to vest on November 15, 2001.
(2) Represents shares of restricted stock granted under the IMS Health
Incorporated Employees' Stock Incentive Plan, which are scheduled to vest
on September 15, 1999. These shares of restricted stock were granted in
connection with the appointment of Mr. Conaway to the position of Chief
Financial Officer of the Company.
(3) Represents shares of restricted stock granted under the IMS Health
Incorporated Employees' Stock Incentive Plan, which shares are scheduled to
vest on December 14, 2001. These shares of restricted stock were granted in
connection with the appointment of Ms. Fash to the position of Chief
Executive Officer of the Company effective March 19, 1999.
(4) Ms. Fash also owns 3,250 shares of Class A Common Stock of IMS HEALTH's
subsidiary Cognizant Technology Solutions Corporation ("CTS Common Stock"),
a publicly traded company, and has the right to acquire within 60 days
3,250 shares of CTS Common Stock through the exercise of stock options.
(5) 1,200 of these shares are held in an IRA account for the benefit of Mr.
Lanigan and 5,900 of such shares are held in a family limited partnership
of which Mr. Lanigan is the sole shareholder of the corporate general
partner. Mr. Lanigan has sole investment and voting rights with respect to
these shares.
(6) Includes all shares beneficially owned regardless of nature of ownership,
and all rights to acquire shares within 60 days.
(7) Represents ____% of the total outstanding Common Stock on December 31,
1998.
(8) FMR Corporation and its wholly-owned subsidiary, Fidelity Management &
Research Company ("Fidelity"), Edward C. Johnson, 3rd and Abigail P.
Johnson, jointly filed a Schedule 13G with
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<PAGE>
the SEC on __________, 1999. This Schedule 13G shows that Fidelity, a
registered investment adviser, beneficially owned as of December 31, 1998,
_______ shares of Common Stock. Edward C. Johnson, 3rd, Chairman of FMR
Corp., FMR Corp. and the registered investment companies advised by
Fidelity each have sole dispositive power (but no voting power) over the
shares beneficially owned by Fidelity. Voting power with respect to such
shares resides with the respective Boards of Trustees of each of the
Fidelity Funds. In addition, Mr. Johnson and FMR Corp. each has sole
dispositive power over ________ shares of Common Stock held by Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank
as defined under the Securities Exchange Act of 1934, as amended, which
serves as investment manager for institutional accounts, sole voting power
over ______ of such shares and no voting power over _______ of such shares.
6
<PAGE>
ELECTION OF DIRECTORS
The members of the Board of Directors of the Company are grouped into three
classes, one of which is elected at each Annual Meeting of Shareholders to hold
office for a three-year term and until successors are elected and have
qualified.
The Board of Directors has nominated Victoria R. Fash, Robert J. Lanigan
and M. Bernard Puckett for election as Class III Directors at the 1999 Annual
Meeting for a three-year term expiring at the 2002 Annual Meeting. Ms. Fash and
Messrs. Lanigan and Puckett have served as directors since June 15, 1998,
shortly before IMS HEALTH became an independent public company.
Directors will be elected by a plurality of the voting power present in
person or represented by proxy at the Annual Meeting and entitled to vote. If
you are present at the meeting but do not vote for a particular nominee, or if
you have given a proxy and properly withhold authority to vote for a nominee, or
if there are broker non-votes, the shares withheld or not voted will have no
effect on the outcome of the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES NAMED ABOVE.
Unless you otherwise instruct, proxies will be voted for election of all
the nominees, all of whom are now members of the Board. If any nominee is
unwilling or unable to serve as a director and the Board does not, in that
event, choose to reduce the size of the Board and the number of Class III
Directors, shares for which proxies have been received will be voted for a
substitute nominee.
The following table provides, for each nominee for election as a Class III
Director, the nominee's name, position with IMS HEALTH, the year the nominee
first became a director, principal occupations during the last five years, age,
and other directorships in public companies.
7
<PAGE>
Nominees for Class III Directors for terms expiring at the 2002 Annual
Meeting:
<TABLE>
<CAPTION>
Principal
Positions Occupations
with Director During Last Other
Name IMS HEALTH Since Five Years Age Directorships
---- ---------- ----- ---------- --- -------------
<S> <C> <C> <C> <C> <C>
Victoria R. Fash President, 1998 President and Chief Operating 48 Orion Capital
Chief Operating Officer, IMS Health Incorporated, Corporation;
Officer and 2/98 to present; Executive Cognizant Technology
Director Vice President and Chief Solutions Corporation
Financial Officer, Cognizant
Corporation, 9/96 to 7/98; Vice
President-Business Strategy, The
Dun & Bradstreet Corporation,
Wilton, CT, 4/95 to 11/96; Vice
President-Business Operations
Planning, 5/94 to 4/95; Assistant to
the President, 9/91 to 5/94.
Robert J. Lanigan Director 1998 Limited Partner, 70 The Dun & Bradstreet
Palladium Equity Corporation;
Partners, New York, NY Owens-Illinois, Inc.;
(private investment Transocean Offshore
firm), 6/96 to present; Inc.; Sonat, Inc.;
Chairman Emeritus, DaimlerChrysler AG.
Owens-Illinois, Inc., Toledo, OH
(glass, plastics and other
packaging products), 1/92 to
present; Chairman of the Board,
4/84 to 10/91; Chief Executive
Officer, 1/84 to 9/90.
M. Bernard Puckett Director 1998 Private Investor, 1/96 54 P-Com, Inc.; R.R.
to present; President Donnelley & Sons
and Chief Executive Company; Nielsen
Officer, Mobile Media Research, Inc.
Telecommunication Technologies
Corp., Jackson, MS
(telecommunications), 5/95 to
1/96; President, Chief Operating
Officer, 1/94 to 5/95; Senior Vice
President-Corporate Strategy and
Development, International
Business Machines Corporation,
Armonk, NY (computers), 7/93 to
12/93; General Manager of
Applications Solutions, 1/91 to
7/93.
</TABLE>
8
<PAGE>
The following tables provide, for each Class I and Class II Director
continuing in office, the director's name, position with IMS HEALTH, the year
the director first became a director, principal occupations during the last five
years, age, and other directorships in public companies.
Class I Directors holding office for terms expiring at the 2000 Annual Meeting:
<TABLE>
<CAPTION>
Principal
Positions Occupations
with Director During Last Other
Name IMS HEALTH Since Five Years Age Directorships
---- ---------- ----- ---------- --- -------------
<S> <C> <C> <C> <C> <C>
John P. Imlay, Jr. Director 1998 Chairman, Imlay 62 Gartner Group, Inc.;
Investments, Inc., Metromedia
Atlanta, GA (private International Group,
venture capital Inc.; World Access, Inc.
investments), 1990 to present;
Chairman, Dun & Bradstreet
Software Services, Inc., Atlanta,
GA (software company), 1/90 to
11/96; Principal Executive
Officer, 1/90 to 1/93; President,
1/90 to 3/92.
Robert Kamerschen Director 1998 Chairman ADVO, Inc., 63 ADVO, Inc.;
Windsor, CT (direct Micrografx, Inc.
mail marketing services), 1/99 to
present; Chief Executive Officer,
11/88 to 12/98.
H. Eugene Lockhart Director 1998 Executive Vice 49 RJR Nabisco Holdings
President and Chief Corp.; Republic First
Marketing Officer, AT&T Bancorp Inc.
Corp., New York, NY
(telecommunications), effective
2/1/99; President, Global Retail
Bank, BankAmerica Corporation, San
Francisco, CA (financial
services), 1997 to 1998; President
and Chief Executive Officer,
MasterCard International Inc.,
Purchase, NY (credit card
company), 3/94 to 4/97; Executive
Vice President, First Manhattan
Consulting Group, New York, NY
(banking consulting firm), 9/92 to
2/94; Chief Executive Officer, UK
Banking and Group Operations,
Midland Bank plc, London, England,
1986 to 1993.
</TABLE>
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<PAGE>
Class II Directors holding office for terms expiring at the 2001 Annual Meeting:
<TABLE>
<CAPTION>
Principal
Positions Occupations
with Director During Last Other
Name IMS HEALTH Since Five Years Age Directorships
---- ---------- ----- ---------- --- -------------
<S> <C> <C> <C> <C> <C>
Clifford L. Alexander, Jr. Director 1998 President, 65 The Dun & Bradstreet
Alexander & Corporation; Dreyfus
Associates, Inc., Third Century Fund;
Washington, DC Dreyfus General
(consulting firm Family of Funds;
specializing in Dreyfus Premier
workforce Family of Funds;
inclusiveness), Mutual of America
1/81 to present. Life Insurance
Company; American
Home Products Corp.;
MCI WorldCom, Inc.
Robert E. Weissman Chairman and 1998 Chairman and Chief 58 State Street
Chief Executive Officer, Boston Corporation;
Executive IMS Health Incorporated, Gartner Group, Inc.;
Officer, Incorporated, 2/98-Present; Nielsen Media Research,
Director Chairman and Chief Executive Inc.
Officer, Cognizant Corporation,
9/96 to 7/98; Chairman and Chief
Executive Officer, The Dun &
Bradstreet Corporation, 4/95 to
10/96; President and Chief
Executive Officer, 1/94 to 3/95;
President and Chief Operating
Officer, 1/85 to 12/93.
William C. Van Faasen Director 1998 President and Chief 50 BankBoston Corporation
Executive Officer,
Blue Cross and Blue Shield of
Massachusetts, Boston, MA (health
insurance), 9/92 to present.
</TABLE>
10
<PAGE>
Committees of the Board and Meetings
The Board of Directors has three standing committees: (a) the Audit
Committee, (b) the Compensation and Benefits Committee and (c) the Nominating
Committee.
The Audit Committee of the Board of Directors reviews the scope of the
audits of IMS HEALTH's internal audit functions and the independent public
accountants' evaluation of internal controls, receives an annual summary of the
results of such audits and reviews the scope of the audit of the Company's
consolidated financial statements by independent public accountants and their
report on the audit. The committee also recommends the appointment of the
Company's independent public accountants to the full Board. The Audit Committee,
is comprised of the following non-employee directors: Messrs. Alexander
(Chairman), Lanigan and Lockhart. The Audit Committee held two meetings during
1998.
The Compensation and Benefits Committee of the Board of Directors
establishes and revises all compensation arrangements for certain executives of
IMS HEALTH consistent with a statement of executive compensation philosophy
adopted by the Board of Directors. The committee also has authority to
administer IMS HEALTH's executive benefit plans and to establish and review the
policies regarding executive and all other benefit programs. The committee
consists of Messrs. Puckett (Chairman), Imlay, Kamerschen and Van Faasen, all of
whom are non-employee directors. The Compensation and Benefits Committee held
three meetings during 1998.
The Nominating Committee of the Board of Directors screens candidates for
membership on the Board of Directors and makes recommendations to the full
Board. Shareholders' recommendations of nominees for membership on the Board of
Directors will be considered by the Nominating Committee; the Nominating
Committee has not adopted formal procedures for the submission of such
recommendations. However, Shareholders may recommend nominees for membership on
the Board of Directors to the Nominating Committee by submitting the names in
writing to: Kenneth S. Siegel, Senior Vice President, General Counsel and
Secretary, IMS Health Incorporated, 200 Nyala Farms, Westport, Connecticut
06880. The Nominating Committee consists of Messrs. Alexander, Imlay,
Kamerschen, Lanigan, Lockhart, Puckett and Van Faasen. IMS HEALTH's By-laws
specify certain time limitations, notice requirements and other procedures
applicable to the submission of nominations before an Annual or Special Meeting.
The Nominating Committee held no meetings during 1998.
Four meetings of the Board of Directors were held during 1998. No Director
attended fewer than 75% of the total number of meetings of the Board of
Directors and of the Committees of the Board on which the Director serves.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Report of the Compensation and Benefits Committee on Executive Compensation
The Compensation and Benefits Committee (the "Committee") of the Board of
Directors reviews and approves all aspects of the compensation program for
senior executives of IMS
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HEALTH, including the Chief Executive Officer and the other executives whose
compensation is described in this Proxy Statement. The Committee is composed
entirely of non-employee directors and has been advised by independent experts
experienced in the design and implementation of executive compensation
arrangements.
IMS HEALTH became an independent public company on July 1, 1998. Prior to
that date, the businesses of IMS HEALTH were conducted by Cognizant and all
compensation decisions relating to the named executives were made by the
Compensation and Benefits Committee of the Cognizant Board of Directors.
Executive Compensation Philosophy
The Committee and the Board of Directors of IMS HEALTH believe that a key
to building Shareholder value is to closely align the financial interests of IMS
HEALTH's employees, including its senior executives, with those of the Company's
Shareholders. Moreover, we believe top-caliber executives and employees who
deliver customer satisfaction are the other key drivers of Shareholder value. We
believe that both IMS HEALTH and its Shareholders are best served by operating
the business with a long-term perspective while striving to deliver annual
results that are on par with those of other growth companies. IMS HEALTH relies
heavily on incentive compensation programs to motivate superior performance,
both short- and long-term. These programs, which provide compensation in cash
and stock, place a major portion of senior executives' compensation at risk to
assure a sharp and continuing focus on building Shareholder value. The
compensation programs are variable and are tied to the business unit or
corporate performance for which executives are held directly accountable.
Therefore, total compensation opportunities for IMS HEALTH executives are
highly performance-driven in form and nature. They are designed to reward
delivery of Shareholder value with levels of compensation that are consistent
with the practices of high-performing companies that are likely to compete for
the services of our executives. This enables IMS HEALTH to attract the highest
caliber of executive talent in an increasingly competitive market.
During 1998, the Board of Directors adopted stock ownership guidelines for
ten senior executives, as well as for non-employee directors. The guidelines are
intended to foster a deep commitment on the part of IMS HEALTH's global
management team to IMS HEALTH and its Shareholders. The guidelines mandate that
each participant own a specified number of shares of Common Stock within five
years, with mandatory ownership of 25% of the targeted number of shares within
three years. The Board believes that the targeted ownership levels are among the
highest in effect at major U.S. companies. Based on the fair market value of
Common Stock on December 31, 1998, the targeted ownership of shares for the
Chairman of the Board and Chief Executive Officer represents more than 10 times
annual salary, and that of the other nine senior executives ranges from three
times to seven times annual salary. Targeted ownership of shares
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<PAGE>
for the members of the Board of Directors represents more than 10 times annual
board retainer. Unlike some companies' ownership guidelines, targets are
expressed as a fixed number of shares and not a fixed dollar value, so the
number of shares required to be owned will not be reduced if the market price of
the stock increases. Executives and directors may obtain shares to meet the
ownership guidelines through open-market purchases and acquisitions of shares
under IMS HEALTH plans, including by the exercise of stock options and the
holding of the resulting profit shares. Prior to exercise, however, a stock
option will not count toward meeting ownership guidelines.
