<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-49783
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7371 13-3728359
(State or Other Jurisdiction (I.R.S. Employer
of
(Primary Standard Industrial Identification
Incorporation or Organization) Number)
Classification Code Number)
</TABLE>
------------------------
1700 BROADWAY, 26TH FLOOR
NEW YORK, NEW YORK 10019
(212) 887-2385
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
WIJEYARAJ MAHADEVA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
1700 BROADWAY, 26TH FLOOR
NEW YORK, NEW YORK 10019
(212) 887-2385
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
JULIE M. ALLEN, ESQ. JARED T. FINKELSTEIN, ESQ. PETER B. TARR, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP COGNIZANT CORPORATION HALE AND DORR LLP
30 ROCKEFELLER PLAZA 200 NYALA FARMS 60 STATE STREET
NEW YORK, NEW YORK 10112 WESTPORT, CONNECTICUT 06880 BOSTON, MASSACHUSETTS 02109
(212) 408-2400 (203) 222-4200 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- -------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
- -------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 22, 1998
[LOGO]
2,917,000 SHARES
CLASS A COMMON STOCK
Of the 2,917,000 shares of Class A Common Stock offered hereby, 2,500,000
shares are being sold by Cognizant Technology Solutions Corporation ("CTS" or
the "Company") and 417,000 shares are being sold by the Company's parent,
Cognizant Corporation ("Cognizant" or the "Selling Stockholder"). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by Cognizant.
The Company has two classes of authorized Common Stock, Class A Common
Stock, which is offered hereby, and Class B Common Stock, all of which is owned
by Cognizant. Holders of Class A Common Stock generally have identical rights to
holders of Class B Common Stock, except that holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to ten votes per share on all matters submitted to a vote of
stockholders. See "Company Background," "Certain Transactions" and "Description
of Capital Stock."
Prior to this offering, Cognizant has owned substantially all of the capital
stock of the Company. Upon completion of this offering, Cognizant will own all
of the Company's outstanding Class B Common Stock, which will represent
approximately 66.7% of the outstanding Common Stock of the Company, and
approximately 95.3% of the combined voting power of the Company's outstanding
Common Stock, and Cognizant will continue to control the Company. See "Company
Background," "Certain Transactions" and "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for any capital
stock of the Company. It is currently estimated that the initial public offering
price of the Class A Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to have
the Class A Common Stock approved for quotation on the Nasdaq National Market
under the trading symbol "CTSH."
------------------------
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER (3)
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
Total (3)................................. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters as stated herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $845,000.
(3) The Selling Stockholder has granted to the Underwriters a 30-day option to
purchase an aggregate of up to an additional 437,550 shares of Class A
Common Stock on the same terms as set forth above, solely to cover
over-allotments, if any. See "Underwriting." If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholder will be $ , $ and $ ,
respectively.
------------------------
The Class A Common Stock is offered by the Underwriters as stated herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of such shares will
be made through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
COWEN & COMPANY
ADAMS, HARKNESS & HILL, INC.
The date of this Prospectus is , 1998
<PAGE>
[Inside cover art--Pyramid graphic design comprised of six boxes representing
each of the Company's six services (application development, application
maintenance support, Year 2000 compliance, Eurocurrency compliance, testing and
quality assurance and re-hosting and re-engineering) above four boxes
representing the elements of the Company's solution (people, methodology,
infrastructure and technology) above four photographs representing such
elements. Beneath the graphic design on the right is the Company's name, logo
and the text, "You create the future. We'll develop it for you." Beneath the
graphic design on the left is the text, "Cognizant Technology Solutions ("CTS")
delivers high-quality, cost-effective, full life cycle solutions to complex
software development and maintenance problems through the use of a seamless
on-site and offshore project team. CTS's business model combines a technical and
account management team located on-site at the customer location and six
development centers in India. To support this business model, CTS has recruited
and trained over 1,000 programmers in India and has put in place a well
developed facilities, technology and communications infrastructure."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.................................................................................................... 4
Risk Factors............................................................................................... 7
Company Background......................................................................................... 18
Use of Proceeds............................................................................................ 19
Dividend Policy............................................................................................ 19
Capitalization............................................................................................. 20
Dilution................................................................................................... 21
Selected Consolidated Financial Data....................................................................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................... 24
Business................................................................................................... 33
Management................................................................................................. 43
Certain Transactions....................................................................................... 51
Principal and Selling Stockholders......................................................................... 55
Description of Capital Stock............................................................................... 56
Shares Eligible for Future Sale............................................................................ 58
Underwriting............................................................................................... 59
Legal Matters.............................................................................................. 61
Experts.................................................................................................... 61
Additional Information..................................................................................... 61
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
The Company's principal executive offices are located at 1700 Broadway, New
York, New York 10019 and its telephone number is (212) 887-2385. The Company
intends to mail to all of its stockholders an annual report containing audited
financial statements certified by an independent public accounting firm and make
available quarterly reports containing unaudited interim financial information
for each of the first three quarters of each fiscal year of the Company.
Cognizant-TM-, the Cognizant logo, CTS-TM-, QVIEW-TM- and Century Transition
Services 2000-TM- are trademarks owned or licensed by the Company. Trade names
and trademarks of other companies appearing in this Prospectus are the property
of their respective owners.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING INFORMATION SET FORTH IN "RISK FACTORS" AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS AND FROM THE RESULTS
HISTORICALLY EXPERIENCED. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
REFERENCES IN THIS PROSPECTUS TO THE "COMMON STOCK" SHALL INCLUDE BOTH THE
COMPANY'S CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "CLASS A COMMON
STOCK"), AND THE COMPANY'S CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"CLASS B COMMON STOCK"). SEE "DESCRIPTION OF CAPITAL STOCK."
THE COMPANY
Cognizant Technology Solutions Corporation ("CTS" or the "Company") delivers
high-quality, cost-effective, full life cycle solutions to complex software
development and maintenance problems through the use of a seamless on-site and
offshore project team. These solutions include application development and
maintenance services, Year 2000 and Eurocurrency compliance services, testing
and quality assurance services and re-hosting and re-engineering services. CTS
provides world-class service to its customers through an integrated business
model that combines a technical and account management team located on-site at
the customer location and six development centers located in India.
Many companies today face increasing customer demands to improve service
levels, lower costs and shorten time to market. At the same time, the pace of
technology evolution has accelerated and companies are increasingly adopting
emerging technologies in order to remain competitive. Although these emerging
technologies offer the promise of faster, more functional and more flexible IT
systems, their implementation presents major challenges and requires a large
number of highly skilled individuals trained in many diverse technologies and
architectures. Excess global demand for qualified IT professionals both to
develop and implement new IT solutions and to maintain legacy systems has led
some IT service providers to attempt to access the large talent pool in certain
developing countries. However, although the use of offshore IT personnel can
offer faster delivery of IT solutions, more flexible scheduling and lower costs,
it also presents a number of challenges. The offshore implementation of software
services requires highly developed project management skills to design, develop
and deploy high-quality solutions in a timely and cost-effective manner. In
addition, IT service providers must have the methodologies, processes and
communications capabilities to successfully integrate offshore workforces with
on-site personnel. Finally, service providers utilizing offshore workforces must
continually recruit and manage their workforces to deliver solutions using
emerging technologies.
To facilitate the cost-effective, on-time delivery of high-quality software
development and maintenance solutions integrating on-site and offshore teams,
the Company has recruited and trained approximately 1,000 programmers in India
and put in place a well developed facilities, technology and communications
infrastructure. By basing its technical operations in India, the Company has
access to a large pool of skilled, English-speaking IT professionals with which
to service customers on a cost basis significantly lower than in developed
countries. The Company has developed proprietary methodologies encapsulated in
its QVIEW software engineering process to define and implement projects from the
design, development and deployment stages through to ongoing application
maintenance. The Company has also placed significant emphasis on recruiting and
training its large workforce of highly-skilled professionals to ensure that they
are versed in the Company's processes and methodologies. The Company's technical
professionals have project experience and expertise across multiple
architectures and technologies, including emerging technologies such as data
warehousing, Internet/intranet applications and object-oriented development. The
Company's extensive facilities, technology and communications infrastructure
enables the seamless integration of its on-site and offshore workforces,
allowing for rapid completion of projects, off-peak utilization of customers'
technological resources and real-time access to project information.
The Company's objective is to be a leading provider of full life cycle
software development and maintenance solutions utilizing an on-site and offshore
model by pursuing several key strategies. The Company seeks to develop long-term
strategic relationships with customers and business partners and to leverage
these relationships into additional project opportunities. The Company has a
team dedicated to
4
<PAGE>
developing new service offerings in emerging technologies and also collaborates
with its customers to develop such offerings. The Company is committed to
improving and enhancing its proprietary QVIEW software engineering process and
other methodologies and toolsets. As the Company expands its customer base, it
plans to open additional sales and marketing offices worldwide to enable it to
sell to and support existing and prospective customers. Finally, the Company
believes that opportunities exist in the fragmented IT services market to expand
its business through strategic acquisitions to enable it to expand its
geographic presence, enter new technology areas or expand capacity.
The Company markets and sells its services directly through its professional
staff, senior management and direct sales personnel operating out of its New
York City headquarters and its regional offices, as well as through independent
sales agents. Historically, the Company has provided services principally to
affiliated companies and has only recently begun to provide services to
third-party customers. During the period from January 1, 1997 to March 31, 1998,
the Company provided services to a total of 27 customers, including ACNielsen
Corporation ("ACNielsen"), Aetna Life Insurance Company of Canada ("Aetna
Canada"), CSC Consulting, Inc. ("CSC Consulting"), Cognizant, Douglas County,
Nebraska, The Dun & Bradstreet Corporation, First Data Investor Services Group,
Inc., GEAC Computer Corporation Limited ("GEAC"), Manugistics, Inc., Northwest
Airlines, Inc., Pacific Exchange, Inc. (the "Pacific Exchange"), Pilot Software,
Inc. ("Pilot Software") and SQM, Inc. ("SQM").
The Company began its software development and maintenance services business
in early 1994 as an in-house technology development center for The Dun &
Bradstreet Corporation and its operating units. These operating units
principally included A.C. Nielsen Company, Dun & Bradstreet Information
Services, Dun & Bradstreet Software, Erisco, Inc. ("Erisco"), IMS International,
Inc. ("IMS"), NCH Promotional Services, Inc., Nielsen Media Research, Inc.
("Nielsen Media Research"), The Reuben H. Donnelley Corporation ("RHDonnelley"),
Pilot Software and Sales Technologies, Inc. ("Sales Technologies"), plus a
majority interest in Gartner Group, Inc. ("Gartner Group"). In November 1996,
the Company, ERISCO, IMS, Nielsen Media Research, Pilot Software, Sales
Technologies and certain other entities, plus a majority interest in Gartner
Group, were spun-off from The Dun & Bradstreet Corporation to form Cognizant,
the parent of the Company. At that time, ACNielsen was separately spun-off from
The Dun & Bradstreet Corporation and Dun & Bradstreet Software was sold to GEAC.
