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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - - - - - - - - - - - - - - - - ------- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - - - - - - - - - - - - - - - - ------- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
COMMISSION FILE NUMBER 001-14049.
IMS HEALTH INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1506026
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
200 NYALA FARMS, WESTPORT, CONNECTICUT 06880
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (203) 222-4200.
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share ............New York Stock Exchange
Preferred Stock Purchase Rights ...................New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of February 29, 2000, 298,339,602 shares of Common Stock of IMS Health
Incorporated were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon its closing transaction price on the
Composite Tape on such date) was approximately $6,004 million.
(Continued)
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DOCUMENTS INCORPORATED BY REFERENCE
PART I
ITEM 1 -Business Pages 1 to 12, "Financial
Review" and Pages 34 to 36
"Note 18. Operations by
Business Segments", of the
Notes to Consolidated
Financial Statements in 1999
Annual Report to Shareholders.
ITEM 3 -Legal Proceedings Pages 32 and 33, "Note 16.
Contingencies", of the Notes
to Consolidated Financial
Statements in 1999 Annual
Report to Shareholders.
PART II
ITEM 5 -Market for the Registrant's Pages 11 and 12, "Financial
Common Equity and Related Review", of the 1999 Annual
Stockholder Matters Report to Shareholders.
ITEM 6 -Selected Financial Data Page 38, "Five-Year Selected
Financial Data", of the 1999
Annual Report to Shareholders.
ITEM 7 -Management's Discussion and Pages 1 to 12, "Financial
Analysis of Financial Condition Review", of the 1999 Annual
and Results of Operations Report to Shareholders.
ITEM 7A -Quantitative and Qualitative Page 10, "Financial Review",
Disclosure About Market Risk and Pages 25 and 26, "Note 10.
Financial Instruments", of the
Notes to Consolidated
Financial Statements in the
1999 Annual Report to
Shareholders.
ITEM 8 -Financial Statements and Pages 14 to 38 of the 1999
Supplementary Data Annual Report to Shareholders.
PART III
ITEM 10 -Directors and Executive Officers Section entitled "Election of
of the Registrant Directors" on pages 5 to 7 of
the Company's Definitive Proxy
Statement relating to its
Annual Meeting of Stockholders
to be held on April 10, 2000.
ITEM 11 -Executive Compensation Section entitled "Compensation
of Executive Officers" on
pages 10 to 23 of the
Company's Definitive Proxy
Statement relating to its
Annual Meeting of Stockholders
to be held on April 10, 2000.
ITEM 12 -Security Ownership of Certain Section entitled "Security
Beneficial Owners and Management Ownership of Management and
Others" on pages 2 to 5 of the
Company's Definitive Proxy
Statement relating to its
Annual Meeting of Stockholders
to be held on April 10, 2000.
ITEM 13 -Certain Relationships and Sections entitled "Certain
Related Transactions Transactions" on page 23 and
"Compensation of Executive
Officers" on page 22 of the
Company's Definitive Proxy
Statement relating to its
Annual Meeting of Stockholders
to be held on April 10, 2000.
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The Index to Exhibits is located on Pages 24 and 25
<PAGE>
PART I
As used in this report, except where the context indicates otherwise, the
terms "Company" and "IMS Health" mean IMS Health Incorporated and all
subsidiaries consolidated in the financial statements contained or incorporated
by reference herein.
ITEM 1. BUSINESS
IMS Health Incorporated ("accounting successor to Cognizant") was incorporated
under the laws of the State of Delaware on February 3, 1998. The Company began
operating as an independent publicly held company on July 1, 1998 (the "1998
Distribution Date") as a result of its spin-off (the "Cognizant Spin-off") from
Cognizant Corporation ("Cognizant"). Prior to the Cognizant Spin-off, the
Company was owned by Cognizant. Cognizant began operating as an independent
publicly held company on November 1, 1996 as a result of its spin-off (the "D&B
Spin-off") from The Dun & Bradstreet Corporation ("Dun & Bradstreet"). Prior to
the D&B Spin-off, Cognizant was owned by Dun & Bradstreet.
The Common Stock of IMS Health was distributed by Cognizant, which subsequently
changed its name to Nielsen Media Research, Inc. ("NMR"), to Cognizant's
shareholders on June 30, 1998 (the "1998 Distribution"). The consolidated
financial statements of the Company have been reclassified to reflect NMR as a
discontinued operation for periods up to and including June 30, 1998.
On July 26, 1999, having received the approval of Gartner Group, Inc.
("Gartner") shareholders and the Boards of Directors of both the Company and
Gartner, the Company completed a spin-off of the majority of its equity
investment in Gartner to IMS Health shareholders (the "Gartner Spin-Off"). The
distribution consisted of 0.1302 shares of Gartner Class B Common Stock for each
share of the Company's Common Stock outstanding on the July 17, 1999 record date
and totaled 40.7 million Gartner Class B shares. Upon shareholder approval, the
consolidated financial statements of the Company were reclassified for all
periods presented to reflect the Gartner equity investment as a discontinued
operation. The Company has a remaining equity investment in Gartner, (consisting
of 6,909,457 Gartner Class A shares and warrants to purchase a further 599,400
Gartner Class A shares) the premier provider of research and advisory services
to the information technology industry, which it plans to dispose of.
IMS Health is the global provider of information solutions to the pharmaceutical
and healthcare industries. IMS Health consists of: (i) the IMS segment ("IMS"),
which consists of the market information and decision-support services business
for the pharmaceutical and healthcare industries conducted by IMS Health and
various operating subsidiaries and IMS Health Strategic Technologies, Inc.
("Strategic Technologies"), which is a leading provider of automated sales
support technologies to the pharmaceutical industry, (ii) Emerging Markets,
which consists of the operations of ERISCO Managed Care Technologies, Inc.
("Erisco"), a leading supplier of software-based administrative and analytical
solutions to the managed care industry and Enterprise Associates LLC
("Enterprises"), a venture capital unit focused on investments in emerging
businesses, and (iii) a 61.1% ownership interest in Cognizant Technology
Solutions Corporation ("CTS"), which delivers high-quality, cost-effective, full
life-cycle solutions for complex information technology problems to clients
transitioning to e-business through the use of a seamless on-site and offshore
project team. The Company operates in 100 countries. The number of full-time
equivalent employees at December 31, 1999 was approximately 9,000 of which
approximately 72% were employed by the IMS segment.
The Company's operations are managed by way of the following business operating
segments: IMS, Emerging Markets and CTS.
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IMS
The IMS segment provides information and decision-support services to the
pharmaceutical and healthcare industries worldwide. These services broadly
include sales management services, market research services, and other
professional software, direct marketing and research and development services.
The Walsh and PMSI businesses acquired in 1998 have been integrated into the IMS
segment's operations. IMS provides information services covering 100 countries
and maintains offices in 74 countries on six continents, with 58% of total 1999
revenue generated outside the United States.
Sales management services represented approximately 56% of the IMS segment's
worldwide revenue in 1999. Sales management services include sales territory
reports, prescription tracking reports, call reporting services and doctor
profiling services. Sales management services are used principally by
pharmaceutical manufacturers to measure and forecast the effectiveness and
efficiency of sales representatives and to target the marketing and sales
efforts of a client's sales force. They are also used by customers to compensate
pharmaceutical sales forces.
Sales management services are made available to clients and their sales
representatives and management via hardcopy reports, CD-ROMs, software
application tools, computer on-line services, Web-based access and magnetic
media for use in client computer systems and IMS's customized electronic
workstations. IMS's data delivery systems assist clients in maximizing
efficiency by aiding in the setting of sales targets and calculation of sales
commissions; giving fast access to sales data and permitting more sophisticated
analyses; improving call reporting; and improving communication between sales
management and their sales forces. In the United States, IMS has several
customized client-server decision support systems that allow a client to store
large amounts of data at its own site and integrate its own internal sales and
marketing data with IMS data and other external data. IMS also provides clients
with customized data warehouse tools and Web-based access capabilities. IMS's
principal sales management services are as follows:
o Sales Territory Reporting Services. Sales territory reporting is the
principal sales management service offered by IMS to its
pharmaceutical clients. Sales territory reports can be precisely
tailored for each client, and measure the sales of a client's own
products and those of competitors within specified geographical
configurations. These reports are designed to provide marketing and
sales managers with a reliable measurement of each salesperson's
activity and effectiveness in his or her sales territory, and
therefore are used by clients, among other things, for determining
sales force compensation. Data reported for multiple territories are
used for applications such as resource allocation, territory
alignment, market analyses and distribution management. Depending on
the particular market, sales territory reports are available to
clients on a weekly, monthly or quarterly basis. In the United
States, sales territory reports from IMS's Drug Distribution
Data(TM) ("DDD") service allow pharmaceutical clients to track the
flow of their products and those of their competitors to various
levels of geography and channels of distribution. The DDD database
contains a virtual census of sales of pharmaceutical products
through all distribution channels, including direct sales by
pharmaceutical manufacturers and indirect sales through drug
wholesalers, mail order distributors, warehousing chains and other
market participants. IMS provides sales territory reporting services
covering 35 countries.
o Prescription Tracking Reporting Services. Prescription tracking
reporting services are designed to monitor prescription activity and
to track the movement of pharmaceutical products out of pharmacies.
Prescription tracking services are used by pharmaceutical companies
to facilitate product marketing at the prescriber level. In the
United States, the Xponent(R) service monitors prescription activity
at the retail pharmacy and mail order outlet level, and uses a
patented statistical methodology to project the prescription
activity of nearly one million individual prescribers on a monthly
basis. Xponent is now also available in 5 European countries. The
European Xponent database is built from prescription data collected
from retail pharmacies and coding centers which are linked to the
geographical area in which the prescription was written, and where
permissible under local data privacy laws, to individual
prescribers.
o Self-Medication Services. These services provide detailed product
movement, market share and pricing information for over-the-counter
personal care, patient care and nutritional products. IMS publishes
self-medication reports covering 34 countries and provides related
services. PharmaTrend(TM), IMS Health's newest tracking service for
over-the-counter pharmaceutical products, is now available in 12
European countries.
o Pharmaceutical Relationship Management ("PRM") Systems. Strategic
Technologies is a leading provider of automated sales support
technologies to the pharmaceutical industry. Strategic Technologies
offers sales and marketing applications that can be integrated with
client-critical databases to provide customer and business insights.
Over 40,000 pharmaceutical sales executives worldwide rely on
Strategic Technologies' solutions to make critical sales and
marketing decisions on a daily basis. Three industry-leading IMS
Health products increase pharmaceutical sales-force performance and
productivity by providing access to
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up-to-the-minute profiling, targeting, activity reporting, team
selling and sample management information. Cornerstone(TM) is a
flexible, Windows(TM)-based, integrated sales and marketing
information system used by sales forces. Capabilities of IMS
Health's Cornerstone include the ability to quickly access and
generate standard and customized reports, such as weekly activity
summary reports, division reports and product launch reports;
desktop or laptop reporting that provides fast updating of customer
activities; and access to pharmaceutical databases through
Cornerstone's MarketViews, which can be configured to deliver
customized sales summaries by territory, district and physicians.
Premiere(SM) is a Windows-based, integrated sales and marketing
information system similar to Cornerstone with a substantial user
base in Europe, Brazil, Canada and Asia/Pacific. Core data can be
drawn from various sources and tailored by country, region,
department or individual user. Its unique application, generators
and builders are used to customize and modify the system to a
company's specific requirements quickly and without the need for
re-programming. Sales and marketing professionals at every level of
an organization can use Premiere to develop selling strategies,
allocate and coordinate sales resources, track competitive activity,
and plan, monitor and evaluate sales activity. Management is
currently developing a single next-stage integrated and global sales
management information system. Strategic Technologies is a market
leader in enabling PRM, applications for a variety of hand-held
devices which offer greater portability in developed markets and a
low-cost entry strategy into sales-force automation in emerging
markets. Over 10,000 hand held device users are customers of
Strategic Technologies' PRM applications.
Strategic Technologies also provides Pharbase(SM), the
industry-leading physician profiling database used in pharmaceutical
sales and marketing in the following countries: United Kingdom,
France, Italy, the Netherlands, Spain, Canada, Belgium, Luxembourg,
Austria, Australia, Germany and the Philippines.
Market research services represented approximately 32% of the IMS segment's
worldwide revenue in 1999. The principal market research services are
multinational integrated analytical tools, and syndicated pharmaceutical,
medical, hospital, promotional and prescription audits. Market research services
are utilized by clients for various strategic purposes, including analyzing
market shares, therapeutic prescribing trends and price movements at the
national and sub-national levels. The information reported in these services is
generated or derived from data collected primarily from pharmaceutical
manufacturers, pharmaceutical wholesalers, pharmacies, hospitals and doctors.
Market research services are delivered to clients via hardcopy reports, CD-ROMs,
software application tools, computer on-line services, and magnetic media for
use in client computer systems and IMS's customized electronic workstations.
IMS's principal market research services are as follows:
o IMS Global Services. IMS's Global Services unit provides national
level information services to pharmaceutical clients operating on a
multinational level. Global Services' core service offering,
MIDAS(TM), is an on-line multinational integrated data analysis tool
that harnesses IMS's worldwide databases and is used by the
pharmaceutical industry to assess and utilize pharmaceutical
information and trends in multiple markets. MIDAS gives clients
on-line access to IMS-compiled pharmaceutical, medical, promotional
and chemical data. Using MIDAS, clients are able to view information
from the national databases compiled by IMS and produce statistical
reports in the required format. IMS Global Services also publishes
various in-depth reviews of the worldwide pharmaceutical marketplace
and provides custom market research and strategic consultancy.
o Pharmaceutical Audits. These audits measure the sale of
pharmaceutical products into pharmacies, supplemented in some
countries by data collected from prescribing physicians, retail
chains and discount stores. These audits contain data projected to
national estimates, showing product sales by therapeutic class
broken down by package size and dosage form. IMS publishes
pharmaceutical audits covering 85 countries.
o Medical Audits. These audits are based on information collected from
panels of practicing physicians and contain projected national
estimates of the number of consultations for each diagnosed disease
with details of the therapy prescribed. These audits also analyze
the use physicians make of individual drugs by listing the diseases
for which they are prescribed, the potential therapeutic action the
physician is expecting, other drugs prescribed at the same time, and
estimates of the total number of drugs used for each disease. IMS
publishes medical audits covering 49 countries.
o Hospital Audits. These audits contain data projected to national
estimates and show the sale of pharmaceutical products to hospitals
by therapeutic class. Related reports provide audits of laboratory
diagnostic supplies, hospital supplies, and hospital records. IMS
publishes hospital audits covering 38 countries.
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o Promotional Audits. These audits measure pharmaceutical promotion
for a particular market, including sales-force promotion and journal
and mail advertising, based on information received from panels of
physicians and from monitoring medical journals and direct mail. IMS
publishes promotional reports covering 26 countries.
o Prescription Audits. These audits analyze the rate at which drugs
move out of the pharmacy and into the hands of the consumer, and
measure both what is prescribed by physicians and what is actually
dispensed at the pharmacy. IMS publishes prescription audits
covering 15 countries.
o Other Market Research Reports. These include managed care reports
which offer an array of information to quantify the effects of
managed care on the pharmaceutical and healthcare industry; personal
care reports which measure the sale of healthcare accessories, wound
care and dietetic aids; and veterinary reports which analyze the
animal care pharmaceutical market. IMS has developed, in certain
countries, disease and treatment information at the patient level
(in which information is not identifiable to any individual patient)
that gives participants in the healthcare industry new insights into
the treatment of diseases. The availability, scope and frequency of
the foregoing reports vary on a country-by-country basis.
The remaining 12% of the IMS segment's 1999 revenue was derived primarily
through professional consulting, direct marketing and research and development
services. IMS provides pharmaceutical and other clients with a range of
value-added services that are used (i) to study specific issues and trends in
the pharmaceutical marketplace and the healthcare industry, (ii) to manage sales
and marketing, (iii) to evaluate the effectiveness of marketing programs, (iv)
to analyze components of a product marketing program at any stage of its
implementation, and (v) for consultancy in optimizing strategy, marketing
programs and product commercialization. These services are as follows:
o Professional Consulting Services. IMS's professional consulting
services are provided to assist clients in the analysis and
evaluation of market trends, strategies and tactics, and to assist
in the development and implementation of customized software
applications and data warehouse tools. In the United States, IMS's
professional consulting services provide a wide range of custom
market research, promotion optimization, promotion effectiveness,
managed care and other advanced analytics services for the
pharmaceutical and healthcare marketplace. The professional services
consulting group also assists clients in designing customized
decision support systems based on a variety of cutting-edge
technologies which enable clients to optimize IMS data more rapidly
and effectively in their decision-making process. Outside of the
United States, a variety of consulting services is generally offered
on a country-by-country basis.
o Direct Marketing Services. IMS engages in the direct marketing
businesses in Europe, Australia and in the United States.
Clark-O'Neill, Inc. ("Clark-O'Neill"), a wholly-owned subsidiary,
represents the core of IMS's direct marketing business.
Clark-O'Neill's services include sample distribution, pharmaceutical
field sales force support services, publication circulation
management, direct mail, telemarketing projects utilizing physicians
and other healthcare professionals, and other customized promotion
programs. IMS also owns a controlling interest in Permail, which
provides direct marketing services in Australia. Within Strategic
Technologies, direct mail marketing services are provided across
Europe.
o Research and Development Services. IMS's research and development
services provide clients with information and workstation tools
intended to improve the effectiveness and speed of clinical research
and subsequent regulatory approvals. IMS's regulatory affairs
database, IDRAC, covers the European Union, certain Eastern European
countries, Japan and the United States, and guides users through the
drug development and registration process. Included in the IMS
business segment is DataEdge, which is an information provider to
the pharmaceutical industry on clinical trial design and
implementation in the United States.
o Pharmacy Dispensing and Point-of-Sales Software Systems. IMS also
provides pharmacy dispensing and point-of-sale software and internet
systems to retail pharmacies in the United Kingdom, Australia and
South Africa.
Over the past four decades, IMS has developed strong relationships with its data
suppliers in each market in which it operates. As the supply of pharmaceutical
data is critical to IMS's business, IMS devotes significant human and financial
resources to its data collection efforts and in many cases has historical
connections with the trade associations and professional associations involved.
In the United States, IMS Health and Clark-O'Neill each have been designated as
database licensees by the American Medical Association ("AMA") for use and
sublicensing of the AMA's physician database.
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Sales to the Pharmaceutical industry accounted for substantially all of the IMS
segment's revenue in 1999. All major pharmaceutical and biotech companies are
customers of IMS, and many of the companies subscribe to reports and services in
several countries. IMS's customer base is broad in scope and enables it to avoid
dependence on any single customer. None of IMS's customers accounted for more
than 10% of the Company's gross revenues in 1999.
While no competitor provides the geographical reach or breadth of IMS's
services, IMS generally competes in the countries in which it operates with
other information services companies, as well as the in-house capabilities of
its customers. Generally, competition has arisen on a country-by-country basis
(e.g., in France, the Company's services compete with those of Cegedim). In the
United States, certain of IMS's sales management services, including its sales
territory and prescription tracking reports, representing approximately 60% of
the U.S. revenue of the segment unit, compete with the services of National Data
Corp. Further, the products and services provided by Strategic Technologies
competes primarily with those of Dendrite International, Inc. on a global basis.
Quality, completeness and speed of delivery of information services and products
are the principal methods of competition in IMS's market.
EMERGING MARKETS
This segment is comprised of the operations of Erisco and the investments of
Enterprises.
ERISCO
Erisco is a leading provider of application software and services to the
healthcare industry, and has been for over two decades. Erisco's legacy system
solutions, ClaimFacts(R) and GroupFacts(R), were designed to help indemnity
insurance carriers, third party administrators and self-administered
corporations manage the administration of group health and life insurance
products.
Erisco's primary offering is Facets(R), a client/server system which integrates
advanced technology with clinical information to help managed care organizations
("MCOs") provide high-quality, cost-effective solutions in their marketplace.
Primary markets include health maintenance organizations, preferred provider
organizations, Blue Cross/Blue Shield organizations, managed-indemnity carriers
and specialized MCOs.
Erisco's strategic growth will come from Facets sales to the MCO market. Ongoing
change in healthcare has had a significant impact on this market segment,
resulting in the migration of plan members from indemnity-oriented plans to
managed care. In the year 2000, managed health plan membership in the United
States is expected to surpass the 100 million mark. Federal regulations from the
Health Insurance Portability and Accountability Act (HIPAA) and rapid
implementation of strategic e-business initiatives using the Internet are
heightening the demand for new administrative systems built on contemporary
client/server architecture. These market factors, combined with the limitation
of aging information systems, will continue to increase the demand for
sophisticated managed care applications.
Erisco has introduced its Managed Care Enterprise strategy to offer a broader
solution to the market. This strategy demonstrates Erisco's ability to leverage
the open client/server platform of Facets through business relationships and by
creating system interoperability with critical complimentary applications
required by MCOs. Erisco has extended its Facets core administrative system with
partner solutions in physician credentialing, document imaging and workflow
management and information-oriented decision support, provider profiling and
HEDIS, a set of standardized health plan performance measures and reporting
capabilities.
Erisco also extends its Facets business solution through a service bureau
offering for low-volume customers, and through alliances with strategic partners
for systems integration and implementation consulting.
Within the high-growth managed care segment, Erisco competes with four other
information systems vendors: McKesson HBOC, Computer Sciences Corporation,
Health Systems Design and Quality Care Solutions, Inc. Competition is
principally based on company reputation, system functionality and technology,
and ease of use and service.
ENTERPRISES
Enterprises invests in venture capital funds that invest in emerging
businesses, with an emphasis on information technology and the healthcare
information industry. It has invested as a limited partner in Information
Partners Capital Fund, Information Associates, L.P. and
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Information Associates II, L.P., all of which are venture capital limited
partnerships, as well as through a limited number of direct investments.
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CTS
In the second quarter of 1998, CTS effected an initial public offering of its
Class A Common Stock. As of December 31, 1999, IMS Health owns 61.1% of the
outstanding common stock of CTS, representing approximately 94% of the
outstanding voting power of CTS' common stock. CTS common stock is quoted on the
Nasdaq National Market under the trading symbol "CTSH". CTS provides various
software development and maintenance services to IMS Health and its
subsidiaries, including assisting in IMS Health's Year 2000 compliance efforts.
IMS Health provides certain administrative services to CTS pursuant to an
agreement entered into in connection with the public offering.
During 1999, CTS recorded intercompany sales of approximately $14.8 million,
principally to the IMS segment. These sales are eliminated in consolidation.
CTS delivers high-quality, cost-effective, full life cycle solutions to complex
software development and maintenance problems that companies face as they
transition to e-business. CTS's range of services enables it to meet customer
needs for systems development/integration, application management and mass
change implementation. CTS uses its QView software engineering process, its
on-site and offshore delivery model and well developed facilities, technology
and communications infrastructure to deliver these services. For each of the
services provided, CTS utilizes its QView proprietary processes and
methodologies to define the execution and delivery of the projects.
CTS provides a broad range of software services, including:
Summary Description of
Service Service Offerings
- - - - - - - - - - - - - - - - - ------- ----------------------
Application Development and Integration Define requirements, write
specifications and design, develop,
test and integrate software across
multiple platforms including Internet
technologies.
Application Management Support some or all of a customer's
applications ensuring that systems
remain operational and responsive to
changing user requirements, and to
provide on-going enhancements as
required by the customer.
Re-engineering Modify and test applications to
enable systems to function in new
operating environments.
Mass Change Renovate applications to correctly
function after a mass regulatory
and/or standards change.
Application Development Services. CTS follows either of two alternative
approaches to application development and integration:
o full life cycle application development, in which CTS assumes total
start-to-finish responsibility and accountability for analysis, design,
implementation, testing and integration of systems; or
o cooperative development, in which CTS employees work with a customer's
in-house IT personnel to jointly analyze, design, implement, test and
integrate new systems.
In both cases, CTS's on-site team members work closely with the end users of the
application to develop specifications and define requirements. Detailed design,
implementation and testing are generally performed offshore at CTS's eight
software development centers located in India. In addition, CTS maintains an
on-site presence at the customer's location in order to address evolving
customer needs and resulting changes to the project.
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A key part of CTS's application development and integration offering is a suite
of services to help organizations build and integrate e-business applications
with the rest of the enterprise. In this suite of offerings, CTS leverages its
skills in e-business applications development and enterprise application
integration to build sophisticated e-business applications and to integrate
these new applications and Websites with mainstream and legacy systems. CTS
builds and deploys robust, scalable and extensible Internet architectures for
transaction intensive, mission-critical applications. CTS has competency centers
specializing in Microsoft, IBM and Sun Technologies. Secure applications are
built using several advanced technologies including RSA and SSL standards.
Application Management Services. CTS provides services to ensure that a
customer's core operational systems are free of defects and responsive to
end-users' changing needs. In doing so, CTS is often able to introduce product
and process enhancements and improve service levels to customers requesting
modifications and on-going support.
Through its on-site and offshore delivery model, CTS is able to provide a range
of support services to its customers. On-site team members often provide help
desk services at the customer's facility. These team members typically carry
pagers in the event of an emergency service request and are often available to
quickly resolve customer problems from remote locations. More complex
maintenance services, including modifications, enhancements and documentation,
which typically have longer turnaround times, are completed offshore. Such
services are completed utilizing satellite and fiber-optic telecommunications
and the resources of CTS's software development centers.
Re-Engineering Services. Through CTS's re-engineering service offerings, the
company works with customers to migrate systems based on legacy computing
environments to newer, open systems-based platforms and client/server
architectures, often in response to the more stringent demands of e-business.
CTS's re-engineering tools automate many of the processes required to implement
advanced client/server technologies. Such automation substantially reduces the
time and cost to perform these services. These tools enable CTS to perform
source code analysis and to re-design target databases and convert certain
programming languages. If necessary, CTS software engineers also re-design and
convert user interfaces.
Mass Change Services. Through CTS's mass change service offerings, the company
assists customers in renovation of their core systems to meet the requirements
imposed by new regulations or other external events. CTS mass change services
include, or have previously included, Year 2000 compliance, Eurocurrency
compliance, decimalization within the securities industry and HIPAA, a new set
of regulations for the healthcare industry.
The IT services market includes a large number of participants, is subject to
rapid changes and is highly competitive. Many of CTS's competitors have
significantly greater financial, technical and marketing resources and greater
name recognition than CTS. The principal competitive factors affecting the
markets for CTS's services include (i) performance and reliability, (ii) quality
of technical support, training and services, (iii) responsiveness to customer
needs, (iv) reputation, experience and financial stability and (v) competitive
pricing of services. CTS competes with, among others:
Alydaar Corp. Mastech Corporation
Cambridge Technology Partners, Inc. Sapient Corporation
Cap Gemini America, Inc. Satyam Computer Services Limited
Complete Business Solutions, Inc. SHL Systemhouse (a division of
Computer Horizons Corp. MCI Communications Corp.)
Computer Task Group, Inc. Syntel, Inc.
Information Management Resources, Inc. Tanning Technology Corporation
Infosys. Inc. Tata Consultancy Services
IBM Global Services Whitman-Hart, Inc.
Keane, Inc.
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RESOURCE GROUP
Shared Business Services began operations in the United States in 1994 as an
internal services business. The shared service center in Allentown, Pennsylvania
provides centralized functions covering broad finance and administrative
services formerly supplied within each IMS Health division in the United States
and Canada, but at lower cost with higher levels of service. In 1998 effective
with the Cognizant Spin-off, the center began servicing NMR as an external
services provider in the functions of general accounting, accounts payable,
payroll and financial systems support. This servicing has continued through
1999. In 1999, the Company began to centralize certain European functions in a
shared service center in Cham, Switzerland.
FOREIGN OPERATIONS
As indicated above, IMS Health and its subsidiaries engage in a significant
portion of their business outside of the United States. IMS Health's foreign
operations are subject to the usual risks inherent in carrying on business
outside of the United States, including fluctuation in relative currency values,
possible nationalization, expropriation, price controls and other restrictive
government actions. IMS Health believes that the risk of nationalization or
expropriation is reduced because its products are software, services and
information, rather than the production of products that require manufacturing
facilities or the use of natural resources.
INTELLECTUAL PROPERTY
IMS Health owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights, patents and other intellectual
property rights which, in the aggregate, are of material importance to its
business. Management believes that the "IMS" name and related names, marks and
logos are of material importance to IMS Health. IMS Health is licensed to use
certain technology and other intellectual property rights owned and controlled
by others, and similarly, other companies are licensed to use certain technology
and other intellectual property rights owned and controlled by IMS Health. The
technology and other intellectual property rights licensed by IMS Health are of
importance to its business, although management of IMS Health believes that IMS
Health's business, as a whole, is not dependent upon any one intellectual
property or group of such properties.
The names of IMS Health's and its subsidiaries' products and services referred
to herein are trademarks, service marks, registered trademarks or registered
service marks owned by or licensed to IMS Health or one of its subsidiaries.
RELATIONSHIPS BETWEEN IMS HEALTH AND NMR
AND AMONG IMS HEALTH, DUN & BRADSTREET AND ACNIELSEN AFTER THE 1998 AND 1996
DISTRIBUTIONS
COGNIZANT SPIN-OFF (1998)
Prior to the Cognizant Spin-off, IMS Health and Cognizant (which changed its
name to Nielsen Media Research, Inc. ("NMR")) entered into certain agreements
governing their relationship subsequent to the Cognizant Spin-off and providing
for the allocation of certain liabilities and obligations arising from periods
prior to the Cognizant Spin-off, including those obligations and liabilities
that arose in connection with the D&B Spin-off. The following descriptions
summarize certain terms of such agreements, but are qualified by reference to
the texts of such agreements, which are incorporated by reference to the
Exhibits to this Form 10-K.
1998 Distribution Agreement. NMR and IMS Health entered into a Distribution
Agreement (the "1998 Distribution Agreement") providing for, among other things,
certain corporate transactions required to effect the Cognizant Spin-off and
other arrangements between NMR and IMS Health subsequent to the Cognizant
Spin-off.
In particular, the 1998 Distribution Agreement defines the assets and
liabilities which were allocated to and assumed by IMS Health and those which
were allocated to and assumed by NMR. All assets were transferred without any
representation or warranty, "as is-where is", and the relevant transferee bears
the risk that any necessary consent to transfer was not obtained.
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The 1998 Distribution Agreement provides for, among other things, assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the 1998 Distribution Date, financial responsibility for the liabilities
arising out of or in connection with (i) Cognizant's businesses (i.e. NMR) and
certain other specified liabilities and (ii) all other liabilities to IMS
Health. Pursuant to the terms of the 1996 Distribution Agreement (the "1996
Distribution Agreement") among Cognizant, Dun & Bradstreet and ACNielsen
Corporation ("ACNielsen"), as a condition to the 1998 Distribution, IMS Health
and NMR were required to and did undertake to be jointly and severally liable to
Dun & Bradstreet and ACNielsen for any liabilities arising thereunder. The 1998
Distribution Agreement allocates between IMS Health and NMR the financial
responsibility for such liabilities including contingent liabilities related to
certain prior business transactions and certain liabilities to Dun & Bradstreet
that may arise in connection with the D&B Spin-off.
Among other things, IMS Health and NMR agreed to an allocation of certain
potential liabilities in connection with the action filed by Information
Resources, Inc. described in Note 16 of the Notes to Consolidated Financial
Statements in the 1999 Annual Report to Shareholders and referred to in Item 3
Legal Proceedings (the "IRI Action"). IMS Health and NMR have agreed that, as
between themselves, IMS Health will assume 75%, and NMR will assume 25%, of any
payments to be made by NMR in respect of the IRI Action under the 1996 Indemnity
and Joint Defense Agreement among Cognizant, Dun & Bradstreet and ACNielsen (the
"IJDA") including any legal fees and expenses incurred in 1999 or thereafter.
IMS Health agreed to be fully responsible for any legal fees and expenses
incurred during 1998. NMR's aggregate liability to IMS Health for payments in
respect of the IRI Action and certain other specified contingent liabilities is
not to exceed $125 million.
In addition, pursuant to the 1998 Distribution Agreement, on the 1998
Distribution Date, NMR contributed to IMS Health all cash in NMR accounts other
than (i) cash required by NMR to satisfy certain specified obligations and (ii)
such additional cash as was necessary for the net borrowings of NMR (excluding
the items referred to in clause (i)) to be $300 million as of the 1998
Distribution Date.
The 1998 Distribution Agreement provides that neither NMR nor IMS Health will
take any action that would jeopardize the intended tax consequences of the
Cognizant Spin-off. Specifically, each company agreed to maintain its status as
a company engaged in the active conduct of a trade or business, as defined in
Section 355(b) of the Internal Revenue Code, until the second anniversary of the
1998 Distribution Date. As part of the request for a ruling that the Cognizant
Spin-off will be tax free for Federal income tax purposes, each company
represented to the Internal Revenue Service that, subject to certain exceptions,
it had no plan or intent to liquidate, merge or sell all or substantially all of
its assets. As a result, the Company may not initiate any action leading to a
change of control, and in the case of a change in control, the foregoing
representations, and the ruling based thereon, could be called into question. As
a result, the acquisition of control of the Company prior to July 1, 2000 may be
more difficult or less likely to occur because of the potential substantial
contractual damages associated with a breach of such provisions of the 1998
Distribution Agreement. In October 1999, NMR was acquired by VNU N.V. and is now
a wholly owned subsidiary of VNU N.V. NMR received an opinion of counsel to the
effect that the acquisition of NMR by VNU N.V. will not affect the tax-free
treatment of the Cognizant Spin-off. VNU N.V. has guaranteed NMR's obligation to
indemnify the Company in the event such acquisition does affect the tax-free
treatment of the Cognizant Spin-off.
1998 Tax Allocation Agreement. NMR and IMS Health entered into a Tax Allocation
Agreement under which IMS Health agreed to pay any taxes, or receive any refunds
or credits of taxes, shown as due on a U.S. federal, state or local income or
franchise tax return for a taxable period beginning prior to the 1998
Distribution Date. Any subsequent adjustment of such taxes will be allocated to
IMS Health if such adjustment relates to IMS Health's business and to NMR if
such adjustment relates to the NMR business, except that any adjustment of such
taxes attributable to tax items or positions initially determined by NMR's
corporate office will be allocated to IMS Health.
All taxes other than U.S. federal, state and local income and franchise taxes
will be the responsibility of IMS Health if they are attributable to IMS
Health's business and of NMR if they are attributable to NMR's business.
For taxable periods beginning on or after the 1998 Distribution Date, IMS Health
and NMR will be responsible for their own taxes.
1998 Employee Benefits Agreement. NMR and IMS Health entered into an Employee
Benefits Agreement (the "1998 Employee Benefits Agreement), which allocates
responsibility for certain employee benefits matters on and after the 1998
Distribution Date. Among other things, the 1998 Employee Benefits Agreement
requires that the Company adopt a defined pension plan, nonqualified
supplemental pension plans and welfare plans for the benefit of IMS Health
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employees and former employees. NMR is required to continue to sponsor its
current defined benefit pension plans and welfare plans for the benefit of
employees and former employees and will retain the liability for benefits under
NMR nonqualified supplemental pension plans for such employees. NMR and IMS
Health will each generally retain the severance liabilities of their respective
employees who terminated employment prior to the 1998 Distribution Date. Assets
and liabilities of the Cognizant Pension Plan attributable to the Company's
employees and retirees were transferred to a plan maintained by the Company.
Amended and Restated Transition Services Agreement. NMR, IMS Health, Dun &
Bradstreet, R.H. Donnelley, Inc., ACNielsen and Gartner entered into an Amended
and Restated Transition Services Agreement pursuant to which such parties have
agreed to certain basic terms governing the provision by Dun & Bradstreet to the
other parties of insurance and risk management services for a transitional
period after the 1998 Distribution Date. The Amended and Restated Transition
Services Agreement amends and restates in its entirety the Transition Services
Agreement dated as of October 28, 1996 among Cognizant, Dun & Bradstreet and
ACNielsen entered into in connection with the D&B Spin-off and includes Gartner
as a party to such agreement.
D&B SPIN-OFF (1996)
Prior to the D&B Spin-off, Dun & Bradstreet, Cognizant and ACNielsen entered
into certain agreements governing their relationship subsequent to the D&B
Spin-off and providing for certain liabilities and obligations arising from
periods prior to the D&B Spin-off. The following descriptions summarize certain
terms of certain of those agreements, but are qualified by reference to the
texts of such agreements, which are incorporated by reference to the Exhibits to
this Form 10-K.
1996 Distribution Agreement. Dun & Bradstreet, Cognizant and ACNielsen entered
into the 1996 Distribution Agreement providing for, among other things,
assumptions of liabilities and cross indemnities designed generally to allocate
to Dun & Bradstreet, effective as of November 1, 1996 (the "1996 Distribution
Date"), financial responsibility for all liabilities of Dun & Bradstreet except
for certain liabilities arising out of or in connection with the businesses that
became part of Cognizant or ACNielsen as a result of the D&B Spin. Similarly,
the 1996 Distribution Agreement provided for the allocation generally to Dun &
Bradstreet of the financial responsibility for the liabilities arising out of or
in connection with then-former businesses, including those formerly conducted by
or associated with Cognizant or ACNielsen, provided that liabilities related to
certain prior business transactions were allocated to Cognizant if such
liabilities exceed certain specified amounts. See Note 16 to Consolidated
Financial Statements in the 1999 Annual Report to Shareholders referred to in
Item 3 Legal Proceedings.
1996 Tax Allocation Agreement. Dun & Bradstreet, Cognizant and ACNielsen entered
into a Tax Allocation Agreement (the "1996 Tax Allocation Agreement"). Except as
otherwise provided in the 1996 Distribution Agreement, the 1996 Tax Allocation
Agreement provided, among other things, that Dun & Bradstreet must pay Dun &
Bradstreet's entire consolidated tax liability for the tax years that Cognizant
and ACNielsen were included in Dun & Bradstreet's consolidated Federal income
tax return. For periods prior to the 1996 Distribution Date, Dun & Bradstreet is
generally liable for state and local taxes measured by income or imposed in lieu
of income taxes. The 1996 Tax Allocation Agreement allocated liability to Dun &
Bradstreet, Cognizant and ACNielsen for their respective shares of other state
and local taxes, as well as any foreign taxes attributable to periods prior to
the 1996 Distribution Date.
Indemnity and Joint Defense Agreement. Under the IJDA, ACNielsen assumed
exclusive liability for the IRI Liabilities up to a specified amount (the "ACN
Maximum Amount"), which is to be calculated at the time such liabilities, if
any, become payable, and that Cognizant and Dun & Bradstreet will share
liability equally for any amounts in excess of the ACN Maximum Amount. The ACN
Maximum Amount will be determined by an investment banking firm as the maximum
amount which ACNielsen is able to pay after giving effect to (i) any plan
submitted by such investment bank which is designed to maximize the
claims-paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion (but which will not require any
action requiring shareholder approval), and (ii) payment of related fees and
expenses. For these purposes, financial viability means the ability of
ACNielsen, after giving effect to such plan, the payment of related fees and
expenses and the payment of the ACN Maximum Amount, to pay its debts as they
become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
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1996 Employee Benefits Agreement. Dun & Bradstreet, Cognizant and ACNielsen
entered into an Employee Benefits Agreement (the "1996 Employee Benefits
Agreement"). The 1996 Employee Benefits Agreement provided, among other things,
that Dun & Bradstreet retains responsibility for (i) benefits owed to former
employees who terminated employment with Historical D&B on or prior to the 1996
Distribution Date under Dun & Bradstreet's defined benefit pension plan, defined
contribution savings plan and welfare plans; (ii) all benefits under Dun
&Bradstreet's nonqualified supplemental pension plans that were vested prior to
the 1996 Distribution Date; (iii) unexercised Dun & Bradstreet stock options
held by Dun & Bradstreet employees and retirees and disabled employees as of the
1996 Distribution Date, which options were adjusted to reflect the 1996
Distribution; and (iv) all employee benefits litigation liabilities that were
asserted prior to the 1996 Distribution Date (but not such liabilities that
relate to the retirement and savings plan assets of Cognizant or ACNielsen
employees that were transferred to Cognizant and ACNielsen, respectively).
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information and statements provided by the Company may
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. The Company cautions shareholders and investors
that actual results may differ materially from those projected or suggested in
any forward-looking statement as a result of a wide variety of factors,
including but not limited to the factors set forth below and under the caption
"Forward Looking Statement" in the company's 1999 Annual Report to Shareholders,
which is incorporated herein by reference:
o Results could be affected by the costs and other effects of
litigation and other contingencies involving the Company. In
particular, management of the Company is unable to predict at this
time the final outcome of the IRI Action or the EC Matter described
in "Note 16. Contingencies" of the Notes to Consolidated Financial
Statements in the 1999 Annual Report to Shareholders, or whether the
resolution of these matters could materially affect the Company's
results of operations, cash flows or financial position.
o The Company has been informed by Dun & Bradstreet that the IRS is
currently reviewing Dun & Bradstreet's utilization of certain
capital losses during 1989 and 1990. Dun & Bradstreet expects
that an assessment will be issued from the IRS during the second
quarter of 2000. At that time, Dun & Bradstreet will consider its
options, which includes satisfying its obligation to the IRS for
its share of the liability. The Company has estimated that Dun &
Bradstreet's total cash liability to the IRS if an assessment is
made and the IRS prevails would be approximately $451,000 for
taxes and accrued interest net of tax benefit. Under the terms of
the 1996 Distribution Agreement, the Company is liable to pay
half of such taxes and interest owed to the IRS to the extent
that D&B's total liabilities exceed $137,000. A portion of the
Company's liability would in turn be shared with NMR under the
1998 Distribution Agreement. The Company estimates that its share
of the liability were the IRS to prevail would be approximately
$140,000, net tax of benefit and NMR's contribution obligation.
This liability has been included in Accrued Income Taxes at
December 31, 1999.
o The Company operates globally, deriving 58% of its $1,397,989 in
revenue and 81% of its $339,023 in operating income from non-U.S.
operations. As a result, fluctuations in the value of foreign
currencies relative to the U.S. dollar may increase the volatility
of U.S. dollar-denominated operating results. Emerging markets tend
to be considerably less stable than established markets, which may
further contribute to volatility in operating results. In addition,
the Company is subject to the usual risks inherent in carrying on
business in certain countries outside the United States, including
possible nationalization, expropriation, price controls or other
restrictive government actions. Management believes that the risk of
nationalization or expropriation is reduced because its basic
service is the delivery of information, rather than the production
of products which require manufacturing facilities or use of natural
resources.
o Although an important aspect of the Company's business strategy is
growth through acquisitions or joint ventures, there can be no
assurance that management of the Company will be able to identify
and consummate acquisitions or joint ventures on satisfactory terms.
Furthermore, every acquisition or joint venture will entail some
degree of uncertainty and risk, and even if consummated, may not
produce the operating results or increases in value over time which
were expected at the time of acquisition or joint venture.
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o The Company competes in businesses which demand or sell
sophisticated information systems, software and other technology,
including the technology utilized to deliver products and services.
The types of systems which the Company's businesses require or sell
can be expected to be subject to refinements, some of which may be
major, as such systems and underlying technologies are upgraded or
advanced or new technologies are introduced. There can be no
guarantee that as various systems and technologies become outdated,
the Company will be able to replace them, to replace them as quickly
as the Company's competition or develop and market new and better
products and services and technology in the future on time and on a
cost-effective basis. Further there can be no guarantee regarding
the degree and rate which customers will adopt new technologies or
products that may result in the Company not achieving the benefits
that might have been anticipated from such new technologies or
products.
o Currently, the Company's assets include a majority interest in CTS,
an equity investment in Gartner, (which at December 31, 1994
consisted of 6,904,457 Gartner Class A share and warrants to
purchase a further 599,400 Gartner Class A shares), as well as,
directly or through its investment in various limited partnerships,
shares of various other companies, both public and private. It can
be expected that variations in the market value of these securities,
including the CTS and Gartner shares, as well as the Company's
decision to make future investments and, if made, the return on
these investments, will have an impact on the trading prices of the
Company's Common Stock. The results of operations of CTS may be
subject to the various factors described in its respective reports
filed with the SEC from time to time.
o A number of countries in which the Company operates have enacted
regulations limiting the prices pharmaceutical companies may charge
for drugs. The Company believes that such cost containment measures
will cause pharmaceutical companies to seek more effective means of
marketing their products (which will benefit the Company in the
medium and long term). However, such governmental regulation may
cause pharmaceutical companies to revise or reduce their marketing
programs in the near term.
o Certain of the data services provided by the Company relate to the
diagnosis and treatment of disease, including prescription data. The
use of anonymized patient-specific information is anticipated to be
an increasingly important tool in the design, development and
marketing of pharmaceuticals. Recently, there have been a number of
regulatory and legislative initiatives in the area of medical
privacy at the federal, state and foreign government levels. Most of
these initiatives seek to place restrictions on the use and
disclosure of patient-identifiable information without consent and,
in some cases, seek to extend restrictions to
non-patient-identifiable information or the process of anonymizing
data. In addition, there are initiatives that seek to restrict
access to this information to non-commercial uses. To protect
privacy, no individual patient is identified in any IMS database so
that many of these initiatives would not apply to the Company's
business. However there can be no assurance that these initiatives
or future initiatives would not adversely affect the Company's
ability to generate or assemble data or to develop or market current
or future products or services.
o The Company's computer systems and software applications include
date information and therefore are susceptible to the "Year 2000
issue." For a description of the Company's Year 2000 initiative see
"Financial Review" in the 1999 Annual Report to Shareholders.
o Each of the Company's businesses is subject to significant or
potential competition which is likely to intensify in the future.
o The Company's results could be adversely affected by general or
specific weakening of economic conditions, including weak economic
conditions in the pharmaceutical, healthcare, information technology
or other industries in which the Company's customers operate.
--------------------------------
The names of the Company's products used in this report are trademarks or
registered trademarks of IMS Health Incorporated or one of its subsidiaries.
Additional information is incorporated by reference to "Note 18. Operations by
Business Segment" on Pages 34 - 36 of the 1999 Annual Report to Shareholders.
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ITEM 2. PROPERTIES
The principal properties of the Company are set forth below.
The executive offices of IMS Health Incorporated are located at 200 Nyala
Farms, Westport, Connecticut in a leased property.
Property of the Company is geographically distributed to meet sales and
operating requirements worldwide. The properties of the Company are
generally considered to be both suitable and adequate to meet current
operating requirements and virtually all space is being utilized.
IMS
Owned properties located within the United States include three
facilities. The properties are located in Totowa, New Jersey; and Plymouth
Meeting and West Norriton, Pennsylvania.
Owned properties located outside the United States include eleven
facilities: one property each in Buenos Aires, Argentina; Crows Nest,
Australia; Innsbruck, Austria; Brussels, Belgium; Santiago, Chile; Lisbon,
Portugal; Caracas, Venezuela; and London, Loughborough, Stanmore and
Pinner, England.
The operations of this business unit are also conducted from eighteen
leased offices located throughout the United States and one hundred and
seven non-United States locations.
EMERGING MARKETS
Operations are conducted from three leased office locations in the United
States.
CTS
Headquartered in Teaneck, New Jersey, operations are conducted from three
leased office locations in the United States and fifteen non-United States
locations.