Components of the Compensation Program
The Committee believes that the form and level of executive compensation
helps IMS HEALTH attract and retain highly motivated and effective executives
who are critical to the future success of the business.
All of the Committee's judgments about compensation opportunities and
payments to executives are considered in the context of competitive practices
among a comparator group of companies. The companies used for comparison
purposes include several of IMS HEALTH's peer group of competitors, as well as
companies that are not primarily engaged in the healthcare information services
industry. These other companies are comparable to IMS HEALTH in terms of one or
more of the following characteristics: (1) projected revenue growth, operating
income, assets, market value and total shareholder returns; (2) significant
market presence outside the United States; (3) leading market shares in
significant or emerging markets; (4) similarities in scope of position
responsibilities, executive expertise and the magnitude of performance
challenges faced; and (5) direct competitors for executive talent. Thus, the
group of comparator companies for compensation purposes is broader than the peer
group used for comparison in the Total Shareholder Return Graph on page _, and
does not include all of the companies in that peer group.
Compensation data for the comparator companies is obtained from
benchmarking surveys conducted by independent compensation consultants. In
reviewing the data, the Committee takes into account how IMS HEALTH's
compensation policies and overall performance compare to similar indices for the
comparator group. In general, the Committee has sought to target an executive's
total compensation opportunity, earnable for strong performance by IMS HEALTH,
between the 50th and 75th percentile of comparator group compensation for the
corresponding position. The Committee's decisions, however, take into account
other factors, including individual, business unit and Company performance, and
Shareholder returns.
The compensation program for executives comprises base salary, annual cash
incentives and long-term incentives in the form of performance restricted stock
units ("PERS") and stock
13
<PAGE>
options. Restricted stock is also used in some cases, as an additional element
of long-term compensation.
Base Salary. The base salaries of executives compensate for ongoing
performance of assigned responsibilities. Base salaries are generally subject to
annual review by the Committee. In determining whether to adjust the base salary
of an executive, including the Chief Executive Officer, the Committee, subject
to the terms of certain employment agreements, takes into account salaries paid
for comparable positions at other companies, changes in the executive's
responsibilities, the individual performance of the executive and IMS HEALTH's
compensation philosophy favoring variable, performance-based compensation.
Annual Incentives. The annual incentive plan set by the Committee rewards
executives for the financial results achieved for the year. Bonus awards paid
are dependent on the level of achievement of financial targets set at the
beginning of the plan year. Financial targets for 1998 were approved by the
Committee and based on the performance measures of revenue growth, operating
earnings and cash flow of each executive's business unit or IMS HEALTH's
consolidated results. Potentially, qualitative goals such as customer
satisfaction may be included as measures of executive performance. No bonus is
earned with respect to a performance measure unless a performance "floor" for
that measure is exceeded. The bonus opportunity with respect to a measure is
earned if the target is achieved, with performance between the floor and the
target resulting in a lower bonus with respect to that performance measure. An
amount larger than the bonus opportunity for each performance measure can be
earned, up to a specified limit, for exceeding the target for that measure.
Performance Restricted Stock Units ("PERS"). In 1998 the Committee
established a long-term incentive opportunity for senior executives based on
achievement of the same pre-established annual financial goals. The Committee
determined to implement this program in order to bring total compensation
opportunities and long-term compensation opportunities within the range
determined based on a review of studies of the comparator companies (discussed
above). In addition, the Committee sought a program that would result in
increasing stock ownership by executives, to create momentum toward achievement
of the stock ownership guidelines adopted by the Board. Under the PERS program,
a matching PERS award will be granted equal in value to the earned annual
incentive amount. PERS are restricted stock units that will vest at the end of a
specified deferral period. The number of PERS granted is based on the fair
market value of IMS HEALTH stock at the end of the year during which the related
annual incentive was earned. PERS remain subject to a risk of forfeiture for two
years after grant in the event of termination of the executive's employment in
specified circumstances.
Stock Options. Stock options are IMS HEALTH's primary long-term incentive
mechanism and serve to reward executives in the same manner as Shareholders
benefit. Executive's can realize value from options only when the market value
of the underlying shares,
14
<PAGE>
and hence Shareholder value, has increased from the date of grant. Cognizant and
its predecessor have issued options, as a long-term component of compensation,
to executives in multi-year cycles, a practice to which IMS HEALTH generally
adhered in 1998. Thus, the only options granted purely as long-term compensation
were for newly hired and newly promoted executives. These awards also included
purchased option grants. Purchased options provide the opportunity for an
employee to purchase additional options by paying to the Company an amount equal
to ten-percent of the option grant value. The remaining ninety percent is
payable at exercise. The ten-percent purchase price is forfeited if the options
expire without being exercised, and the portion of the purchase price
attributable to vested options is also forfeitable upon termination of
employment in certain circumstances.
The Committee reviewed the stock option grant philosophy for IMS HEALTH and
determined to shift to an annual stock option grant cycle for all participants.
Future grants to senior executives will depend on a number of factors including:
(1) competitiveness of total compensation; (2) level of responsibility; (3)
individual performance; (4) potential future contributions; and (5) whether
another option grant would provide an appropriate reward and incentive for the
executive to sustain and enhance Shareholder value over the long term. The
Committee believes this approach is a highly effective means to align executive
interests and Shareholder interests, reinforce an entrepreneurial mindset, build
a high-performance culture and increase the "at risk" portion of each
executive's compensation package.
Options have been granted, as reflected in the Summary Compensation Table
and the table showing Option/SAR Grants in Last Fiscal Year, for purposes other
than solely as a long-term compensation component. These include "substitute"
options granted in connection with the Spin-off ("Substitute Options"), certain
options granted to offset inequities in the formula by which substitute options
were granted ("Make-up Options") and "progress" options granted to facilitate
executives' achievement of ownership guidelines ("Progress Options").
The largest portion of options shown as granted in 1998 for each executive
were in fact options substituted for outstanding options granted by Cognizant
and its predecessor. Substitute options were determined by a formula selected by
the Company, as described in the Company's Form 10 Registration Statement, that
took into account market prices of Cognizant stock before and IMS HEALTH after
the Spin-off, in a way that conformed to certain accounting rules. There was a
rapid rise in the price of IMS HEALTH stock in the days subsequent to the
Spin-off. The price of the stock went from $xx to $xx for Cognizant and from $xx
to $xx for IMS HEALTH. The stock's appreciation immediately following the
Spin-off resulted in employees being granted fewer options in IMS HEALTH than
they held in Cognizant and at a higher per share exercise price. IMS HEALTH
estimates that this caused a loss of economic value (computed by comparing the
gross option spreads) of approximately $56.5 million for all IMS HEALTH option
holders as of the Spin-off which the Board of Directors believed was
inequitable. This inequitable result appears to be unprecedented in the history
of spin-offs. To partially address
15
<PAGE>
this, the Board of Directors granted all employees Make-up Options on July 29,
1998. These grants restored the number of options lost as a result of the
application of the mechanics of the conversion factor and allowed employees to
benefit from future appreciation. However, because the new options were granted
at fair market value, the grants could not restore any of the appreciation lost
by employees. These grants to the named executives are reflected in the table
showing Option/SAR Grants in Last Fiscal Year as options granted at $60.3438 per
share (the fair market value of IMS HEALTH stock at the date of grant). These
options vest over a three-year period at one-third per annum and have a ten-year
term.
Restricted Stock. Certain executive officers were granted restricted stock
units in connection with receiving additional responsibilities. Restricted stock
units were also granted to newly hired executives.
CEO Compensation. Mr. Weissman participates in the executive compensation
program described in this report. Mr. Weissman's 1998 cash compensation level
and opportunities as Chief Executive Officer of IMS HEALTH consisted of a base
salary of $775,000 and a target annual incentive opportunity of $785,000, which
was the same annual compensation rate he had at Cognizant.
Mr. Weissman's financial targets for earning his annual incentive, as
determined by the Committee, were based on the same three measures as for the
other senior executives with overall corporate responsibility - Cognizant's and
IMS HEALTH's consolidated revenue, operating income and cash flow for the first
six months of 1998 and the last six months of 1998, respectively. The Committee
gave different weights to each measure in determining the bonus to be earned
(revenue, 50%; operating income, 40%; and cash flow, 10%), based on its view of
each measure's relative importance in improving annual results. Mr. Weissman
also received Substitute Options, Make-up Options and Progress Options in 1998,
as described above.
The Committee believes Mr. Weissman's current compensation is fully
consistent with IMS HEALTH's philosophy on executive compensation, and
appropriate in view of IMS HEALTH's performance as indicated in the Total
Shareholder Return graph shown below.
Tax Deductibility. Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") imposes certain limitations on the deductibility of
compensation paid to a public company's chief executive officer and the other
four most highly compensated senior executives (the "highly-compensated
executives"). For 1998, the compensation paid to the highly compensated
executives by IMS HEALTH is expected to qualify for tax deductibility under
transition rules applicable to spin-offs, as a result of IMS HEALTH's 1998
spin-off from Cognizant.
16
<PAGE>
The Committee's policy is to seek to preserve corporate tax deductions
attributable to the compensation of certain executives to the greatest
practicable extent, while maintaining flexibility to approve, when appropriate,
compensation arrangements which it deems in the best interest of the company and
its Shareholders, but which may not always qualify for full tax deductibility.
To this end, the Executive Annual Incentive Plan and the Employee Stock
Incentive Plan are being submitted to Shareholders for approval, as discussed
below, in order that certain compensation under those plans can qualify as
"performance-based" compensation not subject to Section 162(m)'s limits on tax
deductibility.
The Compensation and Benefits Committee
M. Bernard Puckett, Chairman
John P. Imlay, Jr.
Robert Kamerschen
William C. Van Faasen
COMPARISON OF TOTAL SHAREHOLDER RETURN OF
IMS HEALTH, S&P 500, BUSINESS INFORMATION & SERVICE PROVIDERS
AND MAJOR DRUG MANUFACTURERS INDEX
[GRAPHICAL REPRESENTATION OF DATA BELOW]
6/23/98 6/30/98 9/30/98 12/31/98
------- -------- -------- --------
IMS HEALTH........................ 100 112.7962 117.418 143.0105
S&P 500........................... 100 101.2818 90.8458 109.8027
BUSINESS INFORMATION &
SERVICE PROVIDERS............... 100 102.5962 88.4267 100.1355
MAJOR DRUG MANUFACTURERS INDEX.... 100 101.1416 100.0855 115.3104
17
<PAGE>
This Graph compares total shareholder return of IMS HEALTH, the Standard &
Poor's 500 Index and two comparator groups from June 23, 1998, the first day of
when-issued trading in IMS HEALTH Common Stock until December 31, 1998. There is
no widely recognized standard industry group comprising IMS HEALTH and peer
companies. Two comparator groups were selected for the following reasons. The
first or "Historic Peer Group" represents companies selected for comparison
purposes by Cognizant, the Company's predecessor, and is included for historical
context. This group includes a broad range of business information and service
providers and consists of Automatic Data Processing, Inc.; Ceridian Corp., Dow
Jones & Company, Inc., Forrester Research, Inc., Medaphis Corporation, Policy
Management Systems Corporation; Reuters Holding PLC and Shared Medical Systems
Corporation. The Company has been executing a strategy of becoming a focused
information services company for the pharmaceutical industry. This is
dramatically shown by the separation from Nielsen Media Research, Inc. in 1998
and the planned spin-off of Gartner Group, Inc. in 1999. The second or "Current
Peer Group" reflects this new focus and consists of the components of the Major
Drug Manufacturers Index.
18
<PAGE>
Executive Compensation Tables
Summary Compensation Table
Four of the executive officers named in the Summary Compensation Table
below were employed by Cognizant until July 1, 1998; the date IMS HEALTH was
spun-off from Cognizant (the "Spin-off Date"). The Summary Compensation Table
reflects compensation earned at both Cognizant and IMS HEALTH during 1998.
All 1997 compensation amounts were paid by Cognizant.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE Long-Term Compensation
Annual Compensation Awards Payouts
=======================================================================================================
Securities
Other Restricted Underlying Long-Term
Annual Stock Options/ Incentive
Name and Principal Salary Bonus (2) Compensation (3) Award(s) (4) SARs (5) Payouts
Position Year ($) ($) ($) ($) (#) ($)
========================== ======== ======= ========= ================ ============ ========== =========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Weissman 1998 (1) 775,000 785,000 0 750,000 1,251,589 a 0
Chairman and Chief 71,727 b
Executive Officer 396,702 c
---------
1,720,018
-------------------------------------------------------------------------------------------------------
1997 CZT 750,000 1,007,100 1,006 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Victoria R. Fash 1998 (1) 602,083 359,792 32,575 2,401,667 411,057 a 0
Executive Vice President & 23,560 b
Chief Operating Officer 102,547 c
---------
537,164
-------------------------------------------------------------------------------------------------------
1997 CZT 375,000 349,128 0 268,938 6,500 (8) 0
- ------------------------------------------------------------------------------------------------------------------------------------
J. Michal Conaway (9) 1998 IMSH 525,000 265,000 1,503,428 1,342,388 100,000 d 0
Chief Financial Officer 50,000 e(6)
---------
150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Alan J. Klutch 1998 (1) 325,000 248,600 0 248,600 313,600 a 0
Senior Vice President - 17,976 b
Finance 91,048 c
---------
422,624
-------------------------------------------------------------------------------------------------------
1997 CZT 325,000 303,473 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth S. Siegel 1998 (1) 336,300 184,700 0 0 179,702 a 0
Senior Vice President - 10,298 b
Secretary and ---------
General Counsel 190,000 0
-------------------------------------------------------------------------------------------------------
1997 CZT 299,045 222,905 127,388 0 190,000 d 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
===========================
All Other
Compensa-
Name and Principal tion (7)
Position Year ($)
========================== ======== ==========
<S> <C> <C> <C>
Robert E. Weissman 1998 (1) 56,147
Chairman and Chief
Executive Officer
---------------------------
1997 CZT 72,568
- --------------------------------------------------------
Victoria R. Fash 1998 (1) 29,780
Executive Vice President &
Chief Operating Officer
---------------------------
1997 CZT 19,655
- --------------------------------------------------------
J. Michal Conaway (9) 1998 IMSH 0
Chief Financial Officer
- --------------------------------------------------------
Alan J. Klutch 1998 (1) 19,629
Senior Vice President -
Finance
---------------------------
1997 CZT 22,637
- --------------------------------------------------------
Kenneth S. Siegel 1998 (1) 62,878
Senior Vice President -
Secretary and
General Counsel
---------------------------
1997 CZT 4,800
- --------------------------------------------------------
</TABLE>
a) Substitute options, replacing options held at time of spin-off in which the
conversion formula greatly reduced the economic value of the options
b) Make-up options, options granted to participants intended to replace some
of the lost economic value due to the conversion
c) Progress options, options granted to initiate executive ownership of IMS
HEALTH stock
d) Option grants
e) Purchased options
19
<PAGE>
1. The amounts shown as 1998 compensation reflect compensation paid by Cognizant
for the first six months of 1998 and by IMS HEALTH for the last six months of
1998.