In 1997, Cognizant sold Pilot Software to a third party. Also in 1997, the
Company purchased the 24.0% minority interest in its Indian subsidiary from a
third party resulting in such subsidiary becoming a wholly owned subsidiary of
the Company. During 1996, the Company made a strategic decision to attract
customers that were not affiliated with Cognizant or any of the former
affiliates of The Dun & Bradstreet Corporation, and the Company has pursued this
strategy along with continuing to service its existing customers.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered by the Company.......... 2,500,000 shares
Class A Common Stock Offered by Cognizant............ 417,000 shares
Common Stock to be Outstanding after the Offering(1):
Class A Common Stock............................... 3,030,750 shares
Class B Common Stock............................... 6,083,000 shares
Total.......................................... 9,113,750 shares
Use of Proceeds...................................... To repay intercompany balance owed
to Cognizant, for capital
expenditures and for working capital
and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol............... CTSH
</TABLE>
- ------------------------
(1) Excludes as of the date of this Prospectus (i) 507,000 shares of Class A
Common Stock issuable upon the exercise of outstanding stock options granted
under the Amended and Restated Cognizant Technology Solutions Key Employees'
Stock Option Plan (the "Employee Option Plan") at a weighted average
exercise price of $3.85 per share, (ii) 112,200 shares of Class A Common
Stock issuable upon exercise of options granted under the Employee Option
Plan effective upon the consummation of this offering to certain employees
at an exercise price equal to the initial public offering price, (iii)
49,500 shares of Class A Common Stock issuable upon the exercise of
outstanding stock options granted under the Amended and Restated Cognizant
Technology Solutions Non-Employee Directors' Stock Option Plan (the
"Directors' Option Plan") at a weighted average exercise price of $11.23 per
share (assuming an exercise price of $12.00 for options which become
effective at the time of this offering), (iv) 79,550 and 22,000 shares of
Class A Common Stock reserved for future issuance pursuant to the Employee
Option Plan and the Directors' Option Plan, respectively, and (v) 48,750
shares of Class A Common Stock issuable upon the exercise of outstanding
options granted to Wijeyaraj Mahadeva, the Company's Chairman and Chief
Executive Officer, at an exercise price of $6.92 per share. See
"Capitalization," "Management--Stock Option Plans" and "Principal and
Selling Stockholders."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------
1994 1995 1996 1997 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (1)
Total revenues....................................................... $ 1,687 $ 7,175 $ 12,032 $ 24,744 $ 4,256
Gross profit......................................................... 1,153 3,608 6,012 10,385 1,849
Income (loss) from operations........................................ (263) 1,019 1,466 2,129 165
Income (loss) before provision for income taxes...................... (278) 1,070 1,475 2,154 166
Minority interest (2)................................................ (22) (362) (492) (545) (104)
Net income (loss).................................................... $ (195) $ 461 $ 642 $ 1,028 $ 44
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share, basic................................... $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.01
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share, diluted (3)............................. $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.01
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common shares outstanding................. 6,500 6,500 6,500 6,547 6,500
Weighted average number of common shares and stock options
outstanding........................................................ 6,500 6,500 6,500 6,605 6,500
<CAPTION>
1998
---------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (1)
Total revenues....................................................... $ 10,238
Gross profit......................................................... 4,309
Income (loss) from operations........................................ 1,124
Income (loss) before provision for income taxes...................... 1,138
Minority interest (2)................................................ --
Net income (loss).................................................... $ 712
---------
---------
Net income (loss) per share, basic................................... $ 0.11
---------
---------
Net income (loss) per share, diluted (3)............................. $ 0.10
---------
---------
Weighted average number of common shares outstanding................. 6,614
Weighted average number of common shares and stock options
outstanding........................................................ 6,818
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
----------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA:
Cash and cash equivalents............................................. $ 2,197 $ 2,197 $ 22,778
Working capital....................................................... 6,922 6,922 27,503
Total assets.......................................................... 19,452 19,452 40,033
Due to related party.................................................. 6,474 6,474 --
Total stockholders' equity............................................ 4,196 4,634 31,689
</TABLE>
- ------------------------------
(1) The Company is a Delaware corporation originally organized in 1988. The
Company's software development and maintenance services business began
operations in 1994. Since its organization, the Company held stock in
various companies engaged in unrelated businesses. As part of the
reorganization of The Dun & Bradstreet Corporation, these unrelated
businesses have been spun-off from the Company. All information contained in
this Prospectus excludes the unrelated businesses and the results of the
unrelated businesses have been excluded from the Consolidated Financial
Statements and other financial information contained herein. See Note 1 of
Notes to Consolidated Financial Statements.
(2) Minority interest was attributed to the 24.0% ownership of the Company's
Indian subsidiary by a third party. In October 1997, the Company purchased
this 24.0% interest for $3.4 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Diluted net income (loss) per share was calculated in a manner consistent
with basic net income (loss) per share and includes potentially dilutive
options to purchase 57,130 shares of Class A Common Stock for the year ended
December 31, 1997 and potentially dilutive options to purchase 204,646
shares of Class A Common Stock for the three months ended March 31, 1998.
(4) Gives effect to the termination upon the consummation of this offering of
the put rights associated with the outstanding mandatorily redeemable common
stock.
(5) Adjusted to give effect to the sale of 2,500,000 shares of Class A Common
Stock offered by the Company hereby, assuming an initial public offering
price of $12.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, and the
application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
------------------------------
EXCEPT AS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
(I) GIVES EFFECT TO THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION PRIOR TO THE DATE OF THIS PROSPECTUS, PURSUANT TO
WHICH EACH OUTSTANDING SHARE OF COMMON STOCK OF THE COMPANY WAS REDESIGNATED,
CHANGED AND CONVERTED INTO 0.65 OF A SHARE OF CLASS A COMMON STOCK, AND THE
EXCHANGE BY COGNIZANT OF ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK OF THE
COMPANY HELD BY COGNIZANT (OTHER THAN THOSE OFFERED HEREBY) FOR AN EQUAL NUMBER
OF SHARES OF CLASS B COMMON STOCK (THE "RECAPITALIZATION") AND (II) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO "CTS" OR THE "COMPANY"
REFER TO COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements and from the results
historically experienced as a result of certain factors, including those in the
following risk factors and elsewhere in this Prospectus. In addition to the
other information contained in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business before
purchasing the shares of Class A Common Stock offered hereby.
RISK OF SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company historically has experienced significant quarterly fluctuations
in revenues and results of operations and expects these fluctuations to
continue. Among the factors causing these variations have been the number,
timing, scope and contractual terms of software development and maintenance
projects in which the Company is engaged, delays incurred in the performance of
such projects, the accuracy of estimates of resources and time required to
complete ongoing projects and general economic conditions. In addition, the
Company's future revenues and operating results may fluctuate as a result of
changes in pricing in response to customer demand and competitive pressures, the
mix of on-site and offshore staffing and the ratio of fixed-price contracts
versus time-and-materials contracts, the timing of collection of accounts
receivable and the breakdown of revenues by distribution channel. A high
percentage of the Company's operating expenses, particularly personnel and rent,
are relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the Company's projects or
in employee utilization rates may cause significant variations in operating
results in any particular quarter, and could result in losses to the Company.
Any significant shortfall of revenues in relation to the Company's expectations,
any material reduction in utilization rates for the Company's professional staff
or variance in the on-site, offshore staffing mix, an unanticipated termination
of a major project, a customer's decision not to pursue a new project or proceed
to succeeding stages of a current project or the completion during a quarter of
several major customer projects could require the Company to pay underutilized
employees and could therefore have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's quarterly operating results are also subject to certain
seasonal fluctuations. The Company has in the past recruited new professional
staff in the first and second quarters and such employees have not conducted
billable services until later in the year. The Company's third quarter includes
the months of July and August, when billable services activity by professional
staff, as well as engagement decisions by customers, may be reduced due to
summer vacation schedules. Demand for the Company's services may be lower in the
fourth quarter due to reduced activity during the holiday season and fewer
working days for those customers that curtail operations during such period.
These and other seasonal factors may contribute to fluctuations in the Company's
operating results from quarter to quarter.
Due to the foregoing factors, it is possible that in some future periods the
Company's revenues and operating results may be significantly below the
expectations of public market analysts and investors. In such an event, the
price of the Company's Class A Common Stock would likely be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXTREMELY COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The future success of the Company will depend to a significant extent on its
ability to attract, train and retain highly skilled software development
professionals, particularly project managers, software engineers and other
senior technical personnel. There is a worldwide shortage of, and significant
competition for, software development professionals with the advanced technical
skills necessary to perform the services offered by the Company. The Company has
subcontracted, to a limited extent in the past, and may do so in the future,
with other service providers in order to meet its obligations to its customers.
The Company's
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ability to maintain and renew existing engagements and obtain new business will
depend, in large part, on its ability to attract, train and retain technical
personnel with the skills that keep pace with continuing changes in information
technology, evolving industry standards and changing customer preferences.
Further, the Company must train and manage its growing employee base, requiring
an increase in the level of responsibility for both existing and new management
personnel. There can be no assurance that the management skills and systems
currently in place will be adequate or that the Company will be able to
assimilate new employees successfully. The Company's failure to attract, train
and retain current or future employees could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"--United States Immigration Issues," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Employees."
EXPOSURE TO REGULATORY, ECONOMIC AND POLITICAL CONDITIONS IN INDIA
The Company intends to continue to develop and expand its offshore
facilities in India where, as of March 31, 1998, approximately 74% of the
Company's technical professionals were located. While wage costs are lower in
India than in the United States and other developed countries for comparably
skilled professionals, wages in India are increasing at a faster rate than in
the United States, which could result in the Company incurring increased costs
for technical professionals and reduced margins. In addition, there is intense
competition in India for skilled technical professionals, and the Company
expects such competition to increase. In the past, India has experienced
significant inflation, low growth in gross domestic product and shortages of
foreign exchange. India also has experienced civil unrest and terrorism and, in
the past, has been involved in conflicts with neighboring countries.
In early 1998, a new government was elected in India. In May 1998, India
conducted several underground tests of nuclear weapons. As a result of such
tests and the Indian government's unwillingness to agree not to test or detonate
nuclear weapons, the United States announced that it would impose economic
sanctions against India pursuant to the Nuclear Proliferation Prevention Act of
1994. Such sanctions will result in the termination of most aid to India, will
bar U.S. banks from making loans to the Indian government, will restrict exports
of computers and other equipment to India and will require the United States to
oppose loans to India by the World Bank or the International Monetary Fund.
Other nations, including Japan, Germany, Sweden and Denmark, have similarly
announced economic sanctions against India. The actual extent of the sanctions,
and the future impact of such sanctions, cannot be ascertained at this time.
However, such sanctions may have a material adverse effect on the Company's
business, results of operations and financial condition. If the sanctions
imposed by the United States involve the revocation of the work-permitted visas
of Indian nationals working for the Company in the United States, if the United
States were to prohibit the conduct of all business by U.S. companies in India
or if restrictions on transferring computer software code to or from India were
imposed, the Company's business, results of operations and financial condition
would be materially adversely affected. The uncertainty surrounding the current
events in India and the extent of the sanctions could also have an adverse
effect on the Company's ability to attract and retain customers. Any adverse
reaction in India to the sanctions could also have an adverse affect on the
Company's ability to attract and retain qualified IT professionals in India. As
a result of the U.S. sanctions, there have been organized protests against U.S.
corporations doing business in India. Any acts of violence or vandalism
involving any of the Company's six development centers in India, its
telecommunications infrastructure or its employees would have a material adverse
effect on the Company's business, results of operations and financial condition.
India has been engaged in armed conflicts with China and Pakistan in the
past, and there can be no assurance that future conflicts will not arise. If
India were to become engaged in armed hostilities, particularly if these
hostilities were protracted or involved the threat or use of nuclear weapons,
there can be no assurance that the Company would be able to continue to operate
as a going concern.
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No assurance can be given that the Company will not be adversely affected by
changes in inflation, interest rates, taxation, social stability or other
political, economic or diplomatic developments in or affecting India in the
future.
In addition, the Indian government has exercised and continues to exercise
significant influence over many aspects of the Indian economy, and Indian
government actions concerning the economy could have a material adverse effect
on private sector entities, including the Company. During the past five years,
India's government has provided significant tax incentives and relaxed certain
regulatory restrictions in order to encourage foreign investment in specified
sectors of the economy, including the software development industry. Certain of
those programs which have benefited the Company include, among others, tax
holidays, liberalized import and export duties and preferential rules on foreign
investment and repatriation. Notwithstanding these benefits, however, India's
central and state governments remain significantly involved in the Indian
economy as regulators. The elimination of any of the benefits realized by the
Company from its Indian operations could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"--Extremely Competitive Market for Technical Personnel" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROL BY PRINCIPAL STOCKHOLDER; BENEFITS OF OFFERING TO COGNIZANT
Upon completion of this offering, Cognizant will own all of the Company's
outstanding Class B Common Stock, which will represent approximately 66.7% of
the outstanding Common Stock of the Company (approximately 61.9% if the
Underwriters' over-allotment option is exercised in full), and approximately
95.3% of the combined voting power of the Company's outstanding Common Stock
(approximately 94.2% if the Underwriters' over-allotment option is exercised in
full). As a result, Cognizant will be able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, and, under the Delaware General Corporation
Law (the "DGCL"), Cognizant may exercise such voting control by written consent
without convening a meeting of the Company's stockholders. Accordingly, subject
to certain restrictions contained in an agreement between the Company and
Cognizant, effective upon the consummation of this offering (the "Intercompany
Agreement"), Cognizant will be able to effect a sale or merger of the Company
without prior notice to, or the consent of, holders of Class A Common Stock. In
addition, pursuant to the Intercompany Agreement, certain actions by the Company
will require the approval of Cognizant, such as: (i) any acquisition or
disposition with a value in excess of the greater of $10.0 million and six
percent of the Company's market capitalization; (ii) any issuance of equity
securities, other than pursuant to existing option plans and options; and (iii)
the incurrence of any indebtedness in excess of $10.0 million. The voting
control of Cognizant will have the effect of preventing a change in control of
the Company that is not approved by Cognizant. See "Company Background,"
"Certain Transactions," "Principal and Selling Stockholders" and "Description of
Capital Stock."
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for Cognizant to continue to
include the Company in its consolidated group for federal income tax purposes,
and ownership of at least 80% of the total voting power is required in order for
Cognizant to be able to effect a tax-free spin-off of its interest in the
Company to its stockholders under the Internal Revenue Code of 1986, as amended
(the "Code"). Upon completion of this offering, the Company will cease to be
included in Cognizant's consolidated group for federal income tax purposes, but
Cognizant will continue to own more than 80% of the total voting power of the
Company. See "Description of Capital Stock."