RESOURCE GROUPS/CORPORATE
Operations are conducted from three leased office locations in Allentown,
Pennsylvania; Cham, Switzerland and Westport, Connecticut.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to "Note 16 Contingencies" of Notes to Consolidated
Financial Statements on Pages 32 and 33 of the 1999 Annual Report to
Shareholders which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT*
Officers are elected by the Board of Directors to hold office until their
respective successors are chosen and qualified. Listed below are the executive
officers of the registrant at March 15, 2000 and brief summaries of their
business experience during the past five years.
Name Title Age
---- ----- ---
Robert E. Weissman Chairman** 59
Victoria R. Fash President and Chief Executive Officer** 49
Wayne P. Yetter Chief Operating Officer 54
James C. Malone Senior Vice President - Finance and Controller,
and Acting Chief Financial Officer 51
Craig S. Kussman Senior Vice President - Corporate Development 41
David H. Owen Senior Vice President - Global Human Resources 49
David J. Stevens Senior Vice President - General Counsel and
Corporate Secretary 50
Matthew L. Friedman Vice President and Treasurer 42
* Set forth as a separate item pursuant to Items 401(b) and (e) of
Regulation S-K.
** Member of the Board of Directors.
Mr. Weissman has served as Chairman of the Company since February, 1998. Prior
to that time, he served as Chairman and Chief Executive Officer of IMS Health
Incorporated from February, 1998 to March, 1999. He previously served as
Chairman and Chief Executive Officer of Cognizant Corporation from September,
1996 to July, 1998. Mr. Weissman was Chairman and Chief Executive Officer of Dun
& Bradstreet from April, 1995 to October, 1996 after serving as President and
Chief Executive Officer from January, 1994 to March, 1995. He was named Dun &
Bradstreet's President and Chief Operating Officer in January, 1995.
Ms. Fash was appointed Chief Executive Officer in March, 1999 while maintaining
her position as President. She served as President and Chief Operating Officer
from February, 1998 to March, 1999. Ms. Fash served as Executive Vice President
and Chief Financial Officer of Cognizant Corporation from September, 1996 to
July, 1998 and Chairman and Chief Executive Officer of I.M.S. International,
Inc., a subsidiary of Cognizant, from December, 1997 to July, 1998. From April,
1995 to November, 1996, Ms. Fash was Senior Vice President-Business Strategy of
Dun & Bradstreet. Prior to that, she served as Vice President-Business
Operations Planning of Dun & Bradstreet from May, 1994 to April, 1995.
Mr. Yetter was appointed Chief Operating Officer of IMS Health Incorporated in
October, 1999. Previously, he was the President and Chief Executive Officer of
Novartis Pharmaceuticals Corporation from January, 1997 to July, 1999. Mr.
Yetter was President and General Manager and later President and Chief Executive
Officer of Astra Merck from July, 1991 to January, 1997.
Mr. Malone was appointed Acting Chief Financial Officer of IMS Health
Incorporated in December, 1999. He has served as Senior Vice President-Finance
and Controller since February, 1998. He served as Senior Vice President -
Finance and Controller of Cognizant Corporation from December, 1996 to July,
1998 and had been appointed Vice President Finance and Controller from
September, 1996 to December, 1996. Previously, he had served as Assistant Vice
President and Leader - North American Shared Transaction Services Center from
February, 1995 to December, 1996 and as Vice President and Controller of Reuben
H. Donnelley Corporation, a subsidiary of Dun & Bradstreet, from 1990 to
February, 1995.
Mr. Kussman was appointed Senior Vice President - Corporate Development in
August, 1998 having served as Vice President - Corporate Development since June,
1998. He served as Vice President - Corporate Development of Cognizant
Corporation from October, 1997 to June, 1998 and Vice President - Mergers and
Acquisitions, from November, 1996 to October, 1997. Previously, he had served as
Assistant Vice President - Financial Planning of Dun & Bradstreet from May, 1991
to November, 1996.
Mr. Stevens was appointed Senior Vice President - General Counsel and Corporate
Secretary in May, 1999. Previously, he was General Counsel and Company Secretary
of BTR plc, a global engineering company, from August, 1996 to May, 1999. Mr.
Stevens was Group Legal Director and Company Secretary for Forte plc, a hotel
and
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restaurant operator from March, 1995 to July, 1996. He served as Associate
General Counsel and Assistant Secretary for Smith Klein Beecham plc from May,
1991 until March, 1995.
Mr. Owen was appointed Senior Vice President, Global Human Resources in December
1998. Previously, he operated his own business consulting firm, Owen
Consultants, from January, 1998 to November, 1998. Mr. Owen was Resourcing
Director of Origin BV, an information technology services company, from
February, 1997 to December, 1997 and operated his own consulting firm, Owen
Associate, from March, 1996 to January, 1997. From January, 1994 to March, 1996
Mr. Owen was Director, Human Resources, Service Delivery and Internal
Communications at Forte plc, a hotel and restaurant operator.
Mr. Friedman was appointed Vice President and Treasurer of IMS Health
Incorporated in February, 1999, having served as Interim Treasurer of the
Company since July, 1998. Previously he was Assistant Treasurer of Cognizant
Corporation from May, 1996 to June, 1998. Prior to that he served as Director -
International Finance for Dun & Bradstreet from December, 1994 to May, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information in response to this Item is set forth under Dividends and Common
Stock Information in the "Financial Review" on Pages 11 and 12 of the 1999
Annual Report to Shareholders, which information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data required by this Item is incorporated herein by
reference to the information relating to the years 1995 through 1999 set forth
in the "Five-Year Selected Financial Data" on Page 38 of the 1999 Annual Report
to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth in the "Financial Review" on
Pages 1 to 12 of the 1999 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information in response to this Item is set forth under Market Risk in the
"Financial Review" on Page 10 and in "Note 10. Financial Instruments" on Pages
25 to 26 of the 1999 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules under Item 14 on Page 19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
17
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference to the
section entitled "Election of Directors" on pages 5 to 7 of the Company's
Definitive Proxy Statement relating to its Annual Meeting of Stockholders to be
held on April 10, 2000, except that "Executive Officers of the Registrant" on
Page 15 of this report responds to Items 401(b) and (e) of Regulation S-K with
respect to the company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to the
section entitled "Compensation of Executive Officers" on pages 10 to 23 of the
Company's Definitive Proxy Statement relating to its Annual Meeting of
Stockholders to be held on April 10, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference to the
section entitled "Security Ownership of Management and Others" on pages 2 to 5
of the Company's Definitive Proxy Statement relating to its Annual Meeting of
Stockholders to be held on April 10, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference to the
sections entitled "Certain Transactions" on page 23, and "Compensation of
Executive Officers" on page 22, of the Company's Definitive Proxy Statement
relating to its Annual Meeting of Stockholders to be held on April 10, 2000.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
(1) Consolidated Financial Statements.
See Index to Consolidated Financial Statements and Schedule on
Page 21.
(2) Consolidated Financial Statement Schedule.
See Index to Consolidated Financial Statements and Schedule on
Page 21.
(3) Other Financial Information.
Five-year Selected Financial Data. See Index to Financial
Statements and Schedule on Page 21.
(4) Exhibits.
See below.
(b) Reports on Form 8-K.
There were no reports filed on form 8-K during the quarter ended
December 31, 1999.
(c) Exhibits.
See Index to Exhibits on Pages 24 and 25, which indicates which
Exhibits are management contracts or compensatory plans required
to be filed as Exhibits. Only responsive information appearing on
pages 1 to 38 to Exhibit 13 is incorporated herein by reference,
and no other information appearing in Exhibit 13 is or shall be
deemed to be filed as part of this Form 10-K.
(d) Financial Statement Schedule.
See Index to Financial Statements and Schedule on Page 21.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMS HEALTH INCORPORATED
(Registrant)
By: /s/ ROBERT E. WEISSMAN
---------------------------
(Robert E. Weissman,
Chairman)
Date: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ VICTORIA R. FASH /s/ ROBERT J. LANIGAN
-------------------------------------- ---------------------------------
(Victoria R. Fash, President (Robert J. Lanigan, Director)
and Chief Executive Officer and
Director) (principal executive
officer)
/s/ JAMES C.MALONE /s/ H. EUGENE LOCKHART
-------------------------------------- ---------------------------------
(James C. Malone, Senior Vice (H. Eugene Lockhart, Director)
President-Finance and Controller
and Acting Chief Financial Officer)
(principal financial and accounting
officer)
/s/ CLIFFORD L. ALEXANDER /s/ M. BERNARD PUCKETT
--------------------------------------- ---------------------------------
(Clifford L. Alexander, Jr., Director) (M. Bernard Puckett, Director)
/s/ JOHN P. IMLAY /s/ WILLIAM C. VAN FAASEN
--------------------------------------- ---------------------------------
(John P. Imlay, Jr., Director) (William C. Van Faasen, Director)
/s/ ROBERT KAMERSCHEN /s/ ROBERT E. WEISSMAN
--------------------------------------- ---------------------------------
(Robert Kamerschen, Director) (Robert E. Weissman, Director)
Date: March 10, 2000
20
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
The Company's consolidated financial statements, the notes thereto and the
related report thereon of PricewaterhouseCoopers LLP, independent accountants,
as of December 31, 1999 and 1998 and for the years ended December 31, 1999,
1998, and 1997, appearing on pages 14 to 36 of the 1999 Annual Report to
Shareholders, are incorporated by reference into this Annual Report on Form 10-K
(see below). The additional financial data indicated below should be read in
conjunction with such consolidated financial statements.
<TABLE>
<CAPTION>
PAGE
---------------------------------------------
10-K 1999 ANNUAL REPORT TO
SHAREHOLDERS
--------------------- ---------------------
<S> <C> <C>
Statement of Management's Responsibility for Financial Statements............ Exhibit 13 Pg 13 13
Report of Independent Accountants............................................ Exhibit 13 Pg 13 13
As of December 31, 1999 and 1998:
Consolidated Statements of Financial Position............................. Exhibit 13 Pg 15 15
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income......................................... Exhibit 13 Pg 14 14
Consolidated Statements of Cash Flows..................................... Exhibit 13 Pg 16 16
Consolidated Statements of Shareholders' Equity.......................... Exhibit 13 Pg 17 - 18 17 - 18
Notes to Consolidated Financial Statements................................... Exhibit 13 Pg 19 - 36 19 - 36
Other Financial Information:
Quarterly Financial Data (Unaudited) for the years ended
December 31, 1999 and 1998............................................... Exhibit 13 Pg 37 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... Exhibit 13 Pg 1-12 1 - 12
Business Segments is included in "Notes to Consolidated Financial
Statements"
Five-Year Selected Financial Data (Unaudited)................................ Exhibit 13 Pg 38 38
SCHEDULE:
Report of Independent Accountants on Financial Statement Schedule............ 22 --
II. Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998, and 1997....................................... 23 --
OTHER:
IMS Health Incorporated and Subsidiaries..................................... Exhibit 21 Pg 26-29 --
</TABLE>
Schedules other than the one listed above are omitted as not required or
inapplicable or because the required information is provided in the consolidated
financial statements, including the notes thereto.
21
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors
of IMS Health Incorporated:
Our audits of the consolidated financial statements referred to in our report
dated February 14, 2000, appearing in the 1999 Annual Report to Shareholders of
IMS Health Incorporated (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in the index under Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 14, 2000
22
<PAGE>
IMS HEALTH INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
ADDITIONS
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
BALANCE CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1999 $ 11,246 $ 108 $ 2,035 $ 5,764(c) $ 7,625
======== ======= ======= ======= =======
For the Year Ended December 31, 1998 $ 4,236 $ 1,828 $ 5,562(b) $ 380(c) $11,246
======== ======= ======= ======= =======
For the Year Ended December 31, 1997 $ 6,727(a) $ 462 $ 0 $ 2,953(c) $ 4,236
======== ======= ======= ======= =======
VALUATION ALLOWANCE--DEFERRED INCOME TAXES:
For the Year Ended December 31, 1999 $ 21,239 $10,270 $ 0 $ 8,184 $23,325
======== ======= ======= ======= =======
For the Year Ended December 31, 1998 $ 21,826 $ 4,948 $ 0 $ 5,535 $21,239
======== ======= ======= ======= =======
For the Year Ended December 31, 1997 $ 23,204 $ 6,396 $ 0 $ 7,774 $21,826
======== ======= ======= ======= =======
</TABLE>
NOTE:
(a) Amount has been restated to exclude Gartner as a discontinued
operation.
(b) Includes the allowance for doubtful accounts related to the Walsh and
PMSI businesses acquired in 1998.
(c) The charge-off of uncollectible accounts for which a reserve was provided
in prior periods.
23
<PAGE>
INDEX TO EXHIBITS
REGULATION S-K
EXHIBIT NUMBER DESCRIPTION
- - - - - - - - - - - - - - - - - -------------- -----------
3 Articles of Incorporation and By-laws
.1 Restated Certificate of Incorporation of IMS Health Incorporated
dated May 29, 1998 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10 filed on June 12,
1998, file number 001-14049).
.2 Certificate of Amendment of Restated Certificate of Incorporation of
IMS Health Incorporated dated March 22, 1999 (incorporated by
reference to Exhibit 3.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ending March 31, 1999 filed on May 17, 1999,
file number 001-14049).
.3 Amended and Restated By-laws of IMS Health Incorporated
(incorporated by reference to Exhibit 3.2 to Registrant's
Registration Statement on Form 10 filed on June 12, 1998, file
number 001-14049).
10 Material Contracts
.1 Distribution Agreement between Cognizant Corporation and IMS Health
Incorporated, dated as of June 30, 1998.+
.2 Tax Allocation Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.+
.3 Employee Benefits Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.+
.4 Amended and Restated Transition Services Agreement among The Dun &
Bradstreet Corporation, The New Dun & Bradstreet Corporation,
Cognizant Corporation, IMS Health Incorporated, ACNielsen
Corporation and Gartner Group, Inc., dated as of June 30, 1998.+
.5 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive
Plan, as adopted effective July 1, 1998.+*
.6 1998 IMS Health Incorporated Non-Employee Directors' Deferred
Compensation Plan, as adopted effective July 1, 1998.+*
.7 Amended and Restated 1998 IMS Health Incorporated Employees' Stock
Incentive Plan, effective as of July 20, 1999 (incorporated by
reference to Exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ending September 30, 1999 filed on November 15,
1999, file number 001-14049).*
.8 1998 IMS Health Incorporated Replacement Plan for Certain Employees
Holding Cognizant Corporation Equity-Based Awards, as adopted
effective July 1, 1998.+*
.9 1998 IMS Health Incorporated Replacement Plan for Certain
Non-Employee Directors Holding Cognizant Corporation Equity-Based
Awards, as adopted effective July 1, 1998.+*
.10 Form of Non-Employee Directors' Stock Option Agreement.+*
.11 Form of Non-Employee Directors' Restricted Stock Agreement.+*
.12 Form of Restricted Stock Unit Agreements.+*
.13 Form of Stock Option Agreement.+*
.14 Form of Purchased Option Agreement.+*
.15 Forms of Change-in-Control Agreement for Certain Executives of IMS
Health Incorporated.+*
.16 IMS Health Incorporated Employee Protection Plan, as adopted
effective December 1, 1998.+*
.17 IMS Health Incorporated Executive Annual Incentive Plan, as adopted
effective July 1, 1998.+*
.18 IMS Health Incorporated Supplemental Executive Retirement Plan, as
adopted effective July 1, 1998.+*
.19 IMS Health Incorporated Retirement Excess Plan, as adopted effective
July 1, 1998.+*
.20 Rights Agreement dated as of June 15, 1998 between IMS Health
Incorporated and First Chicago Trust Company of New York.+
.21 IMS Health Incorporated Savings Equalization Plan, as adopted
effective July 1, 1998.+*
.22 Amended and Restated Employment Agreement by and between IMS Health
Incorporated and Robert E. Weissman, dated as of January 1, 2000.*
.23 Amended and Restated Employment Agreement by and between IMS Health
Incorporated and Victoria R. Fash, dated as of January 1, 2000.*
.24 Undertaking of IMS Health Incorporated, dated June 30, 1998.+
.24.1 Distribution Agreement among R.H. Donnelley Corporation (p.k.a. The
Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen
Corporation, dated as of October 28, 1996 (incorporated by reference
to Exhibit 10(x) to the Annual Report on Form 10-K of R.H. Donnelley
Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year
ended December 31, 1996 filed on March 27, 1997, file number
1-7155).
.24.2 Tax Allocation Agreement among R.H. Donnelley Corporation (p.k.a.
The Dun & Bradstreet Corporation), Cognizant Corporation and
ACNielsen Corporation, dated as of October 28, 1996 (incorporated by
reference to Exhibit 10(y) to the Annual Report on Form 10-K of R.H.
Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for
the year ended December 31, 1996 filed on March 27, 1997, file
number 1-7155).
.24.3 Employee Benefits Agreement among R.H. Donnelley Corporation (p.k.a.
The Dun & Bradstreet Corporation), Cognizant Corporation and
ACNielsen Corporation, dated as of October 28, 1996 (incorporated by
reference to Exhibit 10(z) to the Annual Report on Form 10-K of R.H.
Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for
the year ended December 31, 1996 filed on March 27, 1997, file
number 1-7155).
.24.4 Indemnity and Joint Defense Agreement among R.H. Donnelley
Corporation (p.k.a. The Dun & Bradstreet Corporation), Cognizant
Corporation and ACNielsen Corporation, dated as of October 28, 1996
(incorporated by reference to Exhibit
24
<PAGE>
10(aa) to the Annual Report on Form 10-K of R.H. Donnelley
Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year
ended December 31, 1996 filed on March 27, 1997, file number
1-7155).
.25 Distribution Agreement between IMS Health Incorporated and
GartnerGroup Inc., dated as of June 17, 1999 (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ending June 30, 1999 filed on August 10, 1999,
file number 001-14049).
.26 Agreement and Plan of Merger among GartnerGroup Inc., IMS Health
Incorporated and GRGI, Inc. dated as of June 17, 1999 (incorporated
by reference to Exhibit 10.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ending June 30, 1999 filed on August 10,
1999, file number 001-14049).
.27 IMS Health Incorporated Executive Deferred Compensation Plan, dated
July 20, 1999 (incorporated by reference to Exhibit 10.4.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ending
September 30, 1999 filed on November 15, 1999, file number
001-14049).*
.27.1 Selected portions of the Prospectus Supplement, dated September 27,
1999 setting forth certain terms and conditions of the Executive
Deferred Compensation Plan for U.S. employees (incorporated by
reference to Exhibit 10.4.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ending September 30, 1999 filed on November 15,
1999, file number 001-14049).*
.27.2 Selected portions of the Private Placement Memorandum, dated
September 27, 1999 setting forth certain terms and conditions of the
Executive Deferred Compensation Plan for U.S. employees
(incorporated by reference to Exhibit 10.4.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ending September 30,
1999 filed on November 15, 1999, file number 001-14049).*
.28 First Amendment to the IMS Health Incorporated Supplemental
Executive Retirement Plan, dated September 1, 1999 (incorporated by
reference to Exhibit 10.6 to Registrant's Quarterly Report on Form
10-Q for the quarter ending September 30, 1999 filed on November 15,
1999, file number 001-14049).*
.29 First Amendment to the IMS Health Incorporated Retirement Excess
Plan, dated September 1, 1999 (incorporated by reference to Exhibit
10.7 to Registrant's Quarterly Report on Form 10-Q for the quarter
ending September 30, 1999 filed on November 15, 1999, file number
001-14049).*
.30 First Amendment to the IMS Health Incorporated Savings Equalization
Plan, dated September 1, 1999 (incorporated by reference to Exhibit
10.8 to Registrant's Quarterly Report on Form 10-Q for the quarter
ending September 30, 1999 filed on November 15, 1999, file number
001-14049).*
.31 Second Amendment to the IMS Health Incorporated Savings Equalization
Plan, dated October 1, 1999.
.32 Second Amendment to the IMS Health Incorporate Retirement Excess
Plan, dated October 1, 1999.
.33 Second Amendment to the IMS Health Supplemental Executive Retirement
Plan, dated October 1, 1999.
.34 Promissory Note Agreement, dated January 3, 2000, by Victoria R.
Fash in favor of IMS Health Incorporated*
.35 Stock Pledge Agreement, dated January 3, 2000, between Victoria R.
Fash and IMS Health Incorporated*
.36 IMS Health European Deferred Compensation Plan, dated December 1,
1999*
13 1999 Annual Report to Shareholders.
21 List of Active Subsidiaries as of December 31, 1999.
23 Consent of Independent Accountants.
27 Financial Data Schedules.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
+ (Incorporated by reference to the corresponding exhibit number to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1998 filed on March 1, 1999, file number 001-14049)
* Management contract or compensatory plan or arrangement
25
IMS HEALTH INCORPORATED
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
As Amended and Restated
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<PAGE>
IMS HEALTH INCORPORATED
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
As Amended and Restated
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Page
1. Employment; Effect of Amendment and Restatement....................... 1
2. Term.................................................................. 1
3. Offices and Duties.................................................... 2
(a) Generally....................................................... 2
(b) Place of Employment............................................. 2
(c) Rank of Executive Within Company................................ 2
4. Salary and Annual Incentive Compensation.............................. 3
(a) Base Salary..................................................... 3
(b) Annual Incentive Compensation................................... 3
5. Long Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement..................... 3
(a) Executive Compensation Plans.................................... 3
(b) Employee and Executive Benefit Plans............................ 4
(c) Acceleration of Awards Upon a Change in Control ................ 5
(d) Deferral of Compensation........................................ 5
(e) Company Registration Obligations................................ 5
(f) Reimbursement of Expenses....................................... 5
6. Termination Due to Retirement, Death, or Disability................... 5
(a) Retirement...................................................... 5
(b) Death........................................................... 6
(c) Disability...................................................... 7
(d) Other Terms of Payment Following Retirement, Death,
or Disability ................................................. 8
7. Termination of Employment For Reasons Other Than Retirement,
Death, or Disability................................................ 8
(a) Termination by the Company for Cause............................ 8
(b) Termination by Executive Other Than For Good Reason............. 9
(c) Termination by the Company Without Cause Prior to
a Change in Control........................................... 9
<PAGE>
(d) Termination by Executive for Good Reason Prior to
a Change in Control........................................... 11
(e) Termination by the Company Without Cause After
a Change in Control........................................... 13
(f) Termination by Executive for Good Reason After
a Change in Control........................................... 16
(g) Other Terms Relating to Certain Terminations of Employment...... 18
8. Definitions Relating to Termination Events............................ 18
(a) "Cause"......................................................... 18
(b) "Change in Control"............................................. 19
(c) "Compensation Accrued at Termination"........................... 20
(d) "Disability".................................................... 20
(e) "Good Reason"................................................... 20
(f) "Potential Change in Control"................................... 22
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise
Tax Related Provisions.............................................. 22
(a) Rabbi Trust Funded Upon Potential Change in Control............. 22
(b) Gross-up If Excise Tax Would Apply.............................. 23
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement................................................... 24
(a) Non-Competition................................................. 24
(b) Non-Disclosure; Ownership of Work............................... 25
(c) Cooperation With Regard to Litigation........................... 25
(d) Non-Disparagement............................................... 26
(e) Release of Employment Claims.................................... 26
(f) Forfeiture of Outstanding Options............................... 26
(g) Survival........................................................ 26
11. Governing Law; Disputes; Arbitration.................................. 27
(a) Governing Law................................................... 27
(b) Reimbursement of Expenses in Enforcing Rights................... 27
(c) Arbitration..................................................... 27
(d) Interest on Unpaid Amounts...................................... 27
12. Miscellaneous......................................................... 28
(a) Integration..................................................... 28
(b) Successors; Transferability..................................... 28
(c) Beneficiaries................................................... 28
<PAGE>
(d) Notices......................................................... 28
(e) Reformation..................................................... 29
(f) Headings........................................................ 29
(g) No General Waivers.............................................. 29
(h) No Obligation To Mitigate....................................... 29
(i) Offsets; Withholding............................................ 29
(j) Successors and Assigns.......................................... 30
(k) Counterparts.................................................... 30
13. Indemnification....................................................... 30
<PAGE>
IMS HEALTH INCORPORATED
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Employment Agreement for Robert E. Weissman
As Amended and Restated
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH INCORPORATED,
a Delaware corporation (the "Company"), and Robert E. Weissman ("Executive")
shall become effective as of July 1, 1998 (the "Effective Date"). It has been
amended and restated as of January 1, 2000.
W I T N E S S E T H
WHEREAS, Executive has served the Company and its predecessors in
the position of Chairman of the Board since 1985 and as Chief Executive Officer
from April 1995 through March 1999;
WHEREAS, the Company desires to continue to employ Executive as
Chairman of the Board of the Company, and Executive desires to accept such
employment on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT; EFFECT OF AMENDMENT AND RESTATEMENT.
The Company hereby agrees to employ Executive as its Chairman of
the Board, and Executive hereby agrees to accept such employment and serve in
such capacity, during the Term as defined in Section 2 (subject to Section 7(c)
and 7(e)) and upon the terms and conditions set forth in this Employment
Agreement (the "Agreement"). Changes to this Agreement resulting from its
amendment and restatement as of January 1, 2000 are effective from and after
that date and during the remainder of the Term, except that the change in
Executive's title and office whereby he ceased to serve as Chief Executive
Officer became effective March 19,1999. Subject to this exception, Executive's
employment during the Term and prior to 2000 was governed by the provisions of
this Agreement as in effect prior to the effectiveness of the amendment and
restatement.
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and ending on June
30, 2001 and any period
<PAGE>
of extension thereof in accordance with this Section 2, except that the Term
will end at a date, prior to the end of such period or extension thereof,
specified in Section 6 or 7 in the event of termination of Executive's
employment. The Term, if not previously ended, shall be extended automatically
without further action by either party by one additional year (added to the end
of the Term) first on June 30, 2001 (extending the Term to June 30, 2002) and on
each succeeding June 30 thereafter, unless either party shall have served
written notice in accordance with Section 12(d) upon the other party on or
before the December 31 preceding a June 30 extension date electing not to extend
the Term further as of that June 30 extension date, in which case employment
shall terminate on that June 30 and the Term shall end at that date, subject to
earlier termination of employment and earlier termination of the Term in
accordance with Section 6 or 7. The foregoing notwithstanding, in the event
there occurs a Potential Change in Control during the period of 180 days prior
to the June 30 on which the Term will terminate as a result of notice given by
Executive hereunder, the Term shall be extended automatically at that June 30 by
an additional period such that the Term will extend until the 180th day
following such Potential Change in Control.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term,
except as otherwise provided in Section 7(c) and 7(e):
(a) Generally. Executive shall serve as the Chairman of the Board
of the Company and shall be nominated and, if elected, shall serve as a member
of the Board of Directors of the Company (the "Board") and, for so long as he is
serving on the Board, Executive agrees to serve as a member of any Board
committee if the Board shall elect Executive to such committee. In any and all
such capacities, Executive shall report only to the Board of Directors of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as are customary for the chairman of the board of a publicly held
corporation of the size, type, and nature of the Company as they may exist from
time to time and consistent with such position and status, but in no event shall
such duties, responsibilities, and authorities be reduced from those of
Executive at the Effective Date. Executive shall devote his full business time
and attention, and his best efforts, abilities, experience, and talent, to the
positions of Chairman of the Board for the businesses of the Company without
commitment to other business endeavors, except that Executive (i) may make
personal investments which are not in conflict with his duties to the Company
and manage personal and family financial and legal affairs, (ii) may serve as a
member of the board of directors of each of State Street Corporation and the New
York Stock Exchange, Inc., (iii) undertake public speaking engagements, and (iv)
serve as a director of (or similar position with) any other business or an
educational, charitable, community, civic, religious, or similar type of
organization with the approval of the Board of Directors of the Company, so long
as such activities (i.e., those listed in clauses (i) through (iv)) do not
preclude or render unlawful Executive's employment or service to the Company or
otherwise materially inhibit the performance of Executive's duties under this
Agreement or materially impair the business of the Company or its subsidiaries.
-2-
<PAGE>
(b) Place of Employment. Executive's principal place of
employment shall be at the Corporate Offices of the Company which shall be in
(i) New York City, (ii) Westchester County, New York, (iii) Fairfield County,
Connecticut (iv) Montgomery County, Pennsylvania, (v) Passaic County, New
Jersey, or (vi) London, England.
(c) Rank of Executive Within Company. As Chairman of the Board of
the Company, Executive shall be the highest-ranking executive of the Company.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary the annual rate of which in 2000 shall be $775,000, payable
in cash in substantially equal semi-monthly installments commencing at the
beginning of the Term, and otherwise in accordance with the Company's usual
payroll practices with respect to senior executives (except to the extent
deferred under Section 5(d)). Executive's annual base salary shall be reviewed
by the Compensation and Benefits Committee of the Board (the "Committee") at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary. For purposes of this
Agreement, "Base Salary" means Executive's then-current base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation which shall offer to
Executive an opportunity to earn additional compensation based upon performance
in amounts determined by the Committee in accordance with the applicable plan
and consistent with past practices of the Company; provided, however, that the
annual target incentive opportunity shall be not less than the greater of 100%
of Base Salary or the annual target incentive opportunity for the prior year for
achievement of target level performance, with the nature of the performance and
the levels of performance triggering payments of such annual target incentive
compensation for each year to be established and communicated to Executive
during the first quarter of such year by the Committee. In addition, the
Committee (or the Board) may determine, in its discretion, to increase the
Executive's annual target incentive opportunity or provide an additional annual
incentive opportunity, in excess of the annual target incentive opportunity,
payable for performance in excess of or in addition to the performance required
for payment of the annual target incentive amount. Any annual incentive
compensation payable to Executive shall be paid in accordance with the Company's
usual practices with respect to payment of incentive compensation to senior
executives (except to the extent deferred under Section 5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the
-3-
<PAGE>
Term to participate, without discrimination or duplication, in all executive
compensation plans and programs intended for general participation by senior
executives of the Company, as presently in effect or as they may be modified or
added to by the Company from time to time, subject to the eligibility and other
requirements of such plans and programs, including without limitation any stock
option plans, plans under which restricted stock/restricted stock units,
performance-based restricted stock/restricted stock units ("PERS") or
performance-accelerated restricted stock/restricted stock units ("PARS") may be
awarded, other annual and long-term cash and/or equity incentive plans, and
deferred compensation plans; provided, however, that such plans and programs, in
the aggregate, shall provide Executive with compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
to Executive under such plans and programs as in effect on the Effective Date.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, supplemental pensions, supplemental and other retirement benefits,
medical insurance, life insurance, disability insurance, and accidental death or
dismemberment insurance, as well as savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs, in the
aggregate, shall provide Executive with benefits and compensation substantially
no less favorable than those provided by the Company to Executive under such
plans and programs as in effect on the Effective Date. The foregoing
notwithstanding, Executive shall not be eligible to participate or receive
benefits under the Company's Employee Protection Plan.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate as Chairman of the Board in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as Chairman of
the Board with respect to long-term disability insurance and
benefits substantially no less favorable (including any required
contributions by Executive) than such insurance and benefits in
effect on the Effective Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit no less than the
death benefit provided under Company-paid insurance in effect at
the Effective Date; provided, however, that, with the consent of
Executive, such insurance may be combined with a supplementary
retirement funding vehicle;
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(iv) Executive will be entitled to retirement benefits substantially
no less favorable than those under the defined benefit pension
plans and programs of the Company, including the IMS Health
Incorporated Supplemental Executive Retirement Plan (the
"SERP"), as in effect on the Effective Date (subject to such
enhancement to benefits as are provided hereunder, including
Sections 7(e) and (f)); provided, however, that, the provisions
of the SERP notwithstanding, Executive's "Average Final
Compensation," as such term is used in the SERP, shall in no
event be less than $1,722,254 in the event of retirement in
2000, $1,823,460 in the event of retirement in 2001, $1,914,640
in the event of retirement in 2002, $2,010,380 in the event of
retirement in 2003, $2,110,900 in the event of retirement in
2004, and $2,216,440 in the event of retirement in 2005 or
thereafter.
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior
executives.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause" (as
defined in Section 8(a)) or Executive terminates voluntarily and not for "Good
Reason" (as defined in Section 8(e)), Executive may elect continued
participation after termination of employment in the Company's health and
medical coverage for himself and his spouse and dependent children after such
coverage would otherwise end until such time as Executive becomes eligible for
similar coverage with a subsequent employer or other entity to which Executive
provides services or becomes eligible for Medicare (under rules in effect at the
Effective Date hereof); provided, however, that in the event of such election,
Executive shall pay the Company each year an amount equal to the then-current
annual COBRA premium being paid (or payable) by any other former employee of the
Company, unless otherwise provided under Section 6 or 7.
(c) Acceleration of Awards Upon a Change in Control. In the event
of a Change in Control (as defined in Section 8(b)), all outstanding stock
options, restricted stock, and other equity-based awards then held by Executive
shall become vested and exercisable.
(d) Deferral of Compensation. If the Company has in effect or
adopts any deferral program or arrangement permitting executives to elect to
defer any compensation, Executive will be eligible to participate in such
program on terms no less favorable than the terms of participation of any other
executive officer of the Company. Any plan or program of the Company which
provides benefits based on the level of salary, annual incentive, or other
compensation of Executive shall, in determining Executive's benefits, take into
account the amount of salary, annual incentive, or other compensation
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prior to any reduction for voluntary contributions made by Executive under any
deferral or similar contributory plan or program of the Company, but shall not
treat any payout or settlement under such a deferral or similar contributory
plan or program to be additional salary, annual incentive, or other compensation
for purposes of determining such benefits, unless otherwise expressly provided
under such plan or program.
(e) Company Registration Obligations. The Company will use its
best efforts to file with the Securities and Exchange Commission and thereafter
maintain the effectiveness of one or more registration statements registering
under the Securities Act of 1933, as amended (the "1933 Act"), the offer and
sale of shares by the Company to Executive pursuant to stock options or other
equity-based awards granted to Executive under Company plans or otherwise or, if
shares are acquired by Executive in a transaction not involving an offer or sale
to Executive but resulting in the acquired shares being "restricted securities"
for purposes of the 1933 Act, registering the reoffer and resale of such shares
by Executive.
(f) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. TERMINATION DUE TO RETIREMENT, DEATH, OR DISABILITY.
(a) Retirement. Executive may elect to terminate employment
hereunder by retirement at or after age 55 or at such earlier age as may be
approved by the Board (in either case, "Retirement"). At the time Executive's
employment terminates due to Retirement, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly continue
after termination of employment due to Retirement, and the Company will pay
Executive, and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of annual incentive compensation
that would have become payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for that year if his employment had not terminated,
based on performance actually achieved in that year (determined
by the Committee following completion of the performance year),
multiplied by a fraction the numerator of which is the number of
days Executive was employed in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(iii) The vesting and exercisability of stock options held by
Executive at termination and all other terms of such options
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such options were granted
(subject to Section 10(f) hereof); and
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(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards,
and all deferral arrangements under Section 5(d), shall be
governed by the plans and programs under which the awards were
granted or governing the deferral, and all rights under the SERP
and any other benefit plan shall be governed by such plan.
(b) Death. In the event of Executive's death which results in the
termination of Executive's employment, the Term will terminate, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease except for obligations which expressly continue after death,
and the Company will pay Executive's beneficiary or estate, and Executive's
beneficiary or estate will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's death occurred, an amount
equal to the portion of annual incentive compensation that would
have become payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for that
year if his employment had not terminated, based on performance
actually achieved in that year (determined by the Committee
following completion of the performance year), multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of his death and the denominator of
which is the total number of days in the year of death;
(iii) The vesting and exercisability of stock options held by
Executive at death and all other terms of such options shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted; and
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards,
and all deferral arrangements under Section 5(d), shall be
governed by the plans and programs under which the awards were
granted or governing the deferral, and all rights under the SERP
and any other benefit plan shall be governed by such plan.
(c) Disability. The Company may terminate the employment of
Executive hereunder due to the Disability (as defined in Section 8(d)) of
Executive. Such employment shall terminate at the expiration of the 30-day
period referred to in the definition of Disability set forth in Section 8(d),
unless Executive has returned to service and presented to the Company a
certificate of good health prior to such termination as specified in Section
8(d). Upon termination of employment, the Term will terminate, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease except for obligations which expressly continue after
termination of employment due to Disability, and the Company will pay Executive,
and Executive will be entitled to receive, the following:
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(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of annual incentive compensation
that would have become payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for that year if his employment had not terminated,
based on performance actually achieved in that year (determined
by the Committee following completion of the performance year),
multiplied by a fraction the numerator of which is the number of
days Executive was employed in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(iii) The vesting and exercisability of stock options held by
Executive at termination and all other terms of such options
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such options were granted;
(iv) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or
previously earned, in the case of performance-based awards)
shall become fully vested and non-forfeitable at the date of
such termination, and, in other respects, such awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such awards were granted;
(v) Disability benefits shall be payable in accordance with the
Company's plans, programs and policies (including the SERP), and
all deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
and
(vi) For the period extending from the date of termination due to
Disability until the date Executive reaches age 65, Executive
shall continue to participate in those employee and executive
benefit plans and programs under Section 5(b) to the extent such
plans and programs provide medical insurance, disability
insurance and life insurance benefits (but not other benefits,
such as pension and retirement benefits, provided under Section
5(b)) in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if the terms of such plans or
programs do not allow Executive's continued participation,
Executive shall be
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paid a cash payment equivalent on an after-tax basis to the
value of the additional benefits (of the type described in this
Section 6(c)(vi)) Executive would have received under such plans
or programs had Executive continued to be employed during such
period following Executive's termination until age 65, with such
benefits provided by the Company at the same times and in the
same manner as such benefits would have been provided to
Executive under such plans and programs (it being understood
that the value of any insurance-provided benefits will be based
on the premium cost to Executive, which shall not exceed the
highest risk premium charged by a carrier having an investment
grade or better credit rating); provided, however, that
Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the benefits provided
under this Section 6(c)(vi).
(d) Other Terms of Payment Following Retirement, Death, or
Disability. Nothing in this Section 6 shall limit the benefits payable or
provided In the event Executive's employment terminates due to Retirement,
death, or Disability under the terms of plans or programs of the Company more
favorable to the Executive (or his beneficiaries) than the benefits payable or
provided under this Section 6 (except in the case of annual incentives in lieu
of which amounts are paid hereunder), including plans and programs adopted after
the date of this Agreement. Amounts payable under this Section 6 following
Executive's termination of employment, other than those expressly payable
following determination of performance for the year of termination for purposes
of annual incentive compensation or otherwise expressly payable on a deferred
basis, will be paid as promptly as practicable after such termination of
employment.
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN RETIREMENT,
DEATH, OR DISABILITY.
(a) Termination by the Company for Cause. The Company may
terminate the employment of Executive hereunder for Cause (as defined in Section
8(a)) at any time. At the time Executive's employment is terminated for Cause,
the Term will terminate, all obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease, and the Company
will pay Executive, and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral,
and all rights under the SERP and any other benefit plan shall
be governed by such plan.
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(b) Termination by Executive Other Than For Good Reason.
Executive may terminate his employment hereunder voluntarily for reasons other
than Good Reason (as defined in Section 8(e)) at any time. An election by
Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to
be a termination of employment by Executive for reasons other than Good Reason
at the date of expiration of the Term, unless a Change in Control (as defined in
Section 8(b)) occurs prior to, and there exists Good Reason at, such date of
expiration. At the time Executive's employment is terminated by Executive other
than for Good Reason the Term will terminate, all obligations of the Company and
Executive under Sections 1 through 5 of this Agreement will immediately cease,
and the Company will pay Executive, and Executive will be entitled to receive,
the following:
(i) Executive's Compensation Accrued at Termination;
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans and
programs under which the awards were granted; and
(iii) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral,
and all rights under the SERP and any other benefit plan shall
be governed by such plan.
(c) Termination by the Company Without Cause Prior to a Change in
Control. The Company may terminate the employment of Executive hereunder without
Cause, if at the date of termination no Change in Control has occurred, upon at
least 90 days' written notice to Executive. The foregoing notwithstanding, the
Company may elect, by written notice to Executive, to terminate Executive's
positions specified in Sections 1 and 3 and all other obligations of Executive
and the Company under Section 3 at a date earlier than the expiration of such
90-day period, if so specified by the Company in the written notice, provided
that Executive shall be treated as an employee of the Company (without any
assigned duties) for all other purposes of this Agreement, including for
purposes of Sections 4 and 5, from such specified date until the expiration of
such 90-day period. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of Executive's
employment by the Company without Cause at the date of expiration of the Term
and shall be subject to this Section 7(c) if at the date of such termination no
Change in Control has occurred; provided, however, that, if Executive has
attained age 65 at such date of termination, such termination shall be deemed a
Retirement of Executive. At the time Executive's employment is terminated by the
Company (i.e., at the expiration of such notice period), the Term will
terminate, all remaining obligations of the Company and Executive under Sections
1 through 5 of this Agreement will immediately cease (except as expressly
provided below), and the Company will pay Executive, and Executive will be
entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
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(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the
year of termination or (y) the portion of Executive's annual
incentive compensation that became payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the latest year preceding the year of
termination based on performance actually achieved in that
latest year. The amount determined to be payable under this
Section 7(c)(ii) shall be payable in monthly installments over
the 24 months following termination, without interest, except
the Company may elect to accelerate payment of the remaining
balance of such amount and to pay it as a lump sum, without
discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and exercisable
at the date of such termination, and, in other respects
(including the period following termination during which such
options may be exercised), such options shall be governed by the
plans and programs and the agreements and other documents
pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or
previously earned, in the case of performance-based awards)
shall become fully vested and non-forfeitable at the date of
such termination, and, in other respects, such awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
and
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(vii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as pension
and retirement benefits, provided under Section 5(b)) in which
Executive was participating immediately prior to termination,
the terms of which allow Executive's continued participation, as
if Executive had continued in employment with the Company during
such period; provided, however, that such participation shall
terminate, or the benefits under such plans and programs shall
be reduced, if and to the extent Executive becomes covered (or
is eligible to become covered) by plans of a subsequent employer
or other entity to which Executive provides services during such
period providing comparable benefits. If the terms of the
Company plans and programs referred to in this Section 7(c)(vii)
do not allow Executive's continued participation, Executive
shall be paid a cash payment equivalent on an after-tax basis to
the value of the additional benefits described in this Section
7(c)(vii) Executive would have received under such plans or
programs had Executive continued to be employed during such
period, with such benefits provided by the Company at the same
times and in the same manner as such benefits would have been
provided to Executive under such plans and programs (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall not
exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set forth
in Section 10 in order to continue receiving the benefits
provided under this Section 7(c)(vii). Executive agrees to
promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(c)(vii); and the Company be entitled to recover from Executive
any payments and the fair market value of benefits previously
made or provided to Executive hereunder which would not have
been paid under this Section 7(c)(vii) if the Company had
received adequate prior notice as required by this sentence.
(d) Termination by Executive for Good Reason Prior to a Change in
Control. Executive may terminate his employment hereunder for Good Reason, prior
to a Change in Control, upon 90 days' written notice to the Company; provided,
however, that, if the Company has corrected the basis for such Good Reason
within 30 days after receipt of such notice, Executive may not terminate his
employment for Good Reason, and therefore Executive's notice of termination will
automatically become null and void. At the time Executive's employment is
terminated by Executive for Good Reason (i.e., at the expiration of such notice
period), the Term will terminate, all obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and Executive
will be entitled to receive, the following:
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(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the
year of termination or (y) the portion of Executive's annual
incentive compensation that became payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the latest year preceding the year of
termination based on performance actually achieved in that
latest year. The amount determined to be payable under this
Section 7(d)(ii) shall be payable in monthly installments over
the 24 months following termination, without interest, except
the Company may elect to accelerate payment of the remaining
balance of such amount and to pay it as a lump sum, without
discount;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and exercisable
at the date of such termination, and, in other respects
(including the period following termination during which such
options may be exercised), such options shall be governed by the
plans and programs and the agreements and other documents
pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or
previously earned, in the case of performance-based awards)
shall become fully vested and non-forfeitable at the date of
such termination, and, in other respects, such awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
and
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(vii) For a period of two years after such termination (but not after
Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as pension
and retirement benefits, provided under Section 5(b)) in which
Executive was participating immediately prior to termination,
the terms of which allow Executive's continued participation, as
if Executive had continued in employment with the Company during
such period; provided, however, that such participation shall
terminate, or the benefits under such plans and programs shall
be reduced, if and to the extent Executive becomes covered (or
is eligible to become covered) by plans of a subsequent employer
or other entity to which Executive provides services during such
period providing comparable benefits. If the terms of the
Company plans and programs referred to in this Section 7(d)(vii)
do not allow Executive's continued participation, Executive
shall be paid a cash payment equivalent on an after-tax basis to
the value of the additional benefits described in this Section
7(d)(vii) Executive would have received under such plans or
programs had Executive continued to be employed during such
period, with such benefits provided by the Company at the same
times and in the same manner as such benefits would have been
provided to Executive under such plans and programs (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall not
exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set forth
in Section 10 in order to continue receiving the benefits
provided under this Section 7(d)(vii). Executive agrees to
promptly notify the Company of any employment or other
arrangement by which Executive provides services during the
benefits-continuation period and of the nature and extent of
benefits for which Executive becomes eligible during such period
which would reduce or terminate benefits under this Section
7(d)(vii); and the Company shall be entitled to recover from
Executive any payments and the fair market value of benefits
previously made or provided to Executive hereunder which would
not have been paid under this Section 7(d)(vii) if the Company
had received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(d) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or benefit
was the basis for Executive's termination for Good Reason, then the Base Salary
or other level of compensation in effect before such reduction shall be used to
calculate payments or benefits under this Section 7(d).
(e) Termination by the Company Without Cause After a Change in
Control. The Company may terminate the employment of Executive hereunder without
Cause,
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simultaneously with or after a Change in Control, upon at least 90 days' written
notice to Executive. The foregoing notwithstanding, the Company may elect, by
written notice to Executive, to terminate Executive's positions specified in
Sections 1 and 3 and all other obligations of Executive and the Company under
Section 3 at a date earlier than the expiration of such 90-day notice period, if
so specified by the Company in the written notice, provided that Executive shall
be treated as an employee of the Company (without any assigned duties) for all
other purposes of this Agreement, including for purposes of Sections 4 and 5,
from such specified date until the expiration of such 90-day period. An election
by the Company not to extend the Term pursuant to Section 2 hereof shall be
deemed to be a termination of Executive's employment by the Company without
Cause at the date of expiration of the Term and shall be subject to this Section
7(e) if the date of such termination coincides with or is after a Change in
Control; provided, however, that, if Executive has attained age 65 at such date
of termination, such termination shall be deemed a Retirement of Executive. At
the time Executive's employment is terminated by the Company (i.e., at the
expiration of such notice period), the Term will terminate, all remaining
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease (except as expressly provided below), and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the
year of termination or (y) the portion of Executive's annual
incentive compensation that became payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the latest year preceding the year of
termination based on performance actually achieved in that
latest year. The amount determined to be payable under this
Section 7(e)(ii) shall be paid by the Company not later than 15
days after Executive's termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and exercisable
at the date of such termination, and any such options granted on
or after the date hereof shall
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remain outstanding and exercisable until the stated expiration
date of the Option as though Executive's employment did not
terminate, and, in other respects, such options shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or
previously earned, in the case of performance-based awards)
shall become fully vested and non-forfeitable at the date of
such termination, and, in other respects, such awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive will be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning of
the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the SERP.