2. Bonus amounts shown represent target bonus amounts earned in a given fiscal
year and generally paid in the following year. 1998 amounts are shown as target
amounts because the IMS HEALTH financial results for 1998 have not been
finalized yet.
3. The value of certain personal benefits is not included since it does not
exceed the lesser of 10% of salary and bonus or $50,000 for Mssrs. Welssman,
Klutch and Siegel. Amounts shown for Ms. Fash include a cost of living
adjustment for $32,575 including a gross up for taxes. Amounts shown for Mr.
Conaway include a $500,000 paid to make up for a portion of the forfeited value
of certain current year and long term compensation plans upon departure from his
previous company of employment, $43,750 disturbance allowance for incidentals
associated with his move from California to the United Kingdom, $369,454 for
relocation expenses, $19,785 cost of living adjustment and a tax gross up in the
amaount of $570,439.
4. IMS HEALTH executives earned performance-based restricted stock units
("PERS") in the following amounts (shown based on targeted financial
performance): Mr. Weissman, 10,707; Ms. Fash, 5,136; Mr. Conaway, 3,783 and Mr.
Klutch, 3,549. PERS are subject to a risk of forfeiture upon termination of
employment in certain circumstances for a period of two years, measured from
their date of grant in 1999. PERS are credited with dividend equivalents equal
to dividends on IMS HEALTH Common Stock. The amount shown for Ms. Fash includes
a one-time award of 30,000 shares of restricted stock units in recognition of
her pending promotion to Chief Executive Officer. These units vest at a rate of
33.33% per annum and are subject to risk of forfeiture upon termination of
employment in certain circumstances until vested. The amount shown for Mr.
Conaway includes a one-time award of 17,500 restricted stock units granted in
connection with his being hired as Chief Financial Officer. A cash incentive
equal to the amount of taxes due will become payable in connection with this
award. These restricted stock units are subject to a risk of forfeiture upon
termination of employment in certain circumstances for a period of one year from
the time of grant. At December 31, 1998, the named executives held restricted
stock unit awards relating to a number of shares having a fair market value at
that date as follows (excluding PERS which were not issued until 1999 with
respect to 1998 performance): Ms. Fash, 30,000 shares valued at $2,041,875; Mr.
Conaway, 17,500 shares valued at $1,077,388.
5. The only named executive to receive a new option grant in 1998 was Mr.
Conaway in connection with his appointment on September 15, 1998, as Chief
Financial Officer of the
20
<PAGE>
Company. The options designated as Substitute Options were issued in
substitution of Cognizant options that were canceled as of the Spin-off Date, as
described in the introduction to the "Option/SAR Grants in Last Fiscal Year"
table below. The options designated as Make-up Options were granted to offset
inequities in the formula used to determine the number of Substitute Options to
be granted in connection with the Spin-off. In connection with the
implementation of aggressive ownership guidelines for executives, the Committee
implemented a program under which "Progress" stock options may be granted to
executives in order to promote long-term stock ownership and to help executives
meet the ownership targets earlier than the specified deadlines. The Committee
retains discretion to limit or cancel this feature. A progress option is a new
stock option granted at the time a holder exercises an original stock option, if
it has appreciated at least 25%. The number of common shares subject to the new
grant was equal to the number of shares sold to pay the exercise price plus the
number of shares withheld to pay withholding tax. As a condition of the progress
option grant the executive will be required to hold the shares representing the
"profit" from the exercise for a period of three years, thereby promoting
long-term ownership which is the program's objective. Progress options have a
per share exercise price equal to the fair market value of a share at the date
of grant of the progress option, have a term extending for the remaining term of
the exercised option, and vest one-third per year on the first three
anniversaries of grant.
6. In connection with his appointment as Chief Financial Officer of the Company,
Mr. Conaway was given the opportunity to purchase, and purchased, 50,000 IMS
HEALTH options (the "Purchased Options") upon payment of 10% of the exercise
price. The remaining 90% is payable if and when the options are exercised. The
10% purchase price equal to $307,825 is forfeited if the options vest and expire
without being exercised, and the portion of the purchase price attributable to
vested options may also be forfeitable upon termination.
7. The amounts shown for 1998 include aggregate annual Company contributions for
the account of each named executive officer under the Cognizant Corporation
Savings Plan and Savings Benefit Equalization Plan, IMS Health Incorporated
Savings Plan and IMS Health Incorporated Savings Equalization Plan, as follows:
Mr. Weissman, $56,147; Ms. Fash, $29,780; Mr. Klutch, $19,629; and Mr. Siegel,
$12,878. In addition, the amounts shown for 1998 include $50,000 paid to Mr.
Siegel representing the final installment of his sign-on bonus. The amounts
shown for 1997 represent aggregate annual company contributions for the account
of each named executive officer under the Dun & Bradstreet Profit Participation
Plan and Profit Participation Benefit Equalization Plan and the Cognizant
Corporation Savings Plan and Savings Benefit Equalization Plan.
8. Represents options to purchase shares of Class A Common Stock of Cognizant
Technology Solutions Corporation, a majority-owned subsidiary of IMS HEALTH.
9. Mr. Conaway's salary illustrates his full-year compensation although he
joined the Company on September 15, 1998.
21
<PAGE>
Option/SAR Grants in Last Fiscal Year
The table below shows the following types of grants of stock options made
to the named executive officers in 1998: (a) options granted in connection with
either the appointment or promotion of an executive officer ("Stock Options"),
(b) Purchased Options (c) Substitute Options, (d) Make-up Options, and (e)
Progress Options. "Purchased Options" are stock options made available to
certain executives upon payment of 10% of the exercise price. The remaining 90%
of the exercise price is payable upon exercise. The 10% exercise price paid is
forfeited if the options vest and expire unexercised and may also be forfeitable
upon termination. "Substitute Options" are options granted in substitution for
existing Cognizant options that were cancelled at the Spin-off Date. The
exercise price and number of Substitute Options were determined by a pre-set
formula. The expiration dates, vesting terms and other provisions of the
Substitute options are substantially identical to the terms of the options they
replace. "Make-up Options" were granted to partially offset the inequities in
the formula used to determine the number and exercise price of the Substitute
Options. They were granted at fair market value, vest over a three year period
and expire 10 years after grant. "Progress Options" are options granted on a
discretionary basis in order to promote executive stock ownership and to help
executives meet stock ownership guidelines prior to the deadlines established by
the Compensation and Benefits Committee. Stock options do not qualify as
ownership under the guidelines prior to exercise. Progress Options are new
options granted at the time an executive exercises an original stock option. The
number of shares subject to a the new grant equals the number of shares sold or
exchanged to pay the exercise price for the original option plus any shares sold
or withheld to pay income taxes. As a condition of receiving a Progress Option
grant, the executive is required to hold all shares representing the profit from
exercise for three years thereby promoting long-term stock ownership, the
program's objective. Progress options are granted at fair market value, have a
term equal to the remaining term of the exercised options and vest over three
years.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - PRE-SPLIT
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Number of
Securities
Underlying % of Total
Options/ Options/SAR's Exercise
SAR's Granted to or Base Grant Date
Granted (1) Employees in Price Expiration Present Value (2)
Name (#) Fiscal Year ($/Share) Date ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Weissman Substitute Options 66,776 6.9131% $29.6510 12/17/01
64,448 $33.8242 12/15/02
68,566 $36.4598 12/14/03
70,190 $31.6277 12/20/04
59,454 $37.3383 12/19/05
922,155 $35.2876 11/15/06
----------------------------------------------------------------------------------------------------------------
Make Up Options 71,727 0.3962% $60.3438 7/29/08 $935,081
----------------------------------------------------------------------------------------------------------------
Progress Options 29,861 2.1912% $68.5000 12/17/01 $327,634
28,820 $68.5000 12/15/02 $399,795
30,661 $68.5000 12/14/03 $425,341
23,540 $68.5000 12/20/04 $326,552
13,293 $68.5000 12/19/05 $184,401
270,528 $68.5000 11/15/06 $3,752,869
- ------------------------------------------------------------------------------------------------------------------------------------
Victoria R. Fash Substitute Options 2,831 2.2705% $29.6510 12/17/01
3,369 $33.8242 12/15/02
3,948 $36.4598 12/14/03
7,587 $31.6277 12/20/04
2,952 $30.4563 04/18/05
12,050 $37.3383 12/19/05
378,320 $35.2876 11/15/06
----------------------------------------------------------------------------------------------------------------
Make Up Options 23,560 0.1301% $60.3438 7/29/08 $307,144
----------------------------------------------------------------------------------------------------------------
Progress Options 1,936 0.5664% $68.5000 12/17/01 $21,245
2,304 $68.5000 12/15/02 $31,965
2,700 $68.5000 12/14/03 $37,458
3,188 $67.3750 12/20/04 $43,499
535 $68.5000 12/20/04 $7,420
1,514 $68.5000 04/18/05 $20,997
4,120 $68.5000 12/19/05 $57,156
86,250 $68.5000 11/15/06 $1,196,492
- ------------------------------------------------------------------------------------------------------------------------------------
J. Michal Conaway Stock Options 100,000 0.5523% $61.5650 9/15/08 $1,485,673
Purchased Options 50,000 0.2762% $61.5650 9/15/08 $742,836
- ------------------------------------------------------------------------------------------------------------------------------------
Alan J. Klutch Substitute Options 5,985 1.7322% $31.6277 12/20/98
13,178 $25.0386 12/19/99
14,809 $24.3065 12/18/00
15,174 $29.6510 12/17/01
14,071 $33.8242 12/15/02
13,053 $36.4598 12/14/03
13,278 $31.6277 12/20/04
11,247 $37.3383 12/19/05
212,805 $35.2876 11/15/06
----------------------------------------------------------------------------------------------------------------
Make Up Options 17,976 0.0993% $60.3438 7/29/08 $234,347
----------------------------------------------------------------------------------------------------------------
Progress Options 4,571 0.5029% $68.5000 12/18/00 $44,464
10,187 $68.5000 12/17/01 $111,773
9,446 $68.5000 12/15/02 $131,045
8,763 $68.5000 12/14/03 $121,564
6,685 $68.5000 12/20/04 $92,740
3,775 $68.5000 12/19/05 $52,368
47,621 $68.5000 11/15/06 $660,612
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth S. Siegel Substitute Options 179,702 0.9926% $34.9572 1/31/07
Make Up Options 10,298 0.0569% $60.3438 7/29/08 $134,252
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. The expiration dates and generally the other terms of the "substitute"
options are identical to the terms of the corresponding Cognizant options. "Make
up" options may not be exercised for at least one year after grant and may then
be exercised in installments of one-third of the grant each year until they are
100% vested. Payment must be made in full upon exercise in cash or common stock.
"Progress" options carry the same expiration dates and other terms of the
original option. The exercise price of a progress option is the fair market
value of the Company's common stock on the date of grant. Progress options
become exercisable in annual installments of one-
22
<PAGE>
third of the grant per year on each of the first three anniversaries of the
grant date. Generally, all options shown include limited SARs in tandem with the
options.
Limited SARS are exercisable only if and to the extent that the related
option is exercisable and are exercisable only during the 30-day period
following the acquisition of at least 20% of the outstanding Common Stock
pursuant to a tender or exchange offer not made by IMS HEALTH. Each Limited SAR
permits the holder to receive cash equal to the excess over the related option
exercise price of the highest price paid pursuant to a tender or exchange offer
for Common Stock which is in effect at any time during the 60 days preceding the
date upon which the Limited SAR is exercised. Limited SARs can be exercised
regardless of whether IMS HEALTH supports or opposes the offer.
2. Grant date present value is based on the Black-Scholes option valuation model
which makes the following material assumptions:
(a). For "substitute" options, an expected stock-price volatility factor of
___%, a risk-free rate of return ranging from ___% (for the earliest
expiring options) to ___% and ___% (for the latest expiring options), an
average annual dividend yield of .___%, an assumed time of exercise ranging
from ___ year from grant date (for the earliest expiring options) to ___
and ___ years from grant date (for the latest expiring options) and a
reduction to reflect the probability of forfeiture due to termination prior
to vesting, ranging from ___% (for the earliest expiring unvested options)
to ___% (for the latest expiring unvested options).
(b). For "make up" options, an expected stock-price volatility factor of
25%, a risk-free rate of return of 5.49%, an average annual dividend yield
of .30%, an assumed time of exercise of 3 years from grant date and a
reduction to reflect the probability of forfeiture due to termination prior
to vesting, of 9.67%.
(c). For "progress" options, an expected stock-price volatility factor of
25%, a risk-free rate of return ranging from 4.43% to 4.47%, an average
annual dividend yield of .30%, an assumed time of exercise ranging from 1.5
years from grant date (for the earliest expiring options) to 2.0 and 3.0
years from grant date (for the latest expiring options) and a reduction to
reflect the probability of forfeiture due to termination prior to vesting
in the range of 5% to 9.67%.