Cognizant will benefit from this offering in several ways. First, a portion
of the net proceeds to the Company from this offering will be used to repay the
intercompany balance owed to Cognizant, which was approximately $6.5 million as
of March 31, 1998. This amount is subject to change based on the Company's
operations between March 31, 1998 and the consummation of this offering. In
addition, Cognizant will
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receive an estimated $4.7 million of net proceeds ($9.5 million if the
Underwriters' over-allotment option is exercised in full) from the sale of the
shares of Class A Common Stock offered by Cognizant hereby. Cognizant's cost for
the shares of Class A Common Stock offered by Cognizant hereby was $0.1 million
($0.1 million for the shares subject to the Underwriters' over-allotment
option). Finally, this offering will result in the creation of a public market
for the Class A Common Stock. Upon consummation of this offering, the unrealized
appreciation in the value of the Class B Common Stock retained by Cognizant will
be $71.5 million, assuming an initial public offering price of $12.00 per share
and after deducting the cost of such shares. See "Use of Proceeds."
POTENTIAL CONFLICTS OF INTEREST
The Company has entered into Master Service Agreements with certain of
Cognizant's other operating subsidiaries for the provision of software
development and maintenance services (the "Master Services Agreements"). In the
years ended December 31, 1996 and 1997 and the three months ended March 31,
1998, the Company had revenues of $4.4 million, $10.3 million and $3.7 million,
respectively, from Cognizant and its current affiliates. In addition, pursuant
to the Intercompany Services Agreement (the "Intercompany Services Agreement"),
effective upon the consummation of this offering, Cognizant will continue to
provide certain administrative services to the Company, including payroll and
payables processing and tax compliance and the Company and its employees will
continue to be covered by Cognizant's insurance policies and certain Cognizant
employee benefit plans. While the Company believes that the terms of such
agreements in the aggregate are reasonable, conflicts of interest may arise
under such agreements. Furthermore, subject to the terms of the Intercompany
Agreement, Cognizant, in its capacity as a controlling stockholder, may at times
vote its shares (or act by written consent without prior notice to the holders
of Class A Common Stock), in a manner inconsistent with the desires of the
minority stockholders of the Company and may approve a sale of its Class B
Common Stock or of the Company to a third party without the consent of the
minority stockholders. See "--Control By Principal Stockholder; Benefits of
Offering to Cognizant," "Company Background" and "Certain Transactions."
CUSTOMER CONCENTRATION
Approximately 88.8%, 73.7% and 70.2% of the Company's revenues in 1996, 1997
and the three months ended March 31, 1998, respectively, were generated from
current and former affiliates of the Company, including approximately 36.4%,
41.8% and 36.2% of the Company's revenues in 1996, 1997 and the three months
ended March 31, 1998, respectively, from Cognizant and its current subsidiaries.
In addition, the Company has derived and believes that it will continue to
derive a significant portion of its revenues from a limited number of large
third-party customers. During 1996, 1997 and the three months ended March 31,
1998, the Company's five largest customers (other than Cognizant and its current
subsidiaries) accounted for 60.0%, 36.6% and 45.6% of revenues, respectively. In
1996, Dun & Bradstreet Software (which was subsequently acquired by GEAC),
ACNielsen and The Dun & Bradstreet Corporation and its subsidiaries, all of
which were affiliates of the Company prior to November 1996, accounted for
approximately 17.9%, 14.6% and 13.3%, respectively, of the Company's revenues.
In 1997, ACNielsen accounted for 13.9% of the Company's revenues. For the three
months ended March 31, 1998, ACNielsen and GEAC accounted for 14.5% and 12.1% of
the Company's revenues, respectively. The volume of work performed for Cognizant
and its subsidiaries and other customers is likely to vary from year to year,
and a major customer, whether affiliated or unaffiliated, in one year may not
provide the same level of revenues in any subsequent year. The loss of any large
customer could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Customers and
Representative Projects."
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LIMITED OPERATING HISTORY WITH UNAFFILIATED CUSTOMERS; LIMITED THIRD-PARTY
REVENUES TO DATE
The Company began its software development and maintenance services business
in early 1994 as an in-house technology development center for The Dun &
Bradstreet Corporation and its operating units. In 1996, the Company, Erisco,
IMS, Nielsen Media Research, Pilot Software, Sales Technologies and certain
other entities, plus a majority interest in Gartner Group, were spun-off from
The Dun & Bradstreet Corporation to form Cognizant, the parent of the Company.
During 1996, the Company made a strategic decision to attract customers that
were not affiliated with Cognizant or any of the former affiliates of The Dun &
Bradstreet Corporation. Approximately 36.4%, 41.8% and 36.2% of the Company's
revenues in 1996, 1997 and the three months ended March 31, 1998, respectively,
were generated from Cognizant and its current affiliates and an additional
52.4%, 31.9% and 34.0%of the Company's revenues in 1996, 1997 and the three
months ended March 31, 1998, respectively, were generated from companies
previously affiliated with The Dun & Bradstreet Corporation. Therefore, while
the Company has been engaged in providing software development and maintenance
solutions since 1994, it has only serviced third-party customers for a limited
time period and has generated only limited revenues from such engagements. There
can be no assurance that the Company will continue to secure business from third
parties or, if it does, that it will be successful in retaining such customers.
See "Company Background" and "Business-- Customers and Representative Projects."
DEPENDENCE ON THE YEAR 2000 MARKET
A significant portion of the Company's past and current engagements have
been for Year 2000 compliance services and the Company expects to derive a
higher percentage of its revenues from these services for at least the next two
years. The Company realized 26.4%, 44.4% and 46.9% of its revenues from Year
2000 compliance services in 1996, 1997 and the three months ended March 31,
1998, respectively. An unexpected decline in the demand for the Company's Year
2000 compliance services would have a material adverse effect on the Company's
business, results of operations and financial condition.
Although the Company believes that the market for products and professional
services relating to the Year 2000 problem will grow as the year 2000
approaches, there can be no assurance that this market will develop to the
extent anticipated by the Company. Significant expenses for sales and marketing
may be required to educate potential customers about the Year 2000 problem and
the need for products and professional services addressing the problem. There
can be no assurance that prospective customers will understand or acknowledge
the problem. In addition, affected organizations may not be willing or able to
allocate the resources, financial or otherwise, to address the problem in a
timely manner. Many organizations may attempt to resolve the problem internally
rather than by contracting with outside firms such as the Company. Other
organizations may elect to replace their existing systems with new Year
2000-compliant hardware and software, rather than incur substantial costs in
making their existing systems Year 2000-compliant. In addition, there can be no
assurance that one or more competitors will not develop a fully automated
solution to the Year 2000 problem. Due to these and other factors, development
of the market for the Company's Year 2000 services is uncertain and
unpredictable. Additionally, the Company believes that demand for Year 2000
compliance services will diminish after the Year 2000, as many solutions are
implemented and tested.
A core element of the Company's strategy is to use the business
relationships and the knowledge of its customers' computer systems obtained in
providing Year 2000 services to generate additional projects for these
customers. There can be no assurance, however, that the Company will be
successful in generating demand for other services from its Year 2000 customers.
In addition, utilization of significant resources during the next few years to
solve its customers' Year 2000 problems could have a material adverse effect on
the Company's ability to continue to successfully develop and deliver other
services. The failure of the Company to successfully develop and market
competitive software development and maintenance services
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other than Year 2000 solutions would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Strategy" and "--Services."
INTENSE COMPETITION
The IT services market includes a large number of participants, is subject
to rapid change and is highly competitive. This market includes participants
from a variety of market segments, including systems integration firms, contract
programming companies, application software companies, the professional services
groups of computer equipment companies, facilities management and outsourcing
companies and "Big Six" accounting firms, as well as smaller local competitors
in the various geographic markets in which the Company operates. The Company
competes with, among others, Alydaar Corp., Cambridge Technology Partners, Inc.,
Cap Gemini America, Inc., Complete Business Solutions, Inc., Computer Horizons
Corp., Computer Task Group, CSC Consulting, Information Management Resources,
Inc., Infosys, Inc., IBM Global Services, Keane, Inc., Mastech Corporation,
Satyam Computer Services Limited, SHL Systemhouse (a division of MCI
Communications Corporation), Syntel, Inc., Tata Consultancy Services and
Whittman-Hart, Inc. In certain markets in which the Company competes, such as
the Year 2000 compliance market, there are no significant barriers to entry.
Current and potential competitors may introduce new and more competitive
services, make strategic acquisitions or establish cooperative relationships
among themselves or with third parties, thereby increasing their ability to
address the needs of customers. Many of the Company's competitors have
significantly greater financial, technical and marketing resources and greater
name recognition than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. There can be no assurance that the Company
will be able to compete successfully against current and future competitors, and
its failure to do so would have a material adverse effect upon the Company's
business, results of operations and financial condition. See
"Business--Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SERVICES
The IT services market is characterized by rapid technological change,
evolving industry standards, changing customer preferences and new product and
service introductions. The Company's future success will depend on its ability
to develop solutions that keep pace with changes in the IT services market.
There can be no assurance that the Company will be successful in developing new
services addressing evolving technologies on a timely or cost-effective basis
or, if these services are developed, that the Company will be successful in the
marketplace. In addition, there can be no assurance that products, services or
technologies developed by others will not render the Company's services
non-competitive or obsolete. The Company's failure to address these developments
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's ability to remain competitive will also depend on its ability
to design and implement, in a timely and cost-effective manner, solutions for
customers moving from the mainframe environment to client/server or other
advanced architectures. The failure of the Company to design and implement such
solutions in a timely and cost-effective manner could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Industry Background."
UNITED STATES IMMIGRATION ISSUES
The Company's future success will depend on its ability to attract and
retain employees with technical and project management skills from developing
countries, especially India. As of March 31, 1998, approximately 245, or 93% of
the Company's employees in the United States, were working in the H-1B,
nonimmigrant work-permitted visa classification. The H-1B visa classification
enables U.S. employers to hire qualified foreign workers in positions which
require an education at least equal to a U.S. Baccalaureate Degree in specialty
occupations such as software systems engineering and systems analysis. The H-1B
visa usually permits an individual to work and live in the United States for a
period of up to six years.
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There is a limit on the number of new H-1B petitions that the U.S. Immigration
and Naturalization Service ("INS") may approve in any federal fiscal year, and
in years in which this limit is reached, the Company may be unable to obtain
H-1B visas necessary to bring foreign employees to the United States. In the
federal fiscal year ended September 30, 1997, this limit was reached for the
first time in August 1997, and in the current federal fiscal year, this limit
was reached in May 1998. The inability of the Company to bring qualified
technical personnel into the United States to staff on-site customer locations
would have a material adverse effect on the Company's business, results of
operations and financial condition. The Company also processes immigrant visas
for lawful permanent residency (evidenced by a card commonly referred to as the
"Green Card") for employees to fill positions for which there are no able,
willing and qualified U.S. workers available to fill the positions. Compliance
with existing U.S. immigration laws, or changes in such laws making it more
difficult to hire foreign nationals or limiting the ability of the Company to
retain H-1B employees in the United States, could require the Company to incur
additional unexpected labor costs and expenses. A finding by the U.S. Department
of Labor of the Company's willful or substantial failure to comply with existing
regulations on the H-1B classification may result in a bar on future
work-authorized nonimmigrant or immigrant petitions by the Company. Any such
restrictions or limitations on the Company's hiring practices could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "--Exposure to Regulatory, Economic and Political
Conditions in India" and "Business--Employees."