In addition, the provisions of the SERP notwithstanding, the
term "Average Final Compensation" as used in the SERP shall mean
the greatest of (A) Average Final Compensation as defined in the
SERP, (B) the sum of (x) Executive's Base Salary plus (y)
Executive's annual target incentive opportunity for the year in
which the Change in Control occurred (if not yet determined,
then such opportunity shall be deemed to equal the greater of
the minimum annual target incentive opportunity that would be
required by this Agreement or the actual annual incentive earned
for the year immediately preceding the year in which the Change
in Control occurred), or (C) $2,000,000; and
(viii) For a period of three years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as pension
and retirement benefits, provided under Section 5(b)) in which
Executive was participating immediately prior to termination,
the terms of which allow Executive's continued participation, as
if Executive had continued in employment with the Company during
such period; provided, however, that such participation shall
terminate, or the benefits under such plans and programs shall
be reduced, if and to the extent Executive becomes covered (or
is eligible to become covered) by plans
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of a subsequent employer or other entity to which Executive
provides services during such period providing comparable
benefits. If the terms of the Company plans and programs
referred to in this Section 7(e)(viii) do not allow Executive's
continued participation, Executive shall be paid a cash payment
equivalent on an after-tax basis to the value of the additional
benefits described in this Section 7(e)(viii) Executive would
have received under such plans or programs had Executive
continued to be employed during such period, with such benefits
provided by the Company at the same times and in the same manner
as such benefits would have been provided to Executive under
such plans and programs (it being understood that the value of
any insurance-provided benefits will be based on the premium
cost to Executive, which shall not exceed the highest risk
premium charged by a carrier having an investment grade or
better credit rating); provided, however, that Executive must
continue to satisfy the conditions set forth in Section 10 in
order to continue receiving the benefits provided under this
Section 7(e)(viii). Executive agrees to promptly notify the
Company of any employment or other arrangement by which
Executive provides services during the benefits-continuation
period and of the nature and extent of benefits for which
Executive becomes eligible during such period which would reduce
or terminate benefits under this Section 7(e)(viii); and the
Company shall be entitled to recover from Executive any payments
and the fair market value of benefits previously made or
provided to Executive hereunder which would not have been paid
under this Section 7(e)(viii) if the Company had received
adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(e) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if the Company has purported to reduce Base Salary or other level of
compensation or benefits prior to such termination in a manner that would
constitute Good Reason, then the Base Salary or other level of compensation in
effect before such reduction shall be used to calculate payments or benefits
under this Section 7(e).
(f) Termination by Executive for Good Reason After a Change in
Control. Executive may terminate his employment hereunder for Good Reason,
simultaneously with or after a Change in Control, upon 90 days' written notice
to the Company; provided, however, that, if the Company has corrected the basis
for such Good Reason within 30 days after receipt of such notice, Executive may
not terminate his employment for Good Reason, and therefore Executive's notice
of termination will automatically become null and void. At the time Executive's
employment is terminated by Executive for Good Reason (i.e., at the expiration
of such notice period), the Term will terminate, all obligations of the Company
and Executive under Sections 1 through 5 of this Agreement will immediately
cease (except as expressly provided below), and the Company will pay Executive,
and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
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(ii) Cash in an aggregate amount equal to three times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior to
termination plus (B) an amount equal to the greater of (x) the
portion of Executive's annual target incentive compensation
potentially payable in cash to Executive (i.e., excluding the
portion payable in PERS or in other non-cash awards) for the
year of termination or (y) the portion of Executive's annual
incentive compensation that became payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the latest year preceding the year of
termination based on performance actually achieved in that
latest year. The amount determined to be payable under this
Section 7(f)(ii) shall be paid by the Company not later than 15
days after Executive's termination;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated, an
amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to Executive
(i.e., excluding the portion payable in PERS or in other
non-cash awards) for the year of termination, multiplied by a
fraction the numerator of which is the number of days Executive
was employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and exercisable
at the date of such termination, and any such options granted on
or after the date hereof shall remain outstanding and
exercisable until the stated expiration date of the Option as
though Executive's employment did not terminate, and, in other
respects, such options shall be governed by the plans and
programs and the agreements and other documents pursuant to
which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term incentive
awards is conditioned shall be deemed to have been met at target
level at the date of termination, and restricted stock and
deferred stock awards, including outstanding PERS awards, and
other long-term incentive awards (to the extent then or
previously earned, in the case of performance-based awards)
shall become fully vested and non-forfeitable at the date of
such termination, and, in other respects, such awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which such awards were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with the plans and programs governing the deferral;
(vii) For purposes of the SERP, Executive will be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent
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required so that Executive's termination will qualify as a
"Retirement" within the meaning of the SERP and so that
Executive will be entitled the maximum "Retirement Benefit" in
accordance with Section 3.1 of the SERP. In addition, the
provisions of the SERP notwithstanding, the term "Average Final
Compensation" as used in the SERP shall mean the greatest of (A)
Average Final Compensation as defined in the SERP, (B) the sum
of (x) Executive's Base Salary plus (y) Executive's annual
target incentive opportunity for the year in which the Change in
Control occurred (if not yet determined, then such opportunity
shall be deemed to equal the greater of the minimum annual
target incentive opportunity that would be required by this
Agreement or the actual annual incentive earned for the year
immediately preceding the year in which the Change in Control
occurred), or (C) $2,000,000; and
(viii) For a period of three years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as pension
and retirement benefits, provided under Section 5(b)) in which
Executive was participating immediately prior to termination,
the terms of which allow Executive's continued participation, as
if Executive had continued in employment with the Company during
such period; provided, however, that such participation shall
terminate, or the benefits under such plans and programs shall
be reduced, if and to the extent Executive becomes covered (or
is eligible to become covered) by plans of a subsequent employer
or other entity to which Executive provides services during such
period providing comparable benefits. If the terms of the
Company plans and programs referred to in this Section
7(f)(viii) do not allow Executive's continued participation,
Executive shall be paid a cash payment equivalent on an
after-tax basis to the value of the additional benefits
described in this Section 7(f)(viii) Executive would have
received under such plans or programs had Executive continued to
be employed during such period, with such benefits provided by
the Company at the same times and in the same manner as such
benefits would have been provided to Executive under such plans
and programs (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit
rating); provided, however, that Executive must continue to
satisfy the conditions set forth in Section 10 in order to
continue receiving the benefits provided under this Section
7(f)(viii). Executive agrees to promptly notify the Company of
any employment or other arrangement by which Executive provides
services during the benefits-continuation period and of the
nature and extent of benefits for which Executive becomes
eligible during such period which would reduce or terminate
benefits under this Section 7(f)(viii); and the Company shall be
entitled to recover from Executive any payments and the fair
market value of benefits previously made or provided to
Executive hereunder which would not
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have been paid under this Section 7(f)(viii) if the Company had
received adequate prior notice as required by this sentence.
If any payment or benefit under this Section 7(f) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or
benefits was the basis for Executive's termination for Good Reason or would
otherwise constitute Good Reason, then the Base Salary or other level of
compensation in effect before such reduction shall be used to calculate payments
or benefits under this Section 7(f).
(g) Other Terms Relating to Certain Terminations of Employment.
Whether a termination is deemed to be at or following a Change in Control for
purposes of Sections 7(c), (d), (e), or (f) is determined at the date of
termination, regardless of whether the Change in Control had occurred at the
time a notice of termination was given. In the event Executive's employment
terminates for any reason set forth in Section 7(b) through (f), Executive will
be entitled to the benefit of any terms of plans or agreements applicable to
Executive which are more favorable than those specified in this Section 7
(except in the case of annual incentives in lieu of which amounts are paid
hereunder). Amounts payable under this Section 7 following Executive's
termination of employment, other than those expressly payable on a deferred
basis, will be paid as promptly as practicable after such a termination of
employment, and such amounts payable under Section 7(e) or 7(f) will be paid in
no event later than 15 days after Executive's termination of employment unless
not determinable within such period.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall mean
Executive's
(i) willful and continued failure to substantially perform his
duties hereunder (other than any such failure resulting from
incapacity due to physical or mental illness or disability or
any failure after the issuance of a notice of termination by
Executive for Good Reason) which failure is demonstrably and
materially damaging to the financial condition or reputation of
the Company and/or its subsidiaries, and which failure continues
more than 48 hours after a written demand for substantial
performance is delivered to Executive by the Board, which demand
specifically identifies the manner in which the Board believes
that Executive has not substantially performed his duties
hereunder and the demonstrable and material damage caused
thereby; or
(ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise.
No act, or failure to act, on the part of Executive shall be deemed "willful"
unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Executive
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shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Executive a copy of the resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after reasonable notice to
Executive and an opportunity for Executive, together with Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this definition and
specifying the particulars thereof in detail.
(b) "Change in Control." For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if, during the term of this
Agreement:
(i) any "Person," as such term is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes
the "Beneficial Owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the effectiveness of this Agreement),
individuals who at the beginning of such period constitute the
Board, and any new director (other than (A) a director nominated
by a Person who has entered into an agreement with the Company
to effect a transaction described in Sections (8)(b)(i), (iii)
or (iv) hereof, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to
take or to consider taking actions (including, but not limited
to, an actual or threatened proxy contest) which if consummated
would constitute a Change in Control or (C) a director nominated
by any Person who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company's securities)
whose election by the Board or nomination for election by the
Company's stockholders was approved in advance by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 66
2/3% of the combined
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voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation and (B) after which no Person holds 20% or more of
the combined voting power of the then-outstanding securities of
the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Change in Control has occurred.
(c) "Compensation Accrued at Termination." For purposes of this
Agreement, "Compensation Accrued at Termination" means the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of Executive's
termination of employment, pro rated through such date of
termination, payable in accordance with the Company's regular
pay schedule;
(ii) All vested, nonforfeitable amounts owing or accrued at the date
of Executive's termination of employment under any compensation
and benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof (including
any earned and vested annual incentive compensation and
long-term incentive award) in which Executive theretofore
participated, payable in accordance with the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted or accrued; and
(iii) Reasonable business expenses and disbursements incurred by
Executive prior to Executive's termination of employment, to be
reimbursed to Executive, as authorized under Section 5(f), in
accordance the Company's reimbursement policies as in effect at
the date of such termination.
(d) "Disability." For purposes of this Agreement, "Disability"
means Executive's absence from the full-time performance of Executive's duties
hereunder for six consecutive months as a result of his incapacity due to
physical or mental illness or disability, and, within 30 days after written
notice of termination is thereafter given by the Company, Executive shall have
not returned to the full-time performance of such duties.
(e) "Good Reason." For purposes of this Agreement, "Good Reason"
shall mean, without Executive's express written consent, the occurrence of any
of the following circumstances unless, in the case of subsections (i), (iv),
(vi) or (viii) hereof, such circumstances are fully corrected prior to the date
of termination specified in the notice of
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termination given in respect thereof:
(i) the assignment to Executive of duties inconsistent with
Executive's position and status hereunder, or an alteration,
adverse to Executive, in the nature of Executive's duties,
responsibilities, and authorities, Executive's positions or the
conditions of Executive's employment from those specified in
Section 3 or otherwise hereunder (other than inadvertent actions
which are promptly remedied); for this purpose, it shall
constitute "Good Reason" under this subsection (e)(i) if (A)
Executive shall be required to report to and take direction from
any person or body other than the Board of Directors of the
Company; and (B) if Executive shall be removed from the Board,
from the office of Chairman of the Board, or from any Board
committee on which Executive has served during the Term, or
there occurs any failure of Executive to be nominated, elected,
reappointed or reelected as a member of the Board, as Chairman
of the Board, or as a member of any Board committee on which he
has served during the Term, including a failure of the Board or
stockholders to take such actions (notwithstanding their legal
right to do so), except the foregoing shall not constitute Good
Reason if occurring in connection with the termination of
Executive's employment for Cause, Disability, Retirement, as a
result of Executive's death, or as a result of action by or with
the consent of Executive; for purposes of this Section 8(e)(i),
references to the Company (and the Board and stockholders of the
Company) refer to the ultimate parent company (and its board and
stockholders) succeeding the Company following an acquisition in
which the corporate existence of the Company continues, in
accordance with Section 12(b);
(ii) (A) a reduction by the Company in Executive's Base Salary, (B)
the setting of Executive's annual target incentive opportunity
or payment of earned annual incentive in amounts less than
specified under or otherwise not in conformity with Section 4
hereof, (C) a change in compensation or benefits not in
conformity with Section 5, or (D) a reduction, after a Change in
Control, in perquisites from the level of such perquisites as in
effect immediately prior to the Change in Control or as the same
may have been increased from time to time after the Change in
Control except for across-the-board perquisite reductions
similarly affecting all senior executives of the Company and all
senior executives of any Person in control of the Company;
(iii) the relocation of the principal place of Executive's employment
not in conformity with Section 3(b) hereof; for this purpose,
required travel on the Company's business will not constitute a
relocation so long as the extent of such travel is substantially
consistent with Executive's customary business travel
obligations in periods prior to the Effective Date;
(iv) the failure by the Company to pay to Executive any portion of
Executive's compensation or to pay to Executive any portion of
an installment of deferred
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compensation under any deferred compensation program of the
Company within seven days of the date such compensation is due;
(v) the failure by the Company to continue in effect any material
compensation or benefit plan in which Executive participated
immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amounts of compensation or
benefits provided and the level of Executive's participation
relative to other participants, as existed at the time of the
Change in Control;
(vi) the failure of the Company to obtain a satisfactory agreement
from any successor to the Company to fully assume the Company's
obligations and to perform under this Agreement, as contemplated
in Section 12(b) hereof, in a form reasonably acceptable to
Executive;
(vii) any election by the Company not to extend the Term of this
Agreement at the next possible extension date under Section 2
hereof, unless Executive will have attained age 65 at or before
such extension date; or
(viii) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement.
Executive has consented to the change in his title and office whereby he ceased
to serve as Chief Executive Officer effective March 19,1999.
(f) "Potential Change in Control" For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred if, during the
term of this Agreement:
(i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
9. RABBI TRUST OBLIGATION UPON POTENTIAL CHANGE IN CONTROL; EXCISE
TAX-RELATED PROVISIONS.
(a) Rabbi Trust Funded Upon Potential Change in Control. In the
event of
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a Potential Change in Control or Change in Control, the Company shall, not later
than 15 days thereafter, have established one or more rabbi trusts and shall
deposit therein cash in an amount sufficient to provide for full payment of all
potential obligations of the Company that would arise assuming consummation of a
Change in Control, or has arisen in the case of an actual Change in Control, and
a subsequent termination of Executive's employment under Section 7(e) or 7(f).
Such rabbi trust(s) shall be irrevocable and shall provide that the Company may
not, directly or indirectly, use or recover any assets of the trust(s) until
such time as all obligations which potentially could arise hereunder have been
settled and paid in full, subject only to the claims of creditors of the Company
in the event of insolvency or bankruptcy of the Company; provided, however, that
if no Change in Control has occurred within two years after such Potential
Change in Control, such rabbi trust(s) shall at the end of such two-year period
become revocable and may thereafter be revoked by the Company.
(b) Gross-up If Excise Tax Would Apply. In the event Executive
becomes entitled to any amounts or benefits payable in connection with a Change
in Control or other change in control (whether or not such amounts are payable
pursuant to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code (or any similar federal, state or local tax that may hereafter be
imposed), the Company shall pay to Executive at the time specified in Section
9(b)(iii) hereof an additional amount (the "Gross-Up Payment") such that the net
amount retained by Executive, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local income tax
and Excise Tax upon the payment provided for by Section 9(b)(i), shall be equal
to the Total Payments.
(i) For purposes of determining whether any of the Severance
Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(A) any other payments or benefits received or to be
received by Executive in connection with a Change in
Control or Executive's termination of employment
(whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company,
any Person whose actions result in a Change in Control
or any Person affiliated with the Company or such
Person) (which, together with the Severance Payments,
constitute the "Total Payments") shall be treated as
"parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of
the Code shall be treated as subject to the Excise Tax,
unless in the opinion of nationally-recognized tax
counsel selected by Executive such other payments or
benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation
for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base
amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax;
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(B) the amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the
lesser of (x) the total amount of the Total Payments and
(y) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after
applying Section 9(b)(i)(A) hereof); and
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a
nationally-recognized accounting firm selected by
Executive in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in
the state and locality of Executive's residence on the Date of
Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account
hereunder at the time of termination of Executive's employment,
Executive shall repay to the Company within ten days after the
time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal and state and local
income tax imposed on the Gross-Up Payment being repaid by
Executive if such repayment results in a reduction in Excise Tax
and/or federal and state and local income tax deduction) plus
interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional gross-up payment
in respect of such excess within ten days after the time that
the amount of such excess is finally determined.
(iii) The payments provided for in this Section 9(b) shall be made not
later than the fifteenth day following the date of Executive's
termination of employment; provided, however, that if the amount
of such payments cannot be finally determined on or before such
day, the Company shall pay to Executive on such day an estimate,
as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after
the date of Executive's termination of employment. In the event
that the amount of the estimated payments exceeds the amount
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subsequently determined to have been due, such excess shall
constitute a loan by the Company to Executive, payable on the
fifteenth day after the demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(iv) All determinations under this Section 9(b) shall be made at the
expense of the Company by a nationally recognized public
accounting firm selected by Executive, and such determination
shall be binding upon Executive and the Company.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the Board,
Executive will not, at any time during the Term and for a period of two years
following termination of Executive's employment for any reason, acting alone or
in conjunction with others, directly or indirectly (i) engage (either as owner,
investor, partner, stockholder, employer, employee, consultant, advisor, or
director) in any business in which he has been directly engaged on behalf of the
Company or any affiliate, or has supervised as an executive thereof, during the
last two years prior to such termination, or which was engaged in or planned by
the Company or an affiliate at the time of such termination, in any geographic
area in which such business was conducted or planned to be conducted; (ii)
induce any customers of the Company or any of its affiliates with whom Executive
has had contacts or relationships, directly or indirectly, during and within the
scope of her employment with the Company or any of its affiliates, to curtail or
cancel their business with the Company or any such affiliate; (iii) induce, or
attempt to influence, any employee of the Company or any of its affiliates to
terminate employment; or (iv) solicit, hire or retain as an employee or
independent contractor, or assist any third party in the solicitation, hire, or
retention as an employee or independent contractor, any person who during the
previous 12 months was an employee of the Company or any affiliate; provided,
however, that the limitation contained in clause (i) above shall not apply if
Executive's employment is terminated as a result of a termination by the Company
without Cause following a Change in Control or is terminated by Executive for
Good Reason following a Change in Control; and provided further, that activities
engaged in by or on behalf of the Company are not restricted by this covenant.
The provisions of subparagraphs (i), (ii), (iii), and (iv) above are separate
and distinct commitments independent of each of the other subparagraphs. It is
agreed that the ownership of not more than one percent of the equity securities
of any company having securities listed on an exchange or regularly traded in
the over-the-counter market shall not, of itself, be deemed inconsistent with
clause (i) of this Section 10(a).
(b) Non-Disclosure; Ownership of Work. Executive shall not, at
any time during the Term and thereafter (including following Executive's
termination of employment for any reason), disclose, use, transfer, or sell,
except in the course of employment with or other service to the Company, any
proprietary information, secrets, organizational or employee information, or
other confidential information belonging or relating to the Company and its
affiliates and customers so long as such information has not otherwise been
disclosed or is not
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otherwise in the public domain, except as required by law or pursuant to legal
process. In addition, upon termination of employment for any reason, Executive
will return to the Company or its affiliates all documents and other media
containing information belonging or relating to the Company or its affiliates.
Executive will promptly disclose in writing to the Company all inventions,
discoveries, developments, improvements and innovations (collectively referred
to as "Inventions") that Executive has conceived or made during the Term;
provided, however, that in this context "Inventions" are limited to those which
(i) relate in any manner to the existing or contemplated business or research
activities of the Company and its affiliates; (ii) are suggested by or result
from Executive's work at the Company; or (iii) result from the use of the time,
materials or facilities of the Company and its affiliates. All Inventions will
be the Company's property rather than Executive's. Should the Company request
it, Executive agrees to sign any document that the Company may reasonably
require to establish ownership in any Invention.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing in this Agreement shall preclude Executive from making
truthful statements that are required by applicable law, regulation or legal
process.
(e) Release of Employment Claims. Executive agrees, as a
condition to receipt of any termination payments and benefits provided for in
Sections 6 and 7 herein (other than Compensation Accrued at Termination), that
he will execute a general release agreement, in a form satisfactory to the
Company, releasing any and all claims arising out of Executive's employment
(other than enforcement of this Agreement).
(f) Forfeiture of Outstanding Options. The provisions of Sections
6 and 7 notwithstanding, if Executive willfully and materially fails to
substantially comply with any restrictive covenant under this Section 10 or
willfully and materially fails to substantially comply with any material
obligation under this Agreement, all options to purchase Common Stock granted by
the Company and then held by Executive or a transferee of Executive shall be
immediately forfeited and thereupon such options shall be cancelled.
Notwithstanding the
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foregoing, Executive shall not forfeit any option unless and until there shall
have been delivered to him, within six months after the Board (i) had knowledge
of conduct or an event allegedly constituting grounds for such forfeiture and
(ii) had reason to believe that such conduct or event could be grounds for such
forfeiture, a copy of a resolution duly adopted by a majority affirmative vote
of the membership of the Board (excluding Executive) at a meeting of the Board
called and held for such purpose (after giving Executive reasonable notice
specifying the nature of the grounds for such forfeiture and not less than 30
days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive has engaged and continues to engage in conduct set forth in this
Section 10(f) which constitutes grounds for forfeiture of Executive's options;
provided, however, that if any option is exercised after delivery of such notice
and the Board subsequently makes the determination described in this sentence,
Executive shall be required to pay to the Company an amount equal to the
difference between the aggregate value of the shares acquired upon such exercise
at the date of the Board determination and the aggregate exercise price paid by
Executive. Any such forfeiture shall apply to such options notwithstanding any
term or provision of any option agreement. In addition, options granted to
Executive on or after January 1, 2000, and gains resulting from the exercise of
such options, shall be subject to forfeiture in accordance with the Company's
standard policies relating to such forfeitures and clawbacks, as such policies
are in effect at the time of grant of such options.
(g) Survival. The provisions of this Section 10 shall survive the
termination of the Term and any termination or expiration of this Agreement.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Connecticut, without regard to conflicts of law principles, except insofar as
federal laws and regulations and the Delaware General Corporation Law may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is
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successful in asserting such rights; provided, however, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by arbitrators in accordance with Section 11(c) or a
court having jurisdiction over the matter.
(c) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Westport CT by three arbitrators in accordance with the rules of the American
Arbitration Association in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. For purposes of entering any judgment upon an award rendered by
the arbitrators, the Company and Executive hereby consent to the jurisdiction of
any or all of the following courts: (i) the United States District Court for the
District of Connecticut, (ii) any of the courts of the State of Connecticut, or
(iii) any other court having jurisdiction. The Company and Executive further
agree that any service of process or notice requirements in any such proceeding
shall be satisfied if the rules of such court relating thereto have been
substantially satisfied. The Company and Executive hereby waive, to the fullest
extent permitted by applicable law, any objection which it may now or hereafter
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to Section 11(b), the Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 11. Notwithstanding any provision in this Section 11,
Executive shall be entitled to seek specific performance of Executive's right to
be paid during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amount which has become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which has not been
timely paid shall bear interest at the prime rate in effect at the time such
amount first becomes payable, as quoted by the Company's principal bank.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company, any parent or predecessor
company, and the Company's subsidiaries during the Term, except for contracts
relating to compensation under executive compensation and employee benefit plans
of the Company and its subsidiaries. The foregoing notwithstanding, Executive
shall not participate in the Company's Employee Protection Plan. Executive shall
remain entitled to any right or benefit under a Change-in-Control Agreement
executed by the Company, for so long as such Change-in-Control Agreement remains
in effect, if and to the extent that such right or benefit is more favorable
than a corresponding provision of this Agreement, but no payment or benefit
under the Change-in-Control Agreement shall be made or extended which duplicates
any payment or benefit hereunder. If
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and to the extent that this Agreement may provide enhanced benefits to Executive
under the SERP which benefits are not explicitly provided for under the SERP,
the SERP shall be deemed amended by this Agreement (but only insofar as it
pertains to Executive). This Agreement constitutes the entire agreement among
the parties with respect to the matters herein provided, and no modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto. Executive shall not be entitled to any payment or benefit
under this Agreement which duplicates a payment or benefit received or
receivable by Executive under such prior agreements and understandings or under
any benefit or compensation plan of the Company.
(b) Successors; Transferability. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise, and whether or not the corporate existence of the Company continues)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise and, in the case of an acquisition of the Company in which the
corporate existence of the Company continues, the ultimate parent company
following such acquisition. Subject to the foregoing, the Company may transfer
and assign this Agreement and the Company's rights and obligations hereunder.
Neither this Agreement nor the rights or obligations hereunder of the parties
hereto shall be transferable or assignable by Executive, except in accordance
with the laws of descent and distribution or as specified in Section 12(c).
(c) Beneficiaries. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits provided hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes necessary
to give notice, such notice shall be in writing, signed by the party or parties
giving or making the same, and shall be served on the person or persons for whom
it is intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company:
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
If to Executive:
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Robert E. Weissman
200 Nyala Farms
Westport, CT 06880
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective two days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this Agreement
shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for convenience
of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by the
Company to Executive pursuant to this Agreement shall not be subject to offset
other than with respect to any amounts that are owed to the Company by Executive
due to his receipt of funds as a result of his fraudulent activity. The
foregoing and other provisions of this Agreement notwithstanding, all payments
to be made to Executive under this Agreement, including under Sections 6 and 7,
or otherwise by the Company, will be subject to withholding to satisfy required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
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(k) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. INDEMNIFICATION.
All rights to indemnification by the Company now existing in
favor of the Executive as provided in the Company's Certificate of Incorporation
or By-laws or pursuant to other agreements in effect on or immediately prior to
the Effective Date shall continue in full force and effect from the Effective
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately claimed
as such expenses are incurred to the fullest extent permitted under applicable
law, subject to any requirement that the Executive provide an undertaking to
repay such advances if it is ultimately determined that the Executive is not
entitled to indemnification; provided, however, that any determination required
to be made with respect to whether the Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Certificate of Incorporation,
By-laws, or other agreement shall be made by independent counsel mutually
acceptable to the Executive and the Company (except to the extent otherwise
required by law). After the date hereof, the Company shall not amend its
Certificate of Incorporation or By-laws or any agreement in any manner which
adversely affects the rights of the Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Agreement shall not limit or
reduce any rights of the Executive to indemnification pursuant to applicable
law. In addition, the Company will maintain directors' and officers' liability
insurance in effect and covering acts and omissions of Executive during the Term
and for a period of six years thereafter on terms substantially no less
favorable than those in effect on the Effective Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the date of the
amendment and restatement of this Agreement set forth in Section 1 hereof.
IMS HEALTH INCORPORATED
Name:
Title:
EXECUTIVE
----------------------
Robert E. Weissman
IMS HEALTH INCORPORATED
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Employment Agreement for Victoria R. Fash
As Amended and Restated
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<PAGE>
IMS HEALTH INCORPORATED
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Employment Agreement for Victoria R. Fash
As Amended and Restated
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Page
1. Employment; Effect of Amendment and Restatement.................. 1
2. Term............................................................. 1
3. Offices and Duties............................................... 2
(a) Generally.................................................. 2
(b) Place of Employment........................................ 2
4. Salary and Annual Incentive Compensation......................... 3
(a) Base Salary................................................ 3
(b) Annual Incentive Compensation.............................. 3
5. Long Term Compensation, Including Stock Options, Benefits,
Deferred Compensation, Expense Reimbursement, and Loan......... 3
(a) Executive Compensation Plans............................... 3
(b) Employee and Executive Benefit Plans....................... 4
(c) Acceleration of Awards Upon a Change in Control ........... 5
(d) Deferral of Compensation................................... 5
(e) Company Registration Obligations........................... 5
(f) Reimbursement of Expenses.................................. 5
(g) Company Loan to Executive ................................. 5
6. Termination Due to Retirement, Death, or Disability.............. 7
(a) Retirement................................................. 7
(b) Death...................................................... 8
(c) Disability................................................. 9
(d) Other Terms of Payment Following Retirement, Death,
or Disability............................................ 10
7. Termination of Employment For Reasons Other Than Retirement,
Death, or Disability........................................... 11
(a) Termination by the Company for Cause....................... 11
(b) Termination by Executive Other Than For Good Reason........ 11
(c) Termination by the Company Without Cause Prior to
a Change in Control...................................... 12
(d) Termination by Executive for Good Reason Prior to
a Change in Control...................................... 14
(e) Termination by the Company Without Cause After
a Change in Control...................................... 16
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(f) Termination by Executive for Good Reason After
a Change in Control...................................... 19
(g) Other Terms Relating to Certain Terminations of Employment. 21
8. Definitions Relating to Termination Events....................... 21
(a) "Cause".................................................... 21
(b) "Change in Control"........................................ 22
(c) "Compensation Accrued at Termination"...................... 23
(d) "Disability"............................................... 23
(e) "Good Reason".............................................. 23
(f) "Potential Change in Control".............................. 25
9. Rabbi Trust Obligation Upon Potential Change in Control; Excise
Tax Related Provisions......................................... 25
(a) Rabbi Trust Funded Upon Potential Change in Control........ 25
(b) Gross-up If Excise Tax Would Apply......................... 26
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement.............................................. 27
(a) Non-Competition............................................ 27
(b) Non-Disclosure; Ownership of Work.......................... 28
(c) Cooperation With Regard to Litigation...................... 28
(d) Non-Disparagement.......................................... 29
(e) Release of Employment Claims............................... 29
(f) Forfeiture of Outstanding Options.......................... 29
(g) Survival................................................... 29
11. Governing Law; Disputes; Arbitration............................. 30
(a) Governing Law.............................................. 30
(b) Reimbursement of Expenses in Enforcing Rights.............. 30
(c) Arbitration................................................ 30
(d) Interest on Unpaid Amounts................................. 30
12. Miscellaneous.................................................... 31
(a) Integration................................................ 31
(b) Successors; Transferability................................ 31
(c) Beneficiaries.............................................. 31
(d) Notices.................................................... 31
(e) Reformation................................................ 32
(f) Headings................................................... 32
(g) No General Waivers......................................... 32
(h) No Obligation To Mitigate.................................. 32
(i) Offsets; Withholding....................................... 32
(j) Successors and Assigns..................................... 33
(k) Counterparts............................................... 33
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13. Indemnification.................................................. 33
iv
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IMS HEALTH INCORPORATED
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Employment Agreement for Victoria R. Fash
As Amended and Restated
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THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH
INCORPORATED, a Delaware corporation (the "Company"), and Victoria R. Fash
("Executive") shall become effective as of July 1, 1998 (the "Effective Date").
It has been amended and restated as of January 1, 2000.
W I T N E S S E T H
WHEREAS, Executive has served the Company and its predecessors
in executive and senior executive capacities since September 1991;
WHEREAS, the Company desires to continue to employ Executive
as President and Chief Executive Officer of the Company, and Executive desires
to accept such employment on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT; EFFECT OF AMENDMENT AND RESTATEMENT.
The Company hereby agrees to employ Executive as its President
and Chief Executive Officer, and Executive hereby agrees to accept such
employment and serve in such capacities, during the Term as defined in Section 2
(subject to Section 7(c) and 7(e)) and upon the terms and conditions set forth
in this Employment Agreement (the "Agreement"). Changes to this Agreement
resulting from its amendment and restatement as of January 1, 2000 are effective
from and after that date and during the remainder of the Term, except that the
change in Executive's title and office from Chief Operating Officer to Chief
Executive Officer became effective March 19,1999. Subject to this exception,
Executive's employment during the Term and prior to 2000 was governed by the
provisions of this Agreement as in effect prior to the effectiveness of the
amendment and restatement.
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and ending on June
30, 2001 and any period of extension thereof in accordance with this Section 2,
except that the Term will end at a date, prior to the end of such period or
extension thereof, specified in Section 6 or 7 in the event of termination of
Executive's employment. The Term, if not previously ended, shall be extended
automatically without further action by either party by one additional year
(added to the end of the Term) first on June 30, 2001 (extending the Term to
June 30, 2002) and on each succeeding
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June 30 thereafter, unless either party shall have served written notice in
accordance with Section 12(d) upon the other party on or before the December 31
preceding a June 30 extension date electing not to extend the Term further as of
that June 30 extension date, in which case employment shall terminate on that
June 30 and the Term shall end at that date, subject to earlier termination of
employment and earlier termination of the Term in accordance with Section 6 or
7. The foregoing notwithstanding, in the event there occurs a Potential Change
in Control during the period of 180 days prior to the June 30 on which the Term
will terminate as a result of notice given by Executive hereunder, the Term
shall be extended automatically at that June 30 by an additional period such
that the Term will extend until the 180th day following such Potential Change in
Control.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term,
except as otherwise provided in Section 7(c) and 7(e):
(a) Generally. Executive shall serve as the President and
Chief Executive Officer of the Company and shall be nominated and, if elected,
shall serve as a member of the Board of Directors of the Company (the "Board")
and, for so long as she is serving on the Board, Executive agrees to serve as a
member of any Board committee if the Board shall elect Executive to such
committee. In any and all such capacities, Executive shall report only to the
Chairman of the Board of the Company and to the Board. Executive shall have and
perform such duties, responsibilities, and authorities as are customary for the
president and chief executive officer of a publicly held corporation of the
size, type, and nature of the Company as they may exist from time to time and
consistent with such position and status, but in no event shall such duties,
responsibilities, and authorities be reduced from those of Executive at the
Effective Date. Executive shall devote her full business time and attention, and
her best efforts, abilities, experience, and talent, to the positions of
President and Chief Executive Officer and for the businesses of the Company
without commitment to other business endeavors, except that Executive (i) may
make personal investments which are not in conflict with her duties to the
Company and manage personal and family financial and legal affairs, (ii) may
serve as a member of the board of directors of Orion Capital Corporation, (iii)
undertake public speaking engagements, and (iv) serve as a director of (or
similar position with) any other business or an educational, charitable,
community, civic, religious, or similar type of organization with the approval
of the Chairman of the Board and the Board, so long as such activities (i.e.,
those listed in clauses (i) through (iv)) do not preclude or render unlawful
Executive's employment or service to the Company or otherwise materially inhibit
the performance of Executive's duties under this Agreement or materially impair
the business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be at the Corporate Offices of the Company which shall be in
(i) New York City, (ii) Westchester County, New York, (iii) Fairfield County,
Connecticut (iv) Montgomery County, Pennsylvania, (v) Passaic County, New
Jersey, or (vi) London, England.
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4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary, the annual rate of which shall be $700,000 (beginning in
2000), payable in cash in substantially equal semi-monthly installments
commencing at the beginning of the Term, and otherwise in accordance with the
Company's usual payroll practices with respect to senior executives (except to
the extent deferred under Section 5(d)). Executive's annual base salary shall be
reviewed by the Compensation and Benefits Committee of the Board (the
"Committee") at least once in each calendar year and may be increased above, but
may not be reduced below, the then-current rate of such base salary. For
purposes of this Agreement, "Base Salary" means Executive's then-current base
salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation which shall offer to
Executive an opportunity to earn additional compensation based upon performance
in amounts determined by the Committee in accordance with the applicable plan
and consistent with past practices of the Company; provided, however, that the
annual incentive opportunity in 2000 and thereafter shall be not less than the
greater of 90% of Base Salary or the annual target incentive opportunity for the
prior year for achievement of target level performance, with the nature of the
performance and the levels of performance triggering payments of such annual
target incentive compensation for each year to be established and communicated
to Executive during the first quarter of such year by the Committee. In
addition, the Committee (or the Board) may determine, in its discretion, to
increase the Executive's annual target incentive opportunity or provide an
additional annual incentive opportunity, in excess of the annual target
incentive opportunity, payable for performance in excess of or in addition to
the performance required for payment of the annual target incentive amount. Any
annual incentive compensation payable to Executive shall be paid in accordance
with the Company's usual practices with respect to payment of incentive
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, BENEFITS,
DEFERRED COMPENSATION, EXPENSE REIMBURSEMENT, AND LOAN
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, subject to the
eligibility and other requirements of such plans and programs, including without
limitation any stock option plans, plans under which restricted stock/restricted
stock units, performance-based restricted stock/restricted stock units ("PERS")
or performance-accelerated restricted stock/restricted stock units ("PARS") may
be awarded, other annual and long-term cash and/or equity incentive plans, and
deferred compensation plans; provided, however, that such plans and programs, in
the aggregate, shall provide Executive with compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
to Executive under such plans and programs as in effect on the Effective Date.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive
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benefit plans and programs of the Company, as presently in effect or as they may
be modified or added to by the Company from time to time, to the extent such
plans are available to other senior executives or employees of the Company,
subject to the eligibility and other requirements of such plans and programs,
including without limitation plans providing pensions, supplemental pensions,
supplemental and other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, as well
as savings, profit-sharing, and stock ownership plans; provided, however, that
such benefit plans and programs, in the aggregate, shall provide Executive with
benefits and compensation substantially no less favorable than those provided by
the Company to Executive under such plans and programs as in effect on the
Effective Date. The foregoing notwithstanding, Executive shall not be eligible
to participate or receive benefits under the Company's Employee Protection Plan.
In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as President and Chief Executive
Officer in all executive and employee vacation and time-off
programs;
(ii) The Company will provide Executive with coverage as President
and Chief Executive Officer with respect to long-term
disability insurance and benefits substantially no less
favorable (including any required contributions by Executive)
than such insurance and benefits in effect on the Effective
Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit no less than the
death benefit provided under Company-paid insurance in effect
at the Effective Date; provided, however, that, with the
consent of Executive, such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the defined
benefit pension plans and programs of the Company, including
the IMS Health Incorporated Supplemental Executive Retirement
Plan (the "SERP"), as in effect on the Effective Date (subject
to such enhancement to benefits as are provided hereunder,
including Sections 7(c), (d), (e), and (f)); and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior
executives.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause" (as
defined in Section 8(a)) or Executive terminates voluntarily and not for "Good
Reason" (as defined in Section 8(e)), Executive may elect continued
participation after termination of employment in the Company's health and
medical coverage for herself and her spouse and dependent children after such
coverage would otherwise end until such time as Executive becomes eligible for
similar coverage with a subsequent employer or other entity to which Executive
provides services or becomes eligible for Medicare (under rules in effect at the
Effective Date hereof); provided, however, that in the event of such election,
Executive shall pay the Company each year an amount equal to the then-current
annual COBRA premium being paid (or payable) by any other former employee of the
Company, unless otherwise provided under Section 6 or 7.
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(c) Acceleration of Awards Upon a Change in Control. In the
event of a Change in Control (as defined in Section 8(b)), all outstanding stock
options, restricted stock, and other equity-based awards then held by Executive
shall become vested and exercisable.
(d) Deferral of Compensation. If the Company has in effect or
adopts any deferral program or arrangement permitting executives to elect to
defer any compensation, Executive will be eligible to participate in such
program on terms no less favorable than the terms of participation of any other
executive officer of the Company. Any plan or program of the Company which
provides benefits based on the level of salary, annual incentive, or other
compensation of Executive shall, in determining Executive's benefits, take into
account the amount of salary, annual incentive, or other compensation prior to
any reduction for voluntary contributions made by Executive under any deferral
or similar contributory plan or program of the Company, but shall not treat any
payout or settlement under such a deferral or similar contributory plan or
program to be additional salary, annual incentive, or other compensation for
purposes of determining such benefits, unless otherwise expressly provided under
such plan or program.
(e) Company Registration Obligations. The Company will use its
best efforts to file with the Securities and Exchange Commission and thereafter
maintain the effectiveness of one or more registration statements registering
under the Securities Act of 1933, as amended (the "1933 Act"), the offer and
sale of shares by the Company to Executive pursuant to stock options or other
equity-based awards granted to Executive under Company plans or otherwise or, if
shares are acquired by Executive in a transaction not involving an offer or sale
to Executive but resulting in the acquired shares being "restricted securities"
for purposes of the 1933 Act, registering the reoffer and resale of such shares
by Executive.
(f) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(g) Company Loan to Executive. On January 3, 2000, the Company
loaned Executive $3,558,012.55 (of which $631,639.36 was repaid on January 12,
2000), subject to the terms and conditions set forth in this Agreement, the
Promissory Note made by Executive as of January 3, 2000 (the "Promissory Note,"
a copy of which is attached hereto as Exhibit A), and the Stock Pledge Agreement
dated as of January 3, 2000 (the "Stock Pledge Agreement," a copy of which is
attached hereto as Exhibit B), including the following terms and conditions:
(i) The outstanding loan balances shall accrue interest at the
Applicable Federal Rate specified by the Internal Revenue
Service, as in effect January 1, 2000, compounded annually;
(ii) Unless Executive's obligation to repay has been forgiven as
provided in this Section 5(g), principal and interest shall
become payable in full (i.e., in a balloon payment) at the
earliest of (A) December 31, 2008, (B) the occurrence of an
"Acceleration Event" as such term is defined in the Promissory
Note, or (C) the occurrence of any other event specified in
the Promissory Note, if any, which results in the principal
and accrued interest becoming due and payable. Executive may
repay principal or interest on the loan, in whole or in part,
at any time prior to maturity;
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(iii) Executive's obligation to repay the loan principal and
interest will be forgiven in its entirety if any of the
following events occur:
(A) Executive remains continuously employed by the Company
and its successors through December 31, 2008;
(B) The Company terminates Executive's employment without
Cause or Executive terminates her employment for Good
Reason, in either case whether before or after a
Change in Control, or Executive's employment
terminates due to death; or
(C) Executive's employment has terminated due to
Disability and Executive has complied with the
restrictive covenants set forth in Section 10 through
December 31, 2008 (however, the restrictions under
Section 10(a) will apply only during the period
specified in Section 10(a)).
(iv) The Company shall be entitled to setoff and withhold, at the
time of maturity of the loan, against Executive's obligation
to repay principal and interest, any amount otherwise payable
by the Company or any affiliate to Executive in satisfaction
of Executive's obligation under this Section 5(g). In
addition, Executive agrees to provide collateral to secure the
loan and to terms relating to such collateral as follows:
(A) Executive hereby pledges, as collateral for the loan,
the 81,260 "profit shares" of Common Stock Executive
acquired upon exercise of options during 1998, which
shares were identified as "profit shares" in
connection with the grant of reload options by the
Company (the "Profit Shares"), subject to the terms
of the Stock Pledge Agreement. The pledge of the
Profit Shares and other property that may be treated
as collateral under the Stock Pledge Agreement
(together, the "Pledged Property") shall continue for
so long as any principal or interest remains unpaid
in connection with the loan, except to the extent
collateral may be released under Section 5(g)(iv)(C)
or the Stock Pledge Agreement. Executive agrees that
she will not transfer, further pledge, or otherwise
encumber any of the Pledged Property to or for the
benefit of any party other than the Company for so
long as it remains pledged hereunder. The
certificates for the Profit Shares are currently in
Executive's name but held by the Company, and
Executive agrees that, in addition to the Company's
rights under the reload program, the Company shall
continue to have the right to hold such certificates
to the extent and for so long as any of such Profit
Shares remain pledged under this Agreement, and the
Company shall have the right to hold other Pledged
Property or otherwise to secure it in the manner
customary for such property, which shall include the
right of the Company to transfer certificates
evidencing ownership of any shares out of the name of
Executive and into the name of a nominee if such step
is deemed necessary or advisable by the Company. The
Profit Shares and other shares that may become
Pledged Property are pledged hereunder in connection
with a loan for a purpose other than Executive's
purchasing or carrying such shares;
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(B) Dividends, distributions, and proceeds of any Pledged
Property shall become Pledged Property to the extent
so provided in the Stock Pledge Agreement.
(C) All or a portion of the Profit Shares and other
Pledged Property shall be released upon written
request of Executive if the fair market value of the
collateral that will remain pledged after such
release equals or exceeds 133% of the amount of
principal and accrued interest then remaining unpaid,
and will in any event be released immediately when
the loan principal and interest have been repaid in
full or forgiven. For this purpose, the fair market
value of the Profit Shares shall be deemed to be
equal to the average closing price of the Common
Stock over the 30 trading days immediately preceding
the date of release, and the fair market value of
other collateral shall be reasonably determined by
the Company;
(D) In the event of a termination of Executive's
employment after which any of the loan principal or
accrued interest remains unpaid, other than a
termination due to Disability, Executive will within
90 days thereafter pledge additional collateral, in
the form of shares of Common Stock of the Company or
other property satisfactory to the Company, such that
the value of any additional collateral pledged under
this Section 5(g)(iv)(D) plus the value of the
Pledged Property measured at the date of termination
or the date such Pledged Property was originally
pledged (whichever yields the greater value) equals
at least 100% of the loan principal amount and
interest accrued at the date of such additional
pledge. For this purpose, the per-share value of
Common Stock shall be deemed to be equal to the
average closing price of the Common Stock over the 30
trading days immediately preceding the date as of
which value is being determined, and the fair market
value of other collateral shall be reasonably
determined by the Company; and
(E) In the event Executive defaults on her obligation to
repay the loan principal or accrued interest, the
Company shall be entitled to execute against the
Pledged Property, in accordance with the Stock Pledge
Agreement.
6. TERMINATION DUE TO RETIREMENT, DEATH, OR DISABILITY.
(a) Retirement. Executive may elect to terminate employment
hereunder by retirement at or after age 55 or at such earlier age as may be
approved by the Board (in either case, "Retirement"). At the time Executive's
employment terminates due to Retirement, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly continue
after termination of employment due to Retirement, and the Company will pay
Executive, and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of
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annual incentive compensation that would have become payable
in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for that year if her
employment had not terminated, based on performance actually
achieved in that year (determined by the Committee following
completion of the performance year), multiplied by a fraction
the numerator of which is the number of days Executive was
employed in the year of termination and the denominator of
which is the total number of days in the year of termination;
(iii) The vesting and exercisability of stock options held by
Executive at termination and all other terms of such options
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such options were
granted (subject to Section 10(f) hereof);
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards,
and all deferral arrangements under Section 5(d), shall be
governed by the plans and programs under which the awards were
granted or governing the deferral, and all rights under the
SERP and any other benefit plan shall be governed by such
plan; and
(v) Executive's rights and obligations with respect to the loan
described in Section 5(g) will be as set forth in that
Section.
(b) Death. In the event of Executive's death which results in
the termination of Executive's employment, the Term will terminate, all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease except for obligations which expressly continue
after death, and the Company will pay Executive's beneficiary or estate, and
Executive's beneficiary or estate will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's death occurred, an
amount equal to the portion of annual incentive compensation
that would have become payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for that year if her employment had not terminated,
based on performance actually achieved in that year
(determined by the Committee following completion of the
performance year), multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year
of her death and the denominator of which is the total number
of days in the year of death;
(iii) The vesting and exercisability of stock options held by
Executive at death and all other terms of such options shall
be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(iv) All restricted stock and deferred stock awards, including
outstanding PERS awards, all other long-term incentive awards,
and all deferral arrangements under Section 5(d), shall be
governed by the plans and programs under which the awards were
granted or governing the deferral, and all rights under the
SERP and any other benefit plan shall be governed by such
plan; and
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<PAGE>
(v) Executive's rights and obligations with respect to the loan
described in Section 5(g) will be as set forth in that
Section.