(d). For other options, an expected stock-price volatility factor of 25%, a
risk-free rate of return of 4.69%, an average annual dividend yield of
.30%, an assumed time of exercise of 4.5 years from grant date, and a
reduction to reflect the probability of forfeiture due to termination prior
to vesting of 16.11%.
23
<PAGE>
These assumptions may or not be fulfilled, and the amounts shown cannot be
considered predictions of future value. Options will gain value only to the
extent the stock price exceeds the option exercise price during the life of the
option.
Aggregate Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
The following table provides information as to option exercises by each of
the named executive officers during 1998 and the value of unexercised
in-the-money stock options at year-end.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised
Shares Shares Held Options/SAR's at Fiscal
Acquired Value as a Result Year-End (2)
on Exercise Realized of Exercise (1) (#)
----------------------------
Name (#) ($) (#) Exercisable Unexercisable
- ------------------ ----------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Weissman 764,332 $25,506,122 169,399 32,413 1,098,065
Victoria R. Fash 150,181 $ 4,863,420 40,316 4,910 382,073
CTS Options 0 $0 3,250 3,250
J. Michal Conaway 0 $0 0 150,000
Alan J. Klutch 162,784 $ 5,486,205 47,097 6,132 253,708
Kenneth S. Siegel 0 $0 29,950 160,050
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options/SAR's
at Fiscal Year-End (3)
($)
----------------------------
Name Exercisable Unexercisable
- ------------------ ----------- -------------
<S> <C> <C> <C>
Robert E. Weissman $1,335,128 $29,084,163
Victoria R. Fash $ 197,901 $11,345,052
CTS Options $ 69,209 $ 69,209
J. Michal Conaway $ 0 $ 2,080,890
Alan J. Klutch $ 252,584 $ 6,706,276
Kenneth S. Siegel $1,212,388 $ 6,217,457
</TABLE>
1. In order to encourage executives to rapidly progress toward meeting their
ownership guideline targets, in December 1998 the Committee authorized a
one-time grant of progress options in connection with option exercises in which
the exercise price was paid in cash rather than through the surrender of
previously acquired shares. As with the regular progress option program,
"profit" shares are subject to a three-year holding period requirement, although
an executive was permitted to sell sufficient option shares to pay the exercise
price, to the extent he or she lacked shares that could be surrendered to pay
the exercise price, and to pay the portion of his or her tax liability that
could not be covered through the withholding of option shares.
2. Represents options to purchase shares of Class A Common stock. Ms. Fash is
currently a director of Cognizant Technology Solutions Corporation (CTS), a
majority owned subsidiary of IMS HEALTH.
3. The values shown equal the difference between the exercise price of the
exercisable and unexercisable options and the fair market value of the
underlying common stock at December 31, 1998 on a pre split basis of $75.4376.
24
<PAGE>
Retirement Benefits
The following table sets forth the estimated aggregate annual benefits
payable under the IMS Health Incorporated Retirement Plan, the IMS Health
Incorporated Supplemental Executive Retirement Plan and the IMS Health
Incorporated Retirement Excess Plan to persons in specified average final
compensation and credited service classifications upon retirement at age 65.
Amounts shown in the table include U.S. Social Security benefits and benefits
payable under predecessor plans of Dun & Bradstreet which would be deducted in
calculating benefits payable under these plans. These aggregate annual
retirement benefits do not increase as a result of additional credited service
after 15 years.
Benefits vest after five years of credited service and are calculated as 5%
of average final compensation per year for the first 10 years of credited
service, and 2% per year for the next five years, up to a maximum of 60% of
average final compensation after 15 years of credited service.
<TABLE>
<CAPTION>
Estimated Aggregate Annual Retirement Benefit
Average Assuming Credited Service of:
Final ----------------------------------------------------------------------
Compensation 10 Years 15 Years 20 Years 25 Years 30 Years
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 550,000 $ 275,000 $ 330,000 $ 330,000 $ 330,000 $ 330,000
700,000 350,000 420,000 420,000 420,000 420,000
850,000 425,000 510,000 510,000 510,000 510,000
1,000,000 500,000 600,000 600,000 600,000 600,000
1,300,000 650,000 780,000 780,000 780,000 780,000
1,600,000 800,000 960,000 960,000 960,000 960,000
1,900,000 950,000 1,140,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service for Mr. Weissman and Ms. Fash are,
respectively, 19 and 9.
Compensation, for the purpose of determining retirement benefits, consists
of base salary, annual bonuses, commissions and overtime pay. Severance pay,
income derived from equity-based awards, contingent payments and other forms of
special remuneration are excluded. A portion of the bonuses included in the
Summary Compensation Table above were not paid until the year following the year
in which they were accrued and expensed; therefore, compensation for purposes of
determining retirement benefits varies from the Summary Compensation Table
amounts in that bonuses expensed in the previous year but paid in the current
year are part of retirement compensation in the current year and any unpaid
current year's bonuses accrued and included in the Summary Compensation Table
are not. For 1998, compensation for purposes of determining retirement benefits
for Mr. Weissman and Ms. Fash was, respectively, $1,782,100 and $949,128.
25
<PAGE>
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years' service. The
benefits shown in the table above are calculated on a straight-life annuity
basis.
Retirement benefits for Messrs. Conaway, Klutch and Siegel are determined
solely under the IMS Health Retirement Plan and the Retirement Excess Plan.
Under these plans, IMS HEALTH contributes 6% of the participant's compensation
monthly to the participant's cash balance in the plan. The cash balance earns
monthly investment credits based on the yield on 30-year Treasury bonds from
time to time. These plans also include a minimum monthly benefit for certain
employees who had attained age 50 and had earned 5 years of service as of
October 31, 1996, including Mr. Klutch. The minimum benefit is equal to the
excess of (i) 1.7% of final average compensation multiplied by years of credited
service not in excess of 25, plus 1.0% of final average compensation multiplied
by years of credited service in excess of 25, over (ii) 1.7% of the primary
Social Security insurance benefits multiplied by years of credited service not
in excess of 25, plus 0.5% of the primary Social Security insurance benefits
multiplied by years of credited service in excess of 25. Mr. Klutch's estimated
annual benefits upon retirement at age 65 are $217,353, based upon his credited
service to date for these plans of 24.5 years. This amount includes benefits
payable under predecessor plans of Dun & Bradstreet that would be deducted from
the amount payable under these plans. The estimated annual retirement benefit
payable to Mr. Siegel at retirement age 65 under the cash balance formula, based
upon service to December 31, 1998, is $6,174. For 1998, compensation for
purposes of determining retirement benefits for Messrs. Klutch and Siegel was,
respectively, $628,473 and $415,205. In 1998, Mr. Conaway was not eligible to
participate in the IMS Health Incorporated Retirement Plan and the IMS Health
Incorporated Retirement Excess Plan.
Change-in-Control Agreements
IMS HEALTH has entered into Change-in-Control Agreements with executives
providing for severance and other benefits in the event of certain terminations
following a change in control (as defined) of IMS HEALTH. Subject to variations
in terms, these agreements cover the executive officers named in the Summary
Compensation Table and other executive officers, as well as other officers and
key employees, excluding the Covered Executives (whose employment agreements
provide change-in-control benefits). Under the Change-in-Control Agreements, an
executive is committed to remain employed for 180 days from the occurrence of a
potential change in control, in order to help maintain stable operations while a
change in control is pending. If, within two years following a change in
control, the employment of a named executive is terminated without cause or he
or she terminates employment for "good reason" (generally, an adverse change in
employment status, compensation or benefits, or a required relocation), the
named executive will be entitled to (i) payment of a pro rated portion of
26
<PAGE>
target annual incentive compensation for that year, (ii) a lump sum payment
equal to three times the sum of base salary and annual target bonus for the year
of termination (or, if no target bonus has been determined, the annual target
actually earned in the preceding year), (iii) full vesting under any
non-qualified retirement plan and crediting of service up to the maximum
credited service allowed to be taken into account under certain retirement
plans, (iv) vesting and deemed achievement of target performance in connection
with outstanding long-term performance awards, (v) payment of an allowance for
outplacement expenses, (vi) life and health insurance benefits for 36 months
after termination, and (vii) certain retiree medical and life benefits
commencing at age 55. If payments are subject to the "golden parachute" excise
tax, IMS HEALTH will pay the executive an additional "gross-up" amount so that
his or her after-tax benefits are the same as thought no excise tax had applied,
and IMS HEALTH will reimburse an executive for expenses incurred in enforcing
the agreement unless incurred in bad faith.
A change in control will generally have occurred under the following
circumstances: (i) a person becomes the beneficial owner of 20% or more of the
combined voting power of IMS HEALTH's securities, (ii) during any period of
twenty-four months a majority of the Board ceases to consist of (x) directors in
office at the beginning of such period or (y) directors whose election was
approved by two-thirds of the directors in office at the beginning of the period
or by directors whose election was previously so approved, (iii) IMS HEALTH's
merger or consolidation with another entity (other than one in which shares
outstanding prior to the merger represent two-thirds of the voting power of the
surviving company and no shareholder holds 20% or more of the voting power in
the surviving company), (iv) the liquidation or sale of substantially all of IMS
HEALTH's assets or (v) the Board of Directors otherwise determines that a change
in control has occurred. Upon occurrence of an event deemed a potential change
in control, IMS HEALTH is obligated to deposit funds into a trust to fund
potential obligations under the Agreements.
Compensation of Directors
Cash Compensation. Directors who are not employed by IMS HEALTH will
receive a retainer at an annual rate of $30,000 in quarterly installments
(increased from $25,000 in 1998) and each non-employee director who serves as
Chairman of a committee of the Board of Directors receives an additional
retainer at an annual rate of $5,000 in quarterly installments (increased from
$3,000 in 1998). In addition, each non-employee director is paid a fee of $1,000
for each Board or Committee meeting attended. Directors who are employed by IMS
HEALTH receive no retainers or fees.
Each non-employee director may elect to have all or a specified part of the
retainer and fees deferred until he or she ceases to be a director. Deferred
amounts may be credited to the account of directors as deferred cash, which
bears interest at prescribed rates, or as deferred share units in an amount
equal to the amount of deferred compensation divided by the fair market
27
<PAGE>
value of a share of Common Stock on the date the compensation would otherwise
have been paid. Deferred share units are credited with dividend equivalents.
Fair market value is the average of the high and low trading prices of the
Common Stock on the date of determination. Deferred amounts and accrued interest
and dividend equivalents are paid in the form of cash or stock, as appropriate,
on the first business day of the calendar year following the date of the
director's termination of service on IMS HEALTH's Board.
Upon the occurrence of a Change in Control of IMS HEALTH, the Compensation
and Benefits Committee may take such action as it deems necessary or desirable
with respect to deferred amounts.
Non-Employee Directors' Stock Incentive Plan. This plan provides for the
granting of stock options and restricted stock to non-employee directors of IMS
HEALTH on such terms as are determined by the Compensation and Benefits
Committee of the Board of Directors.
Under the plan, each non-employee director will receive an annual grant of
stock options to purchase 4,000 shares of common stock. The stock option expires
ten years after the grant date and vests in three equal annual installments
beginning one year after the grant date. The plan provides for the accelerated
vesting of options upon termination of service due to death, disability or
retirement.
In addition, any new non-employee director will receive restricted shares
on $40,000 of Common Stock upon his or her election or appointment to the Board
of Directors. The restricted share units will vest five years after the date of
grant. Until the share units vest, the director is not able to sell or dispose
of them but is entitled to vote them and receive dividend equivalents. These
restrictions lapse if the director dies or becomes disabled or, at the
Committee's discretion, if the director's service terminates in other
circumstances.
Upon the occurrence of a Change in Control (as defined above under
"Change-in-Control Agreements") of IMS HEALTH, the Compensation and Benefits
Committee may take such action as it deems necessary or desirable with respect
to awards, including acceleration of an award, payment of cash in exchange for
cancellation of an award, and/or issuing substitute awards that substantially
preserve the value, rights and benefits of previously granted awards.
Starting in 1999, the Board of Directors adopted share ownership guidelines
for non-employee directors because it believes that each director should
maintain a meaningful investment in the Company. The guidelines mandate that
each director own a specified number of shares or share units within five years
of January, 1999 or the date of a director's first election to the Board, with
mandatory ownership of 25% of the targeted number of shares within three years.
28
<PAGE>
Employment Agreements
IMS HEALTH has entered into employment agreements (the "Agreements") with
Mr. Weissman and Ms. Fash (the "Covered Executives"). The Agreements employ Mr.
Weissman and Ms. Fash through June 30, 2001, subject to automatic one-year
renewals. Under the Agreements, the specified annual base salaries are subject
to review at least annually and may be increased but not decreased from the
amount previously in effect. Currently, Mr. Weissman's annual salary is $775,000
and Ms. Fash's annual salary is $600,000. The Agreements also provide that each
Covered Executive will have an opportunity to earn annual incentive compensation
based on achievement of performance objectives set by the Compensation and
Benefits Committee, in an amount not less than the incentive opportunity in the
prior year and in any case not less than 100% of current salary, in the case of
Mr. Weissman, and 58% of current salary, in the case of Ms. Fash. Each Covered
Executive is entitled to continue participation in plans and programs offering
compensation opportunities and benefits no less favorable than those in effect
at the time the Agreements became effective in 1998. The Agreements impose
obligations on the Covered Executives relating to confidentiality,
non-competition, non-disparagement of IMS HEALTH, and similar matters during
employment and for specified periods following termination, the breach of which
can trigger forfeiture of certain options and option gains.