RISKS ASSOCIATED WITH RAPID GROWTH
Since the Company began providing software development and maintenance
services in early 1994, the Company's software development professional and
support staff has increased from approximately 25 to approximately 1,170 as of
March 31, 1998. The Company's anticipated growth will continue to place
significant demands on its management and other resources. In particular, the
Company will have to continue to increase the number of its personnel,
particularly skilled technical, marketing and management personnel, and continue
to develop and improve its operational, financial, communications and other
internal systems, both in the United States and India. The Company's inability
to manage its anticipated growth effectively could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH FIXED-PRICE PROJECTS
The Company expects that an increasing number of its future projects will be
fixed-price rather than time-and-materials (which has historically been the
basis for its contracts). The Company bears the risk of cost over-runs and
inflation in connection with fixed-price projects. The Company's failure to
estimate accurately the resources and time required for a fixed-price project,
or its failure to complete its contractual obligations within the time frame
committed, could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POTENTIAL LIABILITY TO CUSTOMERS
Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that are difficult
to quantify. Any failure in a customer's computer system could result in a claim
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to contractually
limit its liability for damages arising from negligent acts, errors, mistakes or
omissions in rendering its software development and maintenance services, there
can be no assurance that the limitations of liability set forth in its contracts
will be enforceable in all instances or will otherwise protect the Company from
liability for damages. Although the Company has general liability insurance
coverage, including coverage for errors or
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omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The Company's insurance policies generally have
deductibles of $500,000, but in the case of certain coverage for errors and
omissions, the deductible is $1.5 million. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, would have a
material adverse effect on the Company's business, results of operations and
financial condition.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's future success will depend on its ability to protect its
intellectual property rights. The Company presently holds no patents or
registered copyrights, and relies upon a combination of copyright and trade
secret laws, non-disclosure and other contractual arrangements and various
security measures to protect its intellectual property rights. India is a member
of the Berne Convention, and has agreed to recognize protections on copyrights
conferred under the laws of foreign countries, including the laws of the United
States. The Company believes that laws, rules, regulations and treaties in
effect in the United States and India are adequate to protect it from
misappropriation or unauthorized use of its copyrights. However, there can be no
assurance that such laws will not change and, in particular, that the laws of
India will not change in ways that may prevent or restrict the transfer of
software components, libraries and toolsets from India to the United States.
There can be no assurance that the steps taken by the Company to protect its
intellectual property rights will be adequate to deter misappropriation of any
of its intellectual property, or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its rights.
A competitor of the Company recently announced the filing with the U.S.
Patent and Trademark Office of three patent applications relating to Year 2000
processes. The Company does not know the proprietary features of the processes
covered by such patent applications since patent applications are not publicly
available until the patents are issued. The Company has no prior relationship
with this competitor. Although the Company believes that its intellectual
property rights do not infringe on the intellectual property rights of such
competitor or others, there can be no assurance that such claims will not be
asserted against the Company in the future, that assertion of such claims will
not result in litigation or that the Company would prevail in such litigation or
be able to obtain a license for the use of any infringed intellectual property
from a third party on commercially reasonable terms, if at all. The Company
expects that the risk of infringement claims against the Company will increase
if more of the Company's competitors are able to successfully obtain patents for
software products and processes. Any such claims, regardless of their outcome,
could result in substantial cost to the Company and divert management's
attention from the Company's operations. Any infringement claim or litigation
against the Company could, therefore, have a material adverse effect on the
Company's business, results of operations and financial condition.
Pursuant to the License Agreement between Cognizant and the Company (the
"License Agreement"), effective upon the consummation of this offering,
Cognizant has granted to the Company a non-exclusive, non-transferable,
revocable license to use the "Cognizant" name and certain related trade and
service marks. The License Agreement provides that, subject to Cognizant's right
to revoke such license under certain circumstances, such license will remain in
effect for at least ten years following this offering. The revocation of such
license could have a material adverse effect on the Company's business, results
of operations and financial condition. However, Cognizant has agreed to transfer
all of its rights to the "Cognizant" name and related trade and service marks to
the Company upon the consummation of the previously announced reorganization of
Cognizant which, subject to certain conditions, is expected to be consummated by
mid-1998. See "Company Background," "Business--Intellectual Property" and
"Certain Transactions--Agreements with Cognizant."
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RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
Revenues from customers outside of North America represented 19.9%, 14.3%
and 16.6% of the Company's revenues for 1996, 1997 and the three months ended
March 31, 1998, respectively. The Company anticipates that revenues from
customers outside of North America will continue to account for a material
portion of its revenues in the foreseeable future and may increase as the
Company expands its international presence, particularly in Europe. In addition,
a substantial majority of the Company's employees and all of its software
development centers are located in India. As a result, the Company may be
subject to certain risks associated with international operations, including
risks associated with foreign currency exchange rate fluctuations and risks
associated with the application and imposition of protective legislation and
regulations relating to import or export or otherwise resulting from foreign
policy or the variability of foreign economic conditions. To date, the Company
has not engaged in any hedging transactions to mitigate its risks relating to
exchange rate fluctuations. Additional risks associated with international
operations include difficulties in enforcing intellectual property rights, the
burdens of complying with a wide variety of foreign laws, potentially adverse
tax consequences, tariffs, quotas and other barriers and potential difficulties
in collecting accounts receivable. There can be no assurance that these and
other factors will not have a material adverse effect on the Company's business,
results of operations and financial condition. See "--United States Immigration
Issues," "--Exposure to Regulatory, Economic and Political Conditions in India"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company believes that opportunities exist to expand its geographic
presence, enter new technology areas or expand capacity through strategic
acquisitions. As of the date of this Prospectus, the Company has no agreements,
commitments or understandings to effect any acquisition and is not engaged in
any negotiations with respect to any acquisition. There can be no assurance that
the Company will identify suitable acquisition candidates available for sale at
reasonable prices, consummate any acquisition or successfully integrate any
acquired business into the Company's operations. Further, acquisitions involve a
number of special risks, including diversion of management's attention, failure
to retain key personnel, unanticipated events or circumstances, legal
liabilities, amortization of acquired intangible assets and potential exposure
to the Year 2000 problem, some or all of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company may finance any future acquisitions with a portion of the proceeds
from this offering as well as with debt financing, the issuance of equity
securities or a combination of the foregoing. There can be no assurance that the
Company will be able to arrange adequate financing on acceptable terms. In
addition, acquisitions financed with the issuance of the Company's equity
securities could be dilutive. Under current accounting principles relating to
purchase accounting, for so long as the Company is controlled by Cognizant and
for a period of two years thereafter and until the Company is autonomous, any
business combination involving the Company must be accounted for as a purchase,
and not as a pooling of interests. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risks Associated with the Year
2000" and "Business--Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends to a significant degree upon the
continued service of the key members of its management team, as well as
marketing, sales and technical personnel, and its ability to attract and retain
new management and other personnel. The Company does not maintain key man life
insurance on any of its executive officers or significant employees. Although
the Company has entered into noncompetition agreements with its executive
officers, there can be no assurance that such agreements are enforceable and
such agreements do not ensure the continued service of such executive officers.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its
15
<PAGE>
key employees or that it will be successful in attracting and retaining new
personnel in the future. The loss of any one or more of the Company's key
personnel or the failure to attract and retain key personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
3,030,750 shares of Class A Common Stock and 6,083,000 shares of Class B Common
Stock. Of these shares, the 2,917,000 shares of Class A Common Stock offered
hereby will be freely tradable without restriction in the public market, unless
purchased by affiliates of the Company.
Cognizant and the executive officers and directors of the Company, who will
own an aggregate of 113,750 shares of Class A Common Stock and 6,083,000 shares
of Class B Common Stock upon consummation of this offering, have agreed that
they will not, directly or indirectly, offer to sell, sell or otherwise dispose
of any shares of Class A Common Stock or securities convertible into or
exchangeable or exercisable for shares of Class A Common Stock (including the
Class B Common Stock) for 180 days after the date of the Prospectus without the
prior consent of BancAmerica Robertson Stephens. BancAmerica Robertson Stephens
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to the lock-up agreements. See "Underwriting."
Upon completion of this offering, Cognizant will own all of the Company's
outstanding Class B Common Stock, which will represent approximately 66.7% of
the outstanding Common Stock of the Company (approximately 61.9% if the
Underwriters' over-allotment option is exercised in full). A decision by
Cognizant to sell such shares following the period covered by the lock-up
agreement could have a material adverse effect on the market price of the Class
A Common Stock. Pursuant to the Intercompany Agreement, Cognizant's ability to
sell its shares of Common Stock will be subject to certain restrictions for a
period of 18 months following the consummation of this offering.
Pursuant to the Intercompany Agreement, Cognizant has certain contractual
rights to cause the Company to register Cognizant's shares for sale. In
addition, the Company intends to file registration statements on Form S-8 under
the Securities Act as soon as practicable after consummation of this offering in
order to register all shares of Class A Common Stock issuable or reserved for
issuance under the Employee Option Plan, the Directors' Option Plan and other
outstanding options.
Sales of substantial amounts of the Class A Common Stock or the availability
of such shares for sale could adversely affect prevailing market prices of the
Class A Common Stock. See "Certain Transactions" and "Shares Eligible for Future
Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and the DGCL contain provisions that may have
the effect of deterring unsolicited takeover proposals or delaying or preventing
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. The Company's Board of Directors has the authority, subject to
approval by Cognizant pursuant to the Intercompany Agreement, without further
action by the stockholders, to fix the rights and preferences, and issue shares,
of preferred stock. The DGCL also contains provisions preventing certain
stockholders from engaging in business combinations with the Company, subject to
certain exceptions. Such provisions could also discourage bids for the shares of
Class A Common Stock at a premium as well as create a depressive effect on the
market price of the shares of Class A Common Stock. Because of the voting
control of Cognizant, there can be no change in control
16
<PAGE>
of the Company or its Board of Directors without the consent of Cognizant. See
"--Control by Principal Stockholder; Benefits of Offering to Cognizant" and
"Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Class A
Common Stock. Although the Company has made application for the quotation of the
Class A Common Stock on the Nasdaq National Market, there can be no assurance
that an active trading market will develop or be sustained after this offering.
The initial public offering price of the Class A Common Stock offered hereby
will be determined through negotiations among the Company, Cognizant and the
Representatives (as defined) of the Underwriters and may bear no relationship to
the market price of the Class A Common Stock after this offering. The market
price of the Class A Common Stock will be subject to significant fluctuations in
response to variations in quarterly operating results, technological innovation
by the Company or its competitors and general market conditions specific to the
IT services industry. The stock prices for many companies in the technology and
emerging growth sectors have experienced wide fluctuations which have often been
unrelated to the operating performance of such companies. These broad
fluctuations may adversely affect the market price of the Class A Common Stock.
See "--Risk of Significant Fluctuations in Quarterly Operating Results" and
"Underwriting."
BROAD DISCRETION AS TO USE OF PROCEEDS
A substantial portion of the net proceeds to be received by the Company from
this offering is allocated to working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion with respect to
the expenditure of such proceeds. Purchasers of shares of Class A Common Stock
offered hereby will be entrusting their funds to the Company's management, upon
whose judgment they must depend, with limited information concerning the
specific working capital requirements and general corporate purposes to which
the funds will ultimately be applied. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock will experience immediate and substantial
dilution in net tangible book value per share of the Class A Common Stock from
the initial public offering price per share. After giving effect to the sale of
the 2,500,000 shares of Class A Common Stock offered by the Company hereby,
assuming an initial public offering price of $12.00 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company, and the application of the net proceeds therefrom, the
Company's pro forma net tangible book value as of March 31, 1998 would have been
$29.6 million, or $3.25 per share of Class A Common Stock. This represents an
immediate dilution in net tangible book value of $8.75 per share to new
investors purchasing shares in this offering. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends and does not anticipate paying any
cash dividends on its Class A Common Stock for the foreseeable future. See
"Dividend Policy."
17
<PAGE>
COMPANY BACKGROUND
The Company began its software development and maintenance services business
in early 1994 as an in-house technology development center for The Dun &
Bradstreet Corporation and its operating units. These operating units
principally included A.C. Nielsen Company, Dun & Bradstreet Information
Services, Dun & Bradstreet Software, Erisco, IMS, NCH Promotional Services,
Nielsen Media Research, RHDonnelley, Pilot Software and Sales Technologies and a
majority interest in Gartner Group.
In November 1996, the Company, Erisco, IMS, Nielsen Media Research, Pilot
Software, Sales Technologies and certain other entities, plus a majority
interest in Gartner Group, were spun-off from The Dun & Bradstreet Corporation
to form Cognizant, the parent of the Company. At that time, ACNielsen was
separately spun-off from The Dun & Bradstreet Corporation and Dun & Bradstreet
Software was sold to GEAC. In 1997, Cognizant sold Pilot Software to a third
party. Also in 1997, the Company purchased the 24.0% minority interest in its
Indian subsidiary from a third party for $3.4 million resulting in the entity
becoming a wholly owned subsidiary of the Company.
During 1996, the Company made a strategic decision to attract customers that
were not affiliated with Cognizant or any of the former affiliates of The Dun &
Bradstreet Corporation. As a result, sales from customers not currently or
previously affiliated with Cognizant, The Dun & Bradstreet Corporation and any
of their respective subsidiaries grew from $1.3 million or 11.2% of revenues in
1996 to $6.5 million or 26.3% of revenues in 1997 and $3.1 million or 29.8% of
revenues for the three months ended March 31, 1998. Approximately 36.4%, 41.8%
and 36.2% of the Company's revenues in 1996, 1997 and the three months ended
March 31, 1998, respectively, were generated from Cognizant and its current
affiliates and an additional 52.4%, 31.9% and 34.0% of the Company's revenues in
1996, 1997 and the three months ended March 31, 1998, respectively, were
generated from companies previously affiliated with The Dun & Bradstreet
Corporation.