(c) Disability. The Company may terminate the employment of
Executive hereunder due to the Disability (as defined in Section 8(d)) of
Executive. Such employment shall terminate at the expiration of the 30-day
period referred to in the definition of Disability set forth in Section 8(d),
unless Executive has returned to service and presented to the Company a
certificate of good health prior to such termination as specified in Section
8(d). Upon termination of employment, the Term will terminate, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease except for obligations which expressly continue after
termination of employment due to Disability, and the Company will pay Executive,
and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of annual incentive
compensation that would have become payable in cash to
Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for that year if her employment had not
terminated, based on performance actually achieved in that
year (determined by the Committee following completion of the
performance year), multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year
of termination and the denominator of which is the total
number of days in the year of termination;
(iii) Stock options held by Executive at termination shall be
governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(iv) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term
incentive awards is conditioned shall be deemed to have been
met at target level at the date of termination, and restricted
stock and deferred stock awards, including outstanding PERS
awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based
awards) shall become fully vested and non-forfeitable at the
date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such awards were
granted;
(v) Disability benefits shall be payable in accordance with the
Company's plans, programs and policies (including the SERP),
and all deferral arrangements under Section 5(d) will be
settled in accordance with the plans and programs governing
the deferral;
(vi) For the period extending from the date of termination due to
Disability until the date Executive reaches age 65, Executive
shall continue to participate in those employee and executive
benefit plans and programs under Section 5(b) to the
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extent such plans and programs provide medical insurance,
disability insurance and life insurance benefits (but not
other benefits, such as pension and retirement benefits,
provided under Section 5(b)) in which Executive was
participating immediately prior to termination, the terms of
which allow Executive's continued participation, as if
Executive had continued in employment with the Company during
such period or, if the terms of such plans or programs do not
allow Executive's continued participation, Executive shall be
paid a cash payment equivalent on an after-tax basis to the
value of the additional benefits (of the type described in
this Section 6(c)(vi)) Executive would have received under
such plans or programs had Executive continued to be employed
during such period following Executive's termination until age
65, with such benefits provided by the Company at the same
times and in the same manner as such benefits would have been
provided to Executive under such plans and programs (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating); provided,
however, that Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue
receiving the benefits provided under this Section 6(c)(vi);
(v) Executive's rights and obligations with respect to the loan
described in Section 5(g) will be as set forth in that
Section.
(d) Other Terms of Payment Following Retirement, Death, or
Disability. Nothing in this Section 6 shall limit the benefits payable or
provided In the event Executive's employment terminates due to Retirement,
death, or Disability under the terms of plans or programs of the Company more
favorable to the Executive (or her beneficiaries) than the benefits payable or
provided under this Section 6 (except in the case of annual incentives in lieu
of which amounts are paid hereunder), including plans and programs adopted after
the date of this Agreement. Amounts payable under this Section 6 following
Executive's termination of employment, other than those expressly payable
following determination of performance for the year of termination for purposes
of annual incentive compensation or otherwise expressly payable on a deferred
basis, will be paid as promptly as practicable after such termination of
employment.
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7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN RETIREMENT, DEATH,
OR DISABILITY.
(a) Termination by the Company for Cause. The Company may
terminate the employment of Executive hereunder for Cause (as defined in Section
8(a)) at any time. At the time Executive's employment is terminated for Cause,
the Term will terminate, all obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease, and the Company
will pay Executive, and Executive will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination (as defined in
Section 8(c));
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans
and programs under which the awards were granted;
(iii) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral, and all rights under the SERP and any other benefit
plan shall be governed by such plan; and
(iv) Executive's rights and obligations with respect to the loan
described in Section 5(g) will be as set forth in that
Section.
(b) Termination by Executive Other Than For Good Reason.
Executive may terminate her employment hereunder voluntarily for reasons other
than Good Reason (as defined in Section 8(e)) at any time. An election by
Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to
be a termination of employment by Executive for reasons other than Good Reason
at the date of expiration of the Term, unless a Change in Control (as defined in
Section 8(b)) occurs prior to, and there exists Good Reason at, such date of
expiration. At the time Executive's employment is terminated by Executive other
than for Good Reason the Term will terminate, all obligations of the Company and
Executive under Sections 1 through 5 of this Agreement will immediately cease,
and the Company will pay Executive, and Executive will be entitled to receive,
the following:
(i) Executive's Compensation Accrued at Termination;
(ii) All stock options, restricted stock and deferred stock awards,
including outstanding PERS awards, and all other long-term
incentive awards will be governed by the terms of the plans
and programs under which the awards were granted;
(iii) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral, and all rights under the SERP and any other benefit
plan shall be governed by such plan; and
(iv) Executive's rights and obligations with respect to the loan
described in Section 5(g) will be as set forth in that
Section.
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(c) Termination by the Company Without Cause Prior to a Change
in Control. The Company may terminate the employment of Executive hereunder
without Cause, if at the date of termination no Change in Control has occurred,
upon at least 90 days' written notice to Executive. The foregoing
notwithstanding, the Company may elect, by written notice to Executive, to
terminate Executive's positions specified in Sections 1 and 3 and all other
obligations of Executive and the Company under Section 3 at a date earlier than
the expiration of such 90-day period, if so specified by the Company in the
written notice, provided that Executive shall be treated as an employee of the
Company (without any assigned duties) for all other purposes of this Agreement,
including for purposes of Sections 4 and 5, from such specified date until the
expiration of such 90-day period. An election by the Company not to extend the
Term pursuant to Section 2 hereof shall be deemed to be a termination of
Executive's employment by the Company without Cause at the date of expiration of
the Term and shall be subject to this Section 7(c) if at the date of such
termination no Change in Control has occurred; provided, however, that, if
Executive has attained age 65 at such date of termination, such termination
shall be deemed a Retirement of Executive. At the time Executive's employment is
terminated by the Company (i.e., at the expiration of such notice period), the
Term will terminate, all remaining obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and Executive
will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior
to termination plus (B) an amount equal to the greater of (x)
the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of
Executive's annual incentive compensation that became payable
in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for the latest year
preceding the year of termination based on performance
actually achieved in that latest year. The amount determined
to be payable under this Section 7(c)(ii) shall be payable in
monthly installments over the 24 months following termination,
without interest, except the Company may elect to accelerate
payment of the remaining balance of such amount and to pay it
as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to
Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for the year of termination, multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and
exercisable at the date of such termination, and, in other
respects (including the period following termination during
which such options may be exercised), such options shall be
governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
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<PAGE>
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term
incentive awards is conditioned shall be deemed to have been
met at target level at the date of termination, and restricted
stock and deferred stock awards, including outstanding PERS
awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based
awards) shall become fully vested and non-forfeitable at the
date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such awards were
granted;
(vi) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning
of the SERP, so that Executive will be entitled to not less
than the minimum "Retirement Benefit" determined in accordance
with Section 3.1 of the SERP;
(viii) For a period of two years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b))
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment
with the Company during such period; provided, however, that
such participation shall terminate, or the benefits under such
plans and programs shall be reduced, if and to the extent
Executive becomes covered (or is eligible to become covered)
by plans of a subsequent employer or other entity to which
Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(c)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of
the additional benefits described in this Section 7(c)(viii)
Executive would have received under such plans or programs had
Executive continued to be employed during such period, with
such benefits provided by the Company at the same times and in
the same manner as such benefits would have been provided to
Executive under such plans and programs (it being understood
that the value of any insurance-provided benefits will be
based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set
forth in Section 10 in order to continue receiving the
benefits provided under this Section 7(c)(viii). Executive
agrees to promptly notify the Company of any employment or
other arrangement by which Executive provides services during
the benefits-continuation period and of the nature and extent
of benefits for which Executive becomes eligible during such
period which would reduce or terminate benefits under this
Section 7(c)(viii);
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and the Company be entitled to recover from Executive any
payments and the fair market value of benefits previously made
or provided to Executive hereunder which would not have been
paid under this Section 7(c)(viii) if the Company had received
adequate prior notice as required by this sentence; and
(ix) Executive's obligations with respect to the loan described in
Section 5(g) will be as set forth in that Section.
(d) Termination by Executive for Good Reason Prior to a Change
in Control. Executive may terminate her employment hereunder for Good Reason,
prior to a Change in Control, upon 90 days' written notice to the Company;
provided, however, that, if the Company has corrected the basis for such Good
Reason within 30 days after receipt of such notice, Executive may not terminate
her employment for Good Reason, and therefore Executive's notice of termination
will automatically become null and void. At the time Executive's employment is
terminated by Executive for Good Reason (i.e., at the expiration of such notice
period), the Term will terminate, all obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and Executive
will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to two times the sum of (A)
Executive's Base Salary under Section 4(a) immediately prior
to termination plus (B) an amount equal to the greater of (x)
the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of
Executive's annual incentive compensation that became payable
in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for the latest year
preceding the year of termination based on performance
actually achieved in that latest year. The amount determined
to be payable under this Section 7(d)(ii) shall be payable in
monthly installments over the 24 months following termination,
without interest, except the Company may elect to accelerate
payment of the remaining balance of such amount and to pay it
as a lump sum, without discount;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to
Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for the year of termination, multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and
exercisable at the date of such termination, and, in other
respects (including the period following termination during
which such options may be exercised), such options shall be
governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
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(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term
incentive awards is conditioned shall be deemed to have been
met at target level at the date of termination, and restricted
stock and deferred stock awards, including outstanding PERS
awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based
awards) shall become fully vested and non-forfeitable at the
date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such awards were
granted;
(vi) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral;
(vii) For purposes of the SERP, Executive shall be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning
of the SERP, so that Executive will be entitled to not less
than the minimum "Retirement Benefit" determined in accordance
with Section 3.1 of the SERP;
(viii) For a period of two years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b))
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment
with the Company during such period; provided, however, that
such participation shall terminate, or the benefits under such
plans and programs shall be reduced, if and to the extent
Executive becomes covered (or is eligible to become covered)
by plans of a subsequent employer or other entity to which
Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(d)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of
the additional benefits described in this Section 7(d)(viii)
Executive would have received under such plans or programs had
Executive continued to be employed during such period, with
such benefits provided by the Company at the same times and in
the same manner as such benefits would have been provided to
Executive under such plans and programs (it being understood
that the value of any insurance-provided benefits will be
based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set
forth in Section 10 in order to continue receiving the
benefits provided under this Section 7(d)(viii). Executive
agrees to promptly notify the Company of any employment or
other arrangement by which Executive provides services during
the benefits-continuation period and of the nature and extent
of benefits for which Executive becomes eligible during such
period which would reduce or terminate benefits under this
Section 7(d)(viii); and the Company shall be entitled to
recover from Executive any payments and
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the fair market value of benefits previously made or
provided to Executive hereunder which would not have been
paid under this Section 7(d)(viii) if the Company had
received adequate prior notice as required by this sentence;
and
(ix) Executive's obligations with respect to the loan described in
Section 5(g) will be as set forth in that Section.
If any payment or benefit under this Section 7(d) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or benefit
was the basis for Executive's termination for Good Reason, then the Base Salary
or other level of compensation in effect before such reduction shall be used to
calculate payments or benefits under this Section 7(d).
(e) Termination by the Company Without Cause After a Change in
Control. The Company may terminate the employment of Executive hereunder without
Cause, simultaneously with or at any time after a Change in Control, upon at
least 90 days' written notice to Executive. The foregoing notwithstanding, the
Company may elect, by written notice to Executive, to terminate Executive's
positions specified in Sections 1 and 3 and all other obligations of Executive
and the Company under Section 3 at a date earlier than the expiration of such
90-day notice period, if so specified by the Company in the written notice,
provided that Executive shall be treated as an employee of the Company (without
any assigned duties) for all other purposes of this Agreement, including for
purposes of Sections 4 and 5, from such specified date until the expiration of
such 90-day period. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of Executive's
employment by the Company without Cause at the date of expiration of the Term
and shall be subject to this Section 7(e) if the date of such termination
coincides with or is after a Change in Control; provided, however, that, if
Executive has attained age 65 at such date of termination, such termination
shall be deemed a Retirement of Executive. At the time Executive's employment is
terminated by the Company (i.e., at the expiration of such notice period), the
Term will terminate, all remaining obligations of the Company and Executive
under Sections 1 through 5 of this Agreement will immediately cease (except as
expressly provided below), and the Company will pay Executive, and Executive
will be entitled to receive, the following:
(i) Executive's Compensation Accrued at Termination;
(ii) Cash in an aggregate amount equal to three times the sum of
(A) Executive's Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater
of (x) the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of
Executive's annual incentive compensation that became payable
in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for the latest year
preceding the year of termination based on performance
actually achieved in that latest year. The amount determined
to be payable under this Section 7(e)(ii) shall be paid by the
Company not later than 15 days after Executive's termination;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to
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Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for the year of termination, multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and
exercisable at the date of such termination, and any such
options granted on or after the date hereof shall remain
outstanding and exercisable until the stated expiration date
of the Option as though Executive's employment did not
terminate, and, in other respects, such options shall be
governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term
incentive awards is conditioned shall be deemed to have been
met at target level at the date of termination, and restricted
stock and deferred stock awards, including outstanding PERS
awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based
awards) shall become fully vested and non-forfeitable at the
date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such awards were
granted;
(vi) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral;
(vii) For purposes of the SERP, Executive will be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning
of the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the
SERP. In addition, the provisions of the SERP notwithstanding,
the term "Average Final Compensation" as used in the SERP
shall mean the greatest of (A) Average Final Compensation as
defined in the SERP, (B) the sum of (x) Executive's Base
Salary plus (y) Executive's annual target incentive
opportunity for the year in which the Change in Control
occurred (if not yet determined, then such opportunity shall
be deemed to equal the greater of the minimum annual target
incentive opportunity that would be required by this Agreement
or the actual annual incentive earned for the year immediately
preceding the year in which the Change in Control occurred),
or (C) $1,971,755;
(viii) For a period of three years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b))
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment
with the Company during such period; provided, however, that
such participation shall terminate, or the benefits under
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such plans and programs shall be reduced, if and to the extent
Executive becomes covered (or is eligible to become covered)
by plans of a subsequent employer or other entity to which
Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(e)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of
the additional benefits described in this Section 7(e)(viii)
Executive would have received under such plans or programs had
Executive continued to be employed during such period, with
such benefits provided by the Company at the same times and in
the same manner as such benefits would have been provided to
Executive under such plans and programs (it being understood
that the value of any insurance-provided benefits will be
based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set
forth in Section 10 in order to continue receiving the
benefits provided under this Section 7(e)(viii). Executive
agrees to promptly notify the Company of any employment or
other arrangement by which Executive provides services during
the benefits-continuation period and of the nature and extent
of benefits for which Executive becomes eligible during such
period which would reduce or terminate benefits under this
Section 7(e)(viii); and the Company shall be entitled to
recover from Executive any payments and the fair market value
of benefits previously made or provided to Executive hereunder
which would not have been paid under this Section 7(e)(viii)
if the Company had received adequate prior notice as required
by this sentence; and
(ix) Executive's obligations with respect to the loan described in
Section 5(g) will be as set forth in that Section.
If any payment or benefit under this Section 7(e) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if the Company has purported to reduce Base Salary or other level of
compensation or benefits prior to such termination in a manner that would
constitute Good Reason, then the Base Salary or other level of compensation in
effect before such reduction shall be used to calculate payments or benefits
under this Section 7(e).
(f) Termination by Executive for Good Reason After a Change in
Control. Executive may terminate her employment hereunder for Good Reason,
simultaneously with or at any time after a Change in Control, upon 90 days'
written notice to the Company; provided, however, that, if the Company has
corrected the basis for such Good Reason within 30 days after receipt of such
notice, Executive may not terminate her employment for Good Reason, and
therefore Executive's notice of termination will automatically become null and
void. At the time Executive's employment is terminated by Executive for Good
Reason (i.e., at the expiration of such notice period), the Term will terminate,
all obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease (except as expressly provided below), and the
Company will pay Executive, and Executive will be entitled to receive, the
following:
(i) Executive's Compensation Accrued at Termination;
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<PAGE>
(ii) Cash in an aggregate amount equal to three times the sum of
(A) Executive's Base Salary under Section 4(a) immediately
prior to termination plus (B) an amount equal to the greater
of (x) the portion of Executive's annual target incentive
compensation potentially payable in cash to Executive (i.e.,
excluding the portion payable in PERS or in other non-cash
awards) for the year of termination or (y) the portion of
Executive's annual incentive compensation that became payable
in cash to Executive (i.e., excluding the portion payable in
PERS or in other non-cash awards) for the latest year
preceding the year of termination based on performance
actually achieved in that latest year. The amount determined
to be payable under this Section 7(f)(ii) shall be paid by the
Company not later than 15 days after Executive's termination;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated,
an amount equal to the portion of Executive's annual target
incentive compensation potentially payable in cash to
Executive (i.e., excluding the portion payable in PERS or in
other non-cash awards) for the year of termination, multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(iv) Stock options held by Executive at termination, if not then
vested and exercisable, will become fully vested and
exercisable at the date of such termination, and any such
options granted on or after the date hereof shall remain
outstanding and exercisable until the stated expiration date
of the Option as though Executive's employment did not
terminate, and, in other respects, such options shall be
governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;
(v) Any performance objectives upon which the earning of
performance-based restricted stock and deferred stock awards,
including outstanding PERS awards, and other long-term
incentive awards is conditioned shall be deemed to have been
met at target level at the date of termination, and restricted
stock and deferred stock awards, including outstanding PERS
awards, and other long-term incentive awards (to the extent
then or previously earned, in the case of performance-based
awards) shall become fully vested and non-forfeitable at the
date of such termination, and, in other respects, such awards
shall be governed by the plans and programs and the agreements
and other documents pursuant to which such awards were
granted;
(vi) All deferral arrangements under Section 5(d) will be settled
in accordance with the plans and programs governing the
deferral;
(vii) For purposes of the SERP, Executive will be credited with
additional years of age and/or years of Service (as defined in
the SERP) if and to the extent required so that Executive's
termination will qualify as a "Retirement" within the meaning
of the SERP and so that Executive will be entitled the maximum
"Retirement Benefit" in accordance with Section 3.1 of the
SERP. In addition, the provisions of the SERP notwithstanding,
the term "Average Final Compensation" as used in the SERP
shall mean the greatest of (A) Average Final Compensation as
defined in the SERP, (B) the sum of (x) Executive's Base
Salary plus (y) Executive's annual
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<PAGE>
target incentive opportunity for the year in which the Change
in Control occurred (if not yet determined, then such
opportunity shall be deemed to equal the greater of the
minimum annual target incentive opportunity that would be
required by this Agreement or the actual annual incentive
earned for the year immediately preceding the year in which
the Change in Control occurred), or (C) $1,971,755;
(viii) For a period of three years after such termination (but not
after Executive attains age 65), Executive shall continue to
participate in those employee and executive benefit plans and
programs under Section 5(b) to the extent such plans and
programs provide medical insurance, disability insurance and
life insurance benefits (but not other benefits, such as
pension and retirement benefits, provided under Section 5(b))
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment
with the Company during such period; provided, however, that
such participation shall terminate, or the benefits under such
plans and programs shall be reduced, if and to the extent
Executive becomes covered (or is eligible to become covered)
by plans of a subsequent employer or other entity to which
Executive provides services during such period providing
comparable benefits. If the terms of the Company plans and
programs referred to in this Section 7(f)(viii) do not allow
Executive's continued participation, Executive shall be paid a
cash payment equivalent on an after-tax basis to the value of
the additional benefits described in this Section 7(f)(viii)
Executive would have received under such plans or programs had
Executive continued to be employed during such period, with
such benefits provided by the Company at the same times and in
the same manner as such benefits would have been provided to
Executive under such plans and programs (it being understood
that the value of any insurance-provided benefits will be
based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an
investment grade or better credit rating); provided, however,
that Executive must continue to satisfy the conditions set
forth in Section 10 in order to continue receiving the
benefits provided under this Section 7(f)(viii). Executive
agrees to promptly notify the Company of any employment or
other arrangement by which Executive provides services during
the benefits-continuation period and of the nature and extent
of benefits for which Executive becomes eligible during such
period which would reduce or terminate benefits under this
Section 7(f)(viii); and the Company shall be entitled to
recover from Executive any payments and the fair market value
of benefits previously made or provided to Executive hereunder
which would not have been paid under this Section 7(f)(viii)
if the Company had received adequate prior notice as required
by this sentence; and
(ix) Executive's obligations with respect to the loan described in
Section 5(g) will be as set forth in that Section.
If any payment or benefit under this Section 7(f) is based on Base Salary or
other level of compensation or benefits at the time of Executive's termination
and if a reduction in such Base Salary or other level of compensation or
benefits was the basis for Executive's termination for Good Reason or would
otherwise constitute Good Reason, then the Base Salary or other level of
compensation in effect before such reduction shall be used to calculate payments
or benefits under this Section 7(f).
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<PAGE>
(g) Other Terms Relating to Certain Terminations of
Employment. Whether a termination is deemed to be at or following a Change in
Control for purposes of Sections 7(c), (d), (e), or (f) is determined at the
date of termination, regardless of whether the Change in Control had occurred at
the time a notice of termination was given. In the event Executive's employment
terminates for any reason set forth in Section 7(b) through (f), Executive will
be entitled to the benefit of any terms of plans or agreements applicable to
Executive which are more favorable than those specified in this Section 7
(except in the case of annual incentives in lieu of which amounts are paid
hereunder). Amounts payable under this Section 7 following Executive's
termination of employment, other than those expressly payable on a deferred
basis, will be paid as promptly as practicable after such a termination of
employment, and such amounts payable under Section 7(e) or 7(f) will be paid in
no event later than 15 days after Executive's termination of employment unless
not determinable within such period.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's
(i) willful and continued failure to substantially perform her
duties hereunder (other than any such failure resulting from
incapacity due to physical or mental illness or disability or
any failure after the issuance of a notice of termination by
Executive for Good Reason) which failure is demonstrably and
materially damaging to the financial condition or reputation
of the Company and/or its subsidiaries, and which failure
continues more than 48 hours after a written demand for
substantial performance is delivered to Executive by the
Board, which demand specifically identifies the manner in
which the Board believes that Executive has not substantially
performed her duties hereunder and the demonstrable and
material damage caused thereby; or
(ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company,
monetarily or otherwise.
No act, or failure to act, on the part of Executive shall be deemed "willful"
unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that her action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board (after reasonable notice to Executive and an opportunity
for Executive, together with Executive's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in this definition and specifying the particulars
thereof in detail.
(b) "Change in Control." For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if, during the term of this
Agreement:
(i) any "Person," as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their
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<PAGE>
ownership of stock of the Company), becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any
period prior to the effectiveness of this Agreement),
individuals who at the beginning of such period constitute the
Board, and any new director (other than (A) a director
nominated by a Person who has entered into an agreement with
the Company to effect a transaction described in Sections
(8)(b)(i), (iii) or (iv) hereof, (B) a director nominated by
any Person (including the Company) who publicly announces an
intention to take or to consider taking actions (including,
but not limited to, an actual or threatened proxy contest)
which if consummated would constitute a Change in Control or
(C) a director nominated by any Person who is the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or
nomination for election by the Company's stockholders was
approved in advance by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors
at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(iii) the stockholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation (A) which would result in the voting securities
of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) more than 66 2/3% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and
(B) after which no Person holds 20% or more of the combined
voting power of the then-outstanding securities of the Company
or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Change in Control has occurred.
(c) "Compensation Accrued at Termination." For purposes of
this Agreement, "Compensation Accrued at Termination" means the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
Executive's termination of employment, pro rated through such
date of termination, payable in accordance with the Company's
regular pay schedule;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of Executive's termination of employment under any
compensation and benefit plans, programs,
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and arrangements set forth or referred to in Sections 4(b) and
5(a) and 5(b) hereof (including any earned and vested annual
incentive compensation and long-term incentive award) in which
Executive theretofore participated, payable in accordance with
the terms and conditions of the plans, programs, and
arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted
or accrued; and
(iii) Reasonable business expenses and disbursements incurred by
Executive prior to Executive's termination of employment, to
be reimbursed to Executive, as authorized under Section 5(f),
in accordance the Company's reimbursement policies as in
effect at the date of such termination.
(d) "Disability." For purposes of this Agreement, "Disability"
means Executive's absence from the full-time performance of Executive's duties
hereunder for six consecutive months as a result of her incapacity due to
physical or mental illness or disability, and, within 30 days after written
notice of termination is thereafter given by the Company, Executive shall have
not returned to the full-time performance of such duties.
(e) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's express written consent, the occurrence
of any of the following circumstances unless, in the case of subsections (i),
(iv), (vi) or (viii) hereof, such circumstances are fully corrected prior to the
date of termination specified in the notice of termination given in respect
thereof:
(i) the assignment to Executive of duties inconsistent with
Executive's position and status hereunder, or an alteration,
adverse to Executive, in the nature of Executive's duties,
responsibilities, and authorities, Executive's positions or
the conditions of Executive's employment from those specified
in Section 3 or otherwise hereunder (other than inadvertent
actions which are promptly remedied); for this purpose, it
shall constitute "Good Reason" under this subsection (e)(i) if
(A) Executive shall be required to report to and take
direction from any person or body other than the Chairman of
the Board of the Company and the Board; and (B) if Executive
shall be removed from the Board or from any Board committee on
which Executive has served during the Term, or there occurs
any failure of Executive to be nominated, elected, reappointed
or reelected as a member of the Board or as a member of any
Board committee on which she has served during the Term,
including a failure of the Board or stockholders to take such
actions (notwithstanding their legal right to do so), except
the foregoing shall not constitute Good Reason if occurring in
connection with the termination of Executive's employment for
Cause, Disability, Retirement, as a result of Executive's
death, or as a result of action by or with the consent of
Executive; for purposes of this Section 8(e)(i), references to
the Company (and the Board and stockholders of the Company)
refer to the ultimate parent company (and its board and
stockholders) succeeding the Company following an acquisition
in which the corporate existence of the Company continues, in
accordance with Section 12(b);
(ii) (A) a reduction by the Company in Executive's Base Salary, (B)
the setting of Executive's annual target incentive opportunity
or payment of earned annual incentive in amounts less than
specified under or otherwise not in conformity with Section 4
hereof, (C) a change in compensation or benefits not in
conformity with
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Section 5, or (D) a reduction, after a Change in Control in
perquisites from the level of such perquisites as in effect
immediately prior to the Change in Control or as the same may
have been increased from time to time after the Change in
Control except for across-the-board perquisite reductions
similarly affecting all senior executives of the Company and
all senior executives of any Person in control of the Company;
(iii) the relocation of the principal place of Executive's
employment not in conformity with Section 3(b) hereof; for
this purpose, required travel on the Company's business will
not constitute a relocation so long as the extent of such
travel is substantially consistent with Executive's customary
business travel obligations in periods prior to the Effective
Date;
(iv) the failure by the Company to pay to Executive any portion of
Executive's compensation or to pay to Executive any portion of
an installment of deferred compensation under any deferred
compensation program of the Company within seven days of the
date such compensation is due;
(v) the failure by the Company to continue in effect any material
compensation or benefit plan in which Executive participated
immediately prior to a Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure
by the Company to continue Executive's participation therein
(or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amounts of
compensation or benefits provided and the level of Executive's
participation relative to other participants, as existed at
the time of the Change in Control;
(vi) the failure of the Company to obtain a satisfactory agreement
from any successor to the Company to fully assume the
Company's obligations and to perform under this Agreement, as
contemplated in Section 12(b) hereof, in a form reasonably
acceptable to Executive;
(vii) any election by the Company not to extend the Term of this
Agreement at the next possible extension date under Section 2
hereof, unless Executive will have attained age 65 at or
before such extension date; or
(viii) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement.
(f) "Potential Change in Control" For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred if, during the
term of this Agreement:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute a Change in Control; or
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(iii) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
9. RABBI TRUST OBLIGATION UPON POTENTIAL CHANGE IN CONTROL; EXCISE
TAX-RELATED PROVISIONS.
(a) Rabbi Trust Funded Upon Potential Change in Control. In
the event of a Potential Change in Control or Change in Control, the Company
shall, not later than 15 days thereafter, have established one or more rabbi
trusts and shall deposit therein cash in an amount sufficient to provide for
full payment of all potential obligations of the Company that would arise
assuming consummation of a Change in Control, or has arisen in the case of an
actual Change in Control, and a subsequent termination of Executive's employment
under Section 7(e) or 7(f). Such rabbi trust(s) shall be irrevocable and shall
provide that the Company may not, directly or indirectly, use or recover any
assets of the trust(s) until such time as all obligations which potentially
could arise hereunder have been settled and paid in full, subject only to the
claims of creditors of the Company in the event of insolvency or bankruptcy of
the Company; provided, however, that if no Change in Control has occurred within
two years after such Potential Change in Control, such rabbi trust(s) shall at
the end of such two-year period become revocable and may thereafter be revoked
by the Company.
(b) Gross-up If Excise Tax Would Apply. In the event Executive
becomes entitled to any amounts or benefits payable in connection with a Change
in Control or other change in control (whether or not such amounts are payable
pursuant to this Agreement) (the "Severance Payments"), if any of such Severance
Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code (or any similar federal, state or local tax that may hereafter be
imposed), the Company shall pay to Executive at the time specified in Section
9(b)(iii) hereof an additional amount (the "Gross-Up Payment") such that the net
amount retained by Executive, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local income tax
and Excise Tax upon the payment provided for by Section 9(b)(i), shall be equal
to the Total Payments.
(i) For purposes of determining whether any of the Severance
Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(A) any other payments or benefits received or to be
received by Executive in connection with a Change in
Control or Executive's termination of employment
(whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change
in Control or any Person affiliated with the Company
or such Person) (which, together with the Severance
Payments, constitute the "Total Payments") shall be
treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to
the Excise Tax, unless in the opinion of
nationally-recognized tax counsel selected by
Executive such other payments or benefits (in whole
or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part)
represent reasonable compensation for services
actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base
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<PAGE>
amount within the meaning of Section 280G(b)(3) of
the Code, or are otherwise not subject to the Excise
Tax;
(B) the amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal
to the lesser of (x) the total amount of the Total
Payments and (y) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) of
the Code (after applying Section 9(b)(i)(A) hereof);
and
(C) the value of any non-cash benefits or any deferred
payments or benefit shall be determined by a
nationally-recognized accounting firm selected by
Executive in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
(ii) For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay federal income taxes
at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of Executive's residence on
the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of
such state and local taxes. In the event that the Excise Tax
is subsequently determined to be less than the amount taken
into account hereunder at the time of termination of
Executive's employment, Executive shall repay to the Company
within ten days after the time that the amount of such
reduction in Excise Tax is finally determined the portion of
the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax
and federal and state and local income tax imposed on the
Gross-Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or federal and state
and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of
the termination of Executive's employment (including by reason
of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment in respect of such
excess within ten days after the time that the amount of such
excess is finally determined.
(iii) The payments provided for in this Section 9(b) shall be made
not later than the fifteenth day following the date of
Executive's termination of employment; provided, however, that
if the amount of such payments cannot be finally determined on
or before such day, the Company shall pay to Executive on such
day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than
the thirtieth day after the date of Executive's termination of
employment. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company
to Executive, payable on the fifteenth day after the demand by
the
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Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(iv) All determinations under this Section 9(b) shall be made at
the expense of the Company by a nationally recognized public
accounting firm selected by Executive, and such determination
shall be binding upon Executive and the Company.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, Executive will not, at any time during the Term and for a period of two
years following termination of Executive's employment for any reason, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor, or director) in any business in which she has been directly engaged on
behalf of the Company or any affiliate, or has supervised as an executive
thereof, during the last two years prior to such termination, or which was
engaged in or planned by the Company or an affiliate at the time of such
termination, in any geographic area in which such business was conducted or
planned to be conducted; (ii) induce any customers of the Company or any of its
affiliates with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of her employment with the Company or
any of its affiliates, to curtail or cancel their business with the Company or
any such affiliate; (iii) induce, or attempt to influence, any employee of the
Company or any of its affiliates to terminate employment; or (iv) solicit, hire
or retain as an employee or independent contractor, or assist any third party in
the solicitation, hire, or retention as an employee or independent contractor,
any person who during the previous 12 months was an employee of the Company or
any affiliate; provided, however, that the limitation contained in clause (i)
above shall not apply if Executive's employment is terminated as a result of a
termination by the Company without Cause following a Change in Control or is
terminated by Executive for Good Reason following a Change in Control; and
provided further, that activities engaged in by or on behalf of the Company are
not restricted by this covenant. The provisions of subparagraphs (i), (ii),
(iii), and (iv) above are separate and distinct commitments independent of each
of the other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this Section 10(a).
(b) Non-Disclosure; Ownership of Work. Executive shall not, at
any time during the Term and thereafter (including following Executive's
termination of employment for any reason), disclose, use, transfer, or sell,
except in the course of employment with or other service to the Company, any
proprietary information, secrets, organizational or employee information, or
other confidential information belonging or relating to the Company and its
affiliates and customers so long as such information has not otherwise been
disclosed or is not otherwise in the public domain, except as required by law or
pursuant to legal process. In addition, upon termination of employment for any
reason, Executive will return to the Company or its affiliates all documents and
other media containing information belonging or relating to the Company or its
affiliates. Executive will promptly disclose in writing to the Company all
inventions, discoveries, developments, improvements and innovations
(collectively referred to as "Inventions") that Executive has conceived or made
during the Term; provided, however, that in this context "Inventions" are
limited to those which (i) relate in any manner to the existing or contemplated
business or research activities of the Company and its affiliates; (ii) are
suggested by or result
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<PAGE>
from Executive's work at the Company; or (iii) result from the use of the time,
materials or facilities of the Company and its affiliates. All Inventions will
be the Company's property rather than Executive's. Should the Company request
it, Executive agrees to sign any document that the Company may reasonably
require to establish ownership in any Invention.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making herself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with her provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage the Company or any of
its subsidiaries or affiliates or their respective officers, directors,
employees, advisors, businesses or reputations. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from making truthful
statements that are required by applicable law, regulation or legal process.
(e) Release of Employment Claims. Executive agrees, as a
condition to receipt of any termination payments and benefits provided for in
Sections 6 and 7 herein (other than Compensation Accrued at Termination), that
she will execute a general release agreement, in a form satisfactory to the
Company, releasing any and all claims arising out of Executive's employment
other than enforcement of this Agreement, rights under the Promissory Note and
Stock Pledge Agreement, and rights to indemnification under any agreement, law,
Company organizational document or policy, or otherwise.
(f) Forfeiture of Outstanding Options. The provisions of
Sections 6 and 7 notwithstanding, if Executive willfully and materially fails to
substantially comply with any restrictive covenant under this Section 10 or
willfully and materially fails to substantially comply with any material
obligation under this Agreement, all options to purchase Common Stock granted by
the Company and then held by Executive or a transferee of Executive shall be
immediately forfeited and thereupon such options shall be cancelled.
Notwithstanding the foregoing, Executive shall not forfeit any option unless and
until there shall have been delivered to her, within six months after the Board
(i) had knowledge of conduct or an event allegedly constituting grounds for such
forfeiture and (ii) had reason to believe that such conduct or event could be
grounds for such forfeiture, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such forfeiture and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with her counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive has engaged and continues to engage in conduct set forth in
this Section 10(f) which constitutes grounds for forfeiture of Executive's
options; provided, however, that if any option is exercised after delivery of
such notice and the Board subsequently makes the determination described in this
sentence,
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<PAGE>
Executive shall be required to pay to the Company an amount equal to the
difference between the aggregate value of the shares acquired upon such exercise
at the date of the Board determination and the aggregate exercise price paid by
Executive. Any such forfeiture shall apply to such options notwithstanding any
term or provision of any option agreement. In addition, options granted to
Executive on or after January 1, 2000, and gains resulting from the exercise of
such options, shall be subject to forfeiture in accordance with the Company's
standard policies relating to such forfeitures and clawbacks, as such policies
are in effect at the time of grant of such options.
(g) Survival. The provisions of this Section 10 shall survive
the termination of the Term and any termination or expiration of this Agreement.
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<PAGE>
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Connecticut, without regard to conflicts of law principles, except insofar as
federal laws and regulations and the Delaware General Corporation Law may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by arbitrators in accordance with Section 11(c) or a court having
jurisdiction over the matter.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Westport CT by three arbitrators in accordance with the rules of the American
Arbitration Association in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. For purposes of entering any judgment upon an award rendered by
the arbitrators, the Company and Executive hereby consent to the jurisdiction of
any or all of the following courts: (i) the United States District Court for the
District of Connecticut, (ii) any of the courts of the State of Connecticut, or
(iii) any other court having jurisdiction. The Company and Executive further
agree that any service of process or notice requirements in any such proceeding
shall be satisfied if the rules of such court relating thereto have been
substantially satisfied. The Company and Executive hereby waive, to the fullest
extent permitted by applicable law, any objection which it may now or hereafter
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to Section 11(b), the Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 11. Notwithstanding any provision in this Section 11,
Executive shall be entitled to seek specific performance of Executive's right to
be paid during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amount which has become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which has not been
timely paid shall bear interest at the
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<PAGE>
prime rate in effect at the time such amount first becomes payable, as quoted by
the Company's principal bank.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company, any parent or predecessor
company, and the Company's subsidiaries during the Term, except for contracts
relating to compensation under executive compensation and employee benefit plans
of the Company and its subsidiaries. The foregoing notwithstanding, Executive
shall not participate in the Company's Employee Protection Plan. Executive shall
remain entitled to any right or benefit under a Change-in-Control Agreement
executed by the Company, for so long as such Change-in-Control Agreement remains
in effect, if and to the extent that such right or benefit is more favorable
than a corresponding provision of this Agreement, but no payment or benefit
under the Change-in-Control Agreement shall be made or extended which duplicates
any payment or benefit hereunder. If and to the extent that this Agreement may
provide enhanced benefits to Executive under the SERP which benefits are not
explicitly provided for under the SERP, the SERP shall be deemed amended by this
Agreement (but only insofar as it pertains to Executive). This Agreement
constitutes the entire agreement among the parties with respect to the matters
herein provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment or benefit under this Agreement which duplicates
a payment or benefit received or receivable by Executive under such prior
agreements and understandings or under any benefit or compensation plan of the
Company.
(b) Successors; Transferability. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise and, in the case of an acquisition of the Company
in which the corporate existence of the Company continues, the ultimate parent
company following such acquisition. Subject to the foregoing, the Company may
transfer and assign this Agreement and the Company's rights and obligations
hereunder. Neither this Agreement nor the rights or obligations hereunder of the
parties hereto shall be transferable or assignable by Executive, except in
accordance with the laws of descent and distribution or as specified in Section
12(c).
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits provided hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
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<PAGE>
If to the Company:
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
If to Executive:
Victoria R. Fash
200 Nyala Farms
Westport, CT 06880
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective two days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment, and any compensation or benefits received from any
other employment of Executive shall not mitigate or reduce the obligations of
the Company or the rights of Executive hereunder, except that, to the extent
Executive receives from a subsequent employer health or other insurance benefits
that are substantially similar to the benefits referred to in Section 5(b)
hereof, any such benefits to be provided by the Company to Executive following
the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company to Executive pursuant to this Agreement shall not be subject to
offset other than with respect to any amounts that are owed to the Company by
Executive due to her receipt of funds as a result of her fraudulent activity or
as otherwise provided in Section 5(g). The foregoing and other provisions of
this Agreement notwithstanding, all payments to be made to Executive under this
Agreement, including under Sections 6 and 7 and the value of any loan
forgiveness under Section 5(g), or otherwise by the Company, will be subject to
withholding to satisfy required withholding taxes and other required deductions.
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(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, her heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
(k) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. INDEMNIFICATION.
All rights to indemnification by the Company now existing in
favor of the Executive as provided in the Company's Certificate of Incorporation
or By-laws or pursuant to other agreements in effect on or immediately prior to
the Effective Date shall continue in full force and effect from the Effective
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately claimed
as such expenses are incurred to the fullest extent permitted under applicable
law, subject to any requirement that the Executive provide an undertaking to
repay such advances if it is ultimately determined that the Executive is not
entitled to indemnification; provided, however, that any determination required
to be made with respect to whether the Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Certificate of Incorporation,
By-laws, or other agreement shall be made by independent counsel mutually
acceptable to the Executive and the Company (except to the extent otherwise
required by law). After the date hereof, the Company shall not amend its
Certificate of Incorporation or By-laws or any agreement in any manner which
adversely affects the rights of the Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Agreement shall not limit or
reduce any rights of the Executive to indemnification pursuant to applicable
law. In addition, the Company will maintain directors' and officers' liability
insurance in effect and covering acts and omissions of Executive during the Term
and for a period of six years thereafter on terms substantially no less
favorable than those in effect on the Effective Date.
IN WITNESS WHEREOF, Executive has hereunto set her hand and
the Company has caused this instrument to be duly executed as of the date of the
amendment and restatement of this Agreement set forth in Section 1 hereof.
IMS HEALTH INCORPORATED
By:___________________________
Name:
Title:
EXECUTIVE
Victoria R. Fash
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EXHIBIT 10.31
SECOND AMENDMENT TO
IMS HEALTH INCORPORATED SAVINGS EQUALIZATION PLAN
Effective as of October 1, 1999
1. The first sentence of Article I of the IMS Health Incorporated Savings
Equalization Plan (the "Plan") is hereby amended to read in its entirety as
follows:
"The purpose of the IMS Health Incorporated Savings Equalization Plan
(the "Plan") is to provide a means of equalizing the benefits of those
employees participating in the IMS Health Incorporated Savings Plan
(the "401(k) Plan") whose matching contributions under the 401(k) Plan
are or will be limited by the application of Sections 401(a)(17) or
415 of the Internal Revenue Code of 1986, as amended (the "Code"), or
by reason of the exclusion from the definition of Compensation under
the 401(k) Plan of amounts deferred under any nonqualified deferred
compensation plan."
2. Article III of the Plan is hereby amended to read in its entirety as
follows:
"III. Participation in the Plan
All members of the 401(k) Plan shall be eligible to participate in
this Plan whenever their benefits under the 401(k) Plan as from time
to time in effect would exceed the limitations on benefits and
contributions imposed by Sections 401(a)(17) or 415 of the Code or
would be limited by reason of the exclusion from the definition of
Compensation under the 401(k) Plan of amounts deferred under any
nonqualified deferred compensation plan. For purposes of this Plan,
benefits of a participant in this Plan shall be determined as though
no provisions were contained in the 401(k) Plan incorporating
limitations imposed by Sections 401(a)(17) or 415 of the Code or
excluding from the definition of Compensation amounts deferred under
any nonqualified deferred compensation plan."
3. Article IV of the Plan is hereby amended to read in its entirety as
follows:
"IV. Equalized Benefits
If member participating contributions or Company contributions to the
401(k) Plan for any calendar year are limited by reason of the
application of Sections 401(a)(17) or 415 of the Code or the exclusion
from the definition of Compensation under the 401(k) Plan of amounts
deferred under any nonqualified deferred compensation plan, the
Corporation shall pay the
<PAGE>
participant, on or about March 1st of the following year, an amount
equal to:
(1) the Company matching contributions that otherwise would have been
credited to such participant's account under the 401(k) Plan if
the limitations imposed by Sections 401(a)(17) and 415 of the
Code and the exclusion from the definition of Compensation under
the 401(k) Plan of amounts deferred under any nonqualified
deferred compensation plan did not apply, plus
(2) an interest factor equal to one-half of the annual return which
would have been received by the participant had such payment been
invested eighty percent (80%) in the Special Fixed Income Fund
(Fund C) of the 401(k) Plan and twenty percent (20%) in the BZW
Equity Index Fund (Fund A) of the 401(k) Plan during the year,
less
(3) any applicable withholding taxes."
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EXHIBIT 10.32
SECOND AMENDMENT TO
IMS HEALTH INCORPORATED RETIREMENT EXCESS PLAN
Effective as of October 1, 1999
1. The first sentence of the Introduction to the IMS Health Incorporated
Retirement Excess Plan (the "Plan") is hereby amended to read in its entirety as
follows:
"The IMS Health Incorporated Retirement Excess Plan (the "Plan") is
established by IMS Health Incorporated (the "Company") to provide
participating employees with retirement benefits in excess of those
permitted to be paid under the IMS Health Incorporated Retirement Plan (the
"Qualified Plan") due to the limitations imposed by Sections 401(a)(17) and
415 of the Internal Revenue Code of 1986, as amended (the "Code") and the
exclusion from the definition of Compensation under the Qualified Plan of
amounts deferred under any nonqualified deferred compensation plan."
2. Section I of the Plan is hereby amended to read in its entirety as
follows:
"All participants in the Qualified Plan shall participate in this Plan
whenever their benefits under the Qualified Plan as from time to time in
effect are reduced by reason of the limitations imposed by Sections
401(a)(17) and 415 of the Code or the exclusion from the definition of
Compensation under the Qualified Plan of amounts deferred under any
nonqualified deferred compensation plan."
3. The first paragraph of Section II of the Plan is hereby amended to read
in its entirety as follows:
"The Corporation shall pay to each participant in the Qualified Plan (or
his or her beneficiaries designated to receive benefits from the Qualified
Plan) a benefit equal to the excess of (a) over (b), where:
(a) equals the amount that would be payable to the participant (or his or
her beneficiaries) under the Qualified Plan if the limitations imposed
by Sections 401(a)(17) and 415 of the Code and the exclusion from the
definition of Compensation of amounts deferred under any nonqualified
deferred compensation plan did not apply; and
(b) equals the sum of (i) the actual benefits payable to the participant
(or his or her beneficiaries) from the Qualified Plan and (ii) the
benefits payable to the participant (or his or her beneficiaries) from
the Pension Benefit Equalization Plan of The Dun & Bradstreet
Corporation (as in effect on October 31, 1996), as determined by the
Company in accordance with the methods and assumptions specified in
Appendix A of this Plan."
EXHIBIT 10.33
SECOND AMENDMENT TO
IMS HEALTH INCORPORATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of October 1, 1999
1. Section 1.13 of the IMS Health Incorporated Supplemental Executive
Retirement Plan is hereby amended to read in its entirety as follows:
"1.13 `Compensation' shall mean base salary, annual bonuses, commissions,
overtime and shift pay, in each case prior to reductions for elective
contributions under Sections 401(k) and 125 of the Code and deferred
compensation under any nonqualified deferred compensation plan.
Notwithstanding the foregoing, Compensation shall exclude severance pay
(including, without limitation, severance pay under the Company's Employee
Protection Plan), stay-on bonuses, long-term bonuses, retirement income,
change-in-control payments, contingent payments, amounts paid under this
Plan (other than Disability Benefits) or any other retirement plan or
deferred compensation plan, income derived from stock options, stock
appreciation rights and other equity-based compensation and other forms of
special remuneration."