The Agreements provide for certain payments and benefits upon termination
of employment in addition to amounts previously accrued. If employment
terminates due to retirement after age 55, approved early retirement, death or
disability, the Covered Executive will be entitled to annual incentive
compensation for that year prorated to reflect the part of the year worked and,
in the case of disability, accelerated vesting of options, restricted stock,
performance awards and other awards, and continued participation in health and
other benefit plans until age 65. If employment is terminated either by IMS
HEALTH not for cause or by the Covered Executive for "good reason," the Covered
Executive will be entitled to (i) payment of a prorated portion of target annual
incentive compensation for that year, (ii) a severance benefit equal to the sum
of then-current annual salary plus the greater of that year's target annual
incentive or the annual incentive amount paid in the prior year ("annual cash")
multiplied by two, paid in 24 monthly installments, (iii) accelerated vesting of
options, restricted stock, performance awards and other awards, with any
performance objectives deemed achieved at target levels, (iv) crediting of
additional years of age and service so that termination will qualify as
retirement under the Supplemental Executive Retirement Plan (the "SERP") and (v)
continued participation in health and other benefit plans for up to two years
after termination, to the extent such benefits are not provided by a subsequent
employer. If such termination occurs within two years following a change in
control, enhanced benefits will be payable as follows: (i) the severance benefit
will equal annual cash multiplied by three, paid as a lump sum, (ii) options
granted during the term of the Agreement will remain outstanding until the
stated expiration date of the option, (iii) additional years will be credited
under the SERP so that termination will qualify the
29
<PAGE>
Covered Executive for the maximum retirement benefit and (iv) participation will
continue in benefit plans for up to three years. Upon occurrence of an event
deemed a potential change in control, IMS HEALTH is obligated to deposit funds
into a trust to fund potential obligations under the Agreements. For purposes of
the Agreements, "good reason" generally means a demotion or adverse change in
the Covered Executive's employment status, compensation or benefits, a required
relocation, a failure of IMS HEALTH to abide by other important provisions of
the Agreement or a failure of IMS HEALTH to renew the term of the Agreement. If
payments following a change in control are subject to the "golden parachute"
excise tax, IMS HEALTH will pay the Covered Executive an additional "gross-up"
amount so that his or her after-tax benefits are the same as though no excise
tax had applied. IMS HEALTH must provide full indemnification to the Covered
Executives, continue officers' and directors' liability insurance during
employment and for up to six years thereafter, and reimburse a Covered Executive
for expenses incurred in enforcing the Agreement unless incurred in bad faith or
frivolous. A "change in control" is defined in generally the same way as under
the Change-in-Control Agreements. See "Change-in-Control Agreements".
Employee Protection Plan
The IMS HEALTH Employee Protection Plan (the "EPP") provides severance
benefits to employees, including executive officers, other than the Covered
Executives whose employment agreements provide for severance benefits. The EPP
generally provides for the payment of severance benefits if employment is
terminated by IMS HEALTH not for cause. In the event of an eligible termination,
the executive will be entitled to salary and benefits continuation for not less
than 26 weeks nor more than 104 weeks, determined as follows: 1.5 weeks for each
$10,000 of salary plus three weeks for each year of service (limited to 26 weeks
if the employee is terminated with less than one year of service). Benefits
under the EPP cease at such time as the employee earns or accrues compensation
from any new employer or other third party. These benefits do not apply to
certain executive officers terminated within two years after a change in
control. See "Change-in-Control Agreements."
In addition to continuation of salary, the EPP provides to eligible
terminated employees (i) continued medical, dental and life insurance coverage
throughout the salary continuation period, (ii) payment of the annual bonus for
the year of termination that would have been paid if employment continued,
prorated to reflect the number of months worked during that year, but only if
the employee worked for at least six months in that year and only if termination
was not due to the employee's unsatisfactory performance, and (iii) in certain
instances, outplacement services and financial counseling. The Chief Executive
Officer retains discretion to increase or decrease EPP benefits for executives
and other employees, provided such decision is reported to the Compensation and
Benefits Committee of the Board.
30
<PAGE>
PROPOSAL NO. 1: RATIFICATION OF AND RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as independent
public accountants to audit the consolidated financial statements of IMS HEALTH
for 1999. This appointment is subject to ratification by the Shareholders at the
Annual Meeting.
PricewaterhouseCoopers has also acted as the Company's independent public
accountants since the Spin-off. In connection with its audit of the consolidated
financial statements, PricewaterhouseCoopers also audited the separate financial
statements of certain subsidiaries of the Company, reviewed certain filings with
the SEC and performed certain non-audit services.
A representative of PricewaterhouseCoopers is expected to be available to
answer appropriate questions at the Annual Meeting and is free to make
statements during the meeting.
If the ratification of appointment of PricewaterhouseCoopers is not
approved by the Shareholders, the Board will appoint other independent
accountants. Any engagement of new accountants for periods following the 2000
Annual Meeting will be subject to ratification by the Shareholders at that
meeting.
Approval of Proposal 1 will be determined by an affirmative vote of a
majority of the voting power present in person or represented by proxy at the
Annual Meeting and entitled to vote thereon. If you abstain from voting on
Proposal 1 or direct your proxy to abstain from voting on such Proposal, your
shares will be considered present at the Annual Meeting with respect to the
Proposal but, since they are not votes in favor of the matter, they will have
the same effect as votes against such Proposal. Broker non-votes with respect to
Proposal 1 will be considered present at the Annual Meeting and will have no
effect on the outcome of the vote on such Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS.
31
<PAGE>
PROPOSAL NO. 2
PROPOSED AMENDMENT TO RESTATED
CERTIFCATE OF INCORPORATION
The Board of Directors recommends that Article Fourth of IMS HEALTH's
Restated Certificate of Incorporation be amended for the purpose of increasing
the number of authorized shares of Common Stock from 400,000,000 to 800,000,000
shares. As of December 31, 1998, the authorized capital stock of the Company
consisted of 10,000,000 shares of Preferred Stock, par value $0.01 per share,
10,000,000 shares of Series Common Stock, par value $0.01 per share, and
400,000,000 shares of Common Stock.
The Company's two-for-one stock split on January 15, 1999 increased the
Company's outstanding Common Stock to ___________ shares and increased the
number of shares required to be reserved for issuance under benefit plans to
59,800,756 leaving ______ shares of Common Stock available for general corporate
purposes. These increases are solely the product of the Split-up and do not
reflect any incremental share issuances or any increase in the shares subject to
benefit plans on a pre-split basis. The increase being proposed doubles the
existing authorization and, in effect, simply offsets the change in shares
created by the Split-up. The form of amendment is set forth as Appendix A to the
Proxy Statement.
The adoption of this amendment to the Restated Certificate of Incorporation
of the Company will not result in the issuance of additional shares. The
increase in the authorized number of shares will maintain the Company's
pre-Split-up relationship between authorized and unissued shares. The amendment
is intended to ensure that there will be sufficient authorized but unissued
shares available for stock dividends, stock splits, possible acquisitions,
employee benefit programs, financing requirements and other corporate purposes
without the necessity of further Shareholder action at any annual or special
meeting. However, under the current rules of the New York Stock Exchange,
shareholder approval is required for certain stock option plans, for certain
mergers and acquisitions, for certain related party transactions and in certain
other circumstances. Although the Board of Directors presently has no intention
of doing so, the additional shares of Common Stock could be issued to a holder
that might vote against a proposed merger or sale of assets or other
extraordinary corporate transaction. The additional shares of Common Stock, as
well as the unissued shares of Preferred Stock and Series Common Stock, might
thus be available for use to impede or discourage an attempted takeover of IMS
HEALTH. The Common Stock, Series Common Stock and Preferred Stock do not have
preemptive rights. The issuance of such shares otherwise than to existing
Shareholders on a pro rata basis could have the effect of reducing an existing
Shareholder's proportionate interests. Except to the extent that IMS HEALTH is
currently obligated to issue shares of Common Stock upon the exercise of
outstanding stock options and the Rights under the Shareholder Rights Plan, IMS
HEALTH has no present plans, agreements, commitments or understandings regarding
the issuance of any additional shares of capital stock.
32
<PAGE>
If adopted, the amendment will become effective upon filing with the
Delaware Secretary of State as required by the General Corporation Law of
Delaware. It is anticipated that this will occur promptly following the date of
the Annual Meeting.
Approval of Proposal 2 will be determined by an affirmative vote of a
majority of the shares of Common Stock outstanding on the Record Date.
Abstentions and broker non-votes will have the same effect as votes against such
Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE CHARTER.
PROPOSALS REGARDING APPROVAL
OF COMPENSATION PLANS
Section 162(m) of the Code provides, with certain exceptions, that a
publicly-held corporation (such as IMS HEALTH) may not take a federal income tax
deduction for compensation paid to a "covered employee" in excess of $1 million
in a taxable year. A "covered employee" is the Chief Executive Officer of the
Company and any other officer who is among the four most highly compensated
officers (other than the Chief Executive Officer) as reported in the Proxy
Statement and employed at year-end.
The $1 million dollar limit on deductibility does not apply to compensation
that meets the requirements for "qualified performance-based compensation" as
defined in the applicable Treasury regulations. These requirements include,
among other things, that the material terms of the performance goals be
disclosed to and approved by shareholders.
In order to ensure that the Company's compensation plans that provide
performance-based compensation to senior executives are in compliance with tax
regulations, the Board of Directors is seeking Shareholder approval of two
compensation plans. The two plans for which approval is sought are the IMS
Health Incorporated Employees' Stock Incentive Plan, which provides for the
grant of stock options and other equity-based awards, and the IMS Health
Incorporated Executive Annual Incentive Plan, which provides for the grant of
annual and long-term bonuses (the "Plans"). In the event that Shareholders do
not approve these Plans, no additional grants under such Plans will be made.
However, previously granted options will remain valid and annual bonuses
previously awarded will remain payable under the Plans and continue to qualify
as performance-based compensation under Section 162(m) of the Code.
33
<PAGE>
PROPOSAL NO. 3:
ADOPTION OF EMPLOYEES' STOCK INCENTIVE PLAN
On June 15, 1998, the Board of Directors adopted the IMS Health
Incorporated Employee's Stock Incentive Plan (the "Incentive Plan"). For
purposes of Section 162(m) of the Code, approval of the Incentive Plan will be
deemed also to include (i) approval of the eligibility of executive officers and
other employees to participate in the Incentive Plan, (ii) the annual per-person
limitations described below under the caption "Shares Available and Award
Limitations", (iii) the general business criteria upon which performance
objectives for performance awards are based, described below under the caption
"Other Stock-Based Awards and Performance-Based Awards", and (iv) the grant of
ISOs (as defined below) pursuant to the Incentive Plan. Because Shareholder
approval of general business criteria, without specific target levels of
performance, qualifies annual incentive awards for a period of approximately
five years, Shareholder approval of such business criteria will meet the
requirements under Section 162(m) until 2004. Shareholder approval of the
performance goals inherent in stock options and stock appreciation rights
("SARs") is not subject to a time limit under Section 162(m).
The following description of the Incentive Plan is qualified in its
entirety by the provisions of the Incentive Plan, a copy of which is attached as
Appendix B to this Proxy Statement.
Plan Description
Purpose. The purpose of the Incentive Plan is to aid the Company and its
subsidiaries in attracting and retaining outstanding employees and to motivate
these employees to exert their best efforts on behalf of the Company by
providing incentives through the granting of stock options, SARs or other
stock-based awards (collectively, "Awards"). The Company expects to benefit from
the added interest which such employees will have in the welfare of the Company
as a result of their proprietary interest in its success.
Administration. The Incentive Plan will be administered and interpreted by
the Compensation and Benefits Committee. The Board may, and currently intends
to, limit the members of the Compensation and Benefits Committee to Directors
who are both "non-employee directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended and "outside directors" within the
meaning of Section 162(m) of the Code ("Directors"). The Committee may delegate
its duties and powers in whole or in part to any subcommittee meeting the
qualifications in the preceding sentence.
Eligibility. Employees of IMS HEALTH and its subsidiaries (other than
members of the Compensation and Benefits Committee or persons that serve solely
as directors of the Company)
34
<PAGE>
are eligible to participate in the Incentive Plan. The Compensation and Benefits
Committee has complete authority and discretion to determine from among eligible
persons to whom Awards under the Incentive Plan will be granted and the amounts
of such Awards. At present, approximately 8,000 persons would be eligible for
Awards under the Incentive Plan, of which approximately 1,500 persons currently
hold Awards granted under the Incentive Plan.
Shares Available and Award Limitations. A maximum of 13,000,000 shares of
Common Stock (subject to adjustment for certain fundamental changes as set forth
in the Incentive Plan) may be issued or delivered under the Incentive Plan plus
the number of shares reserved for grants under the 1998 IMS Health Incorporated
Replacement Plan for Certain Employees Holding Cognizant Corporation
Equity-Based Awards that are not in fact issued or delivered. Authorized shares
under this plan carry over from the remaining share authorization from Cognizant
(i.e. shares authorized less grants prior to the Spin-off) as adjusted for the
Split-up. No additional share authorization is being sought at this time. Shares
subject to an Award under the Incentive Plan that is forfeited or expired,
settled in cash or is otherwise terminated without issuance of shares to the
participant and shares withheld by or surrendered to IMS HEALTH to satisfy
withholding tax obligations or in payment of the exercise price of an Award will
be deemed to remain available for new Awards under the Incentive Plan. Shares
issuable in connection with Awards granted in substitution for awards of a
business acquired by IMS HEALTH will not be counted against the number of shares
reserved under the Incentive Plan. Information as to the number of shares
reserved under all incentive plans of IMS HEALTH is set forth in footnotes to
the financial statements in the Annual Report to Shareholders. Shares delivered
under the Incentive Plan may be either newly issued or treasury shares.
The annual per-person limitation for each type of Award granted to a
participant in any calendar year may relate to no more than one million shares
plus the amount of any unused annual limit for the previous year.
Stock Options. The Compensation and Benefits Committee is authorized to
grant non-qualified, incentive or other stock options. The exercise price of any
option granted under the Incentive Plan is determined by the Compensation and
Benefits Committee but may not be less than 100% of the fair market value of the
shares on the date of grant. If the Compensation and Benefits Committee requires
the participant to pay consideration at the time of grant of the option, that
payment will be treated as a prepayment applied to the exercise price of the
option. The Compensation and Benefits Committee shall determine the term of each
option granted, the times at which each option will be exercisable, and
provisions relating to forfeiture of unexercised options at or following
termination of employment. No option, however, will be exercisable more than 10
years after the date it is granted. Options may be exercised by payment of the
exercise price in cash, in shares having a fair market value equal to the
exercise price or through broker-assisted cashless exercises.