Prior to this offering, Cognizant has held substantially all of the capital
stock of the Company and will hold approximately 66.7% of the Common Stock and
95.3% of the combined voting power of the outstanding Common Stock upon
consummation of this offering (61.9% and 94.2%, respectively, if the
Underwriters' over-allotment option is exercised in full) and will have certain
rights with respect to the Company pursuant to agreements entered into in
connection with this offering. Further, a majority of the Board of Directors of
the Company are employees of Cognizant or the Company. In addition, Cognizant
will continue to provide certain corporate services to the Company following
this offering. The Company will use a portion of the net proceeds to repay the
intercompany balance owed to Cognizant at the time of the consummation of this
offering. The intercompany balance was approximately $6.5 million as of March
31, 1998. This amount is subject to change based on the Company's operations
between March 31, 1998 and the consummation of this offering. See "Use of
Proceeds," "Certain Transactions" and "Description of Capital Stock."
On January 15, 1998, Cognizant announced that it would reorganize by
splitting the Nielsen Media Research business from the rest of its businesses,
creating two publicly traded companies, IMS Health Incorporated ("IMS HEALTH")
and Nielsen Media Research. Subject to certain conditions, including obtaining a
ruling on the reorganization from the Internal Revenue Service and final
Cognizant board approval, Cognizant expects the reorganization to be consummated
by mid-1998. The shares of the Company held by Cognizant will be held by IMS
HEALTH following the reorganization and all services previously provided to the
Company by Cognizant will be provided by IMS HEALTH. Upon consummation of the
reorganization, Cognizant's rights to the Cognizant name and related trade and
service marks will be transferred to the Company. See "Certain
Transactions--Agreements with Cognizant." Following the reorganization, Nielsen
Media Research will no longer be affiliated with the Company. For the year ended
December 31, 1997 and the three months ended March 31, 1998, approximately $4.4
million or 17.6% and $1.4 million or 13.3%, respectively, of the Company's
revenues were generated from Nielsen Media Research.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Class A Common Stock offered by the Company hereby are estimated to be
approximately $27.1 million, assuming an initial public offering price of $12.00
per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company will not receive
any proceeds from the sale of shares of Class A Common Stock by Cognizant in
this offering. See "Principal and Selling Stockholders."
The principal purposes of this offering are to increase the Company's equity
capital, to establish a public market for the Company's Class A Common Stock, to
provide enhanced equity incentives to attract and retain key employees, to
increase the Company's visibility in the marketplace, to facilitate future
access to public capital markets and to obtain additional working capital.
The Company will use a portion of the net proceeds to repay the intercompany
balance owed to Cognizant, which was approximately $6.5 million as of March 31,
1998. This amount is subject to change based on the Company's operations between
March 31, 1998 and the consummation of this offering. This intercompany balance
is the result of certain advances from Cognizant consisting of approximately
$3.4 million used to purchase the minority interest of the Company's Indian
subsidiary and the remainder primarily to fund payroll and accounts payable. The
Company does not pay interest on its intercompany advances from Cognizant. Of
the remaining net proceeds, up to $3.5 million will be used for capital
expenditures in 1998, primarily for hardware, software and leasehold
improvements for the Company's software development centers in India. The
remainder will be used for working capital and other general corporate purposes.
Pending such uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment grade securities. See "Risk Factors--Broad
Discretion as to Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company may also use a portion of the net proceeds to fund possible
acquisitions of, or investments in, businesses and technologies that are
complementary to those of the Company. The Company has no specific agreements,
commitments or understandings, and is not engaged in any negotiations, with
respect to any acquisitions or investments. See "Risk Factors--Risks Associated
with Possible Acquisitions" and "Business--Strategy."
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock and does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
Management anticipates that all earnings and other cash resources of the
Company, if any, will be retained by the Company for investment in its business.
The payment of dividends is subject to the discretion of the Board of Directors
of the Company and will depend on the Company's results of operations, financial
position and capital requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal and regulatory restrictions on
the payment of dividends and other factors the Board of Directors deems
relevant. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, the capitalization of
the Company and balance due to related party (i) on an actual basis, (ii) on a
pro forma basis giving effect to the termination upon the consummation of this
offering of the put rights associated with the outstanding mandatorily
redeemable common stock and (iii) on a pro forma as adjusted basis after giving
effect to the sale by the Company of the 2,500,000 shares of Class A Common
Stock offered by the Company hereby, assuming an initial public offering price
of $12.00 per share and after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom as described in "Use of Proceeds." This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<CAPTION>
(in thousands, except share and per
share data)
<S> <C> <C> <C>
Due to related party......................................................... $ 6,474 $ 6,474 $ --
--------- ----------- -----------
--------- ----------- -----------
Mandatorily Redeemable Common Stock (1)...................................... $ 438 $ -- $ --
--------- ----------- -----------
--------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.10 par value; 15,000,000 shares authorized; none issued
and outstanding actual, pro forma or pro forma
as adjusted................................................................ $ -- $ -- $ --
Class A Common Stock, $.01 par value; 100,000,000 shares authorized; 417,000
shares issued and outstanding actual, 530,750 shares issued and outstanding
pro forma and 3,030,750 shares issued and outstanding pro forma as adjusted
(2)........................................................................ 4 5 30
Class B Common Stock, $.01 par value; 15,000,000 shares authorized; 6,083,000
shares issued and outstanding actual, pro forma and pro forma as
adjusted................................................................... 61 61 61
Additional paid-in capital................................................... 1,482 1,919 28,949
Retained earnings............................................................ 2,648 2,648 2,648
Cumulative translation adjustment............................................ 1 1 1
--------- ----------- -----------
Total stockholders' equity............................................... 4,196 4,634 31,689
--------- ----------- -----------
--------- ----------- -----------
Total capitalization................................................... $ 11,108 $ 11,108 $ 31,689
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Consists of 113,750 shares of Class A Common Stock held by certain directors
and executive officers of the Company who have the right to sell such shares
back to the Company at cost. Such rights will expire upon the consummation
of this offering.
(2) Excludes as of the date of this Prospectus (i) 507,000 shares of Class A
Common Stock issuable upon the exercise of outstanding stock options granted
under the Employee Option Plan at a weighted average exercise price of $3.85
per share, (ii) 112,200 shares of Class A Common Stock issuable upon
exercise of options granted under the Employee Option Plan effective upon
the consummation of this offering to certain employees at an exercise price
equal to the initial public offering price, (iii) 49,500 shares of Class A
Common Stock issuable upon the exercise of outstanding stock options granted
under the Directors' Option Plan at a weighted average exercise price of
$11.23 per share (assuming an exercise price of $12.00 for options which
become effective at the time of this offering), (iv) 79,550 and 22,000
shares of Class A Common Stock reserved for future issuance pursuant to the
Employee Option Plan and the Directors' Option Plan, respectively, and (v)
48,750 shares of Class A Common Stock issuable upon the exercise of
outstanding options granted to Wijeyaraj Mahadeva, the Company's Chairman
and Chief Executive Officer, at an exercise price of $6.92 per share. See
"Management--Stock Option Plans" and "Principal and Selling Stockholders."
20
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1998 was $2.6
million, or $0.39 per share of outstanding Common Stock. Net tangible book value
per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale of the 2,500,000 shares of Class A Common Stock
offered by the Company hereby, assuming an initial public offering price of
$12.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the receipt of the net
proceeds therefrom, the adjusted net tangible book value of the Company as of
March 31, 1998 would have been $29.6 million, or $3.25 per share of Common
Stock. This represents an immediate increase in net tangible book value of $2.86
per share to the existing stockholders and an immediate dilution of $8.75 per
share to investors purchasing shares of Class A Common Stock in this offering.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.00
Net tangible book value per share at March 31, 1998....... $ 0.39
Increase per share attributable to new investors.......... 2.86
---------
Net tangible book value per share after this offering....... 3.25
---------
Dilution per share to new investors......................... $ 8.75
---------
---------
</TABLE>
The following table summarizes as of March 31, 1998 the differences between
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share by the existing
stockholders and by new investors at an assumed initial public offering price of
$12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................. 6,613,750 72.6% $ 1,985,000 6.2% $ 0.30
New investors............................. 2,500,000 27.4 30,000,000 93.8 12.00
---------- ----- ------------- -----
Total................................. 9,113,750 100.0% $ 31,985,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Sales by the Selling Stockholder in this offering will cause the number of
shares of Common Stock held by existing stockholders to be reduced to
6,196,750 shares, or 68.0% of the total number of shares of Common Stock to
be outstanding after this offering (or 61.9%, if the Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares of Common Stock held by the new investors to 2,917,000 shares, or
32.0% of the total number of shares of Common Stock to be outstanding
immediately after this offering (or 3,354,500 shares, or 36.8%, if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."
The calculation of net tangible book value per share and the other
computations above exclude, as of the date of this Prospectus, (i) 507,000
shares of Class A Common Stock issuable upon the exercise of outstanding stock
options granted under the Employee Option Plan at a weighted average exercise
price of $3.85 per share, (ii) 112,200 shares of Class A Common Stock issuable
upon exercise of options granted under the Employee Option Plan effective upon
the consummation of this offering to certain employees at an exercise price
equal to the initial public offering price, (iii) 49,500 shares of Class A
Common Stock issuable upon the exercise of outstanding stock options granted
under the Directors' Option Plan at a weighted average exercise price of $11.23
per share (assuming an exercise price of $12.00 for options which become
effective at the time of this offering), (iv) 79,550 and 22,000 shares of Class
A Common Stock reserved for future issuance pursuant to the Employee Option Plan
and the Directors' Option Plan, respectively, and (v) 48,750 shares of Class A
Common Stock issuable upon the exercise of outstanding options granted to
Wijeyaraj Mahadeva, the Company's Chairman and Chief Executive Officer, at an
exercise price of $6.92 per share. See "Capitalization," "Management--Stock
Option Plans" and "Principal and Selling Stockholders."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data and consolidated balance sheet
data set forth below as of and for each of the years ended December 31, 1994
through December 31, 1997 have been derived from the Company's audited
consolidated financial statements. The Company's audited consolidated financial
statements as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997 are included elsewhere in this Prospectus.
The consolidated statement of operations data for the three months ended March
31, 1997 and 1998, and the consolidated balance sheet data as of March 31, 1998,
are derived from unaudited consolidated financial statements of the Company
prepared in accordance with accounting standards appropriate for interim
financial statements and, in the opinion of management, include all adjustments
consisting of normal recurring adjustments necessary for a fair presentation of
the Company's financial position and results of operations. Historical results
are not necessarily indicative of results to be expected for any future period.
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA: (1)
Total revenues........................ $ 1,687 $ 7,175 $ 12,032 $ 24,744 $ 4,256 $ 10,238
Cost of revenues...................... 534 3,567 6,020 14,359 2,407 5,929
Gross profit.......................... 1,153 3,608 6,012 10,385 1,849 4,309
Selling, general and administrative
expense............................. 1,416 2,589 4,546 8,256 1,684 3,185
Income (loss) from operations......... (263) 1,019 1,466 2,129 165 1,124
Income (loss) before provision for
income taxes........................ (278) 1,070 1,475 2,154 166 1,138
Minority interest (2)................. (22) (362) (492) (545) (104) --
Net income (loss)..................... $ (195) $ 461 $ 642 $ 1,028 $ 44 $ 712
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per share, basic.... $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.01 $ 0.11
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per share, diluted
(3)................................. $ (0.03) $ 0.07 $ 0.10 $ 0.16 $ 0.01 $ 0.10
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding.................. 6,500 6,500 6,500 6,547 6,500 6,614
Weighted average number of common
shares and stock options
outstanding......................... 6,500 6,500 6,500 6,605 6,500 6,818
Supplemental net income per share,
basic and diluted (4)............... $ 0.14 $ 0.10
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------ AT MARCH 31,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
(in thousands)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA: (1)
Cash and cash equivalents.............................. $ 174 $ 546 $ 1,810 $ 2,715 $ 2,197
Working capital........................................ 305 1,126 2,781 5,694 6,922
Total assets........................................... 1,824 5,451 7,827 18,298 19,452
Due to related party................................... 690 662 976 6,646 6,474
Total stockholders' equity............................. 408 1,766 2,806 3,419 4,196
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) Minority interest was attributed to the 24.0% ownership of the Company's
Indian subsidiary by a third party. In October 1997, the Company purchased
this 24.0% interest for $3.4 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Company
Background."
22
<PAGE>
(3) Diluted net income (loss) per share was calculated in a manner consistent
with basic net income (loss) per share which includes potentially dilutive
options to purchase 57,130 shares of Class A Common Stock for the year ended
December 31, 1997 and potentially dilutive options to purchase 204,646
shares of Class A Common Stock for the three months ended March 31, 1998.