PROMISSORY NOTE
$3,558,012.55 Westport, Connecticut
January 3, 2000
FOR VALUE RECEIVED, VICTORIA R. FASH, an individual with an address at 200
Nyala Farms, Westport, Connecticut (the "Maker"), promises to pay to IMS HEALTH
INCORPORATED, a Delaware corporation having an address at 200 Nyala Farms,
Westport, Connecticut (the "Company"), its successors and assigns, in United
States currency in immediately available funds, at the Company's office at 200
Nyala Farms, Westport, Connecticut, the principal sum of THREE MILLION FIVE
HUNDRED FIFTY-EIGHT THOUSAND TWELVE DOLLARS AND FIFTY-FIVE CENTS ($3,558,012.55)
(the "Loan") plus interest as hereinafter set forth, and the costs and expenses
incurred in the enforcement of this Note to the extent hereinafter provided.
This Note is being executed pursuant to Section 5(g) of an Employment
Agreement dated July 1, 1998 as amended and restated as of January 1, 2000 by
and among the Maker and the Company (the "Employment Agreement"). Except as
otherwise defined herein, capitalized terms contained in this Note shall have
the meanings ascribed to them in the Employment Agreement. In the event that a
provision of this Note is inconsistent with or contradicts a provision contained
in the Employment Agreement, or any subsequent written amendment to or
modification of the Employment Agreement, the provision of the Employment
Agreement, as so amended or modified, shall control and resolve any such
inconsistency.
This Loan shall bear interest at the annual rate of six and twenty-one
hundredths percent (6.21%), compounded annually. The principal balance of this
Loan, together with all interest accrued thereon and all charges lawfully
assessed thereon, shall be repaid on December 31, 2008 (the "Maturity Date")
unless sooner accelerated pursuant to the terms hereinafter set forth. From and
after the occurrence of an Acceleration Event (as hereinafter defined) or after
the Maturity Date and until collected, interest on this Loan shall accrue,
regardless of whether a judgment has been obtained against the Maker, at a rate
per annum equal to four percent (4%) above the rate otherwise set forth above.
The Maker may prepay the Loan at any time, in whole or in part, without
penalty or premium of any kind or nature whatsoever. Any partial prepayments of
principal shall be recorded on the grid attached hereto as Appendix A and made a
part hereof.
As used herein, an "Acceleration Event" shall mean (a) the expiration of
ninety (90) days after the later to occur of (i) the Company's termination of
the Maker's employment by the Company for Cause or (ii) a final determination,
pursuant to the arbitration procedure contained in Section 11(c) of the
Employment Agreement, affirming the termination of her employment for Cause, in
the event that the Maker contests the Company's termination of her employment
for Cause within ninety (90) days after such termination, or (b) the expiration
of ninety (90) days after the later to occur of (i) the Company has given the
Maker notice, in accordance with Section 5(g)(ii) of the Employment Agreement,
that she has willfully and materially failed to substantially comply with any
restrictive covenant under Section 10 of the Employment Agreement during the
time period specified in Section 10, or (ii) in the event that the Maker
contests the Company's determination of noncompliance within ninety (90) days
after the Company has given such notice, the final determination, pursuant to
the arbitration procedure contained in Section 11(c) of the Employment
Agreement, affirming that the Maker has willfully and materially failed to
substantially comply with any restrictive covenant under Section 10 of the
Employment Agreement during the time period specified in Section 10. In the case
of the notice referred to in clause (b) of the preceding sentence, such notice
shall be effective only if it has been delivered to the Maker, within six months
after the Board had knowledge of conduct, or an event, allegedly constituting
non-compliance with a restrictive covenant under Section 10 of the Employment
Agreement
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<PAGE>
during the time period specified in Section 10, and reason to believe
that such conduct or event could be grounds for acceleration of the maturity of
the Loan, together with a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding the Maker) at a
meeting of the Board called and held for such purpose (after giving the Maker
reasonable notice specifying the nature of the grounds for such acceleration and
not less than thirty (30) days to correct the acts or omissions complained of,
if correctable, and affording the Maker the opportunity, together with her
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Maker has engaged in conduct set forth in Section 10 of the
Employment Agreement during the time period specified in Section 10 which
constitutes grounds for accelerating the maturity of the loan.
If there shall occur an Acceleration Event, or if the Maker is in default
of her obligations under any document or instrument executed in connection with
this Loan including, without limitation, a Stock Pledge Agreement of even date
herewith between the Maker as Pledgor and the Company as Pledgee, the entire
principal and accrued interest shall at once become due and payable without
notice at the option of the Company. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default. If this Note is collected by an attorney at law, the Maker
agrees to pay, subject to the following sentence, all costs, including
reasonable attorneys' fees incurred in the collection of any sum due hereunder,
or in any proceeding instituted to foreclose any security for the Loan and given
by the Maker to the Company, or in protecting or sustaining the lien or priority
of such security. If there shall occur an Acceleration Event, the obligation of
the Maker to pay costs and attorneys' fees incurred in the collection of the
Note shall relate only to any costs or fees incurred after the Acceleration
Event.
No extension of time for payment, or a delay in enforcement hereof, nor any
renewal of this Note or substitution or release of any collateral or mortgage,
with or without notice, shall release the obligation of the Maker to the Company
or shall operate as a waiver of any of its rights.
THE MAKER AND THE COMPANY MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE COMPANY TO
ACCEPT THIS NOTE AND MAKE THE LOAN.
The Maker hereby acknowledges the Company's right of setoff upon and
against any and all liabilities or obligations of the Company, or any affiliate
of the Company, to the Maker. At any time after an Acceleration Event has
occurred, to the extent permitted under applicable law, the Company may set off
the same or any part thereof and apply the same to the liability or obligation
hereunder of the Maker regardless of the adequacy of any other collateral
securing the Loan. ANY AND ALL RIGHTS TO REQUIRE THE COMPANY TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN
PRIOR TO EXERCISING ITS RIGHT OF SETOFF ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.
Notwithstanding anything contained herein to the contrary, the Maker's
obligation to repay the principal balance and interest accrued on the Loan shall
be forgiven in its entirety if any of the following events occur:
(A) The Maker remains continuously employed by the Company and its
successors through December 31, 2008;
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<PAGE>
(B) The Company terminates the Maker's employment without Cause or
the Maker terminates her employment for Good Reason, in either
case whether before or after the occurrence of a Change in
Control, or the Maker's employment with the Company terminates
due to her death; or
(C) The Maker's employment terminates due to her Disability and the
Maker has complied with the restrictive covenants set forth in
Section 10 of the Employment Agreement through December 31, 2008
(however, the restrictions under Section 10(a) of the Employment
Agreement will apply only during the period specified in Section
10(a)).
All agreements between the Maker and the Company are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Company for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it is the intent of the Maker and the
Company in the execution, delivery and acceptance of this Note to contract in
strict compliance with the law of the State of Connecticut from time to time in
effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or of any other document or instrument executed in connection
herewith at the time of performance of such provision shall be due, shall
involve transcending the limit of such validity prescribed by applicable law,
then the obligation to be fulfilled shall automatically be reduced to the limits
of such validity, and if under or from any circumstances whatsoever the Company
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby (without prepayment penalty)
and not to the payment of interest.
Upon receipt of an affidavit of an officer of the Company as to the loss,
theft, destruction or mutilation of this Note or any other document which is not
of public record, and, in the case of any such loss, theft, destruction or
mutilation, upon surrender and cancellation of such Note or other document, the
Maker will issue, in lieu thereof, and provided the Company provides the Maker
with an indemnification and hold harmless agreement relating thereto, a
replacement Note or other document in the same principal amount thereof and
otherwise of like tenor.
This Note is secured by a Stock Pledge Agreement evidencing a security
interest in favor of the Company against certain securities, and certain
dividends and distributions thereon and proceeds of any of the pledged property,
of the Maker as more particularly described therein.
---------------------------
Victoria R. Fash
3
<PAGE>
APPENDIX A
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Balance Initials of
Outstanding Authorized
Amount of After Company
Date Principal Repaid Principal Repayment Representative
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January 12, 2000 $631,639.36 $2,926,373.19
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4
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT (the "Stock Pledge Agreement" or
"Agreement") made as of this 3rd day of January, 2000 by and between VICTORIA R.
FASH (the "Pledgor") of 200 Nyala Farms, Westport, Connecticut, and IMS HEALTH
INCORPORATED, a Delaware corporation (the "Pledgee") having an office at 200
Nyala Farms, Westport, Connecticut.
W I T N E S S E T H:
WHEREAS, pursuant to a Promissory Note of even date herewith (the
"Note"), the Pledgor has promised to repay the loan in the principal amount of
$3,558,012.55 (the "Loan") made by the Pledgee to the Pledgor; and
WHEREAS, the Pledgee is willing to make the Loan on the express
condition that it receives, as collateral for the Note, a pledge of 81,260
shares (the "Stock") of the capital stock of the Pledgee owned by the Pledgor;
and
WHEREAS, the Pledgor is willing to pledge the Stock to the Pledgee as
security for the Pledgor's performance under the Note;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and One ($1.00) Dollar, receipt of which the Pledgor hereby
acknowledges, the Pledgee and the Pledgor hereby agree as follows:
1. PLEDGE. The Pledgor has pledged, mortgaged, assigned, transferred
and delivered, and by executing this Stock Pledge Agreement, together with the
share certificates numbered 12984, 12877, 12883, 12986 and 13119 and the
accompanying stock powers, does pledge, mortgage, assign, transfer and deliver
to the Pledgee the Stock as security for the performance of the obligations
under the Note.
<PAGE>
(A) TERMS OF EMPLOYMENT AGREEMENT. This Stock Pledge Agreement
is being executed pursuant to Section 5(g) of an Employment Agreement dated July
1, 1998 as amended and restated as of January 1, 2000, by and among the Pledgor
and the Pledgee (the "Employment Agreement"). In the event that a provision of
this Stock Pledge Agreement is inconsistent with or contradicts a provision
contained in the Employment Agreement, or any subsequent written amendment to or
modification of the Employment Agreement, the provision of the Employment
Agreement, as so amended or modified, shall control and resolve any such
inconsistency.
(B) SHAREHOLDER RIGHTS RETAINED BY PLEDGOR. Notwithstanding
the Pledge made herein, however, the Pledgee agrees, if and so long as the
Pledgor shall not be in default under the Note, the Pledgor shall have the right
(a) to vote upon, or to give any approval or consent in respect of, the Stock
and all other Pledged Securities (as defined in Section 4(a)) for all purposes
not inconsistent with the provisions of this Stock Pledge Agreement and (b) to
receive all dividends and distributions in respect of the Stock and all other
Pledged Securities paid in cash, in stock, or in other property, subject in all
cases to the additional limitations contained in Section 4 hereof.
2. REMEDY. Upon the maturity date set forth in the Note, or upon an
Acceleration Event (as defined in the Note) and in either case upon the
Pledgor's failure to perform her obligations required under the Note, or under
this Stock Pledge Agreement, after five (5) days notice to the Pledgor, the
Pledgee is authorized and empowered to sell, assign, transfer and deliver the
Pledged Securities and the share certificates evidencing the Pledged Securities
at any broker's sale, or at any public or private sale, without further demand
for performance of the
2
<PAGE>
obligations evidenced by the Note. At any sale of the Pledged Securities, any
other party may bid for and purchase the Pledged Securities and the certificates
evidencing them, free, to the full extent permitted by law, of all right of
redemption by the Pledgor, and no purchaser shall be under any obligation to
oversee that the purchase price paid therefor is allocated in any particular
manner. After deducting all costs and expenses of the sale or sales, the Pledgee
shall apply the remainder of the proceeds of the sale or sales to the
performance of the obligations evidenced by the Note, returning the excess, if
any, to the Pledgor.
3. NO WAIVER. Any renewal, extension or modification which the Pledgee
may grant with respect to the Loan, and any surrender, compromise, release,
renewal, extension, exchange or substitution which the Pledgee may grant or
consent to in respect of any of the collateral given as security for the Loan,
shall not in any manner affect or impair any of the rights and powers given to
the Pledgee.
4. ADDITIONAL SECURITIES OR CASH COLLATERAL.
(A) DIVIDENDS OR PROCEEDS PAID IN SECURITIES. Without limiting
anything contained in Section 5(g)(iv)(D) of the Employment Agreement, the
Pledgor agrees that, if at any time during the continuance of this Stock Pledge
Agreement, the Pledgee shall issue any of its securities or the securities of
any other entity as a dividend or distribution upon any of the Stock, or upon
any security becoming subject to this Agreement, or split up the Stock, or any
security becoming subject to this Agreement, into a greater number of shares, or
combine the Stock, or any security becoming subject to this Agreement, into a
lesser number of shares, or issue in respect of the Stock, or any security
becoming subject to this Agreement, any right to subscribe to additional shares
of other securities of the Pledgee or another company, or if securities of
another
3
<PAGE>
company are issued, paid or exchanged for the Stock, or any security becoming
subject to this Agreement, in connection with a business combination
transaction, then, and in every such case, the shares into which the Stock or
any security becoming subject to this Agreement is split or combined, or the
securities paid as a dividend or distribution upon the Stock or any security
becoming subject to this Agreement, and all securities acquired in exercise of
such rights, or securities paid or issued to the Pledgor in connection with a
business combination transaction (in each such case, together with the Stock,
the "Pledged Securities") shall, without any further action on the part of any
of the parties, be and become subject to this Stock Pledge Agreement and its
lien with the same force as if originally delivered. Notwithstanding the
foregoing, the requirement that any additional securities shall become Pledged
Securities pursuant to this Section 4(a) shall be reduced by an amount of
securities having a value equal to the Pledgor's federal and state tax liability
attributable to Pledgor's acquisition of such additional securities (such value
to be measured at the date of such acquisition).
(b) CASH COLLATERAL. The (i) Excess Amount (as defined in
Section 4(d) hereof) of all Extraordinary Cash Dividends (as defined in Section
4(d) hereof) paid in respect of Pledged Securities and (ii) cash proceeds
payable to the Pledgee in consideration of Pledged Securities disposed of in
connection with a business combination transaction shall in each and all such
cases be held or invested by the Pledgee in trust for the Pledgor, as cash
collateral for the Loan, at one or more federally-insured financial institutions
in an interest-bearing demand or time deposit account or certificate of deposit,
or in an instrument evidencing a direct obligation of the United States of
America maturing within one year from the date of investment thereof, or in such
comparably low-risk, interest-bearing investment as the Pledgee's board of
directors, acting in its
4
<PAGE>
reasonable discretion, deems appropriate under the circumstances.
Notwithstanding the foregoing, the Cash Collateral requirement set forth in this
Section 4(b) shall be reduced by an amount equal to the Pledgor's federal and
state income tax liability attributable to (i) the Excess Amount of any
Extraordinary Cash Dividends and (ii) the cash proceeds payable to the Pledgee
in consideration of the Pledged Securities disposed of in connection with a
business combination transaction.
(C) POWER OF ATTORNEY. Without limiting the generality of the
foregoing, to the extent required by law to perfect the pledge of additional
Pledged Securities, or to perfect the security interest in such additional cash
collateral, the Pledgor hereby appoints the Pledgee her attorney-in-fact, with
the power and authority, coupled with an interest, to execute such additional
stock powers, pledge or security agreements and other documentation as is
necessary to carry out the purpose and intent of Sections 4 (a) and 4(b) hereof.
(D) CERTAIN DEFINITIONS. As used herein:
(i) an "Extraordinary Cash Dividend" is a cash dividend paid
on Pledged Securities that is materially in excess of the Baseline
Dividend (as hereinafter defined);
(ii) the "Baseline Dividend" shall mean a dividend determined
in accordance with the relevant company's stated dividend policy, if
any, contained in such company's then most recent Securities and
Exchange Commission filing addressing its dividend policy. In the
absence of such a statement of dividend policy, the Baseline Dividend
shall be average quarterly cash dividend paid in the previous calendar
year;
(iii) the "Excess Amount" shall mean the amount, determined in
good faith by the Pledgee's board of directors, by which the
Extraordinary Cash Dividend exceeds the Baseline Dividend.
5
<PAGE>
5. RELEASE. When and if the obligations evidenced by the Note shall
have been performed
in full, all right and interest of the Pledgee in and to the Pledged Securities
and any other collateral at the time held by it pursuant to this Stock Pledge
Agreement shall re-vest in the Pledgor and shall be reassigned to the Pledgor,
and all certificates representing the Pledged Securities shall be returned to
the Pledgor. The foregoing notwithstanding, the Pledged Securities and any cash
collateral held by Pledgee pursuant to this Stock Pledge Agreement shall be
released in accordance with Section 5(g)(iv)(C) of the Employment Agreement. In
the case of a transaction covered by Section 4(a) or 4(b), Pledgee agrees to
release the Pledged Securities to the extent necessary to permit such
transaction to be completed and to reflect the reduction in the collateral
requirement specified under Section 4(a) or 4(b).
6. ASSIGNMENT. The Pledgee shall have the right to assign or transfer
all or any of its rights, options and powers hereunder to any person or persons
or to any corporation or financial institution only in connection with the sale,
transfer or assignment of all or substantially all of the assets of the Pledgee.
7. AMENDMENT. This Agreement may not be modified or amended except by a
writing signed by both parties.
8. NOTICES. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been given or made when
delivered in accordance with the notice provisions contained in the Employment
Agreement.
9. GOVERNING LAW. This Agreement is governed by and is to be construed,
administered, and enforced in accordance with the laws of the State of
Connecticut, without
6
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regard to conflicts of law principles, except insofar as federal laws and
regulations and the Delaware General Corporation Law may be applicable. If under
the governing law, any portion of this Agreement is at any time deemed to be in
conflict with any applicable statute, rule, regulation, ordinance, or other
principle of law, such portion shall be deemed to be modified or altered to the
extent necessary to conform thereto or, if that is not possible, to be omitted
from this Agreement. The invalidity of any such portion shall not affect the
force, effect, and validity of the remaining portion hereof.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective successors and assigns.
11. COUNTERPARTS. Should this Agreement be executed in multiple
counterparts, each shall be deemed an original and all, when taken together
shall constitute a single agreement.
IN WITNESS WHEREOF, the parties hereunto have set their hands and
seals as of the date first above written.
----------------------------
Victoria R. Fash (PLEDGOR)
IMS HEALTH INCORPORATED
By:____________________________
(PLEDGEE)
7
RULES OF THE IMS
HEALTH EUROPEAN
DEFERRED
COMPENSATION PLAN
EFFECTIVE DATE: The Plan shall be effective as of December 1, 2000
<PAGE>
INDEX
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RULE SUBJECT MATTER
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1. DEFINITIONS
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2. AWARDS
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3. FORFEITURE OF AWARDS
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4. LIMITS
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5. INVESTMENT SHARES
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6. TAX AND SECURITIES
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7. CESSATION OF EMPLOYMENT BY GROUP
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8. EMPLOYEES RIGHTS/MISCELLANEOUS
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9. CHANGE OF CONTROL, RECONSTRUCTION, TAKE-OVER AND WINDING UP OF THE
PARENT COMPANY
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10. REGULATIONS AND AMENDMENTS
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11. NOTICES
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12. TERMINATION
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13. GOVERNING LAW
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2
<PAGE>
RULES OF THE IMS HEALTH
EUROPEAN DEFERRED COMPENSATION PLAN
1. DEFINITIONS
1.1. In these Rules the following words and expressions have the following
meanings:-
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"Act" the Income and Corporation Taxes Act 1988.
---------------------------------------------------------------------------
"Adoption Date" the date as of which the Plan was approved by
resolution of the Committee.
-------------------------------------------------------------------------
"Administrator" shall mean the person or persons to whom
the Committee has delegated authority to take action
under the Plan.
-------------------------------------------------------------------------
"Award" the award of a deferred and conditional entitlement to
Trust Property in accordance with these Rules.
-------------------------------------------------------------------------
"Award the document issued by the Trustees evidencing an
Certificate" intention to provide an Award under Rule 2 and which
will be in such form as the Committee may from time to
time prescribe and such document will be sent to each
Participant as soon as practical after the grant of an
Award.
-------------------------------------------------------------------------
"Committee" shall mean the Compensation & Benefits Committee of the
Board of Directors of the Parent Company or any other
directors of the Parent Company designated as the
Committee by the Board of Directors of the Parent
Company. The Committee may delegate any or all of its
functions to the Administrator.
-------------------------------------------------------------------------
"Company" shall mean as applicable:-
(a) IMS Health HQ Limited, whose registered
office is at 7 Harewood Avenue, London, NW1
6JB;
(b) Intercontinental Medical Statistics
International, Ltd., whose registered office
is at Pennsylvania Railroad Building, 110
South French Street, Suite 402, Wilmington,
DE, 19801; or
(c) any member of the Group.
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"Control" control within the meaning of Section 840 of the Act
and "Controlled" shall be construed accordingly.
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3
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"Date of such date prior to the Date of Entitlement determined
Determination" by the Trustees in their discretion on the
recommendation of the Committee provided that such date
shall be the date the Trustees receive notification of
the occurrence of any of the events stipulated in Rule 9
or such date shall be the date when the Trustees
determine to Release an Award on the cessation of a
Participant's Employment in accordance with the
provisions of Rule 7.
-------------------------------------------------------------------------
"Date of the date on which a Participant becomes
Entitlement" unconditionally entitled to the Award which shall be
the earliest of the following specified dates:-
(a) the date specified in the Award Certificate;
(b) any other date specified by the Trustees in
writing to the Participant and the Committee.
A Participant shall have no interest in any Trust
Property until the date of entitlement. For the
avoidance of doubt any right arising at the date of
entitlement shall be conditional on the relevant
Participant not having been dismissed for good cause
prior to the date of entitlement.
-------------------------------------------------------------------------
"Effective Date" the date when the Plan was approved by the Parent
Company.
-------------------------------------------------------------------------
"Date of Grant" the date on which an Award is granted pursuant
to the provisions of Rule 2.
-------------------------------------------------------------------------
"Directors" the board of directors of from time to time of the Parent
Company or the directors present at a duly convened
meeting of the directors of Parent Company or a duly
appointed committee of the board of directors at which a
quorum is present.
-------------------------------------------------------------------------
"Eligible an employee or director of a Group Company who:-
Employee" (a) devotes a substantial part of his working
time to service with one or more Group
Companies; and
(b) is not on the Date of Grant under notice
to cease Employment with a Group Company;
or
(c) any person designated an eligible employee by
the Committee in its discretion; or
a trustee on behalf of such employee or director, and
who in each
-------------------------------------------------------------------------
4
<PAGE>
--------------------------------------------------------------------------
such case, has been approved as an eligible employee for
the purposes of the Plan for the Plan Year in question
by the Committee.
-------------------------------------------------------------------------
"Employment" the subsistence of a contract of employment or contract
for services with a Group Company and "Employed" shall be
construed accordingly.
-------------------------------------------------------------------------
"Group" means the Company; and
(a) Subsidiaries of the Company; and
(b) any company which is its Holding Company; and
(c) Subsidiaries of its Holding Company.
and "Group Company" shall be construed accordingly.
-------------------------------------------------------------------------
"Holding a holding company as defined by Section 736 of the
Company" Companies Act 1985.
-------------------------------------------------------------------------
"Investment any Trust Property unconditionally transferred on the
Shares" Date of Entitlement provided in addition to a
Participant's Award as stated in the Award Certificate.
-------------------------------------------------------------------------
"Notional a notional investment with a notional value of (pound)1
Investment" at the Date of Grant. An Eligible Employee and/or
Participant shall have no right to the payment howsoever
of the notional investment in any form whatsoever.
-------------------------------------------------------------------------
"Parent Company" IMS Health Incorporated whose registered office
is at 200 Nyala Farms, Westport CT 06880.
-------------------------------------------------------------------------
"Participant" an Eligible Employee who has been granted and still has
a subsisting Award under the Plan. Reference to a
Participant shall include where the context so admits or
requires, his personal representative.
-------------------------------------------------------------------------
"Plan" the IMS Health European Deferred Compensation Plan as
established by these Rules and Schedules and subject to
any amendments made from time to time in accordance with
these Rules and Schedules.
-------------------------------------------------------------------------
"Plan Year" 1st January to 31st December.
-------------------------------------------------------------------------
5
<PAGE>
-------------------------------------------------------------------------
"Retirement the Participant's normal retirement date under his
Date" contract of employment or such other date as the
Committee may determine.
-------------------------------------------------------------------------
"Release" when the Participant becomes unconditionally entitled to
the Award and any Investment Shares (such Investment
Shares, if any, will be provided in accordance with the
provisions of Rule 5) which will normally be on the Date
of Entitlement and "Released" shall be construed
accordingly.
-------------------------------------------------------------------------
"Relevant the period between the Date of Grant of an Award and
Period" the Date of Determination of such Award.
-------------------------------------------------------------------------
"Rules" these rules and the Schedules to these rules as amended
from time to time, in accordance with the amendment
provisions of these rules.
-------------------------------------------------------------------------
"Schedule" the schedule to these Rules.
-------------------------------------------------------------------------
"Specified the investment specified by the Trustees which may be
Investment Fund" selected on recommendation by the Committee.
-------------------------------------------------------------------------
"Subsidiary" a subsidiary company as defined by Section 736 of the
Companies Act 1985.
-------------------------------------------------------------------------
"Tax" includes any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature
including, without limitation, employee's national
insurance contributions and social contributions, and
interest or penalties in respect thereof.
-------------------------------------------------------------------------
"Trust" the IMS Health European General Employee Benefit Trust
and "Trustees" shall be construed accordingly.
-------------------------------------------------------------------------
"Trust Property" has the meaning given in the Trust deed.
-------------------------------------------------------------------------
6
<PAGE>
1.2. Word or expressions defined in the Act and the United Kingdom Companies
Acts 1985 and 1989 shall bear the same meanings in these Rules and where
there is a conflict the definitions in the Act and the United Kingdom
Companies Acts 1985 and 1989 shall take precedence.
1.3. Where the context so admits or requires words importing the singular shall
include the plural and vice versa and words importing the masculine shall
include the feminine and neuter.
1.4. Any reference to a statute or statutory provision shall be construed as if
it referred also to that statute or provision as the same may from time to
time be consolidated, replaced, amended or re-enacted and to any related
statutory instrument or other subordinate legislation in force from time
to time.
1.5 Reference to a "company" shall be construed to include any company,
corporation or other body corporate, wherever and however incorporated or
established.
1.6. References to a "person" shall be construed so as to include any
individual, firm, company, government, state or agency of state, local or
municipal authority or government body or any joint venture, association
or partnership (whether or not having a separate legal personality).
1.7 Wherever the Rules refer to the Committee having the ability to determine,
decide or change matters howsoever this will mean that the Committee shall
be entitled to do so in its sole, absolute and unfettered discretion and
no person shall have any right to challenge, dispute or appeal whatsoever
against the Committee's determination, decision or change howsoever made.
The Committee may delegate some or all of its functions to the
Administrator.
1.8. The Committee shall administer the Plan in accordance with its
terms, and shall have the power necessary to accomplish such
purpose, including the power and authority to construe and
interpret the Plan, to define the terms used herein, to
prescribe, amend or rescind rules and regulations, agreements,
forms, and notices relating to the administration of the Plan,
and to make all other determinations necessary or advisable for
the administration of the Plan. Any actions by the Committee with
respect to the Plan shall be conclusive and binding upon all
persons interested in the Plan, except that any action of the
Administrator shall not be binding on the Committee. The
Committee and the Administrator may each appoint agents and
delegate thereto powers and duties under the Plan, except as
otherwise limited by the Plan.
1.9. The Administrator shall be appointed by, and shall remain in
office at the will of, and may be removed, with or without cause,
by the Committee. The Administrator may resign at any time. The
Administrator shall not be entitled to act on or decide any
matter relating solely to himself or herself or any of his or her
rights or benefits under the Plan. The Administrator shall not
receive any special compensation for serving in his or her
capacity as Administrator but shall be reimbursed for any
reasonable expenses incurred in connection therewith. No bond or
other security need be required of the Administrator in any
jurisdiction.
1.10. Each member of the Committee and the Administrator shall be entitled to,
in good faith, rely or act upon any report or other information furnished
to him or her by any officer or other employee of the Parent Company or
any Group Company, the Parent Company's or
7
<PAGE>
any Group Company's independent certified public accountants, executive
compensation consultants, legal counsel, or other professional retained by
the Parent Company or any Group Company to assist in the administration of
the Plan. To the maximum extent permitted by law, no member of the
Committee or the Administrator, nor any person to whom ministerial duties
have been delegated, shall be liable to any person for any action taken or
omitted in good faith in connection with the interpretation or
administration of the Plan.
1.11. To the maximum extent permitted by law, members of the Committee and the
Administrator shall be fully indemnified and protected by the Parent
Company or any Group Company with respect to any action taken or omitted
in good faith in connection with he interpretation or administration of
the Plan.
1.12. The headings are included for convenience only and shall not affect the
interpretation or construction of these Rules and Schedules.
2. AWARDS
2.1. In respect of each Plan Year the Committee shall determine whether to
recommend to the Trustees to make Awards under the Plan, and if so
determined by the Committee, the Committee shall recommend to the
Trustees:
(a) which Eligible Employees shall be offered participation in the Plan
for that Plan Year;
(b) the value of the Awards made to such Eligible Employees;
(c) the Date of Entitlement for Awards; and
(d) any other terms and conditions that the Committee recommend apply to
such Awards.
2.2. As soon as reasonably practicable after the Committee's recommendation has
been received by the Trustees in accordance with the provisions of Rule
2.1 above, the Trustees shall determine whether to follow such
recommendation. If the Trustees do determine to follow such recommendation
the Trustees shall as soon as reasonably practicable issue Award
Certificates to Participants granted an Award.
2.3. All grants of Awards by the Trustees shall be subject to the requirement
that the Eligible Employee and/or Participant is in the Employment of a
Group Company on the Date of Grant.
2.4. The Award Certificate shall state:
(a) the name and usual address of the Participant;
(b) the Date of Grant;
(c) the value of the Award;
8
<PAGE>
(d) the Date of Entitlement; and
(e) any other terms and conditions that apply to the Award.
2.5. If the Trustees determine not to follow the recommendation of the
Committee made in accordance with Rule 2.1 pursuant to Rule 2.2 such
recommendation shall forthwith lapse and unless the Committee determines
otherwise no Awards shall be granted for that Plan Year.
2.6. The Trustees shall at all times retain the discretion to satisfy all or
any part of an Award in such form as they shall determine subject to a
requirement to notify the Committee of the form in which such Award will
be provided prior to such satisfaction.
2.7. A Participant may at any time prior to the Release of an Award renounce
the Award and any prospective rights under the Award in whole, but not in
part, by serving notice in writing on the Committee of such intention.
Such Participant's notice shall be effective from the date of receipt by
the Trustees of notice by the Committee of such renounciation, the
Committee to provide such notice to the Trustees immediately on receipt of
such Participant's notice.
3. FORFEITURE OF AWARDS
3.1. An Award shall be personal to a Participant and neither the Award nor any
prospective rights under the Award may be transferred, assigned, pledged,
charged or otherwise disposed of by a Participant to any other person and
if a Participant shall do, suffer or permit any such act or thing, that
Award shall lapse. For the avoidance of doubt this Rule 3.1 does not
confer any right upon any Participant prior to the Date of Entitlement.
4. LIMITS
4.1. No Awards shall be granted later than the tenth anniversary of the
Adoption Date unless the Plan is extended pursuant to Rule 12.2.
4.2. The Committee may in its discretion determine individual limits for
Participants in each territory in which the Plan operates.
5. INVESTMENT SHARES
5.1. The Trustees may exercise their discretion to provide a Participant with a
number of Investment Shares on the Date of Entitlement in addition to such
Participant's Award.
5.2. The number of Investment Shares that a Participant may become entitled to
shall be calculated in accordance with the provisions of Rule 5.3 and
shall depend upon the performance of one or more Specified Investment
Funds during the Relevant Period.
5.3. The performance of the Specified Investment Fund shall be calculated as
follows:-
(a) at the Date of Grant a Notional Investment shall be made in the
Specified Investment Fund for each Participant granted an Award for
the relevant Plan Year, or if there is more than one Specified
Investment Fund the Notional Investment shall
9
<PAGE>
be invested in the Specified Investment Funds in such proportions as
the Trustees in their discretion determine;
(b) at the Date of Determination the value of the Notional Investment
shall be calculated as of that date;
(c) the value of the Notional Investment calculated in accordance with
Rule 5.3(b) above shall then have deducted from it the value of such
Notional Investment at the Date of Grant. The balance after such
deduction shall be divided by the value of such Notional Investment
at the Date of Grant, resulting in a multiplier;
(d) such multiplier shall be multiplied by the value of the Award at the
Date of Grant, the result thereof shall be the value of the
Investment Shares.
5.4. If the value of the Investment Shares calculated in accordance with the
provisions of Rule 5.3 above is greater than zero, Investment Shares equal
to this value may be provided to the Participant at the Date of
Entitlement.
5.5. If the value of the Investment Shares calculated in accordance with the
provisions of Rule 5.3 above is less than zero, such value shall be
deducted from the value of the Award provided to the Participant on the
Date of Entitlement.
6. TAX
6.1. The grant of an Award to a Participant under the Plan shall be conditional
upon the agreement of that Participant to indemnify the Parent Company or
Group Company for any:
(a) Income Tax payable in respect of such Award and where applicable any
related Investment Shares pursuant to the Income Tax (Employments)
(Notional Payments) Regulations 1996 or otherwise; and
(b) employee's National Insurance contributions payable in respect of
such Award and where applicable any related Investment Shares; and
(c) any other Tax payable in respect of the Award (the payments together
referred to as the "Tax Payment");
such agreement to be deemed by the acceptance by such Participant of the
Award. Without prejudice to the foregoing in a case where the Parent
Company or Group Company by virtue of the Release of an Award and where
applicable any related Investment Shares will be obliged to make a Tax
Payment, the Release, unless the Parent Company or Group Company has
received a payment prior to the Release from the Participant of an amount
not less than the Tax Payment or an authority to deduct the same from such
Participant's salary, shall not take place.
6.2. The Committee may determine that any Award granted under the Plan shall be
subject to additional and/or modified terms and conditions relating to the
grant of an Award and/or terms and conditions of Release as may be
necessary to comply with or take account of any
10
<PAGE>
securities, exchange control or Tax laws and/or other laws or regulations
of any territory which may apply to the relevant Eligible Employee,
Participant or Group Company.
6.3. In exercising its discretion under Rule 6.2 above the Committee may:
(a) require an Eligible Employee, Participant or Group Company to make
such declarations or take such action as may be required for the
purpose of any securities, exchange control or Tax laws and/or other
laws or regulations of any territory which may be applicable to such
Eligible Employee, Participant or Group Company at the Date of
Grant, or prior to and/or on Release of an Award; and
(b) adopt any supplemental rules, regulations or procedures governing
the grant or Release of an Award as may be required for the purpose
of any securities, exchange control or Tax laws and/or other laws or
regulations of any territory which may be applicable to an Eligible
Employee, Participant or Group Company.
6.4. The Participant shall pay all expenses and Taxes which arise or result
form the Release of an Award and where applicable any related Investment
Shares, provided that a Group Company may in its discretion meet any stamp
duty or liability for any other Taxes or expenses arising from such
Release as it deems appropriate.
7. CESSATION OF EMPLOYMENT BY GROUP
7.1. On the cessation of a Participant's Employment with a Group Company, or if
the Group Company by whom the Participant is employed shall cease to be a
Subsidiary of the Parent Company, in either case before the Date of
Entitlement for such Participant's subsisting Award, the Trustees may
Release such Award and where applicable any related Investment Shares.
7.2. On the cessation of such Participant's Employment with a Group Company
before the Date of Entitlement for such Participant's subsisting Award,
the Committee shall recommend to the Trustees that such Award and where
applicable any related Investment Shares be Released, provided that the
Committee shall make no such recommendation where the cessation of such
Participant' Employment is as a result of dismissal for gross misconduct.
7.3. The Committee, on the occurrence of special circumstances (as determined
by the Committee in its discretion), may determine in its discretion not
to follow the provisions of Rule 7.2 above on the cessation of a
Participant's Employment with a Group Company and recommend such cause of
action to the Trustees as the Committee determines in its discretion to be
appropriate.
7.4. As soon as reasonably practicable after the Committee's recommendation has
been received by the Trustees in accordance with the provisions of Rule
7.2 or Rule 7.3 above, the Trustees shall determine whether to follow such
recommendation.
7.5. Any Award not Released to a Participant on the cessation of that
Participant's employment with the Group in accordance with the provisions
of this Rule 7 shall lapse forthwith. After the lapse of such Award any
Trust Property notionally allocated by the Trustees to such Award shall be
held by the Trustees for the benefit of the beneficiaries of the Trust who
are Employed by the same Group Company as the Participant whose Award
lapsed.
11
<PAGE>
8. MISCELLANEOUS
8.1. It shall be a condition of participation in the Plan that a Participant
shall not be entitled to any compensation in the event of lawful or
unlawful cessation of his Employment with a Group Company, lapse or
alteration of any actual or prospective rights under the Plan or any Award
granted under the Plan. No provisions of the Plan forms part of any
contract of Employment between any Group Company and a Participant and no
money paid or benefit conferred upon a Participant under the Plan shall
form part of his contractual remuneration.
8.2. Nothing in this Plan or any document issued pursuant to the Plan shall
confer upon any person any right to continue in the Employment of any
Group Company or shall affect the right of any Group Company to terminate
the Employment of any person, or shall impose upon any Group Company, the
Committee, the Trustees or their respective agents and employees any
liability for the loss of any rights under the Plan which may result if
that person's Employment is so terminated whether lawfully or unlawfully.
In no circumstances shall any Participant, by reason of his ceasing to be
Employed by any Group Company, or any part of the Plan ceasing or failing
to be approved by the Inland Revenue or any other revenue authority, be
entitled to compensation for loss of any actual or prospective right or
benefit under the Plan which such Participant might otherwise have
enjoyed, whether such compensation is claimed by way of damages for
wrongful or unfair dismissal and/or other lawful or unlawful breach of
contract or by way of compensation for loss of office or otherwise.
MISCELLANEOUS
8.3. Each Group Company shall bear the costs of establishing and administering
the Plan in respect of Eligible Employees or Participants in its
Employment.
8.4. Each Group Company shall maintain or cause to be maintained all necessary
accounts and records regarding Eligible Employees or Participants in its
Employment.
9. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND WINDING UP OF THE PARENT
COMPANY
9.1. If any company or person acting alone or in concert with another or others
obtains Control of the Parent Company, the Committee on becoming aware
thereof shall notify each Participant and the Trustees. On the receipt of
such notification by the Trustees all a Participant's Awards and where
applicable any related Investment Shares will be Released by the Trustees.
9.2. If the Court sanctions a scheme of arrangement or compromise under Section
425 of the Companies Act 1985, the Committee on becoming aware thereof
shall notify each Participant and the Trustees. On the receipt of such
notification by the Trustees all a Participant's Awards and where
applicable any related Investment Shares will be Released by the Trustees.
12
<PAGE>
9.3. If any company or person becomes bound or entitled to acquire Shares under
Sections 428 to 430F of the Companies Act 1985, the Committee on becoming
aware thereof shall notify each Participant and the Trustees. On the
receipt of such notification by the Trustees all a Participant's Awards
and where applicable any related Investment Shares will be Released by the
Trustees.
9.4. If a voluntary winding up of the Parent Company is proposed or if an order
is made for the compulsory winding up of the Parent Company, the
Committee, in their complete discretion, shall notify each Participant and
the Trustees. On receipt of such notification by the Trustees all a
Participant's Awards and where applicable any related Investment Shares
will be Released by the Trustees.
10. REGULATIONS AND AMENDMENTS
10.1. The Plan shall be administered by the Committee who may from time to time
make such regulations not being inconsistent with the Rules as they deem
to be necessary. Any question concerning the interpretation of the Rules
or of such regulations or any matter pertaining or pursuant to the Rules
which is not dealt with by these Rules shall be determined by the
Committee in its sole discretion and such decision shall be final and
binding upon the Company or Group Company and Participants.
10.2. The Committee by resolution shall be entitled to amend all or any of the
provisions of the Plan provided that no amendment shall be effective which
would materially prejudice the interests of Participants in relation to
Awards already granted to them without the prior consent or sanction of
the majority of that number of Participants who responded to the
notification by the Company or Group Company of such proposed amendment.
10.3. The Committee by resolution may determine to recommend to the Trustees
that no further Awards be granted and may from time to time modify or
suspend the Plan (but without prejudice to the subsisting rights of
Participants in relation to Awards already granted).
10.4. Written notice of any amendments made in accordance with Rule 10.2 shall
be given to all Participants.
11. NOTICES
11.1. Notices or documents under the Plan required to be given by the Parent
Company or Group Company to an Eligible Employee or a Participant shall be
properly given if delivered to him at his normal place of work or sent to
him by first class post at his last known address and any notice or
document required to be given to the Company or any Group Company shall be
properly given if delivered or sent by first class post to the Executive
Compensation Department of the Company or Group Company employing the
relevant Eligible Employee or Participant addressed to the Executive
Compensation Department - European Deferred Compensation Plan.
12. TERMINATION
12.1. Subject to Rule 12.2, the Plan shall terminate on the earlier of the
following dates:
(a) any date determined by the Committee to be the date of termination
of the Plan; and
13
<PAGE>
(b) the tenth anniversary of the Adoption Date.
12.2. The Committee may at any time resolve to extend the Plan up to a further
10 years. In no circumstances shall the Plan be extended beyond 20 years
after the Adoption Date.
12.3. Following termination of the Plan pursuant to this Rule no further Awards
shall be granted, but the subsisting rights and obligations of
Participants at that time shall continue in force as if the Plan had not
been terminated.
13. GOVERNING LAW
13.1. The Rules and the operation of the Plan shall be governed by and construed
in accordance with English law and adherence to these Rules shall
constitute submission to the exclusive jurisdiction of the English Courts.
14
IMS HEALTH INCORPORATED
-----------------------
1999 Annual Report to Shareholders
[IMS HEALTH LOGO]
<PAGE>
IMS HEALTH INCORPORATED
1999 ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
Financial Review ................................................... 1-12
Statement of Management's Responsibility for Financial Statements .. 13
Report of Independent Accountants .................................. 13
Consolidated Financial Statements .................................. 14-18
Notes to Consolidated Financial Statements ......................... 19-36
Quarterly Financial Data ........................................... 37
Five-Year Selected Financial Data .................................. 38
<PAGE>
IMS HEALTH INCORPORATED
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
IMS Health Incorporated ("IMS Health" or the "Company") is the world's
leading provider of information solutions to the pharmaceutical and healthcare
industries. IMS Health operates in 100 countries and its key products include:
o Market research for prescription and over-the-counter pharmaceutical
products;
o Sales management information to optimize sales force productivity;
o Pharmaceutical relationship management solu-tions for sales and
marketing decision making;
o Technology systems and information services that support managed care
organizations; and
o IT application development, integration and man-agement services.
At December 31, 1999, IMS Health consists of (a) the IMS segment ("IMS")
which consists of the market information and decision-support services business
for the pharmaceutical and healthcare industries conducted by IMS Health and
various subsidiaries including IMS Health Strategic Technologies, Inc.
("Strategic Technologies"); (b) Emerging Markets, which consists of ERISCO
Managed Care Technologies, Inc. ("Erisco") and Enterprise Associates LLC
("Enterprises"), the Company's venture capital unit, and (c) a controlling
interest in Cognizant Technology Solutions Corporation ("CTS").
On July 26, 1999, having received the approval of Gartner Group, Inc.
("Gartner") shareholders and the Boards of Directors of both the Company and
Gartner, the Company completed a spin-off of the majority of its equity
investment in Gartner to IMS Health shareholders (the "Gartner Spin-Off"). The
Gartner Spin-Off consisted of 0.1302 shares of Gartner Class B Common Stock for
each share of the Company's Common Stock outstanding on the July 17, 1999 record
date and totaled 40.7 million Gartner Class B Shares. The consolidated financial
statements of the Company have been reclassified for all periods presented to
reflect the Gartner equity investment as a discontinued operation. On July 23,
1999, in connection with the Gartner Spin-Off by IMS Health, Gartner paid a
special cash dividend. IMS Health's portion of the dividend was $52,877, net of
taxes. The Company's remaining investment in Gartner at December 31, 1999
consists of 6,909,457 Gartner Class A shares and warrants to purchase a further
599,400 Gartner Class A Shares. The carrying value of the Gartner investment,
net of taxes, was $96,988 at December 31, 1999. (See Note 4. to the Consolidated
Financial Statements).
On June 30, 1998 the common stock of IMS Health was distributed by
Cognizant Corporation ("Cognizant"), which subsequently changed its name to
Nielsen Media Research, Inc. ("NMR"), to Cognizant's shareholders (the
"Distribution"). Notwithstanding the form of the Distribution, IMS Health was
deemed the "accounting successor" to Cognizant. The consolidated financial
statements of the Company have been reclassified to reflect NMR as a
discontinued operation for periods up to and including June 30, 1998.
In connection with the Distribution, Cognizant borrowed $300,000 on June
24, 1998, which was used to repay existing intercompany liabilities. This debt
remained the obligation of NMR following the Distribution. In connection with
the Distribution, Cognizant contributed to IMS Health all cash in Cognizant's
accounts other than (i) cash required by Cognizant (renamed NMR) to satisfy
certain specified obligations and (ii) such additional cash as was necessary for
the net borrowings of Cognizant (renamed NMR) to equal $300,000 as of the
Distribution.
Prior to the Distribution, NMR and IMS Health entered into certain
agreements that govern the relationship between NMR and IMS Health subsequent to
the Distribution and provide for the allocation of tax, employee benefits and
certain other liabilities and obligations that may arise from periods prior to
the Distribution (the "Distribution Agreements"). Among other things, the
agreements set forth principles to be applied in allocating certain
Distribution-related costs and specify portions of contingent liabilities to be
shared if certain amounts are exceeded (including certain liabilities that may
arise in connection with the 1996 spin-off (the "1996 Spin-Off") of Cognizant
from The Dun and Bradstreet Corporation ("D&B")).
YEAR-ENDED DECEMBER 31, 1999 COMPARED WITH
YEAR-ENDED DECEMBER 31, 1998
DISPOSITIONS
During 1999 the Company recorded $25,264 of net pre-tax gains due primarily
to the sale of Enterprises' investments in eData Resources Inc., TSI
International Software Inc., Oacis Healthcare Inc. and Pegasus Systems Inc.,
partially offset by a loss on the sale of SSJ K.K. ("SSJ"). The sale of
investments by Enterprises and the sale of SSJ generated pre tax cash proceeds
of $51,442. (See Note 13 to the Consolidated Financial Statements.).