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SARs. The Committee is authorized to grant SARs either independent of an
option grant or in connection with an option. An SAR, upon exercise, entitles
the participant to receive the excess of the fair market value of a share of
Common Stock over the exercise price, payable in cash or shares. SARs granted in
connection with an option may be granted concurrent with the related option
grant or at any time prior to the exercise or cancellation of the option and are
generally subject to the same terms and conditions as the option. The exercise
price of an SAR shall be determined by the Committee but shall not be less than
the greater of (i) 100% of the fair market value of the shares on the date of
grant or in the case of an SAR granted in conjunction with an option, the option
price of the related option and (ii) an amount permitted by applicable laws,
rules, by-laws or policies or regulatory authorities or stock exchanges. The
Committee may impose, in its discretion, conditions upon exercisability or
transferability, including limits on the times at which an SAR will be
exercisable and provisions relating to forfeiture of unexercised SARs at or
following termination of employment. SARs granted under the Incentive Plan may
include "limited SARs" that are exercisable upon the occurrence of specified
events.
Other Stock-Based Awards and Performance-Based Awards. The Committee is
authorized to grant shares of restricted stock, shares of common stock as a
bonus or as deferred shares, Awards valued by reference to the fair market value
of shares, and dividend equivalents. The Committee will determine the terms and
conditions of such Awards including the consideration to be paid for the grant
or exercise, the periods during which Awards will be outstanding, and any
vesting provisions, forfeiture conditions and restrictions on such Awards. In
addition, such committee is authorized to grant Awards in a manner which is
deductible by IMS HEALTH without limitation under Section 162(m) of the Code by
requiring satisfaction by a participant of certain pre-established performance
goals while the outcome is substantially uncertain. Such performance goals,
which must be objective, shall be based on one or more of the following
criteria: (i) consolidated earnings before or after taxes (including earnings
before interest, taxes, depreciation and amortization); (ii) net income; (iii)
operating income; (iv) earnings per share; (v) book value per share; (vi) return
on stockholders' equity; (vii) expense management; (viii) return on investment;
(ix) improvements in capital structure; (x) profitability of an identifiable
business unit or product; (xi) maintenance or improvement of profit margins;
(xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs;
(xvi) cash flow; (xvii) working capital; (xviii) economic value added; (xix)
return on assets; (xx) total stockholder return (stock price appreciation plus
dividends and distributions); (xxi) operating management goals; and (xxii)
execution of pre-approved corporate strategy. Such criteria may relate to IMS
HEALTH or one or more of its subsidiaries, divisions or business units. The
performance goals may be calculated without regard to extraordinary items. No
Award shall be paid until the Compensation and Benefits Committee certifies that
the performance goals have been met.
Adjustments Upon Certain Events. Adjustments to the number and kind of
shares issued or reserved for issuance pursuant to the Incentive Plan or
outstanding Awards and shares
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subject to the share limitations and per-person limitations are authorized in
the event a share dividend or split, reorganization, recapitalization, merger,
spin-off, extraordinary dividend, or other similar corporate transaction or
event affects the Common Stock. The Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or changes in applicable laws, regulations, or accounting principles,
except that any adjustments to Awards intended to qualify as "performance-based"
must conform to requirements under Section 162(m). In the event of a
Change-in-Control (as defined in the Incentive Plan) the Committee may take such
action as it deems necessary or desirable with respect to an Award.
Amendments or Termination. The Board may amend, alter or discontinue the
Incentive Plan without Shareholder approval unless otherwise required by law,
regulation, or stock exchange rules, or deemed advisable. Without the consent a
participant, no amendment or alteration may materially impair any of the
participants rights under a previously granted Award. The Committee may amend or
alter the Incentive Plan in such manner as it deems necessary to permit the
granting of Awards meeting requirements of the Code or other applicable laws.
Nontransferability of Awards. An Award shall not be transferable or
assignable by a participant otherwise than by will or by the laws of descent or
distribution.
Previously Granted Awards and the Effect of Shareholder Approval; Future Awards
All Awards granted to date have been granted under the Incentive Plan as
adopted by the Board. Stock options granted under the Incentive Plan in 1998 to
IMS HEALTH's named executives are shown above in the table entitled "Option/SAR
Grants in Last Fiscal Year," and are discussed above in the "Report of the
Compensation and Benefits Committee on Executive Compensation." If Shareholders
decline to approve the Incentive Plan, IMS HEALTH will be precluded from
granting future Awards under the Incentive Plan to the extent necessary to meet
the requirements of Treasury Regulation 1.162-27(e)(4).
Awards to be granted in the future under the Incentive Plan will be within
the discretion of the Committee, and cannot be ascertained at this time.
Awards in most cases are granted without a requirement that the participant
pay consideration in the form of cash or property for the grant (as
distinguished from the exercise), except consideration, in the form of a
prepayment of the exercise price, may be required for certain option grants, and
consideration may otherwise be required in the discretion of the committee or as
required by law.
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U.S. Federal Income Tax
The following is a brief description of certain income tax consequences
generally arising with respect to Awards that may be granted under the Incentive
Plan. This brief description is not intended to be a complete description of all
possible tax consequences with respect to Awards. The grant of an option or SAR
will create no federal income tax consequences for the participant or the
Company. A participant will not have taxable income upon exercising an ISO
(except that the alternative minimum tax may apply) and the Company will not be
entitled to a tax deduction. Upon exercising an option other than an ISO (i.e.,
a non-qualified stock option), the participant must generally recognize ordinary
income equal to the excess of the fair market value of the stock acquired on the
date of exercise over the exercise price. Upon exercising an SAR, the
participant must generally recognize ordinary income equal to the cash or to the
fair market value of the stock received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods established by Code Section 422, the
participant must generally recognize ordinary income equal to the lesser of (i)
the fair market value of the shares at the date of exercise of the ISO over the
exercise price or (ii) the amount realized upon the disposition of the ISO
shares over the exercise price. Otherwise, a participant's disposition of shares
acquired upon the exercise of an option, including a non-qualified stock option,
or SAR generally will result in short-term, mid-term or long-term capital gain
or loss measured by the sale price over the participant's tax basis in such
shares (generally, the basis equals the exercise price plus any amount
previously recognized as ordinary income in connection with the exercise of the
option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Company will not be entitled to any tax deduction with respect to an ISO if
the participant holds the shares for the applicable ISO holding periods prior to
disposition of the shares.
With respect to other Awards granted under the Plan that may be settled
either in cash or in stock or other property that is not restricted as to
transferability and/or not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of stock or other property actually received. In this regard,
Awards providing for deferred delivery of shares or cash generally will be
subject to taxation at the end of the deferral period. Except as discussed
below, the Company generally will be entitled to a deduction equal to the amount
of ordinary income recognized by the participant. With respect to awards
involving stock or other property that is restricted as to transferability and
subject to a substantial risk of forfeiture, the participant will generally
recognize ordinary income equal to the fair market value of the shares or other
property received at the first time the shares or other property become
transferable or not subject to a substantial risk of forfeiture, whichever
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occurs earlier. Except as discussed below, the Company generally will be
entitled to a deduction in an amount equal to the ordinary income recognized by
the participant. A participant may elect, pursuant to Section 83(b) of the Code,
to be taxed at the time of receipt of shares or other property rather than upon
lapse of restrictions on transferability or the substantial risk of forfeiture.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1,000,000 deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it. The
Incentive Plan allows certain ISOs, nonqualified stock options, SARs and
performance-based Awards granted under the Plan to be treated as qualified
performance-based compensation under Code Section 162(m). However, the Company
may, from time to time, award compensation that is not deductible under Code
Section 162(m).
Approval of Proposal 3 will be determined by an affirmative vote of a
majority of the votes cast on the matter and abstentions and broker non-votes
will not affect the result.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ADOPTION OF
THE EMPLOYEES' STOCK INCENTIVE PLAN.
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PROPOSAL NO. 4
ADOPTION OF EXECUTIVE ANNUAL INCENTIVE PLAN
On June 15, 1998, the Board of Directors adopted the IMS Health
Incorporated Executive Annual Incentive Plan (the "Executive Plan"). The
Shareholders are being asked to approve the Executive Plan so that awards
granted under the Executive Plan may qualify as performance-based compensation
under Section 162(m) of the Code. The following description is qualified in its
entirety by the provisions of the Executive Plan, a copy of which is attached as
Appendix C to this Proxy Statement.
Plan Description
Purpose. The purpose of the Executive Plan is to advance the interests of
the Company and its Shareholders by providing incentives in the form of periodic
cash bonus awards to certain management employees of the Company and its
subsidiaries, thereby motivating such employees to attain corporate performance
goals articulated under the Executive Plan.
Administration. The Executive Plan will be administered and interpreted by
the Compensation and Benefits Committee. The Board may, and currently intends
to, limit the members of the Committee to directors who are both "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code ("Directors"). The
Committee may delegate its duties and powers in whole or in part to any
subcommittee composed of at least two Directors that meet the requirements set
forth in the preceding sentence.
Eligibility. The Committee, will select participants from among employees
of the IMS HEALTH whose position and responsibilities are expected to have a
material impact on the results of operations of IMS HEALTH or one or more of its
subsidiaries.
Performance Goals. The amount of any incentive compensation earned by a
participant in a performance period will be determined based on the attainment
by such participant of written performance goals approved by the committee and
established while the outcome is substantially uncertain. The objective
performance goals shall be based on one or more of the following criteria: (i)
consolidated earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization), (ii) net income, (iii) operating income,
(iv) earnings per share, (v) book value per share, (vi) return on Shareholders'
equity, (vii) expense management, (viii) return on investment, (ix) improvements
in capital structure, (x) profitability of an identifiable business unit or
product (xi) maintenance or improvement of profit margins, (xii) stock price,
(xiii) market share, (xiv) revenues or sales, (xv) costs, (xvi) cash flow,
(xvii) working capital, (xviii) return on assets, (xix) customer satisfaction,
and (xx) employee satisfaction. The performance goals may be calculated without
regard to extraordinary items.
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Paying Awards. Following the completion of a performance period the
committee will determine whether a participant has met applicable performance
goals and, if so, will certify to that effect and will determine the amount of
incentive compensation to be paid. No incentive compensation will be paid until
certification is made by the Committee. At the discretion of the Committee, the
amount of the payment may be less or more (but only with respect to participants
who are not covered employee's as defined in Section 162(m) of the Code (the
"Covered Employees")) than the amount determined by the applicable performance
goal formula.
Maximum Award Limit. The maximum amount that may be earned by a participant
with respect to a fiscal year of IMS HEALTH is $3 million.
Termination of Employment. If a participant, who is not a Covered Employee,
dies, retires, is assigned to a different position, is granted a leave of
absence, or is otherwise terminated (except for cause) during a performance
period, a pro rata share of any incentive compensation based on the period of
actual performance may, at the discretion of the committee, be paid to such
participant at the end of the performance period.
Amendment and Termination. The Board may amend, alter or discontinue the
Executive Plan, but no amendment, alteration or discontinuation may impair the
rights or obligation under any award granted to a participant without his or her
consent. The Committee may, however, amend the Executive Plan to permit the
granting of awards that meet the requirements of the Code.
Nontransferability of Awards. An Award shall not be transferable or
assignable by the participant otherwise than by will or the laws of descent and
distribution.
New Plan Benefits
It is not possible to determine the benefits or amounts that will be
received by any participant for the current year or any year in the future
because (a) the performance goals will be determined by the committee at the
beginning of a performance period, and (b) the amount, if any, payable will
depend upon the extent to which the participant satisfies such performance
goals.
Approval of Proposal 4 will be determined by an affirmative vote of a
majority of the votes cast on the matter and abstentions and broker non-votes
will not affect the result.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ADOPTION OF
THE EXECUTIVE ANNUAL INCENTIVE PLAN.
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OTHER MATTERS
IMS HEALTH knows of no matters, other than those referred to herein, which
will be presented at the Annual Meeting. If, however, any other appropriate
business should properly be presented at the meeting, the persons named in the
enclosed form of proxy will vote the proxies in accordance with their best
judgment.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals intended to be presented at the IMS HEALTH Annual
Meeting of Shareholders in 2000 must be received by IMS HEALTH no later than
October 29, 1999.
Under the Company's By-Laws, a Shareholder proposal not intended to be
included in the proxy material for the Annual Meeting of Shareholders in 2000
must be received by IMS HEALTH no later than January 9, 2000. Any such proposal
must also comply with the other provisions contained in IMS HEALTH's By-Laws
relating to Shareholder proposals.
REDUCE MAILINGS
If more than one copy of the Company's 1998 Annual Report and Proxy
Statement has been mailed to your address and you wish to reduce the number of
reports you receive and save the Company the cost of producing and mailing these
reports, we will discontinue the mailing of reports on the accounts you select
if you mark the designated box on the appropriate proxy card(s). At least one
account must continue to receive the Annual Report and Proxy Statement.
February 26, 1999
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APPENDIX A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IMS HEALTH INCORPORATED
******
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
******
IMS HEALTH INCORPORATED, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), DOES HEREBY CERTIFY that:
FIRST: The name of the Corporation is IMS HEALTH INCORPORATED.
SECOND: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on February 3, 1998, as restated
by a Restated Certificate of Incorporation filed with the Secretary of State of
Delaware on May 29, 1998.
THIRD: That the Board of Directors of the Corporation, by resolution duly
adopted, declared it advisable that the Restated Certificate of Incorporation of
the Corporation as filed on May 29, 1998 be amended by amending Paragraph (1) of
Article FOURTH of the Restated Certificate of Incorporation to read in its
entirety as follows:
(1) The total number of shares of all classes of stock which the
corporation shall have authority to issue is 820,000,000, consisting of (a)
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), (b) 800,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), and (c) 10,000,000 shares of Series Common Stock, par
value $.01 per share ("Series Common Stock"). The number of authorized
shares of any of the Preferred Stock, the Common Stock or the Series Common
Stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority in voting power of the stock of the corporation entitled to vote
thereon irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware (or any successor provision
thereto), and no vote of the holders of any of the Preferred Stock, the
Common Stock or the Series Common Stock voting separately as a class shall
be required therefor.