(4) Supplemental net income per share is presented to reflect the impact on net
income per share when proceeds from 539,500 shares of Class A Common Stock
offered by the Company hereby are used to repay the intercompany balance
owed to Cognizant. The supplemental basic shares of 7,086,896 and diluted
shares of 7,144,025 as of December 31, 1997 were computed by adding 539,500
shares of Class A Common Stock offered by the Company hereby to the
6,547,396 basic weighted average shares outstanding and to the 6,604,525
diluted weighted average shares outstanding as of December 31, 1997. The
supplemental basic shares of 7,153,250 and diluted shares of 7,357,896 as of
March 31, 1998 were computed by adding 539,500 shares of Class A Common
Stock offered by the Company hereby to 6,613,750 basic weighted average
shares outstanding and to the 6,818,396 diluted weighted average shares
outstanding as of March 31, 1998.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
OVERVIEW
CTS delivers full life cycle software development and maintenance services
to its customers through the use of a seamless on-site and offshore project
team. These services include application development and maintenance services,
Year 2000 and Eurocurrency compliance services, testing and quality assurance
services and re-hosting and re-engineering services. At March 31, 1998, the
Company employed approximately 270 persons in its North American headquarters
and satellite offices and on-site North American customer locations,
approximately 30 persons in its European satellite office and on-site European
customer locations and approximately 870 persons in its six offshore software
development centers in India.
The Company began its software development and maintenance services business
in early 1994, as an in-house technology development center for The Dun &
Bradstreet Corporation and its operating units. In 1996, the Company, Erisco,
IMS, Nielsen Media Research, Pilot Software, Sales Technologies and certain
other entities, plus a majority interest in Gartner Group, were spun-off from
The Dun & Bradstreet Corporation to form Cognizant, the parent of the Company.
In 1997, the Company purchased the 24.0% minority interest in its Indian
subsidiary from a third party for $3.4 million, making the subsidiary wholly
owned by the Company.
During 1996, the Company made a strategic decision to attract customers that
were not affiliated with Cognizant or any of the former affiliates of The Dun &
Bradstreet Corporation. As a result, sales from customers not currently or
previously affiliated with Cognizant, The Dun & Bradstreet Corporation and any
of their respective subsidiaries grew from $1.3 million, or 11.2% of revenues,
in 1996 to $6.5 million, or 26.3% of revenues, in 1997 and $3.1 million, or
29.8% of revenues, for the three months ended March 31, 1998. While the Company
has been engaged in providing software development and maintenance solutions
since 1994, it has provided services to third-party customers for only a limited
time period and has generated only limited revenues from such engagements. There
can be no assurance that the Company will continue to secure business from
unaffiliated third parties or, if it does, that it will be successful in
retaining such customers. See "Risk Factors--Limited Operating History with
Unaffiliated Customers; Limited Third-Party Revenues to Date," "Company
Background," "Business--Customers and Representative Projects" and "Certain
Transactions--Agreements with Cognizant."
Approximately 95.8%, 88.8%, 73.7% and 70.2% of the Company's revenues in
1995, 1996, 1997 and the three months ended March 31, 1998, respectively, were
generated from current and former affiliates of the Company and The Dun &
Bradstreet Corporation, including approximately 26.1%, 36.4%, 41.8% and 36.2%,
respectively, from Cognizant and its current subsidiaries. In addition, the
Company has derived and believes that it will continue to derive a significant
portion of its revenues from a limited number of large third-party customers.
During 1995, 1996, 1997 and the three months ended March 31, 1998, the Company's
five largest customers (other than Cognizant and its current subsidiaries)
accounted for 73.8%, 60.0%, 36.6% and 45.6% of revenues, respectively. In 1995,
Dun & Bradstreet Software (which was subsequently acquired by GEAC), The Dun &
Bradstreet Corporation and ACNielsen, all of whom were affiliates of the Company
prior to November 1996, accounted for approximately 32.9%, 17.4% and 14.6%,
respectively, of the Company's revenues. In 1996, Dun & Bradstreet Software,
ACNielsen and The Dun & Bradstreet Corporation accounted for approximately
17.9%, 14.6% and 13.3%, respectively, of the Company's revenues. In 1997,
ACNielsen accounted for 13.9% of the Company's revenues. For the three
24
<PAGE>
months ended March 31, 1998, ACNielsen and GEAC accounted for 14.5% and 12.1% of
the Company's revenues, respectively. The volume of work performed for Cognizant
and its subsidiaries and other customers is likely to vary from year to year,
and a major customer, whether affiliated or unaffiliated, in one year may not
provide the same level of revenues in any subsequent year. See "Risk
Factors--Customer Concentration" and "--Limited Operating History With
Unaffiliated Customers; Limited Third-Party Revenues To Date."
Approximately 31.0%, 26.4%, 44.4% and 46.8% of the Company's revenues were
derived from Year 2000 compliance services in 1995, 1996, 1997 and the three
months ended March 31, 1998, respectively. Application development services
represented approximately 24.4%, 20.9%, 19.4% and 22.1% of the Company's
revenues in 1995, 1996, 1997 and the three months ended March 31, 1998,
respectively. Application maintenance services accounted for 33.8%, 44.2%, 28.4%
and 21.7% of the Company's revenues in 1995, 1996, 1997 and the three months
ended March 31, 1998, respectively.
The Company's services are performed on either a time-and-materials or
fixed-price basis. The Company expects that an increasing number of its future
projects will be fixed-price rather than time-and-materials (which has
historically been the basis for its contracts). Revenues related to
time-and-materials contracts are recognized as the service is performed.
Revenues related to fixed-price contracts are recognized using the
percentage-of-completion method of accounting, under which the sales value of
performance, including earnings thereon, is recognized on the basis of the
percentage that each contract's cost to date bears to the total estimated cost.
Estimates are subject to adjustment as a project progresses to reflect changes
in expected completion costs or dates. The cumulative impact of any revision in
estimates of the percentage of work completed is reflected in the financial
reporting period in which the change in the estimate becomes known, and any
anticipated losses are recognized immediately. Since the Company bears the risk
of cost over-runs and inflation associated with fixed-price projects, the
Company's operating results may be adversely affected by changes in estimates of
contract completion costs and dates. See "Risk Factors--Risks Associated with
Fixed-Price Projects."
The majority of the Company's revenues are earned within North America.
Revenues outside of North America totaled $1.4 million, $2.4 million, $3.5
million and $1.7 million in 1995, 1996, 1997 and the three months ended March
31, 1998, respectively. Revenues outside of North America have historically been
generated primarily in the United Kingdom and Germany. As a percentage of
revenues, revenues outside of North America represented 20.0%, 19.9%, 14.3% and
16.6% in 1995, 1996, 1997 and the three months ended March 31, 1998,
respectively. The primary denomination for invoices issued by the Company is
U.S. dollars, with the exception of invoices issued in Canada and the United
Kingdom which are issued in local currency. Gains and losses as a result of
fluctuations in foreign currency exchange rates have not had a significant
impact on results of operations.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................. 49.7 50.0 58.0 56.6 57.9
--------- --------- --------- --------- ---------
Gross profit...................................... 50.3 50.0 42.0 43.4 42.1
Selling, general and administrative expense....... 36.1 37.8 33.4 39.6 31.1
--------- --------- --------- --------- ---------
Income from operations............................ 14.2 12.2 8.6 3.9 11.0
Interest income................................... 0.1 0.1 0.1 -- 0.3
Other income, net................................. 0.6 -- -- -- (0.2)
--------- --------- --------- --------- ---------
Total other income.............................. 0.7 0.1 0.1 -- 0.1
Income before provision for income taxes.......... 14.9 12.3 8.7 3.9 11.1
Provision for income taxes........................ (3.4) (2.8) (2.3) (0.4) (4.1)
Minority interest................................. (5.0) (4.1) (2.2) (2.4) --
--------- --------- --------- --------- ---------
Net income........................................ 6.4% 5.3% 4.2% 1.0% 7.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUES. The Company's revenues increased 140.6% from $4.3 million
in the three months ended March 31, 1997 to $10.2 million in the three months
ended March 31, 1998. This increase included $3.1 million of increased sales of
Year 2000 compliance services, and $2.8 million of increased sales of software
development, maintenance and Eurocurrency compliance services. The percentage of
revenues from unrelated parties increased from 50.2% or $2.1 million in the
three months ended March 31, 1997 to 63.8% or $6.5 million in the three months
ended March 31, 1998. This increase resulted from the Company's continued
efforts to pursue unaffiliated third-party customers.
GROSS PROFIT. Gross profit increased 133.0% from $1.8 million in the three
months ended March 31, 1997 to $4.3 million in the three months ended March 31,
1998. As a percentage of revenues, gross profit declined from 43.4% in the three
months ended March 31, 1997 to 42.1% in the three months ended March 31, 1998.
Cost of revenues, consisting primarily of the cost of salaries, payroll taxes,
benefits, immigration and travel for technical personnel, and the cost of sales
commissions related to revenues increased from $2.4 million in the three months
ended March 31, 1997 to $5.9 million in the three months ended March 31, 1998.
The increase in cost of revenues was primarily attributable to an increase in
the number of the Company's technical professionals from approximately 650
employees at March 31, 1997 to approximately 1,060 employees at March 31, 1998.
The increase in cost of revenues as a percentage of revenues resulted primarily
from a movement in the mix of programmers from offshore to on-site locations,
which resulted in higher labor rates and lower gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense consists primarily of salaries, employee benefits,
travel, promotion, communications, management, finance, administrative and
occupancy costs. Selling, general and administrative expense increased 117.6%
from $1.7 million in the three months ended March 31, 1997 to $3.7 million in
the three months ended March 31, 1998. This increase resulted primarily from
expenses incurred to expand the Company's sales and marketing activities and the
Company's infrastructure to support revenue growth. As a percentage of revenues,
selling, general and administrative expense declined from 39.6% in the three
months ended March 31, 1997 to 31.1% in the three months ended March 31, 1998.
Management expects selling, general and administrative expense to continue to
increase in absolute dollars to support the planned growth of the
26
<PAGE>
Company. Management also expects the Company's accounting, insurance and legal
fees and expenses to increase after the consummation of this offering as a
result of being a public company. Moreover, if Cognizant ceases to own at least
50% of the outstanding Common Stock of the Company, the Company may no longer be
able to participate in certain insurance and employee benefit plans as a
subsidiary of Cognizant and the expenses of obtaining coverage and maintaining
such plans would increase. See "Certain Transactions."
INCOME FROM OPERATIONS. Income from operations increased from $165,000 in
the three months ended March 31, 1997 to $1.1 million in the three months ended
March 31, 1998, representing 3.9% and 11.0% of revenues, respectively. The
increase in operating margin was primarily due to the increased third-party
revenue resulting from the Company's sales and marketing efforts during 1997.
PROVISION FOR INCOME TAXES. Historically, the Company has been included in
the consolidated federal income tax returns of The Dun & Bradstreet Corporation
and Cognizant. The Company's provision for income taxes in the consolidated
statements of income reflects federal and state income taxes calculated on the
Company's separate income. The provision for income taxes increased from $19,000
in the three months ended March 31, 1997 to $426,000 in the three months ended
March 31, 1998, resulting in an effective tax rate of 11.4% in 1997 and 37.4% in
1998. Without the effect of minority interest, the effective tax rate would have
been approximately 30.6% in 1997.
MINORITY INTEREST. In the three months ended March 31, 1997, minority
interest expense was $104,000. This expense was attributable to profitability of
the Company's Indian subsidiary in which an unaffiliated third party held a
24.0% minority interest. The Company purchased the minority interest in October
1997 for $3.4 million. The Company has not recognized any minority interest
expense subsequent to such purchase.
NET INCOME. Net income was $44,000 in the three months ended March 31, 1997
as compared to $712,000 in the three months ended March 31, 1998, representing
1.0% and 7.0% of revenues, respectively.
YEARS ENDED DECEMBER 31, 1997 AND 1996
TOTAL REVENUES. The Company's revenues increased 105.7% from $12.0 million
in 1996 to $24.7 million in 1997. This increase included $7.8 million of
increased sales of Year 2000 compliance services, and $4.9 million of increased
sales of software development and maintenance services. The percentage of
revenues from unrelated parties increased from 23.1% or $2.8 million in 1996 to
56.2% or $13.9 million in 1997. This increase resulted from the full-year impact
in 1997 of the 1996 spin-off of Cognizant and the Company from The Dun &
Bradstreet Corporation, as well as the Company's expanded efforts to pursue
unaffiliated third-party customers. For statement of operations purposes,
revenues from related parties only include revenues recognized during the period
in which the related party was affiliated with the Company.