ACQUISITIONS
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh")
for $193,748 consisting of Cognizant
1
<PAGE>
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Common Stock, Cognizant stock options issued and accrued acquisition and
integration costs in the amount of $17,079. (See Note 7. to the Consolidated
Financial Statements). The Company recognized approximately $155,667 of goodwill
related to the acquisition, which is being amortized on a straight-line basis
over 15 years. At December 31, 1999, the program of integrating Walsh into IMS
had been completed. In completing the program, the Company incurred
higher-than-anticipated severance costs, related to the termination of 78 Walsh
employees, and terminated acquired Walsh leases at a cost lower than originally
anticipated at the date of the acquisition. In addition, a certain lease
scheduled for termination was retained by the Company. To reflect the net
reduction in direct integration costs, the original liability estimate, and
goodwill, have been reduced by $890. The following table provides the activities
since the acquisition with respect to these liabilities:
ORIGINAL DECEMBER
LIABILITY EXPENDITURES RECLASSIFICATIONS 31, 1999
ESTIMATE TO DATE /ADJUSTMENTS BALANCE
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Employee Separation $ 4,876 $ (6,154) $1,278 $ --
Lease Terminations 2,569 (401) (2,168) --
Other Direct Costs 9,634 (9,634) -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total $17,079 $(16,189) $ (890) $ --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of
Pharmaceutical Marketing Services Inc. ("PMSI"), for $103,921 consisting of IMS
Health Common Stock, IMS Health stock options issued and accrued acquisition and
integration costs in the amount of $22,584. (See Note 7. to the Consolidated
Financial Statements). The Company recognized approximately $116,775 of goodwill
related to the acquisition, which is being amortized on a straight-line basis
over 15 years. As of December 31, 1999, the severance costs, relating to the
termination of 63 PMSI employees, the costs of terminating various leaseholdings
and contract termination costs were less than originally anticipated. However,
the Company's other direct costs recognized as a result of the acquisition, such
as direct legal fees and a pre-acquisition contingency in the amount of $1,500,
were greater than originally estimated. The following table provides the
activities since the acquisition with respect to these liabilities:
ORIGINAL DECEMBER
LIABILITY EXPENDITURES RECLASSIFICATIONS 31, 1999
ESTIMATE TO DATE /ADJUSTMENTS BALANCE
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Employee Separation $ 3,794 $ (3,689) $ (105) $ --
Lease Terminations 1,623 (774) (849) --
Contract Cancellations 10,935 (6,610) (834) 3,491
Other Direct Costs 6,232 (7,995) 3,288 1,525
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Total $22,584 $(19,068) $1,500 $5,016
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Purchase Price Allocation
In connection with the Walsh and the PMSI acquisitions, the Company made
initial allocations of the purchase price to acquired in-process research and
development ("IPR&D") in the aggregate amount of $32,800. (See Note 7. to the
Consolidated Financial Statements). At the date of the respective acquisitions,
the development of the IPR&D projects had not yet reached technological
feasibility and had no alternative future use. Accordingly, these costs were
expensed as of the respective dates of acquisition.
The amounts assigned to the IPR&D projects were determined by first
estimating the degree of completion of each project and the potential net cash
flows from such projects after commercial introduction. The potential net cash
flows include reductions reflecting the necessary investment in fixed and
working capital and other collateral assets, which include core technology where
appropriate and a fair return on those assets. A portion of the potential net
cash flows for each project was then attributed to the effort already completed
by Walsh and PMSI up to the respective acquisition dates, based upon the
estimated degree of completion. The attributed potential cash flows for each
project were discounted to present value using a risk-adjusted discount rate.
Management continues to support the IPR&D efforts that were underway at the
time of the Walsh and PMSI acquisitions. IMS Health has begun to realize the
estimated benefits from these various projects through product introductions
during 1999. There are currently no significant variations from the underlying
revenue projections and estimated net cash flows, estimated costs to complete
and completion dates from those assumptions made at the time of the purchase
price allocations.
OPERATING RESULTS
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30 revised their reporting period to
conform to the Company's fiscal year end of December 31 (the "Calendarization").
This revision was made to reflect the results of operations and financial
position of these operating units on a more timely basis, consistent with
business performance, and to increase operating efficiency. The Company has
improved its internal financial systems and work processes, so that the Company
now has the capability to more rapidly collect, consolidate and report
information. (See Note 1. to the Consolidated Financial Statements). The $1,040
of net income related to the operating results of the IMS operating units for
the period December 1 through December 31, 1998 was recorded directly to
Shareholders' Equity as an addition to Retained Earnings. In addition, December
1998 activity included a $3,409 reduction of the cumulative translation
adjustment.
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Revenue in 1999 increased 17.8% to $1,397,989 from $1,186,513 in 1998.
Adjusting for the Calendarization and the sale of SSJ, revenue increased 19.2%.
This increase reflected double-digit revenue growth at IMS, Erisco and CTS and
is further described in "Results by Business Segment" (below). Adjusting revenue
for the impact of a stronger U.S. dollar and including the impact of the
Company's hedging program, 1999 revenue increased by 20.1%.
The Company's operating costs include internal computer costs, the costs of
data collection and production and costs attributable to personnel involved in
production, data management and the processing and delivery of the Company's
services. The Company's operating costs in 1999 were $560,599, compared with
$533,634 in 1998, an increase of 5.1%. As a percentage of revenue, operating
costs decreased to 40.1% in 1999 from 45.0% in 1998. After adjusting for the
impact of Y2K costs in both years, 1999 charges related to the Gartner Spin-Off,
1998 charges related to the Distribution, the Calendarization and the sale of
SSJ in 1998, operating costs increased by 19.8% in 1999. The increase was due
primarily to the costs related to new products. The decline in operating costs
as a percentage of revenue demonstrates the Company's operating leverage. The
absolute increase was primarily due to the increased direct costs to support the
growth in revenues.
Selling and administrative expenses consist primarily of the costs
attributable to selling and administrative personnel, promotion, communications,
management, finance, administrative and occupancy costs. The Company's selling
and administrative expenses, including depreciation and amortization, increased
by 13.4%, to $498,367 in 1999 from $439,576 in 1998. As a percentage of revenue,
selling and administrative expenses decreased to 35.6% in 1999 from 37.0% in
1998. The increase in such expenses was due to continued investment in worldwide
sales and marketing functions and the inclusion of a full-year of costs
following the acquisition of Walsh and PMSI.
Operating income in 1999 increased to $339,023 from $132,484 in 1998.
Adjusting operating income in both years to exclude Y2K costs, 1999 charges
related to the Gartner Spin-Off, the Calendarization and the sale of SSJ in
1998, 1998 charges related to the Distribution, the 1998 IPR&D write-off and
1998 direct acquisition and integration expenses related to the Walsh and PMSI
acquisitions, operating income increased by 27.2% from $293,256 to $373,081 in
1999. Adjusting operating income for the impact of a stronger U.S. dollar and
including the impact of the Company's hedging program, 1999 operating income
increased by 28.1%. Operating income growth outpaced revenue growth primarily
due to the Company's ability to continue to leverage its worldwide resources and
improved operating margins.
Operating margin in 1999 was 24.3%, compared with 11.2% in 1998. If the
1999 and 1998 operating margins are adjusted to exclude the non-recurring items
discussed above, operating margin improved to 26.7% in 1999 from 25.0% in 1998.
Non-operating income, net in 1999 was $9,419, compared with $52,360 in
1998. The decrease was due primarily to the gain in 1998 related to the CTS
initial public offering ("CTS IPO"), lower gains associated with the sale of
assets from the Enterprises' portfolio in 1999, as compared to 1998, and higher
interest expense and lower interest income in 1999. The higher interest expense
relates to short-term borrowings to fund the Company's stock repurchase
programs.
The Company's 1999 effective tax rate of 28.1% reflected a non-deductible
one-time Gartner spin-related charge ($9,500). The 1998 effective tax rate of
31.8% reflected non-deductible charges related to the Distribution ($30,125),
the IPR&D write-off related to the Walsh and PMSI acquisitions ($32,800) and
certain direct acquisition and integration expenses related to both acquisitions
which did not give rise to a tax benefit. For all periods presented, the
Company's effective tax rate was reduced as a result of global tax planning
initiatives in each year. For example, to consolidate certain of its
international operations, in 1999 and 1998 the Company engaged in certain
non-U.S. reorganizations which gave rise to tax deductible non-U.S. intangible
assets. (See Note 13. to the Consolidated Financial Statements). While the
Company intends to continue to seek global tax-planning initiatives, there can
be no assurance that the Company will be able to successfully implement such
initiatives.
Income from continuing operations in 1999 was $250,366 compared with
$126,064 in 1998. Excluding the impact of the previously discussed items, at a
continuing operations tax rate of 27.4% and 24.1% in 1999 and 1998,
respectively, 1999 income from continuing operations increased 14.1%. Further,
applying this 1999 tax rate of 27.4% to 1998 continuing operations, 1999 income
from continuing operations increased 19.2%.
Income from discontinued operations, net of income taxes, was $25,695,
compared with $94,494 in 1998. Income from discontinued operations, net of
income taxes in 1999 is comprised of Gartner equity income through July 1999.
Income from discontinued operations in 1998 is comprised of Gartner equity
income and gains from the sale of Gartner stock and six months of the results of
NMR in 1998.
Net income in 1999 was $276,061 compared with $220,558 in 1998, an increase
of 25.2%. This increase is due
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to the increase in income from continuing operations, which was offset by the
previously described decrease in income from discontinued operations.
Basic earnings per share from continuing operations in 1999 were $0.80 as
compared with $0.39 in 1998. Excluding the impact of the previously discussed
one-time items, at a continuing operations tax rate of 27.4% and 24.1% in 1999
and 1998, respectively, 1999 basic earnings per share from continuing operations
increased 18.6%. Further, applying this 1999 tax rate of 27.4% to 1998
continuing operations, 1999 basic earnings per share increased 23.9%.
Diluted earnings per share from continuing operations in 1999 were $0.78
compared with $0.38 in 1998. Excluding the impact of the previously discussed
one-time items, at a continuing operations tax rate of 27.4% and 24.1% in 1999
and 1998, respectively, 1999 diluted earnings per share from continuing
operations increased 19.1%. Further, applying this 1999 tax rate of 27.4% to
1998 continuing operations, 1999 diluted earnings per share increased 24.6%.
Results by Business Segment
IMS
The IMS segment consists of IMS, the leading global provider of market
information, sales management and decision-support services to the
pharmaceutical and healthcare industries, and Strategic Technologies, a leading
provider of automated sales support technologies to the pharmaceutical industry.
The Walsh and PMSI businesses acquired in 1998 have been integrated into the IMS
segment's operations.
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30, changed their reporting period to
conform to the Company's fiscal year ended December 31. (See Note 1. to the
Consolidated Financial Statements).
IMS segment revenue increased 17.7% in 1999 to $1,275,681 from $1,083,992
in 1998. Adjusting for the Calendarization and the impact of a stronger U.S.
dollar in 1999, revenue growth was 18.3%. IMS market research and sales
management services benefited from strong growth during the year, with numerous
major contracts signed improving global coverage. In addition, IMS benefited
from the introduction in various European countries of Xponent, its
prescriber-linked sales management service. The revenue growth also reflected
the full-year impact of the Walsh and PMSI acquisitions. Strategic Technologies
strengthened its position as a global leader in the pharmaceutical sales
automation industry with strong growth in its Pharmaceutical Relationship
Management Solutions product line.
New products launched during the year also contributed to revenue growth,
including direct-to-customer advertising tracking services in the U.S., weekly
data reporting in Japan, hospital audit services in various European countries
and various Web-based services.
Operating income increased 92.6% to $355,784 in 1999 from $184,771 in 1998.
Excluding Y2K costs, the impact of the Calendarization, the 1998 direct
acquisition and integration expenses related to the Walsh and PMSI acquisitions
and the 1998 IPR&D write-off, operating income growth was 22.5%. Operating
income growth outpaced revenue growth primarily due to the segment's ability to
leverage its worldwide resources.
EMERGING MARKETS
The Emerging Markets segment currently consists of the operations of
Erisco, a leading supplier of software-based administrative and analytical
solutions to the managed care industry, and Enterprises, which focuses on
investments in venture capital funds that target emerging businesses. In 1998,
this segment included SSJ, which was divested in the first quarter of 1999.
Operating revenue decreased 16.2% in 1999 to $48,224 from $57,542 in 1998.
The decrease was due primarily to the absence of revenues from SSJ during 1999.
Excluding 1998 SSJ revenue, Emerging Markets revenue increased by 17.6 % in
1999.
The revenue growth demonstrated the strong market position of Erisco's
primary offering, Facets(TM), a client server system which provides clinical
information to managed care organizations. Facets now provides healthcare
administration to over 70 million members worldwide. Erisco announced several
strategic alliances during 1999, including an agreement with Microsoft to
develop a Facets solution on the Windows NT platform.
Operating income for the segment increased 31.5% in 1999 to $8,112 from
$6,171 in 1998. Excluding SSJ, operating income for 1999 increased by 30.0%.
CTS
The Company's ownership interest in CTS was 61.1% at December 31, 1999,
representing 94% of the outstanding voting power.
CTS delivers high-quality, cost-effective, full life-cycle solutions for
complex IT problems to clients transitioning to e-business through the use of a
seamless on-site and offshore
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project team. These solutions comprise application development and integration
services, application management services, and mass change services.
CTS revenue, net of inter-segment sales, increased 64.7% to $74,084 in 1999
from $44,979 in 1998. This increase is due to continuing strong demand for
application development, integration application management, re-engineering and
other services, partially offset by a decrease in Year 2000 compliance services.
Operating income increased 86.6% to $16,645 in 1999 from $8,918 in 1998.
The increase is due primarily to the increased third-party revenue.
Results by Geographic Area
Revenue in the United States increased by 14.4% to $586,826 in 1999 from
$512,886 in 1998. The increase reflected the strong performance of core business
services, new product introductions and the impact of the Walsh acquisition
within the IMS segment, high revenue growth at Erisco and strong revenue growth
at CTS through the addition of new customers and transitioning existing
customers from year 2000 compliance services.
Non-U.S. revenue increased 21.9% to $811,163 in 1999 from $673,627 in 1998.
Non-U.S. operations include Europe, Australia, Latin America, South Africa and
the Far East. The increase reflects continued growth of IMS through new product
introductions, expansion of existing products and the full-year impact of the
Walsh and PMSI acquisitions in 1998.
YEAR-ENDED DECEMBER 31, 1998 COMPARED WITH
YEAR-ENDED DECEMBER 31, 1997
OPERATING RESULTS
Revenue in 1998 increased 12.0% to $1,186,513 from $1,059,559 in 1997. This
increase primarily reflects the strong growth of the core IMS worldwide business
benefiting from the introduction of new compounds within the pharmaceutical
client base, new product introductions, acquisition-related revenue and
geographic expansion. Adjusting revenue for the impact of a stronger U.S. dollar
and including the impact of the Company's hedging program, 1998 revenue
increased by 15.4%.
The Company's operating costs include internal computer costs, the costs of
data collection and production and costs attributable to personnel involved in
production, data management and the processing and delivery of the Company's
services. The Company's operating costs in 1998 were $533,634, compared with
$432,654 in 1997, an increase of 23.3%. As a percentage of revenue, operating
costs increased to 45% in 1998 from 41% in 1997. The increase was due primarily
to the costs related to new products. After adjusting 1998 for Y2K costs and
charges related to the Distribution, operating costs increased by 4.9% in 1998.
Selling and administrative expenses consist primarily of the costs
attributable to selling and administrative personnel, promotion, communications,
management, finance, administrative and occupancy costs. The Company's selling
and administrative expenses, including depreciation and amortization, increased
by 10.1%, to $439,576 in 1998 from $399,295 in 1997.
Operating income in 1998 decreased 41.8% to $132,484 from $227,610 in 1997.
Adjusting operating income to exclude the impact of 1998 Y2K costs, 1998 charges
related to the Distribution, the 1998 IPR&D write-off and 1998 direct
acquisition and integration expenses related to the Walsh and PMSI acquisitions,
operating income increased by 28.8% in 1998. Adjusting operating income for the
impact of a stronger U.S. dollar and including the impact of the Company's
hedging program, 1998 operating income increased by 36.7%. This operating income
growth outpaced revenue growth primarily due to the Company's ability to
leverage its worldwide resources.
Operating margin in 1998 was 11.2%, compared with 21.5% in 1997. If the
1998 operating margin is adjusted to exclude the items discussed above,
operating margin improved to 24.7% in 1998 from 21.5% in 1997.
Non-operating income, net in 1998 was $52,360, compared with $13,955 in
1997. The increase was due primarily to higher gains related to the CTS IPO, the
higher level of gains resulting from the sale of assets from the Enterprises
portfolio and higher interest income in 1998.
The Company's consolidated 1998 effective tax rate was 31.8%, compared with
23.0% in 1997. The Company's higher tax rate in 1998 reflected non-deductible
charges related to the Distribution, the IPR&D write-off related to the Walsh
and PMSI acquisitions and certain direct acquisition and integration expenses
related to both acquisitions which did not give rise to a tax benefit, offset by
global tax planning initiatives. For example, to consolidate certain of its
international operations in 1998, the Company engaged in certain non-U.S.
reorganizations which gave rise to tax deductible non-U.S. intangible assets.
(See Note 13. to the Consolidated Financial Statements).
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Income from continuing operations in 1998 was $126,064, compared with
$185,951 in 1997, a decrease of 32.2%. This decrease was due primarily to 1998
Y2K costs, 1998 charges related to the Distribution, 1998 direct integration and
acquisition expenses and the 1998 IPR&D write-off related to the Walsh and PMSI
acquisitions, partially offset by higher gains in 1998 related to the CTS IPO
and the increased sale of assets from the Enterprises portfolio. Excluding these
items, income from continuing operations increased 26.6%, reflecting the strong
growth of the core IMS worldwide business.
Income from discontinued operations, net of income taxes in 1998 was
$94,494, compared to $126,399 in 1997. The decrease in income from discontinued
operations was due to the consummation of the Distribution on June 30, 1998.
Net income in 1998 was $220,558, compared with $312,350 in 1997, a decrease
of 29.4%. This decrease principally reflects the items discussed above in income
from continuing operations and the inclusion of only six months of NMR's 1998
operations.
Results by Business Segment
IMS
IMS segment revenue increased 10.6% in 1998 to $1,083,992 from $980,521 in
1997. This growth reflected strong performance of core business services,
increased demand for services due to introduction of new compounds within the
pharmaceutical client base, geographic expansion, the impact of the Walsh and
PMSI acquisitions, and strong revenue growth at Strategic Technologies.
Excluding the impact of a stronger U.S. dollar in 1998, revenue growth was
14.1%.
Operating income decreased 30.4% to $184,771 in 1998 from $265,351 in 1997.
Excluding the direct integration and acquisition expenses and the IPR&D
write-off related to the Walsh and PMSI acquisitions, and Y2K costs in 1998,
operating income growth was 17.0% due to the factors described above. Operating
income growth outpaced revenue growth primarily due to the segment's ability to
continue to leverage its worldwide resources.
EMERGING MARKETS
In 1998, the Emerging Markets segment consisted of Erisco, Enterprises and
SSJ. In the third quarter of 1997, the Company sold Pilot Software, Inc.
("Pilot"), which had been included in the Emerging Markets segment, and recorded
a non-cash pre-tax loss of $29,945. Emerging Markets segment revenue decreased
11.7% in 1998 to $57,542 from $65,159 in 1997. Excluding Pilot in 1997, the
segment had a 21.7% increase in 1998 revenue to $57,542 from $47,286 in 1997,
primarily reflecting strong growth at Erisco.
1998 operating income for the segment was $6,171 compared with a loss of
$12,669 in 1997. This improvement reflects the elimination of the Pilot losses
in 1998, combined with strong improvements in profitability at Erisco.
CTS
CTS revenue, net of inter-segment sales, increased 224.1% to $44,979 in
1998 from $13,879 in 1997. This growth reflected the addition of new customers
and the continuing conversion of Year 2000 customers into ongoing development
and maintenance customers.
Operating income increased 205.7% to $8,918 in 1998 from $2,917 in 1997.
The strong revenue growth was partially offset by the continued acceleration of
sales and marketing investments and increased infrastructure to support revenue
growth.
Results by Geographic Area
Revenue in the United States increased by 18.3% to $512,886 in 1998 from
$433,477 in 1997. The increase reflected the strong performance of core business
services and the impact of the Walsh acquisition on the IMS segment, high
revenue growth at Erisco and strong revenue growth at CTS through the addition
of new customers and new product introductions.
Non-U.S. revenue increased 7.6% to $673,627 in 1998 from $626,082 in 1997.
Non-U.S. operations include Europe, Australia, Latin America, South Africa and
the Far East. The increase reflects continued growth of IMS, new product
introductions, geographic expansion by IMS and the impact of the Walsh and PMSI
acquisitions. Excluding the impact of a stronger U.S. dollar in 1998, non-U.S.
revenue increased by 13.3%.
CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1999
COMPARED TO DECEMBER 31, 1998
The Consolidated Statements of Financial Position at December 31, 1998
reflects a fiscal year ended November 30 for the IMS operating units. (See Note
1. to the Consolidated Financial Statements).
Cash and Cash Equivalents were $115,875, $206,390 and $312,442 at December
31, 1999, 1998 and 1997, respectively. Cash and cash equivalents decreased
$90,515 in 1999 due primarily to payments for the purchase of treasury stock
($517,030), investment activities for software additions, capital expenditures,
acquisition and integration payments and other investments ($147,390). These
cash payments were
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partially offset by cash from operating activities ($347,320), short-term
borrowings, net of repayments ($92,242), proceeds from sale of investments
($51,442), cash flow from discontinued operations ($52,877) and cash flow from
the effect of the Calendarization ($30,664). (See Note 1. to the Consolidated
Financial Statements).
Accounts Receivable--Net decreased to $284,679 at December 31, 1999 from
$324,219 at December 31, 1998. Days Sales Outstanding improved to 63 days at the
end of the 1999 fourth quarter compared with 75 days at the end of the 1998
fourth quarter due primarily to improved collection efforts.
Net Assets of Discontinued Operations in 1999 and 1998 relate to Gartner.
These net assets decreased to $96,988 at December 31, 1999 from $240,708 at
December 31, 1998. The decrease was primarily the result of the receipt of a
cash dividend from Gartner, net of taxes ($52,877) and the distribution of
Gartner Class B shares ($134,259), partially offset by Gartner equity income
through the Gartner Spin-Off date ($25,695) and unrealized gains on the
remaining shares in Gartner held by the Company as available for sale securities
($15,565). (See Note 4. to the Consolidated Financial Statements).
Accrued and Other Current Liabilities decreased to $196,375 at December 31,
1999 from $298,625 at December 31, 1998. The decrease was primarily the result
of payments related to the integration of 1998 acquisitions ($35,709), employee
benefits and non-recurring charge payments ($14,090), the effect of the
Calendarization ($9,987) and lower than anticipated selling and administrative
accruals ($14,765).
Short Term Debt increased to $134,663 at December 31, 1999 from $39,169 at
December 31, 1998. The increase was due primarily to borrowings to fund the
Company's stock repurchase programs.
During the fourth quarter of 1999 the Company initiated a program which
will reduce the cost associated with the Company's foreign currency hedging
activities. The implementation of this program resulted in a reduction of the
short-term borrowings and a more efficient use of the Company's cash.
Accrued Income Taxes increased to $211,592 at December 31, 1999 from
$32,537 at December 31, 1998. The increase is due primarily to a
reclassification from Other Liabilities of approximately $140,000 for the
Company's estimated share of a liability to D&B, arising in connection with the
1996 Spin-Off, provisions for income taxes ($98,076) and income tax refunds
($42,903), partially offset by taxes paid ($67,490). See "Liquidity and Capital
Resources."
Other Liabilities decreased to $81,343 at December 31, 1999 from $199,985
at December 31, 1998. The decrease is primarily the result of a reclassification
of long-term taxes payable to Accrued Income Taxes ($104,747) and a reduction in
Deferred Tax Liabilities ($13,452).
NON-U.S. OPERATING AND MONETARY ASSETS
The Company operates globally, deriving a significant portion of its
operating income from non-U.S. operations. As a result, fluctuations in the
value of foreign currencies relative to the U.S. dollar may increase the
volatility of U.S. dollar operating results. The Company enters into forward
foreign currency contracts to offset the effect of currency fluctuations on
operating income. In 1999, foreign currency translation decreased both U.S.
dollar revenue and operating income growth by approximately 1%. In 1998, foreign
currency translation decreased U.S. dollar revenue growth and operating income
growth by approximately 3% and 8%, respectively.
Non-U.S. monetary assets are maintained in currencies other than the U.S.
dollar, principally those of the Pound sterling, Japanese yen and the Euro.
Changes in the value of these currencies relative to the U.S. dollar are charged
or credited to shareholders' equity. The effect of exchange rate changes during
1999 decreased the U.S. dollar amount of cash and cash equivalents by $4,340.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $115,875, $206,390 and $312,442 at December
31, 1999, 1998 and 1997, respectively (which includes $42,641 and $28,418 of
CTS' cash and cash equivalents at December 31, 1999 and 1998, respectively).
Cash and cash equivalents decreased $90,515 in 1999 due primarily to payments
for the purchase of treasury stock ($517,030), investment activities for
software additions, capital expenditures, acquisition and integration payments
and other investments ($147,390). These cash payments were offset by cash from
operations ($347,320), short-term borrowings, net of repayments ($92,242),
proceeds from sale of investments ($51,442), cash flow from discontinued
operations ($52,877) and cash flow from the effect of the Calendarization
($30,664).
Net cash provided by operating activities was $347,320, $229,842 and
$259,465 in 1999, 1998 and 1997, respectively. The increase of $117,478 in cash
provided by operating activities in 1999 primarily reflects increased earnings
from continuing operations, investment gains and non-cash expenses ($68,422), a
net increase in accrued and deferred taxes ($49,409) and improved collections on
accounts receivable ($23,191). This increase was partially offset by increased
accrued liability uses ($36,320). The decrease of $29,623 of net cash provided
by operating activities in 1998 primarily
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reflected increased accounts receivable from fourth quarter revenues ($46,001),
higher taxes paid ($44,425) and increased post-employment benefit payments
($6,671). These decreases were partially offset by decreased accrued liability
uses ($43,255) and higher tax refunds.
Net cash used in investing activities totaled $102,759, $102,592 and
$73,456 in 1999, 1998 and 1997, respectively. The net cash usage was essentially
unchanged in 1999 from 1998, reflecting lower payments for acquisitions of
businesses, net of cash of acquired companies, higher proceeds from the sale of
investments and lower other investment activities-net ($33,834), offset by
higher acquisition and integration related payments ($35,709). The cash usage in
1998 increased $29,136 reflecting payments for acquisitions and joint ventures
($38,356) and increases in other investments-net, partially offset by lower
capital expenditures ($16,158) and lower additions to computer software
($13,687).
Net cash used in financing activities totaled $414,277, $214,555 and
$215,198 for 1999, 1998 and 1997, respectively. Cash used in financing
activities increased $199,722 in 1999 from 1998, due primarily to the proceeds
from the debt assumed by NMR ($300,000) during 1998, lower proceeds from
exercise of employee stock options ($73,537) and the proceeds from the CTS IPO
($31,197) during 1998. During 1999 the Company's treasury share purchases
decreased by $149,664 and net short-term borrowings increased by $58,234. Total
financing activity remained essentially unchanged in 1998 from 1997 with usage
for the purchase of treasury shares increasing ($341,927) and the absence of the
1997 minority interest financing ($100,000), offset by the proceeds of the debt
assumed by NMR ($300,000), higher proceeds from employee stock option exercises
($78,581), increased net short-term borrowings of ($34,008) and the proceeds
from the CTS IPO ($31,197). Short-term borrowings have been used to partially
fund the Company's stock repurchase program.
Cash flow provided by/(used in) discontinued operations totaled $52,877,
($17,173) and $53,580 for 1999, 1998 and 1997, respectively. The cash provided
from discontinued operations in 1999 was attributable to the receipt of a cash
dividend from Gartner, net of taxes. Cash used by or provided from discontinued
operations in 1998 and 1997 were from the operations of NMR.
The impact on cash flow from the Calendarization was $30,664, which
represents cash flow from the IMS operating units for the month of December
1998. (See Note 1. to the Consolidated Financial Statements).
On October 21, 1997, Cognizant announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 20,000,000 shares
of Cognizant's outstanding common stock. As the "Accounting Successor to
Cognizant", the Company purchased the remaining balance of 18,540,800 shares of
the Company's stock. A portion of this program was intended to cover option
exercises. The Company completed this program in November 1998 at a total cost
of $591,331.
On October 20, 1998, the Board of Directors authorized a stock repurchase
program to buy up to 16,000,000 shares of the Company's outstanding common
stock. A portion of this program was intended to cover option exercises. This
program was completed in October 1999 at a total cost of $478,302.
On October 19, 1999, the Board of Directors authorized a stock repurchase
program to buy up to 16,000,000 shares of the Company's outstanding common
stock. A portion of this program is intended to cover option exercises. As of
December 31, 1999, 5,463,200 shares have been acquired under this program at a
total cost of $136,784.
In connection with the Distribution, Cognizant borrowed $300,000, which was
to repay existing intercompany liabilities. This debt was assumed by NMR after
the Distribution.
On July 23, 1999 Gartner paid a cash dividend to its holders of record as
of July 16, 1999. The Company's portion of this dividend was $52,877, net of
taxes. On July 23, 1999, Gartner effected a recapitalization and on July 26,
1999, the Company distributed approximately 40.7 million Gartner Class B Common
Stock to its shareholders. As of December 31, 1999, the Company holds 6,909,457
shares of Gartner Class A Common Stock and warrants to purchase a further
599,400 Gartner Class A Shares (at a total cost basis of $81,422). The Company
will monetize the remaining position in Gartner in accordance with the
distribution agreement entered into in connection with the Gartner Spin-Off. At
December 31, 1999, the value of the Gartner investment after taxes was $96,988.
The Company has been informed by D&B that the Internal Revenue Service
("IRS") is currently reviewing D&B's utilization of certain capital losses
during 1989 and 1990. D&B expects that an assessment will be issued from the IRS
during the second quarter of 2000. At that time, D&B will consider its options,
which includes satisfying its obligation to the IRS for its share of the
liability. The Company has estimated that D&B's total cash liability to the IRS,
if an assessment is made, would be approximately $451,000 for taxes and accrued
interest, net of tax benefit, as of December 31, 1999. Under the terms of the
distribution agreement (the "1996 Distribution Agreement" entered into in
connection with the 1996 Spin-Off), the Company is liable to pay half of
8
<PAGE>
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
such taxes and interest owed to the IRS to the extent that D&B's total
liabilities exceed $137,000. A portion of the Company's liability would in turn
be shared with NMR under the Distribution Agreements. NMR is not obligated to
pay its share to the Company until January 2, 2001. The Company estimates that
its share of the liability were the IRS to prevail would be approximately
$140,000 net of an income tax benefit and NMR's contribution obligation. This
liability has been included in Accrued Income Taxes at December 31, 1999,
reclassified from Other Liabilities at December 31, 1998.
The Company has accrued its anticipated share of the probable liability to
D&B under the 1996 and 1998 Distribution Agreements. Accordingly, management
does not believe that this matter will have a material adverse effect on the
Company's consolidated financial position or operating results when it is
resolved in a future period. The Company believes that it has more than
sufficient funds available from operating cash flows and committed bank lines of
credit to cover any such payment without a material effect on its liquidity or
its financial condition. (See Note 13. to the Consolidated Financial
Statements).
The Company's existing cash balances, cash equivalents, funds available
from the sale of marketable securities and investments held through Enterprises,
combined with cash generated from operations and debt capacity are expected to
be sufficient to meet the Company's current short-term and long-term cash
requirements including dividends, acquisitions, stock repurchase programs and
the other contingencies noted above.
YEAR 2000
The Year 2000 statements set forth below are designated as "Year 2000
Readiness Disclosures" pursuant to the Year 2000 Information Readiness
Disclosure Act.
Many computer systems and software applications use two digits, rather than
four, to record years (for example "98" instead of "1998"). Unless modified,
such systems would not properly record or interpret years after 1999, which
could lead to business disruptions. This was known as the "Year 2000 issue"
("Year 2000"). Assessments of the potential effects of the Year 2000 issue vary
markedly among different companies, governments, consultants and economists,
which results in the inability to predict what the actual impact may be. The
Company began to address Year 2000 in 1996. In 1997, the Company created a Year
2000 Task Force (the "Task Force") to manage overall risks and to facilitate
activities across the entire Company. The Task Force, in consultation with
operating personnel, evaluated whether conversion or replacement and enhancement
(i.e. "reengineering") was necessary. CTS was engaged to do work on a
significant portion of conversion and reengineering projects to allow most
internal staff members to focus on the core business. The Company also used
outside services to assist in conversions, reengineering and the assessment of
progress of its Year 2000 program.
The Task Force developed a conversion methodology that included three
phases: analysis; coding and testing; and testing and implementation. The
analysis phase includes planning, inventory and impact analysis. The coding and
testing phase involves code changes, using conversion rules and criteria and
unit testing, verifying and documenting the results of the conversion. The
testing and implementation phase includes system test across platforms and
verification of data, an acceptance test within the user environment, and
implementation or releasing the systems back into production.
The creation of customer products relies on the receipt of data, including
electronic data, from tens of thousands of external data suppliers in the
healthcare industry and the Company's ability to convert the data and deliver
the information to its customers. The consolidation of the data is principally
performed at central processing locations. The Company believes central systems
represent approximately 85% of its Year 2000 conversion efforts. The Company
operates central processing facilities in Germany, the United Kingdom, the
United States and Japan. The systems at these sites contained the most lines of
code required to undergo conversion. At December 31, 1999 the Company had
completed its Year 2000 conversion process at central processing locations and
of the local systems and personal computer applications and the Company believes
that its products and infrastructure systems are Year 2000 capable.
The Company has been proactive in working with data suppliers to determine
their Year 2000 readiness and ability to maintain the flow of data. Contingency
plans have been developed and statistically valid methods of data extrapolation
would be used in the event the supply of data from a limited number of suppliers
is disrupted, is incomplete or found to be unusable. In addition, alternate
sources of data are pursued when the Company determines the data source to have
a high risk of impacting the Company's ability to deliver products and services.
The Company established an operational Command Center to coordinate the
rollover from 1999 into 2000. On January 1, 2000, there were several hundred
employees on-site or on-call. For each area of the business, specific
individuals were responsible for the development and execution of recovery
plans, if deemed necessary. The rollover did not
9
<PAGE>
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
result in any significant disruptions to the Company's products or services and
the Company's products and infrastructure systems have been operating without
incident. At the time of this Annual Report to Shareholders, no Year 2000 event
has materially impacted the Company's operations and the Company has not
experienced a disruption in data from its suppliers that would impact the
ability to deliver products and services to our customers.
While the Company believes its critical systems are Year 2000 ready and
that the data flow from its suppliers will not be disrupted by the rollover,
there is no guarantee that the Company has identified all potential areas that
might be impacted by the rollover. Areas of potential concern include Year 2000
problems of data suppliers and their internal systems. Since these matters are
out of the Company's control, the magnitude of the impact depends upon the
significance of a particular supplier's data on the Company's products or
services, the speed in which the Company and the supplier can resolve any issues
that may arise and the ability of the Company to execute its contingency plans.
External and internal costs totaling $79,299 to address the Year 2000 issue
were expensed as incurred through December 31, 1999 of which $24,558 was
incurred in 1999. These costs were primarily related to repairing software. This
does not include the costs of software and systems that are being replaced or
enhanced in the normal course of business.
MARKET RISK
The Company's primary market risks are the impact of foreign exchange
fluctuations on non-dollar-denominated revenue and price fluctuations on equity
securities.
In the normal course of business, the Company employs established practices
and procedures to manage its exposure to fluctuations in the value of foreign
currencies using a variety of financial instruments.
The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business activities. Accordingly, the Company enters into various contracts
which change in value as foreign exchange rates change to protect the value of a
portion of committed foreign currency revenues and non-functional currency
assets and liabilities. The principal currencies hedged are the Japanese yen,
the Euro and the Swiss franc. By policy, the Company maintains hedge coverage
between minimum and maximum percentages of its foreign exchange exposures over
the next year. The gains and losses on these hedges offset changes in the value
of the related exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent necessary to meet its objectives as stated above. The Company does
not enter into foreign currency transactions for investment or speculative
purposes.
The fair value of the Company's hedging instruments, estimated at $161,637
at December 31, 1999, are subject to change as a result of potential changes in
foreign exchange rates. The Company assesses its market risk based on changes in
foreign exchange rates utilizing a sensitivity analysis. The sensitivity
analysis measures the potential loss in fair values based on a hypothetical 10%
change decrease in currency rates. The potential loss in fair value for foreign
exchange rate-sensitive instruments, all of which were forward foreign currency
contracts, based on a hypothetical 10% decrease in the value of the U.S. dollar
or, in the case of nondollar-related instruments, the currency being purchased,
was $14,387 at December 31, 1999. The estimated fair values of the foreign
exchange risk management contracts were determined based on quoted market
prices.
The Company also invests in equity securities and is subject to equity
price risk. These investments are classified as available for sale and
consequently, carried at fair value, with unrealized gains and losses, net of
income taxes, reported as a component of shareholders' equity. The Company does
not hedge this market risk exposure. The Company assesses its market risk based
on changes in market prices utilizing a sensitivity analysis. The sensitivity
analysis measures the potential loss in fair values based on a hypothetical 10%
change decrease in market price of these securities. A 10% decline in the market
price of these equity securities would cause the fair value of the securities to
decrease by $6,115 at December 31, 1999. The Company also holds for sale its
remaining securities in Gartner. (See Notes 1. and 4. to the Consolidated
Financial Statements). A 10% decline in the market price of Gartner stock would
result in a $6,849 decrease in the Net Assets of Discontinued Operations.
EURO CONVERSION
On January 1, 1999, 11 member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro is between January 1, 1999 and January 1, 2002.
The Company instituted plans for the introduction of the Euro and addressed
the related issues, including the conversion of information technology systems,
recalculating currency risk, recalibrating derivatives and other financial
instruments, continuity of contracts, taxation and accounting records and the
increased price transparency resulting from the use of a single currency in
eleven participating countries
10
<PAGE>
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
which may affect the ability of some companies to price products differently in
various European markets. The Company believes that differences in national
market size, data collection requirements and specific product specifications
required due to the diverse market information needs in the healthcare markets
of Europe will reduce the potential for price harmonization in most of the
Company's product ranges.
FORWARD-LOOKING STATEMENTS
This 1999 Annual Report to Shareholders, as well as information included in
oral statements or other written statements made or to be made by IMS Health,
contain statements which, in the opinion of IMS Health, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Litigation Reform Act"). These statements
appear in a number of places in this annual report and include, but are not
limited to, all statements relating to plans for future growth and other
business development activities as well as capital expenditures, financing
sources, dividends, the effects of regulation and competition, Year 2000
readiness, Euro conversion and all other statements regarding the intent, plans,
beliefs or expectations of IMS Health or its directors or officers. Stockholders
are cautioned that such forward-looking statements are not assurances of future
performance or events and involve risks and uncertainties that could cause
actual results and developments to differ materially from those covered in such
forward-looking statements. These risks and uncertainties include, but are not
limited to, risks associated with operating on a global basis, including
fluctuations in the value of foreign currencies relative to the U.S. dollar, and
the ability to successfully hedge such risks; to the extent IMS Health seeks
growth through acquisition or joint ventures, the ability to identify,
consummate and integrate acquisitions and ventures on satisfactory terms; the
ability to develop new or advanced technologies and systems for their businesses
on time and on a cost-effective basis; the ability to successfully maintain
historic effective tax rates and to achieve estimated corporate overhead levels;
competition, particularly in the markets for pharmaceutical information;
regulatory, legislative and enforcement initiatives, particularly in the area of
medical privacy and tax; the ability to timely and cost-effectively resolve any
problems associated with the Year 2000 and Euro currency issues; the ability to
obtain future financing on satisfactory terms; deterioration in economic
conditions, particularly in the pharmaceutical, healthcare, or other industries
in which customers operate; conditions in the securities markets which may
effect the value or liquidity of portfolio investments; management's estimates
of lives of assets, recoverability of assets, fair market value, estimates and
liabilities and accrued income tax benefits and liabilities and; failure of
third parties to convert their information technology systems to the Euro
currency in a timely manner and actions of governmental agencies and other third
parties with respect to Euro currency issues. Consequently, all the
forward-looking statements contained in this Annual Report are qualified by the
information contained herein, including, but not limited to, the information
contained under this heading, the consolidated financial statements and notes
thereto and by the material set forth under the headings "Business" and "Factors
that May Affect Future Results", in the Annual Report on Form 10-K for the year
ended December 31, 1999. IMS Health is under no obligation to publicly release
any revision to any forward-looking statement contained or incorporated herein
to reflect any future events or occurrences.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. In July 1999, FASB issued Statement of Financial
Accounting Standard ("SFAS") No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective date of SFAS No. 133--an amendment
of FASB Statement No. 133". Citing concerns about companies' ability to modify
their information systems in time to apply SFAS 133, the FASB delayed its
effective date for one year, to fiscal years beginning after June 15, 2000
(January 1, 2001 for the Company). Management continues to evaluate the effects
of this pronouncement on the Company's financial statements.
DIVIDENDS
The payment and level of cash dividends by the Company are subject to the
discretion of the board of directors of the Company. Although the Company has
declared and anticipates that it will declare quarterly dividends in the range
of 6% to 10% of net earnings, future dividend decisions will be based on, and
affected by, a number of factors; including the operating results and financial
requirements of the Company.
IMS HEALTH COMMON STOCK INFORMATION
The Company's common stock is listed on the NYSE (symbol "RX"). The number
of shareholders of record and shares outstanding on December 31, 1999 were 9,185
and 302,143,949, respectively. Approximately 95% of the Company's shares are
held by institutions. The high and low closing stock price per share during 1999
was $34 33/74 and $21 1/39, respectively. The following table shows the high and
low closing stock price per share during the four quarters of 1999 and 1998:
11
<PAGE>
FINANCIAL REVIEW
Dollar amounts in thousands, exxcept share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
All share and per-share amounts have been restated to give effect to the
2-for-1 stock split approved by the Company's Board of Directors on December 15,
1998 and distributed to shareholders on January 15, 1999.
PRICE PER SHARE ($)
---------------------
1999(1)
---------------------
HIGH LOW
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
First Quarter 34 33/74 29 22/73
Second Quarter 29 7/11 21 1/39
Third Quarter 29 31/75 21 7/8
Fourth Quarter 29 3/4 22
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
Year 34 33/74 21 1/39
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
PRICE PER SHARE ($)
----------------------
1998 (1)(2)
----------------------
HIGH LOW
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
First Quarter -- --
Second Quarter 29 4/5 27 2/41
Third Quarter 29 14/23 24 29/48
Fourth Quarter 34 26 20/71
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
Year 34 24 29/48
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
DIVIDENDS PAID PER SHARE ($)
----------------------------
1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------
First Quarter 0.02 -- (3)
Second Quarter 0.02 -- (3)
Third Quarter 0.02 0.015
Fourth Quarter 0.02 0.015
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------
Year 0.08 0.030
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------
(1) Share prices for periods prior to the Gartner Spin-Off on July 26, 1999 are
adjusted to give effect to the estimated impact of that Spin-Off on IMS
Health share prices based on the share price of IMS Health and Gartner
immediately prior and immediately after the distribution. The 1998 high and
low share price unadjusted for the Gartner Spin-Off was as follows;
33 18/59, 30 23/99, 33 3/32, 27 1/2, 38 and 231/2 for the second, third and
fourth quarters, respectively. The 1999 high and low share price unadjusted
for the Gartner Spin-Off was as follows 38 1/2, 32 3/4, 33 1/8, and 23 1/2
for the first and second quarters, respectively.
(2) IMS Health trading commenced June 23, 1998.
(3) IMS Health did not exist as a separate entity.
12
<PAGE>
STATEMENT OF MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL
STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
To the Shareholders of IMS Health Incorporated:
Management is responsible for the preparation of the consolidated financial
statements and related information that are presented in this report. The
consolidated financial statements, which include amounts based on management's
estimates and judgments, have been prepared in conformity with generally
accepted accounting principles. Other financial information in the report to
shareholders is consistent with that in the consolidated financial statements.
The Company maintains accounting and internal control systems to provide
reasonable assurance at reasonable cost that assets are safeguarded against loss
from unauthorized use or disposition, and that the financial records are
reliable for preparing financial statements and maintaining accountability for
assets. These systems are augmented by written policies, an organizational
structure providing division of responsibilities, careful selection and training
of qualified personnel and a program of internal audits.
The Company engaged PricewaterhouseCoopers LLP, independent accountants, to
audit and render an opinion on the consolidated financial statements in
accordance with generally accepted auditing standards. These standards include
an assessment of the systems of internal controls and tests of transactions to
the extent considered necessary by them to support their opinion.
The Board of Directors, through its Audit Committee consisting solely of
outside directors of the Company, meets periodically with management, internal
auditors and our independent accountants to ensure that each is meeting its
responsibilities and to discuss matters concerning internal controls and
financial reporting. PricewaterhouseCoopers LLP and the internal auditors each
have full and free access to the Audit Committee.