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FOURTH: This amendment to the Restated Certificate of Incorporation was
duly adopted in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, IMS HEALTH INCORPORATED has caused this Certificate of
Amendment to be signed by ____________, its _______________, this ___th day of
____________________ 1999.
IMS HEALTH INCORPORATED
By: __________________________
Name:
Title:
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APPENDIX B
1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Subsidiaries in
securing and retaining employees of outstanding ability and to motivate such
employees to exert their best efforts on behalf of the Company and its
Subsidiaries by providing incentives through the granting of Awards. The Company
expects that it will benefit from the added interest which such employees will
have in the welfare of the Company as a result of their proprietary interest in
the Company's success.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Annual Limit: The limitation on the amount of certain Awards intended
to qualify as "performance-based compensation" that may be granted to
a given Participant each year.
(c) Award: An Option, Stock Appreciation Right or Other Stock-Based Award
granted pursuant to the Plan.
(d) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(e) Board: The Board of Directors of the Company.
(f) Change in Control: The occurrence of any of the following events after
effective date:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company), becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of
such period constitute the Board, and any
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new director (other than (A) a director nominated by a Person who
has entered into an agreement with the Company to effect a
transaction described in Sections 2(f) (i), (iii) or (iv) of the
Plan, (B) a director nominated by any Person (including the
Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual
or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any
Person who is the Beneficial Owner, directly or indirectly, of
securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election
by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii)the stockholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated
with any other company, other than a merger or consolidation (A)
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 66 2/3% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation and (B) after which no Person holds 20%
or more of the combined voting power of the then-outstanding
securities of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Board determines that a Change in Control shall be deemed to
have occurred for purposes of the Plan, provided that the Board
may impose limitations on the effects of a Change in Control on
any Award or otherwise if the Change in Control has occurred
under this Section 2(f)(v) and not under other subsections of
this Section 2(f).
(g) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(h) Cognizant: Cognizant Corporation, a Delaware corporation.
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(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.
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(r) Participant: An individual who is selected by the Committee to participate
in the Plan pursuant to Section 5 of the Plan.
(s) Performance-Based Awards: Certain Other Stock-Based Awards granted pursuant
to Section 9(b) of the Plan.
(t) Person: As such term is used for purposes of Section 13(d) or 14(d) of the
Act (or any successor section thereto).
(u) Plan: The 1998 IMS Health Incorporated Employees' Stock Incentive Plan.
(v) Retirement: Termination of employment with the Company or a Subsidiary (i)
after such Participant has attained age 65 or (ii), with the prior written
consent of the Committee that such termination be treated as a Retirement
hereunder, termination of employment under other circumstances.
(w) Shares: Shares of common stock, par value $0.01 per Share, of the Company.
(x) Spinoff Date: The date on which the Shares that are owned by Cognizant are
distributed to the holders of record of shares of Cognizant.
(y) Stock Appreciation Right: A stock appreciation right granted pursuant to
Section 8 of the Plan.
(z) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the
Code (or any successor section thereto).
3. Shares Subject to the Plan
(a) Aggregate Share Limitations. Subject to adjustment as provided in
Section 10(a), the total number of Shares which may be issued and/or delivered
under the Plan is 13,000,000 plus the number of Shares reserved for awards under
the IMS Health Incorporated Replacement Plan for Certain Employees Holding
Cognizant Corporation Equity-Based Awards (the "Replacement Plan") that are not
in fact issued or delivered in connection with such awards. The Shares may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares. Shares subject to an Award under the Plan that is canceled, expired,
forfeited, settled in cash, or otherwise terminated without a delivery of Shares
to the Participant (or a Beneficiary), including the number of Shares withheld
or surrendered in payment of any exercise or purchase price of an Award or taxes
relating to an Award, will become available for Awards under the Plan, and
Shares shall be counted as issued or delivered under the Replacement Plan in a
manner consistent with the counting of Shares under this Section 3. In 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
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Plan, but shall be deemed to be available under the Plan by virtue of the
Company's assumption of the plan or arrangement of the acquired company or
business.
(b) Annual Per-Person Limitations. In each calendar year during any part of
which the Plan is in effect, a Participant may be granted Awards under each of
Section 7, Section 8, and Section 9(b) relating to up to the Participant's
Annual Limit (such Annual Limit to apply separately to each Section). A
Participant's Annual Limit, in any year during any part of which the Participant
is then eligible under the Plan, shall equal 1,000,000 shares plus the amount of
the Participant's unused Annual Limit as of the close of the previous year,
subject to adjustment as provided in Section 10(a).
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two individuals who are each "non-employee directors" within
the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and
"outside directors" within the meaning of Section 162(m) of the Code (or any
successor section thereto). The Committee is authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan in the manner and to the
extent the Committee deems necessary or desirable. Any decision of the Committee
in the interpretation and administration of the Plan, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, Participants
and their beneficiaries or successors). The Committee shall require payment of
any amount it may determine to be necessary to withhold for federal, state,
local or other taxes as a result of the exercise or settlement of an Award.
Unless the Committee specifies otherwise, the Participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in shares or (b) having
shares withheld by the Company from any shares that would have otherwise been
received by the Participant. The Committee may, in its discretion, grant Awards
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. If the chief executive officer of the Company is a
member of the Board, the Board by specific resolution may constitute such chief
executive officer as a committee of one which shall have the authority to grant
Awards of up to an aggregate of 50,000 Shares in each calendar year to each
Participant who is not subject to the rules promulgated under Section 16 of the
Act (or any successor section thereto); provided, however, that such chief
executive officer shall notify the Committee of any such grants made pursuant to
this Section 4.
5. Eligibility
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
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commenced such employment. Participants shall be selected from time to time by
the Committee, in its sole discretion, from among those eligible, and the
Committee shall determine, in its sole discretion, the number of Shares to be
covered by the Awards granted to each Participant.
6. Limitations
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
7. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee,
non-qualified, incentive or other stock options for federal income tax purposes,
as evidenced by the related Award agreements, and shall be subject to the
foregoing and the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of the
Shares on the date an Option is granted. The Committee may require the
participant to pay a portion of the Option Price at the time of grant of the
option, with the remainder of the Option Price payable upon exercise of the
Option. Such prepayment of the Option Price shall be non-refundable, unless
otherwise determined by the Committee
(b) Exercisability. Options granted under the Plan shall be exercisable at
such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or in an
Award agreement, an Option may be exercised for all, or from time to time any
part, of the Shares for which it is then exercisable. For purposes of Section 7
of the Plan, the exercise date of an Option shall be the later of the date a
notice of exercise is received by the Company and, if applicable, (A) the date
payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the
following sentence, or (B) the date of sale by a broker of all or a portion of
the Shares being purchased pursuant to clause (iv) in the following sentence.
Unless otherwise determined by the Committee, the Option Price for the Shares as
to which an Option is exercised shall be paid to the Company in full not later
than the time of exercise at the election of the Participant (i) in cash, (ii)
in Shares having a Fair Market Value equal to the aggregate unpaid Option Price
for the Shares being purchased and satisfying such other requirements as may be
imposed by the Committee, (iii) partly in cash and partly in such Shares, or
(iv) through the delivery of irrevocable instructions to a broker to deliver
promptly to the Company an amount equal to the aggregate Option Price for the
Shares being purchased. The Award 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
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respect to Shares subject to an Option until the Participant has given written
notice of exercise of the Option, paid in full for such Shares and, if
applicable, has satisfied any other conditions imposed by the Committee pursuant
to the Plan.
(d) Restrictions on Shares Issued Upon Exercise; Other Conditions. If and
to the extent so determined by the Committee, Shares issued upon exercise of an
Option may be subject to limitations on transferability, risks of forfeiture,
deferral of delivery, or such other terms and conditions as the Committee may
impose, subject to Section 14(b). Such terms and conditions may include required
forfeiture of Options or gains realized upon exercise thereof, for a specified
period after exercise, in the event the Participant fails to comply with
conditions relating to non-competition, non-disclosure, non-solicitation or
non-interference with employees, suppliers, or customers, and non-disparagement
and other conditions specified by the Committee.
(e) Termination Provisions. The Committee shall determine, in its
discretion, whether and the extent to which an Option shall be forfeited or
shall become exercisable on an accelerated basis in the event of the
Participant's termination of employment due to death, Disability, Retirement, or
for other reasons, the period following such a termination during which the
Option shall be exercisable, and other provisions relating to such terminations.
8. Terms and Conditions of Stock Appreciation Rights
(a) Grants. The Committee also may grant (i) a Stock Appreciation Right
independent of an Option or (ii) a Stock Appreciation Right in connection with
an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to
clause (ii) of the preceding sentence (A) may be granted at the time the related
Option is granted or at any time prior to the exercise or cancellation of the
related Option, (B) shall cover the same Shares covered by an Option (or such
lesser number of Shares as the Committee may determine) and (C) shall be subject
to the same terms and conditions as such Option except for such additional
limitations as are contemplated by this Section 8 (or such additional
limitations as may be included in an Award agreement).
(b) Terms. The exercise price per Share of a Stock Appreciation Right shall
be an amount determined by the Committee but in no event shall such amount be
less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount permitted by applicable laws,
rules, by-laws or policies of regulatory authorities or stock exchanges. Each
Stock Appreciation Right granted independent of an Option shall entitle a
Participant upon exercise to an amount equal to (i) the excess of (A) the Fair
Market Value on the exercise date of one Share over (B) the exercise price per
Share, times (ii) the number of Shares covered by the Stock Appreciation Right.
Each Stock Appreciation Right granted in conjunction with an Option, or a
portion 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
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shall be determined by the Committee. Stock Appreciation Rights may be exercised
from time to time upon actual receipt by the Company of written notice of
exercise stating the number of Shares subject to an exercisable Option with
respect to which the Stock Appreciation Right is being exercised. No fractional
Shares will be issued in payment for Stock Appreciation Rights, but instead cash
will be paid for a fraction or, if the Committee should so determine, the number
of Shares will be rounded downward to the next whole Share.
(c) Limitations. The Committee may impose, in its discretion, such
conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs that
are exercisable upon the occurrence of specified contingent events. Such LSARs
may provide for a different method of determining appreciation, may specify that
payment will be made only in cash and may provide that any related Awards are
not exercisable while such LSARs are exercisable. Unless the context otherwise
requires, whenever the term "Stock Appreciation Right" is used in the Plan, such
term shall include LSARs.
9. Other Stock-Based Awards
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole or in
part by reference to, or are otherwise based on the Fair Market Value of, Shares
("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such
form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive one or more Shares (or the
equivalent cash value of such Shares) as an outright bonus or upon the
completion of a specified period of service, the occurrence of an event and/or
the attainment of performance objectives. Other Stock-Based Awards may be
granted alone or in addition to any other Awards granted under the Plan. Subject
to the provisions of the Plan, the Committee shall determine to whom and when
Other Stock-Based Awards will be made, the number of Shares to be awarded under
(or otherwise related to) such Other Stock-Based Awards; whether such Other
Stock-Based Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards (including, without
limitation, the vesting provisions thereof). Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 9(a). In addition, the Committee is authorized to grant dividend
equivalents to a Participant, entitling the Participant to receive cash, Shares,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of Shares, or other periodic payments. Dividend equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents 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
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Awards"). A Participant's Performance-Based Award shall be determined based on
the attainment of written performance goals approved by the Committee for a
performance period established by the Committee (i) while the outcome for that
performance period is substantially uncertain and (ii) no more than 90 days
after the commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of the
relevant performance period. The performance goals, which must be objective,
shall be based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating income; (iv)
earnings per share; (v) book value per share; (vi) return on stockholders'
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) economic value added; (xix) return on assets;
(xx) total stockholder return (stock price appreciation plus dividends and
distributions); (xxi) operating management goals; (xxii) and execution of
pre-approved corporate strategy. The foregoing criteria may relate to the
Company, one or more of its Subsidiaries or one or more of its divisions or
units, or any combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code (or any successor section
thereto), the performance goals may be calculated without regard to
extraordinary items. In the case of a Performance-Based Award which is not
valued in a way in which the limitation set forth in the final sentence of
Section 3 would operate as an effective limitation satisfying Treasury
Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to
any Participant with respect to performance in a single fiscal year of the
Company shall be $5,000,000. The Committee shall determine whether, with respect
to a performance period, the applicable performance goals have been met with
respect to a given Participant and, if they have, to so certify and ascertain
the amount of the applicable Performance-Based Award. No Performance-Based
Awards will be paid for such performance period until such certification is made
by the Committee. The amount of the Performance-Based Award actually paid to a
given Participant may be less than the amount determined by the applicable
performance goal formula, at the discretion of the Committee. The amount of the
Performance-Based Award determined by the Committee for a performance period
shall be paid to the Participant at such time as determined by the Committee in
its sole discretion after the end of such performance period; provided, however,
that a Participant may, if and to the extent permitted by the Committee and
consistent with the provisions of Section 162(m) of the Code, elect to defer
payment of a Performance-Based Award.
10. Adjustments Upon Certain Events
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
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make such substitution or adjustment, if any, as it deems to be equitable, as to
(i) the number or kind of Shares or other securities issued or reserved for
issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option
Price, (iii) the number and kind of Shares by which annual per-person Award
limitations are measured under Section 3 hereof and/or (iv) any other affected
terms of such Awards (including making provision for the payment of cash, other
Awards or other property in respect of any outstanding Award). In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or any business unit, or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or business unit thereof, performance of
comparable organizations, economic and business conditions, personal performance
of a Participant, and any other circumstances deemed relevant; provided that no
such adjustment shall be authorized to be made if and to the extent that such
authority or the making of such adjustment would cause Options, Stock
Appreciation Rights, or Performance Awards granted under Section 9(b) hereof
intended to qualify as "performance-based compensation" under Code Section
162(m) and regulations thereunder to otherwise fail to so qualify.
(b) Change in Control. Except as otherwise provided in an Award agreement,
in the event of a Change in Control, the Committee in its sole discretion and
without liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including, without limitation,
(i) the acceleration of an Award, (ii) the payment of a cash amount in exchange
for the cancellation of an Award and/or (iii) the requiring of the issuance of
substitute Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as of the date of
the consummation of the Change in Control.
11. No Right to Employment
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment of a Participant and shall
not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant.
12. Successors and Assigns
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
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representatives or distributees of the Participant. Notwithstanding anything to
the contrary herein, the Committee, in its sole discretion, shall have the
authority to waive this Section 13 (or any part thereof) to the extent that this
Section 13 (or any part thereof) is not required under the rules promulgated
under any law, rule or regulation applicable to the Company.