GROSS PROFIT. Gross profit increased 72.7% from $6.0 million in 1996 to
$10.4 million in 1997. As a percentage of revenues, gross profit declined from
50.0% in 1996 to 42.0% in 1997. Cost of revenues increased 138.5% from $6.0
million in 1996 to $14.4 million in 1997. The increase in cost of revenues was
primarily attributable to increases in the number of the Company's technical
professionals from approximately 500 employees at December 31, 1996 to
approximately 900 employees at December 31, 1997. The increase in cost of
revenues as a percentage of revenues resulted primarily from a movement in the
mix of programmers from offshore to on-site locations, which resulted in higher
labor rates and lower gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 81.6% from $4.5 million in 1996 to $8.3 million
in 1997. This increase resulted primarily from expenses incurred to expand the
Company's sales and marketing activities and the Company's infrastructure to
27
<PAGE>
support continued revenue growth as the Company opened its fourth development
center in India. As a percentage of revenues, selling, general and
administrative expense declined from 37.8% in 1996 to 33.4% in 1997.
INCOME FROM OPERATIONS. Income from operations increased 45.2% from $1.5
million in 1996 to $2.1 million in 1997, representing 12.2% and 8.6% of
revenues, respectively. The decrease in operating margin was primarily due to
the Company's investment in its expanding sales and marketing infrastructure to
support its strategy of continued pursuit of third-party customers and, to a
lesser extent, the movement in the mix of project staff from offshore to on-site
locations.
PROVISION FOR INCOME TAXES. The provision for income taxes increased 70.4%
from $341,000 in 1996 to $581,000 in 1997, resulting in an effective tax rate of
23.1% in 1996 and 27.0% in 1997. Without the effect of minority interest, the
effective tax rate would have been approximately 35.0% for both periods.
MINORITY INTEREST. In 1996, minority interest expense was $492,000 compared
to $545,000 in 1997. The increase in absolute dollars was attributable to
increased profitability of the Company's Indian subsidiary in which a third
party held the 24.0% minority interest offset by the effect on the income
statement of the purchase of such minority interest in October 1997 for $3.4
million. The Company has not recognized any minority interest expense subsequent
to such purchase.
NET INCOME. Net income was $642,000 in 1996 as compared to $1.0 million in
1997, representing 5.3% and 4.2% as a percentage of revenues, respectively.
YEARS ENDED DECEMBER 31, 1996 AND 1995
TOTAL REVENUES. The Company's revenues increased 67.7% from $7.2 million in
1995 to $12.0 million in 1996. This increase included $.9 million from increased
sales of Year 2000 compliance services, and $3.7 million of increased sales of
software development and maintenance services. The percentage of revenues from
unrelated parties increased from 4.2% in 1995 to 23.1% in 1996. This increase
resulted from the partial impact in 1996 of the spin-off of Cognizant and the
Company from The Dun & Bradstreet Corporation, as well as the Company's initial
efforts to pursue third-party contracts.
GROSS PROFIT. Gross profit increased 66.6% from $3.6 million in 1995 to
$6.0 million in 1996. As a percentage of revenues, gross profit remained
relatively constant at 50.3% in 1995 compared to 50.0% in 1996. Cost of revenues
increased 68.8% from $3.6 million in 1995 to $6.0 million in 1996. The increase
in cost of revenues was primarily attributable to increases in the number of the
Company's technical professionals, located both in India and the United States
from approximately 350 at December 31, 1995 to approximately 500 at December 31,
1996. As a percentage of revenues, cost of revenues remained relatively constant
at 49.7% in 1995 compared to 50.0% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased approximately 75.6% from $2.6 million in 1995
to $4.5 million in 1996. This increase resulted primarily from expenses incurred
to begin expansion of the Company's sales and marketing activities to attract
third-party customers and to expand the Company's infrastructure to support
continued revenue growth as the Company opened its third development center in
India. As a percentage of revenues, selling, general and administrative expenses
increased from 36.1% in 1995 to 37.8% in 1996.
INCOME FROM OPERATIONS. Income from operations increased 43.9% from $1.0
million in 1995 to $1.5 million in 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes increased 38.1%
from $247,000 in 1995 to $341,000 for 1996, resulting in an effective tax rate
of 23.1% in 1995 and 1996. Without the minority interest, the effective tax rate
would have been approximately 35.0% for both periods.
28
<PAGE>
MINORITY INTEREST. In 1995, minority interest expense was $362,000 compared
to $492,000 for 1996.
NET INCOME. Net income was $461,000 in 1995 as compared to $642,000 in
1996, representing 6.4% and 5.3% as a percentage of revenues, respectively.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the nine quarters in the period ended March 31,
1998, and the percentage of the Company's revenues represented by each item in
the respective quarters. In the opinion of management, all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results
when read in conjunction with the Consolidated Financial Statements and Notes
thereto. The unaudited results of operations for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues...................... $ 2,832 $ 3,038 $ 2,816 $ 3,345 $ 4,257 $ 5,319 $ 7,146
Cost of revenues.................... 1,349 1,415 1,496 1,761 2,407 3,144 4,146
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........................ 1,483 1,623 1,320 1,584 1,850 2,175 3,000
Selling, general and administrative
expense........................... 1,010 1,006 1,031 1,500 1,684 1,845 2,408
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations.............. 473 617 289 85 165 330 593
Interest income..................... 2 2 2 2 1 2 2
Other income........................ -- 1 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before provision for income
taxes............................. 475 621 291 87 166 332 596
Provision for income taxes.......... (114) (152) (65) (10) (19) (55) (110)
Minority interest................... (151) (150) (103) (88) (104) (170) (271)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................... $ 210 $ 319 $ 123 $ (11) $ 43 $ 107 $ 215
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share,
basic............................. $ 0.03 $ 0.05 $ 0.02 $ (--) $ 0.01 $ 0.02 $ 0.03
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share,
diluted........................... $ 0.03 $ 0.05 $ 0.02 $ (--) $ 0.01 $ 0.02 $ 0.03
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding................ 6,500 6,500 6,500 6,500 6,500 6,500 6,547
Weighted average number of common
shares and stock options
outstanding....................... 6,500 6,500 6,500 6,500 6,500 6,500 6,605
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 47.6 46.6 53.1 52.6 56.5 59.1 58.0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........................ 52.4 53.4 46.9 47.4 43.4 40.9 42.0
Selling, general and administrative
expense........................... 35.7 33.1 36.6 44.8 39.6 34.7 33.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations.............. 16.7 20.3 10.3 2.5 3.9 6.2 8.3
Interest income..................... 0.1 0.1 0.1 0.1 -- -- --
Income before provision for income
taxes............................. 16.8 20.4 10.3 2.6 3.9 6.2 8.3
Provision for income taxes.......... (4.0) (5.0) (2.3) (0.3) (0.4) (1.0) (1.5)
Minority interest................... (5.3) (4.9) (3.7) (2.6) (2.4) (3.2) (3.8)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................... 7.4% 10.5% 4.4% (0.4)% 1.1% 2.0% 3.0%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C>
DEC. 31, MAR. 31,
1997 1998
----------- -----------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues...................... $ 8,022 $ 10,238
Cost of revenues.................... 4,662 5,929
----------- -----------
Gross profit........................ 3,360 4,309
Selling, general and administrative
expense........................... 2,320 3,185
----------- -----------
Income from operations.............. 1,041 1,124
Interest income..................... 20 31
Other income........................ -- (17)
----------- -----------
Income before provision for income
taxes............................. 1,060 1,138
Provision for income taxes.......... (397) (426)
Minority interest................... -- --
----------- -----------
Net income (loss)................... $ 663 $ 712
----------- -----------
----------- -----------
Net income (loss) per share,
basic............................. $ 0.10 $ 0.11
----------- -----------
----------- -----------
Net income (loss) per share,
diluted........................... $ 0.10 $ 0.10
----------- -----------
----------- -----------
Weighted average number of common
shares outstanding................ 6,614 6,614
Weighted average number of common
shares and stock options
outstanding....................... 6,779 6,818
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues...................... 100.0% 100.0%
Cost of revenues.................... 58.1 57.9
----------- -----------
Gross profit........................ 41.9 42.1
Selling, general and administrative
expense........................... 28.9 31.1
----------- -----------
Income from operations.............. 13.0 11.0
Interest income..................... 0.2 0.3
Income before provision for income
taxes............................. 13.2 11.1
Provision for income taxes.......... (4.9) (4.2)
Minority interest................... -- --
----------- -----------
Net income (loss)................... 8.3% 7.0%
----------- -----------
----------- -----------
</TABLE>
29
<PAGE>
The Company's revenues have generally increased on a quarterly basis. The
increase in revenues during 1997 was due, in part, to new customer engagements
resulting from the Company's strategy to pursue third-party revenues and the
associated expansion of its sales and marketing efforts. The quarterly decline
in gross profit during the periods resulted from a movement in the mix of
programmers from offshore to on-site locations, which normally results in higher
labor rates and lower gross margins. Income from operations declined in late
1996 and early 1997 due to the Company's investment in expansion of its sales
and marketing efforts. Minority interest expense ceased after the quarter ended
September 30, 1997 due to the Company's acquisition of the 24.0% minority
interest in its Indian subsidiary for $3.4 million in October 1997.
The Company historically has experienced significant quarterly fluctuations
in revenues and results of operations and expects these fluctuations to
continue. Among the factors causing these variations have been the number,
timing, scope and contractual terms of software development and maintenance
projects in which the Company is engaged, delays incurred in the performance of
such projects, the accuracy of estimates of resources and time required to
complete ongoing projects and general economic conditions. In addition, the
Company's future revenues and operating results may fluctuate as a result of
changes in pricing in response to customer demand and competitive pressures, the
mix of on-site and offshore staffing and the ratio of fixed-price contracts
versus time-and-materials contracts, the timing of collection of accounts
receivable and the breakdown of revenues by distribution channel. A high
percentage of the Company's operating expenses, particularly personnel and rent,
are relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the Company's projects or
in employee utilization rates may cause significant variations in operating
results in any particular quarter, and could result in losses to the Company.
Any significant shortfall of revenues in relation to the Company's expectations,
any material reduction in utilization rates for the Company's professional staff
or variance in the on-site, offshore staffing mix, an unanticipated termination
of a major project, a customer's decision not to pursue a new project or proceed
to succeeding stages of a current project or the completion during a quarter of
several major customer projects could require the Company to pay underutilized
employees and could therefore have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's quarterly operating results are also subject to certain
seasonal fluctuations. The Company has in the past recruited new professional
staff in the first and second quarters and such employees have not conducted
billable services until later in the year. The Company's third quarter includes
the months of July and August, when billable services activity by professional
staff, as well as engagement decisions by customers, may be reduced due to
summer vacation schedules. Demand for the Company's services may be lower in the
fourth quarter due to reduced activity during the holiday season and fewer
working days for those customers that curtail operations during such period.
These and other seasonal factors may contribute to fluctuations in the Company's
operating results from quarter to quarter. See "Risk Factors--Risk of
Significant Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funding have been cash flow from operations
and intercompany cash transfers from its parent. Working capital was $1.1
million, $2.8 million and $5.7 million as of December 31, 1995, 1996 and 1997,
respectively, and $6.9 million as of March 31, 1998. This increase was due
primarily to a higher level of accounts receivable.
The Company's operating activities provided net cash of $1.0 million, $1.9
million and $1.7 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The decline for 1997 compared to 1996 reflects a higher level of
accounts receivable primarily due to increased revenues, partially offset by
increased income, accrued liabilities, accounts payable and deferred taxes.
Accounts receivable increased from $2.7 million at December 31, 1996, to $7.4
million at December 31, 1997 and to $7.7 million at
30
<PAGE>
March 31, 1998. For the three months ended March 31, 1998, the Company's
operating activities used net cash of $0.6 million.
The Company's investing activities used net cash of $1.7 million, $1.3
million and $6.4 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The increase for 1997 compared to 1996 reflects the $3.4 million
used to fund the acquisition of the minority interest in the Company's Indian
subsidiary and increased purchases of equipment to expand the Company's offshore
development infrastructure. For the three months ended March 31, 1998, the
Company's investing activities used net cash of $0.9 million.
The Company's financing activities provided net cash of $1.1 million, $0.7
million and $5.7 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The increase for 1997 compared to 1996 resulted primarily from the
increase in the intercompany balance with the Company's parent of $5.7 million,
in part due to the acquisition of the minority interest in the Indian
subsidiary. For the three months ended March 31, 1998, the Company's financing
activities used net cash of $0.2 million.
As of March 31, 1998, the Company had no significant third-party debt. The
Company has been part of The Dun & Bradstreet Corporation's and Cognizant's cash
management systems and has relied on these systems for its working capital and
other financing needs. As part of these systems, the Company's cash balances
were kept to a minimum. Upon consummation of this offering, the Company will
settle its outstanding non-trade intercompany balance with Cognizant. As of
March 31, 1998, this balance was approximately $6.5 million. This amount is
subject to change based on the Company's operations between March 31, 1998 and
the consummation of this offering.