/s/ ROBERT E. WEISSMAN
- - - - - - - - - - - - - - - - - --------------------------
Robert E. Weissman
Chairman
/s/ VICTORIA R. FASH
- - - - - - - - - - - - - - - - - --------------------------
Victoria R. Fash
President and
Chief Executive Officer
/s/ JAMES C. MALONE
- - - - - - - - - - - - - - - - - --------------------------
James C. Malone
Senior Vice President - Finance & Controller
and acting Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of IMS Health Incorporated:
In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of income, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of IMS Health Incorporated and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. [GRAPHIC OMITTED]
PricewaterhouseCoopers LLP
New York, New York
February 14, 2000
13
<PAGE>
IMS HEALTH INCORPORATED
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
Dollar amounts in thousands, except share and per share data 1999 1998 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE $1,397,989 $1,186,513 $1,059,559
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Operating Costs 560,599 533,634 432,654
Selling and Administrative Expenses 397,924 343,218 310,644
Depreciation and Amortization 100,443 96,358 88,651
Direct Acquisition Integration Expenses -- 48,019 --
Acquired In-Process Research and Development -- 32,800 --
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 339,023 132,484 227,610
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Interest Income 8,225 19,548 12,749
Interest Expense (7,590) (1,166) (2,293)
Gains from Dispositions--Net 25,264 33,341 9,391
Gain on Sale of Subsidiary Stock -- 12,777 --
Other Expense--Net (16,480) (12,140) (5,892)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 9,419 52,360 13,955
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision
for Income Taxes 348,442 184,844 241,565
Provision for Income Taxes (98,076) (58,780) (55,614)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 250,366 126,064 185,951
Income from Discontinued Operations, Net of
Income Taxes of $12,635, $49,303 and $62,271 for
1999, 1998 and 1997, respectively 25,695 94,494 126,399
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 276,061 $ 220,558 $ 312,350
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock:
Income from Continuing Operations $ 0.80 $ 0.39 $ 0.57
Income from Discontinued Operations 0.08 0.29 0.38
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.88 $ 0.68 $ 0.95
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
INCOME FROM CONTINUING OPERATIONS $ 0.78 $ 0.38 $ 0.55
INCOME FROM DISCONTINUED OPERATIONS 0.08 0.28 0.38
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.86 $ 0.66 $ 0.93
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding--Basic 311,976,000 324,584,000 330,326,000
Dilutive Effect of Shares Issuable as of Period-End
Under Stock Option Plans 6,065,000 5,968,000 3,334,000
Adjustment of Shares Outstanding Applicable to Exercised
Stock Options during the period 1,520,000 5,218,000 1,320,000
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding--Diluted 319,561,000 335,770,000 334,980,000
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
14
<PAGE>
IMS HEALTH INCORPORATED
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
As of December 31,
---------------------------------
Dollar amounts in thousands, except share and per share data 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 115,875 $ 206,390
Accounts Receivable--Net 284,679 324,219
Other Current Assets 109,908 103,868
Net Assets of Discontinued Operations 96,988 240,708
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 607,450 875,185
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
SECURITIES AND OTHER INVESTMENTS 127,415 106,276
PROPERTY, PLANT AND EQUIPMENT--NET 169,190 179,151
OTHER ASSETS--NET
Computer Software 174,974 168,994
Goodwill 339,491 363,841
Other Assets 32,236 25,928
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Total Other Assets--Net 546,701 558,763
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,450,756 $1,719,375
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 44,577 $ 51,715
Accrued and Other Current Liabilities 196,375 298,625
Short Term Debt 134,663 39,169
Accrued Income Taxes 211,592 32,537
Deferred Revenues 136,196 128,272
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 723,403 550,318
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS 27,429 27,577
OTHER LIABILITIES 81,343 199,985
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 832,175 777,880
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS 124,875 116,225
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $.01 Per Share, Authorized--
10,000,000 Shares; Outstanding--None
Series Common Stock, Par Value $.01 Per Share, Authorized--
10,000,000 Shares; Outstanding--None
Common Stock, Par Value $.01, Authorized 800,000,000 Shares;
Issued 335,045,390 Shares in 1999 and 1998, respectively 3,350 3,350
Capital in Excess of Par 738,993 732,014
Retained Earnings 804,452 686,653
Treasury Stock, at cost, 32,901,441 Shares and 16,303,690 Shares in
1999 and 1998, respectively (1,013,730) (535,971)
Cumulative Translation Adjustment (96,235) (84,149)
Unrealized Gains on Gartner Group shares held for sale 15,565 --
Unrealized Gains on Investments 41,311 23,373
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 493,706 825,270
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,450,756 $1,719,375
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
15
<PAGE>
IMS HEALTH INCORPORATED
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
Dollar amounts in thousands, except share and per share data 1999 1998 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 276,061 $ 220,558 $ 312,350
Less Income from Discontinued Operations (25,695) (94,494) (126,399)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 250,366 126,064 185,951
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 100,443 96,358 88,651
Gains from Sale of Investments, Net (25,264) (33,341) (9,391)
Write-off of Purchased In-Process Research and Development -- 32,800 --
Direct Acquisition Integration Expenses -- 48,019 --
Benefit Payments (10,270) (13,653) (6,982)
Non-Recurring Charge Payments (3,820) (3,885) (5,201)
Net (Increase)/Decrease in Accounts Receivable (16,932) (40,123) 5,878
Net Increase in Deferred Revenues 15,169 10,596 10,054
Gain from Sale of Subsidiary Stock -- (12,777) --
Minority Interests 14,260 10,303 4,797
Deferred Income Taxes 18,085 6,380 48,414
Net Increase/(Decrease) in Accrued Income Taxes 48,541 10,837 (23,386)
Net (Decrease)/Increase in Accrued and Other Current Liabilities (31,181) 5,139 (38,116)
Other Working Capital Items (12,077) (12,875) (1,204)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 347,320 229,842 259,465
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Investments and Businesses 51,442 47,686 44,901
Acquisition and Integration Payments (35,709) -- --
Payments for Acquisition of Businesses (3,100) (38,356) --
Cash of Companies Acquired in Stock Purchases -- 11,895 --
Capital Expenditures (32,989) (30,862) (47,020)
Additions to Computer Software (59,284) (61,089) (74,776)
Net Increase in Other Investments (19,408) (21,438) (10,723)
Other Investing Activities--Net (3,711) (10,428) 14,162
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (102,759) (102,592) (73,456)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Purchase of Treasury Stock (517,030) (666,694) (324,767)
Proceeds from Exercise of Stock Options 31,453 104,990 26,409
Proceeds from the CTS IPO -- 31,197 --
Dividends Paid (25,043) (19,592) (19,883)
Proceeds from Employee Stock Purchase Plan 4,229 3,855 1,683
Proceeds from Debt Assumed by Nielsen Media Research -- 300,000 --
Minority Interest Financing -- -- 100,000
Short-Term Borrowings 499,350 42,546 --
Short-Term Debt Repayments (407,108) (8,538) --
Other Financing Activities--Net (128) (2,319) 1,360
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (414,277) (214,555) (215,198)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,340) (1,574) (11,215)
Impact of change in year end of the IMS operating units 30,664 -- --
Cash Flow Provided by/(Used in)Discontinued Operations 52,877 (17,173) 53,580
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
(Decrease)/Increase in Cash and Cash Equivalents (90,515) (106,052) 13,176
Cash and Cash Equivalents, Beginning of Period 206,390 312,442 299,266
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 115,875 $ 206,390 $ 312,442
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
16
<PAGE>
IMS HEALTH INCORPORATED
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE
INCOME:
---------------------
SHARES UNREALIZED
----------------- CAPITAL IN CUMULATIVE GAINS/ COMPRE-
COMMON TREASURY COMMON EXCESS OF RETAINED TREASURY TRANSLATION (LOSSES) ON HENSIVE
STOCK STOCK STOCK PAR VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 342,164,602 1,600,000 $3,422 $803,459 $ 65,989 $ (25,200) $(11,752) $ 36,695 $872,613
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Net Income 312,350 312,350 312,350
Cash Dividends ($0.06 per share) (19,883) (19,883)
Exercise of Stock Options 75,536 1,151 1,151
Treasury Stock Reissued Under:
Exercise of Stock Options (1,637,850) 2,187 25,258 27,445
Restricted Stock Plan (82,800) 1,741 1,741
Less: Unearned Portion (1,741) (1,741)
Plus: Earned Portion 42 42
Employee Stock Purchase Plan (93,290) 1,683 1,683
Treasury Shares Acquired 18,266,836 (324,767) (324,767)
Change in Cumulative
Translation Adjustment (65,019) (65,019) (65,019)
Unrealized Loss on Investments
--Net of reclassification
adjustment $23,522,
net of taxes of $8,403 (4,045) (4,045) (4,045)
-----------------
Total Comprehensive Income 243,286
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 342,240,138 18,052,896 $3,422 $806,839 $358,456 $(323,026) $(76,771) $32,650 $801,570
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net Income 220,558 220,558 220,558
Cash Dividends ($0.06 per share) (19,592) (19,592)
Prepaid Employee Stock Option
Plan Exercise or Cancellation (1,950) (1,950)
Transfer to Nielsen Media Research
Employee Prepaid Stock Option
Plan Payments (1,159) (1,159)
Value of Stock Options granted
in connection with acquisitions 14,936 14,936
Treasury Shares Acquired 21,749,600 (666,694) (666,694)
Treasury Stock Reissued Under:
Exercise of Stock Options (7,145,992) 8,649 104,990 113,639
Restricted Stock Plan (38,090) 4,317 4,317
Less: Unearned Portion (4,317) (4,317)
Plus: Earned Portion of Grants (33,340) 3,846 3,846
Employee Stock Purchase Plan (184,548) 3,855 3,855
Stock issued for Walsh and Other
Acquisitions (6,506,162) 168,561 168,561
Stock issued for PMSI
Acquisition (2,395,926) 75,292 75,292
Change in Cumulative
Translation Adjustment (7,378) (7,378) (7,378)
Stock Dividend to Nielsen Media
Research Including
Treasury Shares (7,194,748)(7,194,748) (72) (80,365) 127,231 80,437 127,231
Reclassify 800,000 shares of
Nielsen Media Research to
Marketable Securities 1,832 1,832
Unrealized Loss on Investments--Net
of reclassification adjustment $10,448,
net of taxes $3,943 (9,277) (9,277) (9,277)
----------------------------
Total Comprehensive Income 203,903
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 335,045,390 16,303,690 $3,350 $732,014 $686,653$(535,971) $(84,149) $23,373 $825,270
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
IMS HEALTH INCORPORATED
Consolidated Statements of Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE
INCOME:
---------------------
SHARES UNREALIZED
----------------- CAPITAL IN CUMULATIVE GAINS/ COMPRE-
COMMON TREASURY COMMON EXCESS OF RETAINED TREASURY TRANSLATION (LOSSES) ON HENSIVE
STOCK STOCK STOCK PAR VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 335,045,390 16,303,690 $3,350 $732,014 $686,653 $ (535,971) $(84,149) $23,373 $825,270
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Net Income from IMS Operations
for the Month of December 1998 1,040 1,040 1,040
Change in Cumulative Translation
Adjustment 3,409 3,409 3,409
-------------------
Total Comprehensive Income 4,449
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1999 335,045,390 16,303,690 $3,350 $732,014 $687,693 $ (535,971) $(80,740) $23,373 $829,719
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Net Income 276,061 276,061 276,061
Cash Dividends ($0.08) (25,043) (25,043)
Stock Dividend of Gartner Shares (134,259) 2,155 (132,104)
Prepaid Employee Stock Option
Plan Exercise or Cancellation (245) (245)
Treasury Shares Acquired 18,564,700 (517,030) (517,030)
Treasury Stock Reissued Under:
Exercise of Stock Options (1,873,479) 7,224 31,453 38,677
Restricted Stock Plan 4,028 4,028
Less: Unearned Portion 117,526 (4,028) (4,028)
Plus: Earned Portion of Grants (62,081) 3,589 3,589
Employee Stock Purchase Plan (148,915) 4,229 4,229
Change in Cumulative Translation
Adjustment (17,650) (17,650) (17,650)
Unrealized Gain on Gartner Securities
Available for Sale 15,565 15,565 15,565
Unrealized Gain on Other Investments--
Net of Reclassification Adjustment
$17,388, net of taxes of $6,562 17,938 17,938 17,938
-------------------
Total Comprehensive Income 291,914
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1999 335,045,390 32,901,441$3,350 $738,993 $804,452 $(1,013,730) $(96,235) $56,876 $493,706
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
18
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 1. Basis of Presentation
IMS Health Incorporated ("IMS Health" or the "Company") is the world's
leading provider of information solutions to the pharmaceutical and healthcare
industries. IMS Health operates in 100 countries and its key products include:
o Market research for prescription and over-the-counter pharmaceutical
products;
o Sales management information to optimize sales force productivity;
o Pharmaceutical relationship management solutions for sales and
marketing decision making;
o Technology systems and information services that support managed care
organizations; and
o IT application development, integration and management services.
At December 31, 1999 IMS Health consists of (a) the IMS segment ("IMS")
which consists of the market information and decision-support services business
for the pharmaceutical and healthcare industries conducted by IMS Health and
various subsidiaries including IMS Health Strategic Technologies, Inc.
("Strategic Technologies"); (b) Emerging Markets, which consists of ERISCO
Managed Care Technologies, Inc. ("Erisco") and Enterprise Associates LLC
("Enterprises"), the Company's venture capital unit, and (c) a controlling
interest in Cognizant Technology Solutions Corporation ("CTS").
On July 26, 1999, having received the approval of Gartner Group, Inc.
("Gartner") shareholders and the Boards of Directors of both the Company and
Gartner, the Company completed a spin-off of the majority of its equity
investment in Gartner to IMS Health shareholders (the "Gartner Spin-Off"). The
distribution consisted of 0.1302 shares of Gartner Class B Common Stock for each
share of the Company's Common Stock outstanding on the July 17, 1999 record date
and totaled 40.7 million Gartner Class B shares. The consolidated financial
statements of the Company have been reclassified for all periods presented to
reflect the Gartner equity investment as a discontinued operation (See Note 4.).
On June 30, 1998 the common stock of IMS Health was distributed by
Cognizant Corporation ("Cognizant"), which subsequently changed its name to
Nielsen Media Research, Inc. ("NMR"), to Cognizant's shareholders (the
"Distribution"). Notwithstanding the form of the Distribution, IMS Health was
deemed the "accounting successor" to Cognizant. The consolidated financial
statements of the Company have been reclassified to reflect NMR as a
discontinued operation for periods up to and including June 30, 1998.
In connection with the Distribution, Cognizant borrowed $300,000 on June
24, 1998, which was used to repay existing intercompany liabilities. This debt
remained the obligation of NMR following the Distribution. In connection with
the Distribution, Cognizant contributed to IMS Health all cash in Cognizant's
accounts other than (i) cash required by Cognizant (renamed NMR) to satisfy
certain specified obligations and (ii) such additional cash as was necessary for
the net borrowings of Cognizant (renamed NMR) to equal $300,000 as of the
Distribution.
Prior to the Distribution, NMR and IMS Health entered into certain
agreements that govern the relationship between NMR and IMS Health subsequent to
the Distribution and provide for the allocation of tax, employee benefits and
certain other liabilities and obligations that may arise from periods prior to
the Distribution (the "Distribution Agreements"). Among other things, the
agreements set forth principles to be applied in allocating certain
Distribution-related costs and specify portions of contingent liabilities to be
shared if certain amounts are exceeded (including certain liabilities that may
arise in connection with the 1996 spin-off (the "1996 Spin-off") of Cognizant
from The Dun and Bradstreet Corporation ("D&B")). In October 1999, NMR was
acquired by VNU N.V. and is now a wholly owned subsidiary of VNU N.V. NMR
received an opinion of counsel to the effect that the acquisition of NMR by VNU
N.V. will not affect the tax-free treatment of the Cognizant Spin-off. VNU N.V.
has guaranteed NMR's obligation to indemnify the Company in the event such
acquisition does affect the tax-free treatment of the Cognizant Spin-off.
A summary of selected financial data for Gartner and NMR as discontinued
operations is as follows:
Years ended December 31,
----------------------------------
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Operating Revenue--NMR $ -- $193,966 $358,594
Income Before Provision
for Income Taxes--NMR -- 57,980 107,761
Gartner Equity Income and Gains
on the sale of Gartner Common Stock
($14,838 and $14,689 for 1998 and
1997, respectively) Before Provision
for Income Taxes 38,330 85,817 80,909
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Provision for Income Taxes--NMR -- 15,887 29,527
Provision for Income Taxes--Gartner 12,635 33,416 32,744
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Income from Discontinued Operations,
Net of Income Taxes $25,695 $94,494 $126,399
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, 1999, Net Assets of Discontinued Operations represents the
Company's remaining investment in Gartner.
Elimination of one-month reporting lag in IMS operating entities
Effective in the first quarter of 1999, IMS operating units which
previously reported on a fiscal year ended November 30 revised their reporting
period to conform to the Company's fiscal year end of December 31 (the
"Calendarization"). This revision was made to reflect the results of operations
and financial position of these operating units on a more timely basis,
consistent with business performance, and to increase operating efficiency. The
Company has improved its internal financial systems and work processes, so that
the Company
19
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
now has the capability to more rapidly collect, consolidate and report
information. As such, the financial statements of the IMS operating units at
December 31, 1998 and 1997 reflect a twelve month period ended November 30. The
$1,040 of net income related to the operating results of the IMS operating units
for the period December 1 through December 31, 1998 was recorded directly to
Shareholders' Equity as an addition to Retained Earnings. In addition, December
1998 included a $3,409 currency translation adjustment in the period that was
recorded as a reduction of cumulative translation adjustment. The following
table presents IMS operating units condensed consolidated financial information
for the one-month period ended December 31, 1998.
ONE MONTH ENDED
DECEMBER 31, 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Revenue $71,754
Operating Income 1,137
Income Before Provision for Income Taxes 1,432
Provision for Income Taxes (392)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net Income $ 1,040
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.003
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The following table presents IMS operating units cash flow information for
the one-month period ended December 31, 1998:
ONE MONTH ENDED
DECEMBER 31, 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $30,852
Net Cash Used in Investing Activities (3,645)
Net Cash Provided by Financing Activities 2,276
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 1,181
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents $30,664
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 2. Summary of Significant Accounting Policies
Consolidation. The consolidated financial statements of the Company include
the accounts of the Company, its subsidiaries and investments in which the
Company has control after elimination of all material intercompany accounts and
transactions.
Investments in companies over which the Company has significant influence
but not a controlling interest are accounted for under the equity method of
accounting. The Company recognizes in the income statement any gains or losses
related to the sale or issuance of stock by a consolidated subsidiary or a
company accounted for under the equity basis (See Note 1.).
Cash Equivalents. The Company considers all highly liquid investments with
a maturity of 90 days or less at the time of purchase to be cash equivalents.
Securities and Other Investments. Marketable securities, principally
consisting of equity securities, are classified as available-for-sale. Such
securities are carried at fair value, with the unrealized gains and losses, net
of income taxes, reported as a component of shareholders' equity. Any gains or
losses from the sale of these securities are recognized using the specific
identification method (See Note 9.).
Property, Plant and Equipment. Buildings and machinery and equipment are
depreciated over their estimated useful lives using principally the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful life of
the improvement.
Computer Software. Direct costs incurred in the development of computer
software are capitalized in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed". Research and Development costs incurred to
establish technological feasibility of a computer software product are expensed
in the periods in which they are incurred. Capitalization ceases and
amortization starts when the product is available for general release to
customers. Computer software costs are being amortized, on a product-by-product
basis, over three to seven years. Annual amortization is the greater of the
amount computed using (a) the ratio that gross revenues for a product bear to
the total of current and anticipated future gross revenues for that product, or
(b) the straight-line method over the remaining estimated economic life of the
product. The Company periodically reviews the unamortized capitalized costs of
computer software products based on a comparison of the carrying value of
computer software with its estimated net realizable value and changes in
software technology. The Company recognizes any impairment losses on capitalized
software as a result of its review.
Goodwill. Goodwill represents the excess purchase price over the fair value
of identifiable net assets of businesses acquired and is amortized on a
straight-line basis over five to forty years. The Company periodically reviews
the recoverability of goodwill, not identified with impaired long-lived assets,
based on estimated undiscounted future cash flow from operating activities
compared with the carrying value of goodwill and recognizes any impairment on
the basis of such comparison. The recognition and measurement of goodwill
impairment is assessed at the business unit level.
Other Long-Lived Assets. In accordance with the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Company reviews long-lived assets and certain identifiable
intangibles held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In
20
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
general, this statement requires recognition of an impairment loss when the sum
of undiscounted expected future cash flow is less than the carrying amount of
such assets. Accordingly, the Company recognizes impairment losses on long-lived
assets as a result of its review. The measurement for such impairment loss is
then based on the fair value of the asset (See Note 7.).
Revenue Recognition. The Company recognizes revenue as earned, which is
over the contract period as the information is delivered or related services are
performed. Advanced payments for services and subscriptions are credited to
Deferred Revenues and reflected in operating revenue over the subscription term,
which is generally one year. Revenues from Software Licenses are recognized upon
delivery of the software, when persuasive evidence of an arrangement exists, the
related fees are fixed or determinable and collection of fees is probable.
Revenue from post-contract customer support (maintenance) is recognized on a
straight-line basis over the term of the contract. Revenues from time and
material service contracts are recognized as the services are provided. Revenue
from fixed price service contracts is recognized over the contract term based on
the percentage of services provided during the period compared to the total
estimated services provided over the entire contract.
Foreign Currency Translation. The Company has significant investments in
non-U.S. countries. Therefore, changes in the value of foreign currencies affect
the Company's consolidated financial statements when translated into U.S.
dollars.
For all operations outside the United States where the Company has
designated the local currency as the functional currency, assets and liabilities
are translated using end-of-period exchange rates; revenues and expenses are
translated using average rates of exchange. For these countries, currency
translation adjustments are accumulated in a separate component of shareholders'
equity whereas realized transaction gains and losses are recognized in other
expense net. For operations in countries that are considered to be highly
inflationary or where the U.S. dollar is designated as the functional currency,
monetary assets and liabilities are translated using end-of-period exchange
rates, whereas non-monetary accounts are translated using historical exchange
rates, and all translation and transaction adjustments are recognized in other
expense net.
Income Taxes. Prior to the Distribution, the Company was included in the
Federal and certain state and non-U.S. income tax returns of Cognizant. Income
taxes are provided using the asset and liability method in accordance with SFAS
No. 109. Deferred tax assets and liabilities are recognized based on the
estimated realizable differences between the book and tax bases of assets and
liabilities using presently enacted tax rates. The provision for income taxes is
the sum of the amount of income tax paid or payable for the year as determined
by applying the provisions of enacted tax laws to taxable income for that year
and the net changes during the year in the Company's deferred tax assets and
liabilities.
Use of Estimates. The preparation of financial statements and related
disclosures in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Estimates are used for, but not limited to, the accounting for: allowance for
uncollectible accounts receivable, depreciation and amortization, capitalized
software costs, employee benefit plans, taxes including tax benefits and
liabilities, restructuring reserves, contingencies, in-process research and
development ("IPR&D"), the fair value of certain assets and purchase price
allocations.
Earnings Per Share. Basic earnings per share are calculated by dividing net
income by weighted average common shares. Diluted earnings per share are
calculated by dividing net income by dilutive potential common shares. Dilutive
potential common shares are calculated in accordance with the treasury stock
method, which assumes that proceeds from the exercise of all options are used to
repurchase common stock at market value. The amount of shares remaining after
the proceeds are exhausted represent the potentially dilutive effect of the
securities. In 1998 the computation includes the weighted average number of
shares of Cognizant common stock outstanding through the Distribution Date,
reflecting the one-for-one distribution ratio, and the weighted average number
of shares of IMS Health common stock outstanding since the Distribution.
Reclassifications. Certain prior-year amounts have been reclassified to
conform with the 1999 presentation.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 3. Summary of Recent Accounting Pronouncements
Effective January 1, 1999 the Company adopted American Institute of
Certified Public Accountants (the "AICPA") Statement of Position ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained For
Internal Use." SOP 98-1 provides guidance on costs to be capitalized, including
when capitalization of such costs should commence. SOP 98-1 applies to costs
incurred after its adoption, including costs for software projects that are in
progress at the time of the adoption. SOP 98-1 was effective for financial
statements for the years beginning after December 31, 1998. The implementation
of SOP 98-1 did not have a material effect on the Company's financial
statements.
21
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Effective January 1, 1999 the Company adopted AICPA Statement of Position
98-5, "Accounting For the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires the costs of start-up activities to be expensed as incurred. SOP 98-5
was effective for financial statements for the years beginning after December
15, 1998. The implementation of SOP 98-5 did not have a material effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of SFAS
No.133- an amendment of FASB Statement No. 133". Citing concerns about
companies' ability to modify their information systems in time to apply SFAS
133, the FASB delayed its effective date for one year, to fiscal years beginning
after June 15, 2000 (January 1, 2001 for the Company). Management continues to
evaluate the effects of this pronouncement on the Company's financial
statements.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 4. Investment in Gartner Group Stock
In the third quarter of 1997, the Company's voting interest in Gartner fell
below 50%, principally as a result of Gartner employee stock options and
employee stock repurchases. Accordingly, effective January 1, 1997, the Company
deconsolidated Gartner in that year and accounted for its ownership interest on
the equity basis.
On November 11, 1998 the Company announced that its Board of Directors had
approved a plan to spin-off substantially all of its equity ownership of
Gartner. As provided for under the Distribution Agreement entered into between
Gartner and the Company 40,689,648 Gartner Class A Shares were converted into an
equal number of Gartner Class B Shares. As a result of the then proposed Gartner
Spin-Off, the Company ceased recognition of gains in accordance with Staff
Accounting Bulletin 51 ("SAB51") in the fourth quarter of 1998.
On July 16, 1999, subject to Gartner shareholder approval, the IMS Health
and Gartner Boards of Directors approved the final plan, terms and conditions
governing the spin-off of the Company's investment in Gartner. Upon shareholder
approval in accordance with Accounting Principles Board No. 30, "Reporting the
results of Operations - Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", the
consolidated financial statements of the Company have been reclassified to
reflect the Gartner equity investment as a discontinued operation for all
periods presented.
On July 16, 1999, the Company's Board of Directors declared a dividend of
all Gartner Class B Shares, which was distributed on July 26, 1999 to holders of
the Company's Common Stock of record as of July 17, 1999. The transaction was
structured as a tax-free distribution of Gartner stock to IMS Health
shareholders and the Company received a favorable ruling from the Internal
Revenue Service ("IRS"). The distribution consisted of 0.1302 Gartner Class B
Shares for each outstanding share of the Company's Common Stock.
The net assets of the Gartner discontinued operations at December 31, 1998
were $240,708. Income from discontinued operations in 1999 was $25,695, net of
taxes of $12,635. The allocated value of the Gartner Class B Shares distributed
to IMS shareholders as a dividend was $132,104 (net of cumulative translation
adjustment) and was recorded as a reduction of net assets of discontinued
operations and charged to retained earnings as a Dividend of Gartner Shares. The
value was calculated from the original cost of the shares and the proportional
allocation of the earnings from past periods, less the net dividend received on
the shares prior to the Gartner Spin-Off.
On July 23, 1999 in connection with the Gartner Spin-Off, Gartner paid a
special cash dividend to holders of record on July 16, 1999. IMS Health's
portion of the dividend was $52,877, net of taxes, which was recorded as a
reduction in the Company's investment in Gartner and is included as Cash from
Discontinued Operations in the Company's Consolidated Statements of Cash Flows.
The Company's remaining investment in Gartner at December 31, 1999 consists
of 6,909,457 Gartner Class A Shares and warrants to purchase a further 599,400
Gartner Class A Shares (at a total cost basis of $81,422). Under the terms of
the IRS ruling, the Company must monetize the remaining position in Gartner.
Accordingly, the net assets from discontinued operations in the amount of
$96,988 are included in current assets at December 31, 1999. The Company's
Gartner Class A Shares have been accounted for as "available for sale"
securities in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". The unrealized gain as of the date of the
Gartner Spin-Off (based on a per share price of $22.75 on Gartner Stock) was
$51,716 (net of taxes of $27,847), and was recorded as Other Comprehensive
Income and included as a component of Shareholders' Equity. Subsequent changes
in the per share price of Gartner Stock from the date of the Gartner Spin-Off to
December 31, 1999 (based on a per share price of $15.25 of Gartner Stock at
December 31, 1999) generated an unrealized loss of $36,151 from the date of
Gartner Spin-Off (net of taxes of $19,465), which was also
22
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
recorded as Other Comprehensive Income and included as a component of equity.
Upon sale of these securities, the unrealized gain related to those securities
measured based on the value of the Gartner shares as of the date of the Gartner
Spin-Off will be recognized in Discontinued Operations. The unrealized gains or
losses in the fair value subsequent to the date of the Gartner Spin-Off will be
recognized in Continuing Operations as shares are sold.
Holders of options to purchase the Company's common stock did not receive
shares in the Gartner Spin-Off. Consequently, options granted under the
Company's stock option plans were adjusted to recognize the effect of the
Gartner Spin-Off. The options, as adjusted, represented an increase in the
number of shares issuable when exercised but had the same ratio of the exercise
price to the market value per share, the same aggregate difference between
market value and exercise price and the same vesting provisions, option periods
and other terms and conditions as the options prior to the adjustment. The
option adjustment was performed in accordance with the provisions of EITF 90-9
"Changes to Fixed Employee Stock Option Plans as a Result of Equity
Restructuring". Accordingly, no compensation charge was required for the option
adjustments.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 5. Dispositions
During 1999, the Company recorded $25,264 of net pre-tax gains due
primarily to the sale Enterprises' investments in eData Resources Inc., TSI
International Software Inc., Oacis Healthcare Inc. and Pegasus Systems Inc.,
partially offset by a loss on the sale of SSJ K.K. ("SSJ"). The sale of
investments by Enterprises and the sale of SSJ generated pretax cash proceeds of
$51,442.
During 1998, the Company recorded $46,118 of net pre-tax gains due
primarily to the sale of Enterprises' investments in Aspect Development Inc.,
and the sale of shares in CTS (See Note 8.). These sales generated pretax cash
proceeds of $78,883.
During 1997, the Company recorded a $39,336 pre-tax gain on the sale of its
investment in WEFA Group, Inc. and a portion of its investment in TSI
International, Inc. and Aspect Development, Inc. These investments, which were
part of the Enterprises portfolio, generated cash proceeds of $43,601.
Additionally, in the third quarter of 1997, the Company sold Pilot Software,
Inc. and recorded a pre-tax loss of $29,945.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 6. Minority Interests
The Company consolidates the assets, liabilities, results of operations and
cash flows of businesses and investments in which it has control. Third parties'
ownership interests are reflected as a minority interest on the Company's
financial statements. Two of the Company's subsidiaries have contributed assets
to, and participate in, a limited partnership. One subsidiary serves as general
partner, and all other partners hold limited partnership interests. The
partnership, which is a separate and distinct legal entity, is in the business
of licensing amortizable database assets and computer software. In the second
quarter of 1997, third-party investors contributed $100,000 to the partnership
in exchange for minority ownership interests. The Company and its subsidiaries
maintain a controlling (85%) interest in the partnership. Under the terms of the
investment, the third-party investors have a right to take steps that would
result in the termination of the investment on June 30, 2000. The Company
intends to negotiate an extension of such date or to replace the minority
interest with a new investor prior to any such termination.
The Company also has a controlling interest in CTS (61.1% of the
outstanding shares representing approximately 94% of the voting power at
December 31, 1999). The related minority interest at December 31, 1999 and 1998
was $17,611 and $12,524, respectively. Selected financial data for CTS is
included in Note 18. The remaining balance in minority interest related to all
other at December 31, 1999 and 1998 was $7,264 and $3,701, respectively.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 7. Acquisitions and Joint Venture
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh").
The final purchase price was $193,748, including $167,148 of Cognizant common
stock, $9,521 for Cognizant stock options issued and $17,079 of direct
acquisition and integration costs.
Under the terms of the Walsh acquisition agreement, Walsh shareholders
received 6,454,600 shares of Cognizant common stock, issued from treasury stock,
for a total consideration of approximately $167,148, based on a Cognizant share
price of $25.896. The original estimate of direct acquisition and integration
costs of $17,079 consisted of severance ($4,876), lease terminations ($2,569)
and other direct acquisition and integration costs ($9,634). These direct
acquisition and integration costs were incremental and were incurred as a direct
result of the acquisition and the formal plan to exit certain activities as part
of the overall integration effort (such as severance costs related to Walsh
employees) and certain contractual costs (such as Walsh leases that were to be
terminated). At December 31, 1999, the program for integrating Walsh had been
completed. The Company incurred higher-than-anticipated severance costs for
Walsh employees and restructured acquired Walsh leases at a cost lower than
originally anticipated. In addition, a certain lease scheduled for termination
was retained by the Company. As a result, the remaining liability for
acquisition and integration
23
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
costs and goodwill were reduced by $890. Approximately $155,667 (originally
$156,557) was recorded as the excess of the purchase price over the fair value
of identifiable net assets (goodwill), which is being amortized on a
straight-line basis over 15 years.
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of
Pharmaceutical Marketing Services Inc. ("PMSI"). The final purchase price was
$103,291, consisting of IMS Health common stock ($75,292), IMS Health stock
options issued ($5,415) and direct acquisition and integration costs ($22,584).
Under the terms of the PMSI acquisition agreement, PMSI received 2,395,926
shares of IMS Health common stock, issued from treasury stock, for a total
consideration of approximately $75,292. The original estimate of direct
acquisition and integration costs consisted of severance ($3,794), lease
terminations ($1,623), contract cancellations ($10,935), and other direct
acquisition and integration costs ($6,232). These direct acquisition and
integration costs were incremental and were recognized as a direct result of the
acquisition and the formal plan to exit certain activities as part of the
overall integration effort (such as severance costs related to PMSI employees)
and certain contractual cancellation costs (such as PMSI contracts and leases
that were to be terminated). The severance costs and the costs of terminating
various leaseholdings were lower than originally anticipated. However, the
Company's other direct costs recognized as a result of the acquisition such as
direct legal fees and a pre-acquisition contingency in the amount of $1,500 were
greater than originally estimated. As a result, additional goodwill in the
amount of $1,500 was recorded. Approximately $116,775 (originally $115,275) was
recorded as the excess of the purchase price over the fair value of identifiable
net assets (goodwill), which is being amortized on a straight-line basis over 15
years.
Purchase Price Allocation
In connection with both the Walsh and PMSI acquisitions, the Company made
allocations of the purchase price to IPR&D amounting to $21,900 in the second
quarter of 1998 related to the Walsh acquisition and $10,900 in the third
quarter of 1998 related to the PMSI acquisition. At the date of the respective
acquisitions, the development of the IPR&D projects had not reached
technological feasibility and had no alternative future uses. Accordingly, these
costs were expensed as of the respective acquisition dates.
In accordance with Securities and Exchange Commission ("SEC") guidance with
respect to the allocation of IPR&D in connection with an acquisition, the
amounts allocated to IPR&D above reflect the relative value and
contribution of the acquired IPR&D. Consideration was given to the projects'
stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development, the costs already incurred
and the projected costs to complete the projects.
In addition, the Company allocated $29,000 in the Walsh businesses and
$7,700 in the PMSI businesses to existing core technology, representing computer
software that is currently in use and available for sale. These computer
software products are being amortized on a straight-line basis over 5 years.
The allocation of the Company's aggregate purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed in
connection with these acquisitions was based primarily on estimates of fair
values by an independent appraisal firm. The initial purchase price allocations,
prior to the $890 and $1,500 adjustments to Walsh and PMSI goodwill referred to
above, were:
WALSH PMSI TOTAL
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
IPR&D charge $ 21,900 $ 10,900 $ 32,800
Net liabilities assumed (5,009) (28,274) (33,283)
Computer Software/ Core Technology 29,000 7,700 36,700
Deferred taxes (8,700) (2,310) (11,010)
Goodwill 156,557 115,275 271,832
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Purchase Price $193,748 $103,291 $297,039
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
In the aggregate, the impact of both the Walsh and PMSI acquisitions on the
results of operations, other than the one-time charges and the IPR&D write-offs,
had they occurred on January 1, 1998 or 1997 would be immaterial.
In connection with the PMSI acquisition, the Company evaluated then
existing IMS Health product offerings and operations. Based on this strategic
assessment, the Company decided to abandon certain then-existing IMS Health
software products. Accordingly, the Company recognized the impairment of certain
computer software assets ($36,300), the closure of certain IMS facilities
($800), and the severance of certain IMS employees ($5,600) and other related
charges ($319). This resulted in a one-time charge of $43,019 recorded as direct
acquisition integration expenses in the third quarter of 1998 as a component of
operating income.
Joint Venture
On September 1, 1998, the Company formed a joint venture with IHA Institut
fur Marktanalysen AG ("IHA"). The Company and IHA each contributed all of their
Swiss pharmaceutical research assets to the venture and each own 50% of the
venture. The Company contributed assets of $54 and cash of $11,014. The $12,027
excess of the investment over the value of the Company's share of the net assets
has been recorded as goodwill, which is being amortized on a straight-line basis
over 20 years. The Company has accounted for its ownership interest in the
venture under the equity basis.
24
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 8. Public Offering of a Subsidiary
CTS effected an initial public offering (the "CTS IPO") of 2,917,000 shares
of Class A Common Stock, par value $0.01 per share, of CTS (3,354,550 including
the underwriters' over-allotment option granted by Cognizant) on June 19, 1998.
Of such shares, 2,500,000 were offered by CTS and 417,000 shares were offered by
Cognizant, the accounting predecessor to IMS Health. Of the total proceeds, CTS
used approximately $6.5 million to repay intercompany debt owed to Cognizant.
Cognizant's interest in CTS was transferred to the Company in the Distribution.
The transaction (other than the over-allotment option) closed on June 24, 1998
and resulted in a gain of $12,777, which is a SAB 51 gain. The underwriters
over-allotment option was exercised during the third quarter of 1998. The
Company recognized a gain from this sale which has been recognized in Other
Income. The Company's ownership interest is 61.1% at December 31, 1999 and
accordingly, the Company continues to consolidate CTS's results within its
financial statements. The minority interest is captured on the Consolidated
Statements of Financial Position in the Minority Interest line and on the
Consolidated Statements of Income in the Other Expense-Net line. The minority
interest in the earnings of CTS amounted to $4,376, $1,689 and $669 in 1999,
1998 and 1997, respectively. CTS's Class A Common Stock is listed on the NASDAQ
National Market under the symbol "CTSH".
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 9. Securities and Other Investments
Amounts shown below for Equity Securities are included in the Consolidated
Statements of Financial Position as Securities and Other Investments. Cash
equivalents and the net assets of Discontinued Operations have been excluded
from these disclosures.
DECEMBER 31,
------------------------------------
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
COST FAIR VALUE COST FAIR VALUE
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Equity Securities $4,251 $61,153 $5,491 $37,685
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
In addition to the amounts disclosed above, Securities and Other
Investments include the Company's private equity investments in venture capital
partnerships of $64,697 and $60,206 at December 31, 1999 and 1998, respectively.
Such investments are carried at cost. The Company monitors these investments for
impairment and makes appropriate reductions in carrying values when necessary.
Note 10. Financial Instruments
Foreign Exchange Risk Management
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The Company's
objective is to reduce earnings and cash flow volatility associated with foreign
exchange rate changes to allow management to focus its attention on its core
business activities. Accordingly, the Company enters into various contracts
which change in value as foreign exchange rates change to protect the value of a
portion of committed and anticipated foreign currency revenues and
non-functional currency assets and liabilities. The Company's policy is to
maintain hedge coverage between minimum and maximum percentages of its
anticipated foreign exchange exposures over the next year. The gains and losses
on these hedges offset changes in the value of the related exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent necessary to meet its objectives as stated above. The Company does
not enter into foreign currency transactions for investment or speculative
purposes.
The Company uses forward contracts and purchased currency options to hedge
committed and anticipated foreign currency denominated revenues, respectively.
The principal currencies hedged are the Japanese yen, the Euro and the Swiss
franc. The Company also uses forward contracts to hedge non-functional currency
assets and liabilities.
Gains and losses on contracts hedging anticipated and committed foreign
currency revenues are deferred until such revenues are recognized, and offset
changes in the value of such revenues. At December 31, 1999, the notional amount
of committed foreign currency revenues hedged was $128,682, with deferred gains
of $1,533 related to foreign currency hedge transactions. Deferred amounts to be
recognized can change with market conditions and are expected to be
substantially offset by changes in the value of the related hedged transaction.
The impact of foreign exchange risk management activities on operating income in
1999, 1998 and 1997 was a net gain of $6,427, $9,433 and $15,617, respectively.
In addition, at December 31, 1999, the Company had approximately $32,955 in
foreign exchange forward contracts outstanding with various expiration dates
through February 2000 hedging non-functional currency assets and liabilities.
Gains and losses on contracts hedging non-functional currency assets and
liabilities are not deferred and are included in current income in other
income/expense-net.
Fair Value of Financial Instruments
At December 31, 1999, the Company's financial instruments included cash,
cash equivalents, receivables, accounts payable, short-tem debt and foreign
exchange risk management contracts. At December 31, 1999, the fair values of
cash, cash equivalents, receivables, accounts payable and short-term debt
approximated carrying values due to the short-term nature of these instruments.
At December 31, 1999, the notional amounts of the Company's risk management
con-
25
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
tracts were $161,637 and all contracts mature in 2000. The estimated fair values
of the foreign exchange risk management contracts were determined based on
quoted market prices.
Note Receivable (unaudited subsequent event)
At January 3, 2000 the Company held a related party note receivable
totaling $3,558 from Victoria R. Fash, its President and Chief Executive Officer
and a Director. $632 was repaid on January 12, 2000 leaving a principal amount
of $2,926. The loan accrues interest at an annual rate of 6.21% with principal
and accrued interest due on December 31, 2008 and is secured by 81,260 shares of
the Company's Common Stock.
Credit Concentrations
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its financial
instruments and does not anticipate non-performance by the counterparties. The
Company would not realize a material loss as of December 31, 1999 in the event
of non-performance by any one counterparty. The Company enters into transactions
only with financial institution counterparties which have a credit rating of A
or better. In addition, the Company limits the amount of credit exposure with
any one institution.
The Company maintains accounts receivable balances ($284,679 and $324,219,
net of allowances for doubtful accounts, at December 31, 1999 and 1998,
respectively--See Note 17.), principally from customers in the pharmaceutical
industry. The Company's trade receivables do not represent significant
concentrations of credit risk at December 31, 1999 due to the high quality of
its customers and their dispersion across many geographic areas.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 11. Pension and Post-retirement Benefits
In accordance with FAS No. 132, "Employers' Disclosure About Pensions and
Other Post-retirement Benefits", the status of all of the Company's defined
benefit pension and post-retirement benefit plans at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $129,536 $150,372 $8,110 $14,940
Service cost 9,781 10,687 720 870
Interest cost 8,973 9,738 530 720
Foreign currency exchange loss (2,385) (1,931) -- --
Amendments (1,500) (1,156) 180 --
Plan participant's contributions 756 988 50 30
Actuarial gain (4,384) (865) (1,190) (230)
Divestitures -- (34,870) -- (8,040)
Benefits paid (5,452) (3,427) (430) (180)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 135,325 129,536 7,970 8,110
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 143,204 175,263 -- --
Actual return on assets 22,217 27,965 -- --
Foreign currency exchange loss (587) (948) -- --
Employer contributions 4,030 1,653 380 150
Plan participant's contributions 756 988 50 30
Divestitures -- (58,290) -- --
Actual Expense Paid (170) -- -- --
Benefits paid (5,452) (3,427) (430) (180)
[GRAPHIC OMITTED]
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 163,998 143,204 -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
FUNDED STATUS AT END OF YEAR 28,674 13,668 (7,970) (8,110)
Unrecognized actuarial (gain)/loss (35,301) (18,898) (770) 420
Unrecognized prior service cost (2,407) (2,606) (250) (680)
Unrecognized net transition asset/(liability) 1,418 (388) -- --
[GRAPHIC OMITTED]
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year (7,616) (8,224) (8,990) (8,370)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost 14,794 13,295 -- --
Accrued benefit liability (22,410) (22,282) (8,990) (8,370)
Intangible asset -- 763 -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Net amount recognized (7,616) (8,224) (8,990) (8,370)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
Discount Rate 6.72% 6.34% 7.50% 6.50%
Expected return on plan assets 8.64% 8.68% n/a n/a
Rate of compensation increase 4.05% 4.98% n/a n/a
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed rate of future increases in per capita cost of covered healthcare
benefits is 6.5% in 1999, decreasing gradually to 5% for the year 2021 and
remaining constant thereafter. The components of net periodic benefit cost for
1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OMITTED]
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 9,781 $10,687 $ 9,959 $ 720 $ 870 $1,000
Interest cost 8,973 9,738 10,504 530 720 860
Expected return on plan assets (11,639) (13,124) (13,951) -- -- --
Amortization of prior service cost (217) (237) (190) (250) (490) (660)
Recognized actuarial (gain)/loss (501) 316 660 -- -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Net period benefit cost $ 6,397 $ 7,380 $ 6,982 $1,000 $1,100 $1,200
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
27
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The Distribution at June 30, 1998 resulted in a transfer of the allocable
portion of the benefit obligation and plan assets of NMR (See Note 1.). Pension
expenses related to the discontinued operations included in the table above were
$226 in 1998 and 1,571 in 1997. Other benefit costs for discontinued operations
were not significant.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $38,697, $33,095, and $17,075, respectively, as of
December 31, 1999, and $35,036, $28,964, and $14,695, respectively as of
December 31, 1998.
Assumed healthcare costs trend rates have a significant effect on the
amounts reported for the healthcare plan costs. A one-percentage-point change in
assumed healthcare cost trend rates for 1999 would have the following effects:
1-PERCENTAGE 1-PERCENTAGE
INCREASE/(DECREASE) POINT INCREASE POINT DECREASE
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Effect on total service/interest cost $ 80 ($70)
Effect on post-retirement benefit
obligation $540 ($470)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Certain employees of the Company in the United States also are eligible to
participate in the Company-sponsored defined contribution plan. The Company's
businesses make a matching contribution of up to 50% of the employee's
contribution based on specified limits of the employee's salary. The Company's
expense related to this plan was $3,108, $3,713 and $4,666 for the years 1999,
1998 and 1997, respectively which includes expenses related to discontinued
operations of $768 and $2,021 for the years 1998 and 1997 respectively.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 12. Employee Stock Plans
The Company has an Employee Stock Incentive Plan which provides for the
grant of stock options, restricted stock and restricted stock units to eligible
employees. At December 31, 1999 there were 54,527,669 shares authorized for
grants of options under the Company's Employee Stock Incentive Plan of which
19,645,578 were available for grant on such date. Pursuant to the restricted
stock units, the Company recognized compensation expense of $3,528, $552, $22 in
1999, 1998, and 1997, respectively. In addition it provides an opportunity for
the purchase of stock options with a prepayment equal to ten percent of the
exercise price, with the remaining payment due when the options are exercised.
Options have a life of ten years, vest proportionally over three to six years
and have an exercise price equal to the fair market value of the common stock on
the grant date.
The Company adopted an Employee Stock Purchase Plan in 1998 which allows
eligible employees to purchase a limited amount of common stock at the end of
each quarter at a price equal to the lesser of 90% of fair market value on (a)
the first trading day of the quarter, or (b) the last trading day of the
quarter. Fair market value is defined as the average of the high and low prices
of the shares on the relevant day.
Gartner has several stock option and stock purchase plans. The exercise
price of options granted under the plans is equal to the fair market value at
the date of grant of Gartner stock. Options outstanding and exercisable were
14,560,757 and 5,774,615, respectively, at December 31, 1998, at prices ranging
from $0.63 to $35.68 per share. As discussed previously, a majority of the
Company's interest in Gartner was spun-off in July 1999 (See Note 4.)
CTS has stock option plans which provide for the grant of stock options to
eligible employees, non-employee Directors and independent contractors. Options
granted under these plans may not be granted at an exercise price less than fair
market value of the underlying shares on the date of grant. All options have a
life of ten years, vest proportionally over four years and have an exercise
price equal to the fair market value of the common stock on the grant date. At
December 31, 1999, 1,275,904 options were outstanding at a weighted average
exercise price of $16.73 per share. Of this amount, 220,951 were exercisable at
a weighted average exercise price of $6.80. At December 31, 1998, 685,026
options were outstanding at a weighted average exercise price of $5.85 per
share. Of this amount, 112,065 were exercisable at a price of $4.69 per share.
Share and exercise prices have not been adjusted for the 2 for 1 stock split
announced by CTS on February 11, 2000.
SFAS No. 123, "Accounting for Stock-Based Compensation" requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. The Company has chosen to
continue applying Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. No compensation cost has been
recognized for the fixed stock option plans in 1999, 1998 and 1997. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, consistent with the method of SFAS No.123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
Years Ended December 31,
----------------------------
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net Income: As Reported $276,061 $220,558 $312,350
Pro forma $228,878 $191,409 $287,536
Earnings Per Share:
Basic As Reported $0.88 $0.68 $0.95
Pro forma $0.73 $0.59 $0.87
Diluted
As Reported $0.86 $0.66 $0.93
Pro forma $0.72 $0.57 $0.86
Years Ended December 31,
----------------------------
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Income from continuing operations:
As Reported $250,366 $126,064 $185,951
Pro forma $210,084 $109,741 $170,520
Earnings Per Share:
Basic from continuing operations
As Reported $0.80 $0.39 $0.57
Pro forma $0.67 $0.34 $0.52
Diluted from continuing operations
As Reported $0.78 $0.38 $0.55
Pro forma $0.66 $0.33 $0.51
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note: The pro forma disclosures shown above are not representative of the
effects on net income and earnings per share in future years.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for 1999, dividend yield of 0.3%;
expected volatility of 35%; a risk-free interest rate of 4.8%; and an expected
term of 3 years. The following weighted average assumptions were used for 1998
and 1997: dividend yield of 0.3%; expected volatility of 25%; a risk-free
interest rate of 5.1%; and an expected term of 3.5 years. The weighted average
fair value of the Company's stock options granted in 1999, 1998, and 1997 are
$9.85, $7.92 and $6.56, respectively.