14. Amendments or Termination
(a) Changes to the Plan. The Board may amend, alter or discontinue the
Plan, except that (i) any amendment or alteration shall be subject to the
approval of the Company's stockholders at or before the next annual meeting of
stockholders for which the record date is after the date of such Board action if
such stockholder approval is required by any federal or state law or regulation
or the rules of any stock exchange or automated quotation system on which the
Shares may then be listed or quoted, and the Board may otherwise, in its
discretion, determine to submit amendments or alterations to stockholders for
approval; (ii) without the consent of a Participant, no amendment or alteration
shall materially impair any of the Participant's rights under an Award
theretofore granted to such Participant; and (iii) the Committee may amend or
alter the Plan in such manner as it deems necessary to permit the granting of
Awards meeting requirements of the Code or other applicable laws.
Notwithstanding anything to the contrary herein, the Board may not amend, alter
or discontinue the provisions relating to Section 10(b) of the Plan after the
occurrence of a Change in Control.
(b) Changes to Outstanding Awards. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue, or terminate any Award
theretofore granted and any Award agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Other provisions of the
Plan notwithstanding, if any right under this Plan would cause a transaction to
be ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Shares having a Fair Market Value equal to the
cash otherwise payable hereunder for the right which caused the transaction to
be ineligible for pooling of interest accounting.
15. International Participants
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
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Company shall be construed as creating any limitations on the power of the Board
to adopt such other compensatory arrangements as it may deem desirable,
including, without limitation, the granting of awards otherwise than under the
Plan, and such other arrangements may be either applicable generally or only in
specific cases.
17. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of
the State of New York.
18. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
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APPENDIX C
IMS HEALTH INCORPORATED
EXECUTIVE ANNUAL INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company and its
stockholders by providing incentives in the form of periodic cash bonus awards
to certain management employees of the Company and its subsidiaries, thereby
motivating such employees to attain corporate performance goals articulated
under the Plan.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Award: A periodic cash bonus award granted pursuant to the Plan.
(c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act
(or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
(e) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new
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director (other than (A) a director nominated by a Person who has
entered into an agreement with the Company to effect a transaction
described in Sections (2)(e)(i), (iii) or (iv) of the Plan, (B) a
director nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest)
which if consummated would constitute a Change in Control or (C) a
director nominated by any Person who is the Beneficial Owner, directly
or indirectly, of securities of the Company representing 10% or more
of the combined voting power of the Company's securities) whose
election by the Board or nomination for election by the Company's
stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation and
(B) after which no Person holds 20% or more of the combined voting
power of the then-outstanding securities of the Company or such
surviving entity; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Committee: The Compensation and Benefits Committee of the Board.
(h) Company: IMS Health Incorporated, a Delaware corporation.
(i) Covered Employee: As such term is defined in Section 162(m) of the
Code (or any successor section thereto).
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(j) Covered Participant: A Participant who is, or who is anticipated to
become, a Covered Employee.
(k) Effective Date: The date on which the Plan takes effect, as defined
pursuant to Section 13 of the Plan.
(l) Participant: An employee of the Company or any of its Subsidiaries who
is selected by the Committee to participate in the Plan pursuant to
Section 4 of the Plan.
(m) Performance Period: The calendar year or any other period that the
Committee, in its sole discretion, may determine.
(n) Person: As such term is used for purposes of Sections 13(d) or 14(d)
of the Act (or any successor sections thereto).
(o) Plan: The IMS Health Incorporated Executive Annual Incentive Plan.
(p) Shares: Shares of common stock, par value $0.01 per Share, of the
Company.
(q) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. Administration
The Plan shall be administered by the Committee or such other persons
designated by the Board. The Committee may delegate its duties and powers in
whole or in part to any subcommittee thereof consisting solely of at least two
individuals who are each "non-employee directors" within the meaning of Rule
16b-3 of the Act (or any successor rule thereto) and "outside directors" within
the meaning of Section 162(m) of the Code (or any successor section thereto).
The Committee shall have the authority to select the employees to be granted
Awards under the Plan, to determine the size and terms of an Award (subject to
the limitations imposed on Awards in Section 5 below), to modify the terms of
any Award that has been granted (except for any modification that would increase
the amount of the Award payable to a Covered Participant), to determine the time
when Awards will be made and the Performance Period to which they relate, to
establish performance objectives in respect of such performance periods and to
certify that such performance objectives were attained; provided, however, that
any such action shall be consistent with the applicable provisions of Section
162(m) of the Code. The Committee is authorized to interpret the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan, and
to make any other determinations that it deems necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the
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manner and to the extent the Committee deems necessary or desirable. Any
decision of the Committee in the interpretation and administration of the Plan,
as described herein, shall lie within its sole and absolute discretion and shall
be final, conclusive and binding on all parties concerned. Determinations made
by the Committee under the Plan need not be uniform and may be made selectively
among Participants, whether or not such Participants are similarly situated. The
Committee shall have the right to deduct from any payment made under the Plan
any federal, state, local or foreign income or other taxes required by law to be
withheld with respect to such payment. To the extent consistent with the
applicable provisions of Section 162(m) of the Code, the Committee may delegate
to one or more employees of the Company or any of its Subsidiaries the authority
to take actions on its behalf pursuant to the Plan.
4. Eligibility and Participation
The Committee shall designate those persons who shall be Participants for
each Performance Period. Participants shall be selected from among the employees
of the Company and any of its Subsidiaries who are in a position to have a
material impact on the results of the operations of the Company or of one or
more of its Subsidiaries. The designation of Participants may be made
individually or by groups or classifications of employees, as the Committee
deems appropriate.
5. Awards
(a) Performance Goals. A Participant's Award shall be determined based on
the attainment of written performance goals approved by the Committee for a
Performance Period established by the Committee (i) while the outcome for that
Performance Period is substantially uncertain and (ii) no more than 90 days
after the commencement of the Performance Period to which the performance goal
relates or, if less than 90 days, the number of days which is equal to 25
percent of the relevant Performance Period. The performance goals, which must be
objective with respect to Covered Participants, shall be based upon one or more
of the following criteria: (i) consolidated earnings before or after taxes
(including earnings before interest, taxes, depreciation and amortization); (ii)
net income; (iii) operating income; (iv) earnings per Share; (v) book value per
Share; (vi) return on stockholders' equity; (vii) expense management; (viii)
return on investment; (ix) improvements in capital structure; (x) profitability
of an identifiable business unit or product; (xi) maintenance or improvement of
profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales;
(xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) return on assets;
(xix) customer satisfaction; and (xx) employee satisfaction. In addition, with
respect to Participants who are not Covered Participants, the Committee may
approve performance goals based on other criteria, which may or may not be
objective. The foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions, units, partnerships, joint
venturers or minority investments, product lines or products or any combination
of the foregoing, and may be applied on an absolute basis and/or be relative to
one or more peer group companies or indices, or any combination thereof, all as
the Committee shall determine. In addition, to the degree consistent with
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Section 162(m) of the Code (or any successor section thereto), the performance
goals may be calculated without regard to extraordinary items. The maximum
amount of an Award to any Participant with respect to a fiscal year of the
Company shall be $3,000,000.
(b) Payment. The Committee shall determine whether, with respect to a
Performance Period, the applicable performance goals have been met with respect
to a given Participant and, if they have, to so certify and ascertain the amount
of the applicable Award. No Awards will be paid for such performance period
until such certification is made by the Committee. The amount of the Award
actually paid to a given Participant may be less or, with respect to
Participants who are not Covered Participants, more than the amount determined
by the applicable performance goal formula, at the discretion of the Committee.
The amount of the Award determined by the Committee for a performance period
shall be paid to the Participant at such time as determined by the Committee in
its sole discretion after the end of such Performance Period.
(c) Termination of Employment. If a Participant who is not a Covered
Participant dies, retires, is assigned to a different position, is granted a
leave of absence, or if the Participant's employment is otherwise terminated
(except with cause by the Company) during a Performance Period, a pro rata share
of the Participant's award based on the period of actual participation may, at
the Committee's discretion, be paid to the Participant after the end of the
Performance Period if it would have become earned and payable had the
Participant's employment status not changed.
(d) Compliance with Section 162(m) of the Code. The provisions of this
Section 5 shall be administered and interpreted in accordance with Section
162(m) of the Code to ensure the deductibility by the Company or its
Subsidiaries of the payment of Awards.
6. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair any of the rights
or obligations under any Award theretofore granted to a Participant under the
Plan without such Participant's consent; provided, however, that the Committee
may amend the Plan in such manner as it deems necessary to permit the granting
of Awards meeting the requirements of the Code or other applicable laws.
Notwithstanding anything to the contrary herein, the Board may not amend, alter
or discontinue the provisions relating to Section 10(b)(ii) of the Plan after
the occurrence of a Change in Control.
7. No Right to Employment
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant or other person any right to continue to be employed by
or perform services for the Company or any Subsidiary, and the right to
terminate the
19
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employment of or performance of services by any Participant at any time and for
any reason is specifically reserved to the Company and its Subsidiaries.
8. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution.
9. Reduction of Awards
Notwithstanding anything to the contrary herein, the Committee, in its sole
discretion (but subject to applicable law), may reduce any amounts payable to
any Participant hereunder in order to satisfy any liabilities owed to the
Company or any of its Subsidiaries by the Participant.
10. Adjustments Upon Certain Events
(a) Generally. In the event of any change in the outstanding Shares by
reason of any Share dividend or split, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of Shares or other corporate
exchange, or any distribution to stockholders of Shares other than regular cash
dividends, the Committee in its sole discretion and without liability to any
person may make such substitution or adjustment, if any, as it deems to be
equitable, as to any affected terms of outstanding Awards.
(b) Change in Control. Notwithstanding any other provision in the Plan to
the contrary, in the event of a Change in Control, (i) the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (A) the acceleration of an Award, (B) the payment of a cash amount
in exchange for the cancellation of an Award and/or (C) the requiring of the
issuance of substitute Awards that will substantially preserve the value, rights
and benefits of any affected Awards previously granted hereunder) as of the date
of the consummation of the Change in Control and (ii) any Participant who, as a
result of a Change in Control, receives payments pursuant to a Change-in-Control
agreement shall receive, subject to the same terms and conditions under which
such payments are made, an amount in cash equal to (A) the annual target bonus
under the Plan for the year in which the Change in Control occurs, multiplied by
a fraction, (I) the numerator of which equals the number of full or partial days
in such annual performance period during which he or she was employed by the
Company and (II) the denominator of which is 365, and (B) the entire target
bonus opportunity with respect to all other performance periods in progress
under this Plan at the time of his or her termination of employment from the
Company.
11. Miscellaneous Provisions
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The Company is the sponsor and legal obligor under the Plan and shall make
all payments hereunder, other than any payments to be made by any of the
Subsidiaries (in which case shall be made by such Subsidiary, as appropriate).
The Company shall not be required to establish any special or separate fund or
to make any other segregation of assets to ensure the payment of any amounts
under the Plan, and the Participants' rights to the payment hereunder shall be
no greater than the rights of the Company's (or Subsidiary's) unsecured
creditors. All expenses involved in administering the Plan shall be borne by the
Company.
12. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed in the
State of New York.
13. Effectiveness of the Plan
The Plan shall be effective as of July 1, 1998.
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IMS HEALTH INCORPORATED
Proxy/Voting Instructions for the Annual Meeting to be held March 19, 1999
at 9:30 A.M. at 1209 Orange Street, Wilmington, Delaware
ROBERT E. WEISSMAN, VICTORIA R. FASH and KENNETH S. SIEGEL, or any of them,
with full power of substitution, are hereby authorized and/or instructed to
represent and/or vote all the shares of Common Stock of IMS Health Incorporated
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
on March 19, 1999, and at any adjournment thereof:
The Board of Directors recommends a vote FOR election of all nominees identified
in Item (1) and FOR Items (2), (3), (4) and (5).
(1) Election of Class III Directors for a three-year term expiring at the 2002
Annual Meeting of Shareholders. Nominees: Victoria R. Fash, Robert J.
Lanigan and M. Bernard Puckett.
[_] FOR all nominees listed above, except WITHHOLD authority to
vote withheld from the following vote for all nominees
nominees (if any):
----------
(2) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent public accountants to audit the Company's consolidated
financial statements for 1999. Mark only one.
[_] FOR AGAINST ABSTAIN
(3) Approval of an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock, par value $0.01 per share, from 400,000,000 to 800,000,000.
Mark only one.
[_] FOR [_] AGAINST [_] ABSTAIN
(4) Approval of the IMS Health Incorporated Employees' Stock Incentive Plan.
Mark only one.
[_] FOR [_] AGAINST [_] ABSTAIN
(5) Approval of the IMS Health Incorporated Executive Annual Incentive Plan.
Mark only one.
[_] FOR [_] AGAINST [_] ABSTAIN
I do not wish to receive Annual Reports or Proxy Statements for this account at
this address. [_]
(Please Turn Over and Sign)
<PAGE>
IMS HEALTH INCORPORATED
This proxy is solicited by the Board of Directors. A proxy which is signed
and returned by a Shareholder of record without specification marked in the
instruction boxes will be voted FOR election of all nominees identified in Item
(1), and FOR Items (2), (3), (4) and (5).
Notice to Participants in Certain Benefit Plans.
The trustee of (i) the IMS Health Incorporated Savings Plan and (ii) the
Nielsen Media Research, Inc. Savings Plan has agreed that this proxy will also
serve as voting instructions from participants in such plans who have plan
contributions for their respective account invested in Common Stock. Proxies
covering shares in these plans must be received prior to March 9, 1999. If a
proxy covering shares in the plans has not been received prior to March 9, 1999
or if it is signed and returned without specification marked in the instruction
boxes, the trustee of these plans will vote the plan shares in the same
proportion as the respective shares in such plan for which it has received
instructions.
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Please indicate whether you expect to attend the Annual Meeting: Date __________, 1999
_____ Yes _____ No
Signature(s)
Please sign exactly as name appears at left. Joint
owners should each sign. Executors, administrators,
trustees, etc. should so indicate when signing and
sign as required by the authority held.
Proxy form begins on the reverse side. Please vote,
date, sign and return immediately.
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