For the period through the Gartner Spin-Off, the fair value of Gartner
stock options used to compute the Company's pro forma net income and earnings
per share disclosures was computed in the same manner with the following
weighted-average assumptions for 1999: dividend yield of 0%; expected volatility
of 45%; a risk-free interest rate of 4.7%; and an expected term of 3.5 years.
For the years ended 1998 and 1997, the following assumptions were used: dividend
yield of 0%; expected volatility of 38%; a risk-free interest rate of 5.4%; and
an expected term of 3.5 years. The weighted average fair value of Gartner stock
options granted in 1999, 1998 and 1997 are $8.91, $11.55 and $10.12,
respectively.
The fair value of CTS options used to compute the Company's pro forma net
income and earnings per share disclosures was computed in the same manner with
the following weighted-average assumptions for 1999: risk-free interest rate of
5.6%, expected dividend yield of 0.0%, expected volatility of 75.0% and
expected life of 3.9 years. 1998 assumptions; risk-free interest rate of 5.4%,
expected dividend yield of 0.0%, expected volatility of 48.0% and expected life
of 3.6 years. 1997 assumptions: risk-free interest rate of 6.3%, expected
dividend yield of 0.0%, expected volatility of 40.0% and expected life of 8.7
years. The weighted-average fair value of CTS options granted during 1999, 1998
and 1997 are $14.89, $4.68 and $2.38 respectively.
As a result of the Gartner Spin-Off, outstanding awards under the Company's
Employee Stock Incentive Plan and other option and equity plans were adjusted to
maintain the intrinsic value of the awards. The formula, based on SEC guidance,
was defined as the "immediately after" Company stock price divided by the
"immediately before" Company stock price. The "immediately after" component was
determined to be the last "when issued" pre-spin trade of the Company. This
number was divided by the "immediately before" pre-spin "regular way" trading
price of IMS Health.
Immediately following the Distribution in July of 1998, outstanding awards
under Cognizant's Key Employees Stock Incentive Plan and other option plans were
cancelled and replaced by substitute awards under various IMS Health option
plans. The formula to determine the number of replacement options was the
average fair market value of Cognizant shares before the Distribution divided by
the average fair value of IMS Health shares after the Distribution.
At December 31, 1999, outstanding options for IMS Health common stock held
by Company employees, including the substitute awards mentioned above, totaled
34,882,091, of which 9,647,008 had vested and were exercisable. The option
prices range from $9.89 to $33.58 per share and are exercisable over periods
ending no later than 2009. At December 31, 1998, outstanding options for IMS
Health common stock held by Company employees totaled 28,859,996, of which
5,402,436 had vested and were exercisable. The option prices ranged from $3.69
to $34.25 per share.
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Options Outstanding,
December 31, 1996 40,453,498 $16.50
Granted 7,756,474 $21.18
Exercised (1,713,386) $15.39
Expired/Terminated (2,651,806) $16.60
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Options Outstanding,
December 31, 1997 43,844,780 $17.38
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Nielsen Media Research (9,394,856) $16.89
Conversion Adjustment (1,768,840) --
Granted (1)(2) 6,508,614 $28.94
Exercised (2) (6,324,494) $16.91
Expired/Terminated (2) (4,005,208) $18.17
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Options Outstanding,
December 31, 1998 28,859,996 $21.18
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Conversion Adjustment 4,108,190 --
Granted 8,645,944 $34.14
Exercised (1,884,947) $16.96
Expired/Terminated (4,847,092) $22.76
Options Outstanding,
December 31, 1999 34,882,091 $21.96
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
(1) This includes 1,928,188 options granted in connection with the Walsh and
PMSI acquisitions.
(2) Excludes NMR.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
DECEMBER 31, 1999 -----------------------------------------------------
RANGE OF ------------------------------- REMAINING OPTION EXERCISE PRICES
EXERCISE NUMBER NUMBER CONTRACTUAL ---------------------------------
PRICES OUTSTANDING EXERCISABLE LIFE OUTSTANDING EXERCISABLE
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.89 - $14.93 542,072 479,289 5.2 years $13.63 $13.60
$15.13 - $17.77 15,822,983 6,317,540 6.9 years $15.87 $15.89
$18.39 - $20.90 498,139 89,438 7.6 years $19.96 $19.46
$21.01 - $26.99 7,381,638 2,038,228 8.2 years $23.14 $23.03
$27.15 - $29.38 1,050,389 122,229 9.1 years $27.90 $27.90
$30.14 - $33.58 9,586,870 600,284 9.0 years $31.05 $30.61
------------------------------
34,882,091 9,647,008
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
On January 3, 2000, the Company reduced the vesting period on substantially
all options previously granted with a six-year vesting period to four years. As
a result 4,997,101 previously unvested options with exercise prices ranging from
$14.93 to $28.95 became exercisable at January 3, 2000.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 13. Income Taxes
The Company has been informed by The Dun & Bradstreet Corporation ("D&B")
that the IRS is currently reviewing D&B's utilization of certain capital losses
during 1989 and 1990. D&B expects that an assessment will be issued from the IRS
during the second quarter of 2000. At that time, D&B will consider its options,
which includes satisfying its obligation to the IRS for its share of the
liability. The Company has estimated that D&B's total cash liability to the IRS
if an assessment is made and the IRS prevails would be approximately $451,000
for taxes and accrued interest net of tax benefit. Under the terms of the
Distribution Agreement dated October 28, 1996 among D&B, Cognizant and ACNielsen
Corporation (the "1996 Distribution Agreement"), the Company is liable to pay
half of such taxes and interest owed to the IRS to the extent that D&B's total
liabilities exceed $137,000. A portion of the Company's liability would in turn
be shared with NMR under the Distribution Agreement. NMR is not obligated to pay
its share to the Company until January 2, 2001. The Company estimates that its
share of the liability were the IRS to prevail would be approximately $140,000,
net of income tax benefit and NMR's contribution obligation. This liability has
been included in Accrued Income Taxes at December 31, 1999, reclassified from
Other Liabilities at December 31, 1998.
In 1998 the Company had accrued its additional anticipated share of the
probable liability to D&B under the 1996 and 1998 Distribution Agreements (the
"Pre-spin Liability"). Accordingly, management does not believe that this matter
will have a material adverse effect on the Company's consolidated financial
position or operating results when it is resolved in a future period. The
Company believes that it has more than sufficient funds available from operating
cash flows and committed bank lines of credit to cover any such payment without
a material effect on its liquidity or its financial condition. Income from
continuing operations before provision for income taxes consisted of:
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
U.S. $ 98,016 $ 36,344 $ 43,615
Non-U.S. 250,426 148,500 197,950
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$348,442 $184,844 $241,565
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The provision /(benefit) for income taxes consisted of:
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
U.S. Federal and State:
Current $60,444 $132,189 $ (7,159)
Deferred 3,560 (7,571) (4,136)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$64,004 $124,618 $(11,295)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Non-U.S.:
Current $61,597 $ 30,235 $ 54,183
Deferred (27,525) (96,073) 12,726
34,072 (65,838) 66,909
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total $98,076 $ 58,780 $ 55,614
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The following table summarizes the significant differences between the U.S.
Federal Statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes.
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
State and Local Income Taxes,
Tax Expense at Statutory Rate 35.0% 35.0% 35.0%
net of Federal Tax Benefit 0.1 0.3 0.6
Impact of Non-U.S. Tax Rates
and Credit (0.6) 0.6 (1.6)
Impact of Non-U.S. Tax Rate Changes
on Deferred Taxes 2.6 -- --
Non-U.S. Tax Liabilities 5.3 -- --
Recognition of Loss on Sale of SSJ (2.6) -- --
Amortization of Non-U.S. Intangibles (19.5) (64.0) --
Pre-Spin Liability 2.6 57.1 --
Amortization of U.S. Intangibles -- (10.8) (11.7)
Non-Deductible Reorganization Costs 1.0 6.6 --
Non-Deductible IPR&D Write-offs -- 6.2 --
Goodwill 1.9 1.8 0.6
Other 2.3 (1.0) 0.1
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Taxes 28.1% 31.8% 23.0%
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The Company's deferred tax assets/(liabilities) are comprised of the
following at December 31:
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Deferred Tax Assets:
Non U.S. Intangibles $120,550 $ 86,738
Operating Losses 23,377 22,546
U.S. Intangibles 17,037 20,701
Recognition of the Loss on the Sale of SSJ 9,080 --
Post-Retirement and Post-Employment
Benefits 5,447 9,934
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
175,491 139,919
Valuation Allowance (23,325) (21,239)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
152,166 118,680
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Computer Software (47,043) (48,549)
Deferred Revenue (34,001) (28,990)
Marketable Securities (15,591) (8,821)
Depreciation (10,144) (10,168)
Other (12,021) (7,581)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
(118,800) (104,109)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net Deferred Tax Asset $ 33,366 $ 14,571
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Income taxes paid were $67,490, $88,519 and $44,094 in 1999, 1998 and 1997,
respectively.
To consolidate certain of its international operations, in 1999 and 1998,
the Company engaged in certain non-U.S. reorganizations which gave rise to the
recognitions of tax deductible non-U.S. intangible assets in excess of book
basis.
The 1999 and 1998 net deferred tax assets consist of a current deferred tax
asset of $38,092 and $32,749, respectively, included in Other Current Assets,
offset by non-current deferred tax liabilities of $4,726 and $18,178,
respectively (See Notes 2., 6. and 17.).
The Company has established a valuation allowance attributable to deferred
tax assets, primarily net operating losses, in certain U.S. state and non-U.S.
tax jurisdictions where, based on available evidence, it is more likely than not
that such assets will not be realized.
Undistributed earnings of non-U.S. subsidiaries aggregated approximately
$588,970 at December 31, 1999. Deferred tax liabilities have not been recognized
for these undistributed earnings because it is the Company's intention to
indefinitely reinvest such undistributed earnings outside the United States. If
such earnings are permanently repatriated in the future, or are no longer deemed
to be indefinitely reinvested, applicable taxes will be provided for on such
amounts. It is not currently practicable to determine the amount of applicable
taxes.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 14. Commitments
Certain of the Company's operations are conducted from leased facilities,
which are under operating leases. Rental expense under real estate operating
leases for the years 1999, 1998 and 1997 was $26,656, $21,868 and $19,432. The
minimum annual rental expense for real estate operating leases that have initial
or remaining noncancelable lease terms in excess of one year, at December 31,
1999 was: 2000--$25,614; 2001--$22,493; 2002--$16,096; 2003--$12,978;
2004--$10,435 and an aggregate of $20,906 thereafter. The total of minimum
rentals to be received in the future under noncancelable real estate subleases
at December 31, 1999 was $2,784.
The Company also leases or participates in leases of certain computer and
other equipment under operating leases. These leases are frequently renegotiated
or otherwise changed as advancements in computer technology produce
opportunities to lower costs and improve performance. Rental expense under
computer and other equipment leases was $22,248, $17,815 and $28,241 for 1999,
1998 and 1997, respectively. At December 31, 1999, the minimum annual rental
expense for computer and other equipment under operating leases that have
initial or remaining noncancelable lease terms in excess of one year was:
2000--$20,716; 2001--$12,752; 2002--$7,497; 2003--$3,758; 2004--$2,678 and an
aggregate of $6,615 thereafter.
The Company has agreements with various third parties to purchase certain
data and telecommunications services, extending beyond one year. At December 31,
1999, the purchases covered by these agreements aggregated: 2000--$83,172;
2001--$32,144; 2002--$16,060; 2003--$11,300; 2004--$7,328 and an aggregate of
$1,774 thereafter.
The Company is subject to capital call requirements up to $20,000 in 2000,
pursuant to its participation in certain venture capital partnerships.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 15. IMS Health Capital Stock
Under the Company's Restated Certificate of Incorporation, as amended, the
Company has authority to issue 820,000,000 shares with a par value of $.01 per
share of which 800,000,000 represent shares of common stock, 10,000,000
represent shares of preferred stock and 10,000,000 represent shares of series
common stock. The preferred and series common stock can be issued with varying
terms, as determined by the Board of Directors.
On December 15, 1998, the Company's Board of Directors authorized a 2-for-1
split of its common stock effective January 15, 1999, in the form of a stock
dividend to shareholders of record on December 29, 1998. All share and per-share
amounts in the accompanying Consolidated Financial Statements and Notes to
Consolidated Financial Statements have been restated to give effect to the stock
split.
On June 30, 1998, 335,045,390 shares of the Company's common stock were
distributed to the shareholders of Cognizant. Since the Company has been treated
as the successor entity for accounting purposes, the Company's
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
historical financial statements reflect the recapitalization of the Company in
connection with the Distribution, including the elimination of treasury shares
(which shares became treasury shares of NMR).
In connection with the Distribution, the Company entered into a Rights
Agreement designed to protect shareholders of the Company in the event of
unsolicited offers to acquire the Company and the other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent shareholder interests. Under the Rights Agreement, each
share of the common stock has one-half of one right which trades with the stock
until the right becomes exercisable. Each right entitles the registered holder
to purchase 1/1000 of a share of Series A Junior Participating Preferred Stock,
par value $.0l per share, at a price of $225 per 1/1000 of a share, subject to
adjustment. The rights will generally not be exercisable until a person or group
("Acquiring Person") acquires beneficial ownership of, or commences a tender
offer or exchange offer which would result in such person or group having
beneficial ownership of 15% or more of the outstanding common stock (20% in the
case of certain institutional investors).
In the event that any person or group becomes an Acquiring Person, each
right will thereafter entitle its holder (other than the Acquiring Person) to
receive, upon exercise, shares of stock having a market value of two times the
exercise price in the form of the Company's common stock or, where appropriate,
the Acquiring Person's common stock. The Company may redeem the rights, which
expire in June 2008, for $0.01 per right, under certain circumstances.
On October 21, 1997 Cognizant announced that its board of directors had
authorized a systematic stock repurchase program to buy up to 20,000,000 shares
of Cognizant's outstanding common stock. As the "Accounting Successor to
Cognizant," the Company purchased the remaining balance of 18,540,800 shares of
the Company's stock. A portion of this program was intended to offset option
exercises. This program was completed by the Company in November 1998 at a total
cost of $591,331.
On October 20, 1998, the Board of Directors authorized a stock repurchase
program to buy up to 16,000,000 shares of the Company's outstanding common
stock. A portion of this program was intended to offset option exercises. This
program was completed in October 1999 at a cost of $478,302.
On October 19, 1999, the Board of Directors authorized another stock
repurchase program to buy up to 16,000,000 of the Company's outstanding common
stock. A portion of this program is intended to offset option exercises. As of
December 31, 1999, 5,463,200 shares have been acquired at a total cost of
$136,784.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 16. Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims
litigation and tax matters arising in the ordinary course of business. In the
opinion of management, the outcome of such current legal proceedings, claims
litigation and tax matters, if decided adversely, could have a material effect
on quarterly or annual operating results or cash flows when resolved in a future
period. However, in the opinion of management, these matters will not materially
affect the Company's consolidated financial position.
In addition, the Company is subject to certain other contingencies
discussed below:
Information Resources Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and I.M.S. International Inc. (a
predecessor of IMS Health) (the "IRI Action").
The complaint alleges various violations of the United States antitrust
laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
latter claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by defendants and that the defendants induced SRG
to breach that agreement.
IRI's complaint alleges damages in excess of $350,000, which amount IRI has
asked to be trebled under the antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in
the complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an amended and restated
complaint repleading its alleged claim of attempted monopolization in the United
States and realleging its other claims. On August 18, 1997, defendants moved for
an order dismissing the amended claims. On December 1, 1997, the court denied
the motion and, on December 16, 1997, defendants filed a supplemental answer
denying the remaining
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
material allegations of the amended complaint. Discovery is continuing in this
matter.
In light of the potentially significant liabilities which could arise from
the IRI Action and in order to facilitate the distribution by D&B of shares of
Cognizant and ACNielsen in 1996, D&B, ACNielsen (the parent company of A.C.
Nielsen Company) and Cognizant entered into an Indemnity and Joint Defense
Agreement pursuant to which they agreed (i) to certain arrangements allocating
liabilities that may arise out of or in connection with the IRI Action, and (ii)
to conduct a joint defense of such action. In particular, the Indemnity and
Joint Defense Agreement provides that ACNielsen will assume exclusive liability
for liabilities up to a maximum amount to be calculated at the time such
liabilities, if any, become payable (the "ACN Maximum Amount") and that
Cognizant and D&B will share liability equally for any amounts in excess of the
ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment
banking firm as the maximum amount which ACNielsen will be able to pay after
giving effect to (i) any plan submitted by such investment bank which is
designed to maximize the claims paying ability of ACNielsen without impairing
the investment banking firm's ability to deliver a viability opinion (but which
will not require any action requiring shareholder approval), and (ii) payment of
related fees and expenses.
For these purposes, financial viability means the ability of ACNielsen,
after giving effect to such plan, the payment of related fees and expenses and
the payment of the ACN Maximum Amount, to pay its debts as they become due and
to finance the current and anticipated operating and capital requirements of its
business, as reconstituted by such plan, for two years from the date any such
plan is expected to be implemented.
IMS Health and NMR are jointly and severally liable to D&B and ACNielsen
for Cognizant's obligations under the terms of the 1996 Distribution Agreement.
IMS Health and NMR have agreed that, as between themselves, IMS Health will
assume 75%, and NMR will assume 25%, of any payments to be made in respect of
the IRI Action under the Indemnity and Joint Defense Agreement or otherwise,
including any legal fees and expenses related thereto incurred in 1999 or
thereafter. IMS Health has agreed to be fully responsible for any legal fees and
expenses incurred during 1998. NMR's aggregate liability to IMS Health for
payments in respect of the IRI Action and certain other contingent liabilities
shall not exceed $125 million.
Management of the Company is unable to predict at this time the final
outcome of this matter or whether the resolution of this matter could materially
affect the Company's results of operations, cash flows or financial position.
Other Contingencies
The Company, Cognizant and D&B have entered and the Company continues to
enter into global tax planning initiatives in the normal course of business.
These activities are subject to review by tax authorities. As a result of the
review process, uncertainties exist and it is possible that some of these
matters could be resolved adversely to the Company, Cognizant or D&B (See Notes
2. and 13.).
The Company is the subject of complaints filed with the European Commission
(the "Commission") pursuant to Article 3 of Council Regulation No. 17 of 1962
(the "EC Matters"). The complaints with the Commission were filed by Source
Informatics Ltd. (December 1, 1997) and NDC Health Information Services
(Arizona) Inc. (May 13, 1998). The complaints allege that the Company has been
and continues to engage in certain commercial practices which violate Articles
81 and 82 of the European Communities Treaty, which relate to restricting
competition and abuse of position in detriment of completion, respectively. The
Company has responded to the complaints denying the allegations in the
complaints and has provided information to the Commission pursuant to formal
information requests. No action has been taken by the Commission nor have
hearings been held or scheduled. The Commission may issue interim measures until
a decision is reached, dismiss the complaint, issue a decision prohibiting the
alleged practices and/or impose fines against the Company. The Company intends
to vigorously defend the EC Matters.
Management of the Company is unable to predict at this time the final
outcome of this matter or whether the resolution of this matter could materially
affect the Company's results of operations, cash flows or financial position.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 17. Supplemental Financial Data
Accounts Receivable--Net:
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Trade and Notes $226,631 $262,990
Less: Allowance for Doubtful Accounts (7,625) (11,246)
Unbilled Receivables 50,306 51,097
Other 15,367 21,378
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, $284,679 $324,219
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Other Current Assets:
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Deferred Income Taxes $38,092 $32,749
Prepaid Expenses 37,015 39,706
Inventory 34,801 31,413
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, $109,908 $103,868
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Property, Plant and Equipment--Net, Carried at Cost, Less Accumulated
Depreciation and Amortization:
ESTIMATED
1999 1998 USEFUL LIVES
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Buildings $88,676 $88,921 40 years
Machinery and Equipment 237,136 238,679 3-5 years
Less: Accumulated Depreciation (178,069) (170,764)
Leasehold Improvements, less
Accumulated Amortization of
$14,754 and $13,415. 14,780 14,340
Land 6,667 7,975
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, $169,190 $179,151
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Computer Software and Goodwill:
SOFTWARE GOODWILL
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
January 1, 1998 $153,958 $87,430
Additions at Cost 61,089 292,349
Amortization (51,190) (12,100)
Asset Impairment (36,300) --
Software Additions from Acquisitions 36,700 --
Other Deductions and Reclassifications 4,737 (3,838)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
December 31, 1998 168,994 363,841
Additions at Cost 59,284 2,980
Amortization (41,782) (24,108)
Sale of SSJ (6,331) --
Other Deductions and Reclassifications (4,906) (1,709)
Calendarization (285) (1,513)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
December 31, 1999 $174,974 $339,491
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Accumulated Amortization of Computer Software was $236,580 and $216,136 at
December 31, 1999 and 1998, respectively. Accumulated Amortization of Goodwill
was $71,729 and $46,380 at December 31, 1999 and 1998, respectively.
Accounts Payable:
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Trade $24,474 $21,892
Taxes Other than Income Taxes 11,643 16,596
Other 8,460 13,227
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, $44,577 $51,715
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Accrued and Other Current Liabilities:
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Salaries, Wages, Bonuses and
Other Compensation $65,797 $75,178
Direct Acquisition and Integration Costs 5,016 19,410
28,586Other Operating Costs 125,562 204,037
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
At December 31, $196,375 $298,625
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Short Term Debt:
The Company has short-term borrowing arrangements with several
international banks to provide lines of credit up to the equivalent of $409,360
at December 31, 1999. Total unused lines of credit at December 31, 1999 were
$273,273. None of these arrangements had material commitment fees or
compensating balance requirements. The weighted average interest rates on
short-term debt at December 31, 1999 and 1998 were 0.9% and 2.0%, respectively.
Payments for interest were $7,491, $1,645, $2,293, for the years ended December
31, 1999, 1998 and 1997, respectively.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Note 18. Operations by Business Segment
Historical results have been restated to reflect Gartner and NMR as
discontinued operations (See Note 1.).
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated on a regular basis
by the chief operating decision maker, or decision making groups, in deciding
how to allocate resources to an individual segment and in assessing performance
of the segment. The Company, operating globally in approximately 100 countries,
is managed by way of and delivers information, software and related services
principally through the strategic business segments referenced below.
The chief operating decision makers evaluate the performance and allocate
resources based on revenue and operating income. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. All intersegment transactions are excluded from
management's analysis of operations by business segment.
The IMS segment consists of IMS, the leading global provider of market
information and decision-support services to the pharmaceutical and healthcare
industries, and Strategic Technologies, a leading provider of automated sales
support technologies to the pharmaceutical industries. The Walsh and PMSI
business acquired in 1998 have been integrated into the IMS segment's
operations. Effective in the first quarter of 1999, the IMS segment's operating
units revised their reporting period to conform to the Company's fiscal year
ended December 31 (See Note 1.).
The Emerging Markets segment includes the operations of Erisco, a leading
supplier of software-based administrative and analytical solutions to the
managed care industry and Enterprises, the Company's venture capital unit
focused on investments in emerging businesses. In 1998, this segment included
SSJ, a marketer of financial application software products to the Japanese
market, which was divested in the first quarter of 1999.
CTS delivers high-quality, cost-effective, full life-cycle solutions to
complex IT problems to clients transitioning to e-business through the use of a
seamless on-site and offshore project team. These solutions comprise application
development and integration services, application management services, and mass
change services.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
EMERGING
YEAR ENDED DECEMBER 31, 1999 IMS MARKETS CTS (1) TOTAL
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 1,275,681 $ 48,224 $74,084 $1,397,989
SEGMENT OPERATING INCOME $ 355,784 $ 8,112 $16,645 $ 380,541
General Corporate Expenses (2) (41,518)
Interest Income (3) 6,693 1,263 7,956
Interest Expense (4) (1,113) (1,113)
Non-Operating Income--Net
Gains from Dispositions--Net (5) 22,683 22,683
Non-Operating Income--Other--Net (3)(4)(5) (20,107)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provision for Income Taxes $ 348,442
Provision for Income Taxes (98,076)
Income from Discontinued Operations,
Net of Income Taxes (6) 25,695
Net Income 276,061
Segment Depreciation and Amortization $ 92,134 $ 4,301 $ 3,037 $ 99,472
Segment Capital Expenditures $ 22,363 $ 4,071 $ 6,312 $ 32,746
Identifiable Assets at December 31, 1999 (7) $ 880,411 $153,841 $69,011 $1,103,263
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
OPERATING REVENUE $ 1,083,992 $ 57,542 $44,979 $1,186,513
Acquired In Process Research and Development 32,800 32,800
Direct acquisition integration expenses 48,019 48,019
SEGMENT OPERATING INCOME $ 184,771 $ 6,171 $ 8,918 $ 199,860
General Corporate Expenses (2) (67,376)
Interest Income (3) 9,212 3 638 9,853
Interest Expense (4) (804) (804)
Non-Operating Income--Net
Gains from Dispositions--Net (5) 27,753 27,753
Gain on Sale of Subsidiary Stock 12,777 12,777
Non-Operating Income--Other--Net (3)(4)(5) 2,781
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provision for Income Taxes $ 184,844
Provision for Income Taxes (58,780)
Income from Discontinued Operations,
Net of Income Taxes (6) 94,494
Net Income 220,558
Segment Depreciation and Amortization $ 87,723 $ 5,418 $ 2,221 $ 95,362
Segment Capital Expenditures $ 25,146 $ 1,121 $ 4,075 $ 30,342
Identifiable Assets at December 31, 1998 (7) $ 1,235,285 $109,431 $51,634 $1,396,350
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
OPERATING REVENUE $ 980,521 $ 65,159 $13,879 $1,059,559
SEGMENT OPERATING INCOME/(LOSS) $ 265,351 $(12,669) $ 2,917 $ 255,599
General Corporate Expenses (27,989)
Interest Income (3) 4,441 123 17 4,581
Interest Expense (4) (679) (109) (788)
Non-Operating Income--Net
Gains from Dispositions--Net 9,391 9,391
Non-Operating Income--Other--Net (3)(4) 771
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provision for Income Taxes $ 241,565
Provision for Income Taxes (55,614)
Income from Discontinued Operations,
Net of IncomeTaxes (6) 126,399
Net Income 312,350
Segment Depreciation and Amortization $ 76,375 $ 10,164 $ 975 $ 87,514
Segment Capital Expenditures $ 41,932 $ 1,724 $ 2,580 $ 46,236
Identifiable Assets at December 31, 1997 (7) $ 855,789 $132,748 $15,880 $1,004,417
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Notes to Operations by Business Segments:
1. Related party sales of $14,820, $13,627 and $11,092 for the years ended
December 31, 1999, 1998 and 1997, respectively, consisting primarily of
sales from CTS to the IMS segment and NMR have been excluded. The related
party sales associated with discontinued operations were $4,365 for
December 31, 1997.
2. General Corporate expenses include $9,500 of Gartner Spin-Off costs in 1999
and $35,025 of Distribution costs in 1998.
3. Interest income excludes amounts recorded at Corporate of $269, $9,695 and
$8,168 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Corporate interest income is included in Non-Operating Income other
net.
4. Interest expense excludes amounts recorded at Corporate of $6,477, $362 and
$1,505 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Corporate interest expense is included in Non-Operating Income other
net.
5. Gains from Dispositions-Net excludes amounts recorded at Corporate of
$2,581 and $5,588 at December 31, 1999 and 1998, respectively. The
Corporate gains are included in non-operating income other net.
6. Income from Discontinued Operations, Net of Income Taxes includes taxes of
$12,635, $49,303 and $62,271 for the years ended December 31, 1999, 1998
and 1997, respectively.
7. Total Assets include Net Assets of Discontinued Operations of $96,988,
$240,708 and $318,473 as of December 31, 1999,1998 and 1997, respectively.
Assets of $250,505, $82,317 and $179,199 as of December 31, 1999, 1998 and
1997, respectively, include Cash and Cash Equivalents and Property, Plant
and Equipment not identified with business segments and represent the
reconciling items between Total Identifiable Assets and Net Assets of
Discontinued Operations and the Company's total assets (See Note 1.).
Financial Information by Country:
<TABLE>
<CAPTION>
UNITED STATES UNITED KINGDOM ALL OTHER (2) TOTAL
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUE (1) $586,826 $120,724 $690,439 $1,397,989
LONG-LIVED ASSETS $497,113 $ 71,505 $138,899 $ 707,517
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Year Ended December 31, 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Operating Revenue (1) $512,886 $79,897 $593,730 $1,186,513
Long-Lived Assets $538,814 $71,911 $124,189 $ 734,914
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Year Ended December 31, 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Operating Revenue (1) $433,477 $43,299 $582,783 $1,059,559
Long-Lived Assets $242,974 $54,028 $134,145 $ 431,147
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
</TABLE>
(1) Revenue relates to external customers and is primarily based on the
location of the customer.
(2) Included in All Other is non-U.S. and non-UK revenue principally from
Japan, Germany, Italy, France, Australia and other countries within Europe
and the Far East.
36
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Historical results are restated to reflect Gartner and NMR as discontinued
operations. (See Note 1. to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
OPERATING REVENUE $313,242 $332,652 $348,409 $403,686 $1,397,989
OPERATING INCOME $ 54,710 $ 62,755 $ 95,958 $125,600 $ 339,023
INCOME FROM CONTINUING OPERATIONS,
NET OF INCOME TAXES $ 43,793 $ 46,174 $ 70,240 $ 90,159 $ 250,366
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES $ 13,694 $ 10,617 $ 1,384 -- $ 25,695
NET INCOME $ 57,487 $ 56,791 $ 71,624 $ 90,159 $ 276,061
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS 0.13 0.15 0.23 0.29 0.80
INCOME FROM DISCONTINUED OPERATIONS 0.05 0.03 0.00 0.00 0.08
NET INCOME 0.18 0.18 0.23 0.29 0.88
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS 0.13 0.15 0.22 0.28 0.78
INCOME FROM DISCONTINUED OPERATIONS 0.04 0.03 0.00 0.00 0.08
NET INCOME 0.17 0.18 0.22 0.28 0.86
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Operating Revenue $240,968 $270,496 $283,606 $391,443 $1,186,513
Operating Income/(Loss) $ 18,728 $(13,912) $ 4,753 $122,915 $ 132,484
Income/(Loss) from Continuing Operations,
Net of Income Taxes $ 22,990 $(12,997) $ 14,787 $101,284 $ 126,064
Income from Discontinued Operations,
Net of Income Taxes $ 37,097 $ 35,637 $ 10,168 $ 11,592 $ 94,494
Net Income $ 60,087 $ 22,640 $ 24,955 $112,876 $ 220,558
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income from Continuing Operations 0.07 (0.04) 0.05 0.31 0.39
Income from Discontinued Operations 0.11 0.11 0.03 0.04 0.29
Net Income 0.18 0.07 0.08 0.35 0.68
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
Income from Continuing Operations 0.07 (0.04) 0.04 0.31 0.38
Income from Discontinued Operations 0.11 0.11 0.03 0.03 0.28
Net Income 0.18 0.07 0.07 0.34 0.66
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
Dollar amounts in thousands, except share and per share data
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Operating Revenue $1,397,989 $1,186,513 $1,059,559 $ 986,810 $ 932,009
Costs and Expenses(1)(2) 1,058,966 1,054,029 831,949 803,217 920,214
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Operating Income(1)(2) 339,023 132,484 227,610 183,593 11,795
Non-Operating Income--Net(3) 9,419 52,360 13,955 12,712 8,195
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations,
Before Provision for Income Tax 348,442 184,844 241,565 196,305 19,990
Provision For Income Taxes (98,076) (58,780) (55,614) (67,669) (6,325)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 250,366 126,064 185,951 128,636 13,665
Income from Discontinued Operations,
Net of Income Taxes (4) 25,695 94,494 126,399 66,815 75,216
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 276,061 $ 220,558 $ 312,350 $ 195,451 $ 88,881
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock
Income from Continuing
Operations $ 0.80 $ 0.39 $ 0.57 $ 0.38 $ 0.04
Income from Discontinued Operations,
Net of Income Taxes $ 0.08 $ 0.29 $ 0.38 $ 0.20 $ 0.22
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 0.88 $ 0.68 $ 0.95 $ 0.58 $ 0.26
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding 311,976,000 324,584,000 330,326,000 339,888,000 339,044,000
Diluted Earnings Per Share of
Common Stock
Income from Continuing Operations $ 0.78 $ 0.38 $ 0.55 $ 0.38 $ 0.04
Income from Discontinued
Operations, Net of Income Taxes $ 0.08 $ 0.28 $ 0.38 $ 0.19 $ 0.22
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 0.86 $ 0.66 $ 0.93 $ 0.57 $ 0.26
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares
Outstanding--Diluted 319,561,000 335,770,000 334,980,000 341,000,000 343,216,000
As a % of Operating Revenue:
Operating Income (1) 24.3% 11.2% 21.5% 18.6% 1.3%
Income from continuing
operations (1) 17.9% 10.6% 17.5% 13.0% 1.5%
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $ 493,706 $ 825,270 $ 801,570 $ 872,613 $ 604,588
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,450,756 $1,719,375 $1,502,089 $1,431,777 $1,120,368
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1999 includes charges related to the Gartner Spin-Off of $9,500. 1998
includes charges related to the Distribution of $35,025 and one-time
charges and IPR&D write-offs related to the Walsh and PMSI acquisitions of
$48,019 and $32,800, respectively.
(2) 1995 includes a non-recurring charge of $87,770 and an incremental
provision for post-employment benefits of $32,500. Also includes
restructuring expense of $12,800 in 1995.
(3) Non-operating Income in 1999 includes gains from dispositions-net of
$25,264. Non-operating Income in 1998 includes the gain related to the CTS
IPO of $12,777 and gains from dispositions-net of $33,341. Results for
prior years include gains from dispositions--net of $9,391, $200 and $4,524
in non-operating income in 1997, 1996 and 1995 respectively.
(4) Income from Discontinued Operations, net of Income Taxes includes a tax
provision of $12,635, $49,303, $62,271, $85,901 and $67,351 for 1999, 1998,
1997, 1996 and 1995, respectively.
38
<PAGE>
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<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IMS HEALTH INCORPORATED
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
DIRECTORS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
CLIFFORD L. ALEXANDER, JR. (1) ROBERT J. LANIGAN (1)
President Chairman Emeritus
Alexander & Associates, Inc. Former Chairman & Chief Executive Officer
Chairman & Chief Executive Officer Owens-Illinois, Inc.
The Dun & Bradstreet Corporation
VICTORIA R. FASH H. EUGENE LOCKHART (1)
President & Chief Executive Officer
IMS Health Incorporated M. BERNARD PUCKETT (2)
Private Investor
JOHN P. IMLAY, JR. (2)
Chairman WILLIAM C. VAN FAASEN (20
Imlay Investments, Inc. President & Chief Executive Officer
Blue Cross & Blue Shield of Massachusetts
ROBERT KAMERSCHEN (2)
Chairman & Chief Executive Officer ROBERT E. WEISSMAN
DIMAC Marketing Corporation Chairman
IMS Health Incorporated
Board Committees
(1) Audit Committee
(2) Compensation and Benefits
Committee
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
OFFICERS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
ROBERT E. WEISSMAN
Chairman
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
VICTORIA R. FASH
President & Chief Executive Officer
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
WAYNE P. YETTER
Chief Operating Officer
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
CRAIG S. KUSSMAN DAVID J. STEVENS
Senior Vice President-Corporate Development Senior Vice President
General Counsel & Secretary
JAMES C. MALONE
Senior Vice President-Finance & Controller MATTHEW L. FRIEDMAN
and Acting Chief Financial Officer Vice President & Treasurer
DAVID H. OWEN
Senior Vice President-Global Human
Resources
OFFICERS OF OPERATING UNITS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
GILES PAJOT
Vice Chairman and
President, IMS Health European Region
ROBERT HOOPER
President, IMS Health North America Region
SHUNSUKE KEIMATSU
Chairman & Chief Executive Officer, IMS Health Japan
HANS BIEDERMAN
President, IMS Health Emerging Markets
JAMES C. NEWELL
President, IMS Health Global Services
RONALD BROWN
Chief Executive Officer and President
IMS Health Strategic Technologies, Inc.
ANTHONY BELLOMO
President, ERISCO Managed Care
Technologies, Inc.
WIJEYARAJ A. MAHADEVA
Chairman & Chief Executive Officer
Cognizant Technology Solutions
Corporation
<PAGE>
IMS HEALTH [Logo]
TRANSFER AGENT
EquiServe
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-1225
CORPORATE CENTER
200 Nyala Farms
Westport, Connecticut 06880
Telephone: (203) 222-4200
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1301 Avenue of Americas
New York, NewYork 10019
FORM 10-K
Your Company will file its report to shareholders on Form 10-K with the
Securities and Exchange Commission by March 30, 2000. Many of the SEC's 10-K
information requirements are satisfied by this 1999 Annual Report to
Shareholders. However, a copy of the Form 10-K will be available without charge
after March 30, 2000, upon request to the Investor Relations Department at the
Corporate Center address or via E-mail at [email protected].
COMMON STOCK INFORMATION
The Company's common stock (RX) is listed on the New York Stock Exchange.
<TABLE>
<CAPTION>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1999
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- ------------- --------
<S> <C> <C>
CLARK-O'NEILL, INC. New Jersey
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Delaware 61.05
Cognizant Technology Solutions U.S. Corporation Delaware
Cognizant Technology Solutions Canada, Inc. Ontario
Cognizant Technology Solutions India Limited India
Cognizant Technology Solutions UK Limited United Kingdom
CSS Investment Corporation Delaware
Cognizant Technology Solutions Germany GmbH Germany
COORDINATED MANAGEMENT SYSTEMS, INC. Delaware
DATAEDGE HOLDING CO. Pennsylvania 40.00
DATAEDGE LLC Delaware 40.00
DBHC, INC. Delaware
LexHealth, Inc. Illinois
ENTERPRISE ASSOCIATES LLC Delaware
ERISCO MANAGED CARE TECHNOLOGIES, INC. New York
IMS Health Purchasing, Inc. Delaware
IMS HEALTH, CANADA LIMITED Nova Scotia
IMS CHINAMETRIK LIMITED Hong Kong
IMS CHINAMETRIK INCORPORATED Delaware
IMS HEALTH DEUTSCHLAND GMBH Germany
Walsh International Holdings GesmbH Austria
IMS-MIDOC Medizinische Informations- Dokumentations-
und Consultinggesellschaft mbH Germany
GIC Gesellschaft fur Informationstechnologie und
Consulting mbH Germany
IMS Health Beteiligungsgesellschaft mbH Germany
IMS Health GmbH & Co. OHG Germany
IFNS Marktforschung GmbH i.L. Germany
IMS Hellas Ltd Greece
GPI Krankenhausforschung Gesellschaft Fur Germany 60.00
Pharma- Informationssysteme m.b.H.
GPI Kommunikationsforschung Gesellschaft Germany
fur Pharma-Informationssysteme mbH
MedVantage GmbH Integriertes Germany 60.00
Datenmanagement im Healthcare-Markt
Info-med Gesellschaft fur Marketing mbH Germany
IMS HEALTH ASIA (1989) PTE. LTD. Singapore
IMS HEALTH AUSTRALIA PTY. LTD. Australia
Amfac Pty. Limited Australia
Chemdata Pty. Limited Australia
Data Design Hisoft Pty. Limited Australia
Medrecord Australia Pty. Limited Australia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1999
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- ------------- --------
<S> <C> <C>
Permail Pty. Limited Australia 51.00
Healthnet Pty. Limited Australia
IMS HEALTH FINANCE, INC. Delaware
IMS HEALTH INDIA HOLDING CORPORATION Delaware
RX India Corporation Delaware
IMS Health India Private Limited India
IMS HEALTH KOREA LTD. Korea
IMS HEALTH (NZ) LIMITED New Zealand
IMS HEALTH LIMITED Portugal
IMS HEALTH S.P.A. Italy
IMS HEALTH PHILIPPINES, INC. Philippines 99.96
IMS HEALTH STRATEGIC TECHNOLOGIES, INC. Delaware
IMS Health HQ Limited United Kingdom
IMS Health Strategic Technologies UK Limited United Kingdom
PMSI UK Limited United Kingdom
PMSI Medical Research Factors Limited United Kingdom
Mediphase Limited United Kingdom
IMS Holdings (U.K.) Limited United Kingdom
IMS Health Limited United Kingdom
ImsWorld Publications Limited. United Kingdom
The Medical Direct Mail Organisation Limited. United Kingdom
PMS International Limited United Kingdom
IMS H Nederland BV Netherlands
IMS Health Strategic Technologies B.V Netherlands
IMS H Databases B.V. Netherlands
Walsh European Holdings BV Netherlands
Walsh Hispania S.A. Spain 99.99
IMS Health Strategic Technologies S.A.. France
Walsh Italia S.r.L. Italy
Walsh Hellas S.A. Greece
S.A. IMS Health Strategic Technologies N.V. Belgium
Walsh Asia Pacific (Pte.) Ltd. Singapore 51.00
IMS Health Strategic Technologies Ltd. Ontario
IMS Health Strategic Technologies do Brasil LTDA Brazil
Walsh International Pty. Ltd. Australia
PMS Pty. Ltd. Australia
IMSH L.L.C. Delaware
IMS HEALTH TRADING CORPORATION Delaware
IMS Health (Pty.) Ltd. South Africa
Decisions Survey International(Pty.) Ltd. South Africa
IPRA (Pty.) Ltd. South Africa
PMSA (Pty.) Ltd. South Africa
Pharmnet (Pty) Limited South Africa
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1999
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- ------------- --------
<S> <C> <C>
Purchase Marketing Strategies (Pty) Limited South Africa 51.00
IMS HEALTH TRANSPORTATION SERVICES CORPORATION Delaware
IMS INFORMATION MEDICAL STATISTICS (ISRAEL) LTD. Israel
IMS INTERNATIONAL (SOUTH AFRICA) (PTY.) LTD. South Africa
IMS JAPAN K.K. Japan
PMSI Japan K.K. Japan
IMS Health Finance Bermuda
IMS PHARMINFORM HOLDING AG Switzerland
IMS Health Licensing Associates, L.P. Delaware 84.52
Spartan Leasing Corporation Delaware
Pharmadat Marktforschungs-Gesellschaft m.b.H. Austria
Pharmacall Statistik Ges. m.b.H. Austria
IMS Health S.A. Belgium
Pharma Data Boliviana S.R.L. Bolivia
IMS Health Do Brasil Ltda. Brazil
Intercomunicaciones Y Servicio de Datos S.A. Colombia 98.96
IMS Medinform a.s. Czech Republic
IMS Republica Dominicana, S.A. Dominican Republic
Datandina Ecuador S.A. Ecuador
IMS Egypt Limited Egypt
Institute for Medical Statistics Oy Finland
Asserta Centroamerica Medicion de Mercados, S.A. Guatemala
IMS Medinform Hungaria Market Research Services Ltd. Hungary
Pharma FELAX kft. Hungary
IMS Health Malaysia Sdn. Bhd. Malaysia
Interdata S.A. de C.V. Mexico
Informations Medicales & Statistiques S.A.R.L. Morocco
I.M.S. Health B.V. Netherlands
IMS Denmark ApS Denmark
I.M.S. Finance (Nederland) B.V. Netherlands
Institute for Medical Statistics Norway A/S Norway
Pharma Data Paraguaya S.R.L. Paraguay
IMS Lanka (Private) Limited Sri Lanka
IMS Health Del Peru S.A. Peru
IMS Health, S.A. Spain
Mercados Y Analisis, S.A. Spain
Data Coordination AG Switzerland
PMA Sociedad Anonima Argentina
IMS AG Switzerland
IMS Information Medical Statistics AG Switzerland
IMS Poland Limited Sp. z.o.o. Poland
IMS Institute for Medical Statistics Sweden AB Sweden
Marketing Y Datos Limitada Chile 98.40
Interstatistik AG Switzerland
Interstatistik A.G. Switzerland
IMS Ges m.b.H. Austria
Datec Industria e Comercio, Distribuidora Grafica Brazil
e Mala Direta Ltda.
IMS Tunisia s.a.r.l. Tunisia
IMS Tibbi Istatistik Ticaret ve Musavirlik Ltd Sirketi Turkey
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
IMS HEALTH INCORPORATED
ACTIVE SUBSIDIARIES
AS OF DECEMBER 31, 1999
STATE OR OTHER % OWNERSHIP
JURISDICTION OF 100% EXCEPT
NAME INCORPORATION AS NOTED
---- ------------- --------
<S> <C> <C>
Pharma Data Uruguaya S.A. Uruguay
PMV De Venezuela, C.A. Venezuela
IMS Information Medical Statistics, s.r.o. Slovakia
UAB Medical Communication Lithuania
Informaciones Prom.y Publicitaria Mexico
IMS SOFTWARE SERVICES, LTD. Delaware
IMS TAIWAN COMPANY LTD. Taiwan 99.99
IMS H MEDICAL S.A.S. France
IMS HEALTH S.A. France
Logimed S.A.S. France
Medi-Diff S.A.S. France
Source Informatics S.A.S France
INTERCONTINENTAL MEDICAL STATISTICS INTERNATIONAL, LTD. Delaware
INTERCONTINENTAL MEDICAL STATISTICS IRELAND LIMITED Ireland 99.99
MEDICARE AUDIT LIMITED United Kingdom 50.00
PMSI HISPANIA S.A. Spain
SOURCE INFORMATICS EUROPE B.V. Netherlands
SOURCE INFORMATICS ITALIA S.R.L. Italy
SOURCE INFORMATICS LIMITED United Kingdom
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-69195, 333-67779 and 333-58361) of IMS
Health Incorporated of our reports dated February 14, 2000 relating to the
consolidated financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated February 14, 2000
relating to the financial statement schedules, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 115,875
<SECURITIES> 0
<RECEIVABLES> 284,679
<ALLOWANCES> 7,625
<INVENTORY> 34,801
<CURRENT-ASSETS> 607,450
<PP&E> 362,010
<DEPRECIATION> 192,802
<TOTAL-ASSETS> 1,450,756
<CURRENT-LIABILITIES> 723,403
<BONDS> 0
0
0
<COMMON> 3,350
<OTHER-SE> 490,356
<TOTAL-LIABILITY-AND-EQUITY> 1,450,756
<SALES> 0
<TOTAL-REVENUES> 1,397,989
<CGS> 0
<TOTAL-COSTS> 1,058,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,496
<INCOME-PRETAX> 348,442
<INCOME-TAX> 98,076
<INCOME-CONTINUING> 250,366
<DISCONTINUED> 25,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276,061
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.86
</TABLE>