The Company anticipates capital expenditures will be approximately $3.5
million subsequent to this offering during the remainder of 1998, primarily for
hardware, software and leasehold improvements to support the addition of
technical professionals located in India.
The Company believes that the proceeds from the sale of the Class A Common
Stock offered by the Company hereby together with funds generated from
operations will be sufficient to finance the Company's operations for at least
the next 18 months. The Company's ability to expand and grow its business in
accordance with its current plans, to make acquisitions and to meet its
long-term capital requirements beyond this 18-month period will depend on many
factors, including, but not limited to, the rate, if any, at which the Company's
cash flow increases, the ability and willingness of the Company to accomplish
acquisitions with its capital stock and the availability to the Company of
public and private debt and equity financing. No assurance can be given that
additional financing, if required, will be available or that, if available, it
will be available on terms favorable to the Company. See "Use of Proceeds."
FOREIGN CURRENCY TRANSLATION. The assets and liabilities of the Company's
Canadian and European subsidiaries are translated into U.S. dollars at current
exchange rates and revenues and expenses are translated at average monthly
exchange rates. The resulting translation adjustments are recorded in a separate
component of stockholders' equity. For the Company's Indian subsidiary, the
functional currency is the U.S. dollar since its sales are made primarily in the
United States, the sales price is predominantly in U.S. dollars and there is a
high volume of intercompany transactions denominated in U.S. dollars between the
Indian subsidiary and its U.S. affiliates. Non-monetary assets and liabilities
are translated at historical exchange rates, while monetary assets and
liabilities are translated at current exchange rates. A portion of the Company's
costs in India are denominated in local currency and subject to exchange rate
fluctuations, which has had no material adverse effect on the Company's results
of operations.
EFFECTS OF INFLATION
The Company's most significant costs are the salaries and related benefits
for its programming staff and other professionals. Competition in India and the
United States for professionals with advanced technical skills necessary to
perform the services offered by the Company have caused wages to increase at
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a rate greater than the general rate of inflation. As with other IT service
providers, the Company must adequately anticipate wage increases, particularly
on its fixed-price contracts. There can be no assurance that the Company will be
able to recover cost increases through increases in the prices that it charges
for its services in the United States and elsewhere. See "Risk
Factors--Extremely Competitive Market for Technical Personnel" and "--Risks
Associated with Fixed-Price Projects."
RISKS ASSOCIATED WITH THE YEAR 2000
The Company does not believe that it has any material exposure to the Year
2000 issue with respect to its own information systems. With the exception of
the Company's financial accounting system, all of the Company's systems
correctly define the year 2000 and subsequent years. The Company expects to
install the available year 2000 compliant upgrade to its financial accounting
software at the end of 1998. However, the Company might face additional exposure
to the Year 2000 problem if it were to acquire a business with exposure to the
Year 2000 problem. See "Risk Factors--Risks Associated with Possible
Acquisitions."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income in the
financial statements. The Company has implemented SFAS No. 130. The adoption of
this pronouncement did not have a material effect on the Company's financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the manner in which public companies report information about operating
segments in annual and interim financial statements. The Company will be
required to implement SFAS No. 131 for the year ending December 31, 1998. The
Company expects that the adoption of this pronouncement will not have a material
effect on the Company's financial statements.
In October 1997, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which provides guidance on when and in what amounts revenue should
be recognized for the licensing, selling, leasing or marketing of computer
software. This statement is effective for the periods beginning after December
15, 1997. The adoption of this pronouncement did not have a material effect on
the Company's financial statements.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
About Pension and Other Postretirement Benefits," which changes current
financial statement disclosure requirements from those required under SFAS 87,
Employers' Accounting for Pensions, SFAS 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS 106, Employers' Accounting for Postretirement
Benefits Other than Pensions. The statement does not change the existing
measurement or recognition provisions of FASB Statement Nos. 87, 88 or 106, and
is effective for the fiscal years beginning after December 15, 1997. The Company
is in the process of evaluating the disclosure requirements under this standard.
In March 1998, the AICPA issued SOP 98-1, "Accounting For The Costs Of
Computer Software Developed Or Obtained For Internal Use." SOP 98-1 provides
guidance on costs to be capitalized and when capitalization of such costs should
commence. SOP 98-1 applies to costs incurred after adoption, including costs for
software projects that are in progress at the time of adoption. The Company is
evaluating the impact of this SOP on its financial position and results of
operations and will be required to implement SOP 98-1 for fiscal years beginning
after December 15, 1998.
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BUSINESS
OVERVIEW
Cognizant Technology Solutions Corporation delivers high-quality,
cost-effective, full life cycle solutions to complex software development and
maintenance problems through the use of a seamless on-site and offshore project
team. These solutions include application development and maintenance services,
Year 2000 and Eurocurrency compliance services, testing and quality assurance
services and re-hosting and re-engineering services. CTS provides world-class
service to its customers through an integrated business model that combines a
technical and account management team located on-site at the customer location
and six development centers located in India.
The Company markets and sells its services directly through its professional
staff, senior management and direct sales personnel operating out of its New
York City headquarters and its regional offices, as well as through independent
sales agents. Historically, the Company has provided services principally to
affiliated companies and has only recently begun to provide services to
third-party customers. During the period from January 1, 1997 to March 31, 1998,
the Company provided services to a total of 27 customers, including ACNielsen,
Aetna Canada, CSC Consulting, Cognizant, Douglas County, Nebraska, The Dun &
Bradstreet Corporation, First Data Investor Services Group, Inc., GEAC,
Manugistics, Inc., Northwest Airlines, Inc., the Pacific Exchange, Pilot
Software and SQM.
INDUSTRY BACKGROUND
Many companies today face increasing customer demands to improve service
levels, lower costs and shorten time to market. In this competitive environment,
improving IT systems is one critical way to achieve these objectives. At the
same time, the pace of technology evolution has accelerated and companies are
increasingly adopting emerging technologies, such as client/server
architectures, data warehousing, Internet/intranet applications and
object-oriented development in order to remain competitive. Although these
emerging technologies offer the promise of faster, more functional and more
flexible IT systems, their implementation presents major challenges and requires
a large number of highly skilled individuals trained in many diverse
technologies and architectures. In addition, companies also require additional
technical resources to maintain their large legacy systems and to address Year
2000 and Eurocurrency compliance issues.
Many companies have made the strategic decision to focus on their core
competencies and reduce their cost structures rather than invest in the large IT
staffs that are necessary to evaluate, implement and manage IT initiatives.
Consequently, these companies have turned to IT service providers both to
develop and implement new IT solutions and to maintain legacy systems. Industry
sources estimate that the worldwide market for IT services, which includes data
center management, distributed or client/server environment computing, local and
wide area network operations, application development and maintenance and help
desk operations, was approximately $32.0 billion in 1997 and is expected to grow
at a compounded annual growth rate of 12.0% through 2001.
As the demand for IT services has increased, the number of qualified
technical professionals has not kept pace with such demand. As a result, some IT
service providers have attempted to access the large talent pool in certain
developing countries, such as India, which is widely acknowledged as the leader
in offshore software development. Historically, IT service providers have used
the offshore labor pool primarily to supplement the internal staffing needs of
customers. However, evolving customer demands have led to the utilization of
offshore resources for higher value-added services, such as application
development and maintenance. The use of offshore personnel can offer a number of
benefits, including faster delivery of new IT solutions, more flexible
scheduling and lower costs. However, utilizing an offshore workforce to provide
value-added services presents a number of challenges to IT service providers.
The offshore implementation of value-added software services requires highly
developed project management skills to design, develop and deploy high quality
solutions in a timely and cost-effective
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manner. In addition, IT service providers must have the methodologies, processes
and communications capabilities to successfully integrate offshore workforces
with on-site personnel. Additionally, service providers utilizing offshore
workforces must continually recruit and manage their workforces to deliver
solutions using emerging technologies. As a result of the increasing demand for
global IT services, a significant opportunity exists for IT service providers
that can successfully address the challenges in utilizing an offshore talent
pool.
THE CTS SOLUTION
CTS delivers high-quality, cost-effective, full life cycle solutions to
complex software development and maintenance problems through the use of a
seamless on-site and offshore project team. These solutions include application
development and maintenance services, Year 2000 and Eurocurrency compliance
services, testing and quality assurance services and re-hosting and
re-engineering services. The Company provides world-class service to its
customers through an integrated business model which combines a technical and
account management team located on-site at the customer location and six
development centers located in India. To support this business model, the
Company has recruited and trained in excess of 1,000 programmers in India and
put in place a well developed facilities, technology and communications
infrastructure. By basing its technical operations in India, the Company has
access to a large pool of skilled, English-speaking IT professionals with which
to service customers on a cost basis significantly lower than in developed
countries. The main elements of the CTS solution, which the Company believes
differentiate it from other IT service providers, include the following:
ESTABLISHED AND SCALEABLE PROPRIETARY PROCESSES. To facilitate the
cost-effective, on-time delivery of high-quality projects integrating an on-site
and offshore team, the Company has developed proprietary methodologies
encapsulated in its QVIEW software engineering process, which is available to
all on-site and offshore programmers. The Company utilizes this ISO 9000
certified process to define and implement projects from the design, development
and deployment stages through to ongoing application maintenance. For every
project, QVIEW is used to make an extensive front-end assessment defining the
scope and risks of the project and to subdivide the project into smaller phases
with frequent deliverables and feedback from customers. The Company also
utilizes its QVIEW process to detect, mitigate and correct quality defects and
to establish appropriate contingencies for each project. In order to ensure
implementation of its quality process, the Company assigns a quality facilitator
to each project who reports to a centralized quality assurance and software
engineering group. This group performs, on a sample basis, continuous quality
audits, deliverables verifications, metrics collection and analysis, which are
used to continually improve the Company's processes and methodologies. The
Company's processes and methodologies have proven to be scaleable as the Company
has increased its number of offshore development centers, customers and
projects.
HIGHLY SKILLED WORKFORCE. The Company has placed significant emphasis on
recruiting and training its workforce of highly skilled professionals and
ensuring that they are versed in the Company's processes and methodologies,
particularly the QVIEW software engineering process. The Company has
approximately 100 project managers and senior technical personnel on its staff,
many of whom have significant work experience in the United States. The
Company's project managers and senior technical personnel provide in-depth
project management expertise to customers. The Company maintains programs and
personnel, including an extensive campus recruiting program, to hire the best
available technical professionals and to train these professionals in both
legacy systems and emerging technologies, as well as the Company's software
development and quality processes. The Company provides five months of combined
classroom and on-the-job training to new hires and additional training each year
to continually enhance the business practices, tools, technology and consulting
skills of its professional staff.
FULL RANGE OF TECHNOLOGIES. The Company has project experience and
expertise across multiple architectures and technologies, including emerging
technologies such as data warehousing, Internet/ intranet applications and
object-oriented development. Because most of the Company's programmers are
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trained in multiple technologies and architectures, the Company is able to react
to customers' needs and quickly redeploy programmers to new technologies. In
addition, through its internal research and development activities and the
continuing education of its technical personnel, the Company assures that its
collective skillset keeps pace with emerging technologies. The ability to work
in new technologies allows the Company to address the needs of its customers and
to foster long-term relationships.
WELL DEVELOPED INFRASTRUCTURE. The Company's extensive facilities,
technology and communications infrastructure facilitates the seamless
integration of its on-site and offshore workforces by permitting team members in
different locations to access common project information and to work directly on
customer projects. This infrastructure allows for rapid completion of projects,
off-peak utilization of customers' technological resources and real-time access
to project information by the on-site account manager or the customer. By using
the excess capacity of a customer's existing computing facilities during
off-peak hours, the Company's offshore development centers can undertake
additional projects without substantial customer investment in new hardware and
software. In addition, for large projects with short time frames, the Company's
offshore facilities allow for parallel processing of various development phases
to accelerate delivery time.
STRATEGY
The Company's objective is to be a leading provider of full life cycle
software development and maintenance services utilizing an on-site and offshore
model. The Company plans to pursue the following strategies to achieve this
objective:
DEVELOP LONG-TERM CUSTOMER RELATIONSHIPS AND STRATEGIC ALLIANCES. The
Company seeks to develop long-term strategic relationships with customers and
business partners and to leverage these relationships into additional project
opportunities. For example, the Company intends to use its Year 2000 compliance
expertise to establish relationships with new customers. The Company believes
that the knowledge of customers' systems gained during the performance of Year
2000 compliance services will provide a competitive advantage in securing
additional software development and maintenance projects from these customers.
In addition, the Company believes that through its working relationships with
independent software vendors it can obtain projects from such vendors' customers
due to the detailed knowledge gained by the Company in the development process.
EXTEND SERVICE OFFERINGS AND SOLUTIONS. The Company has a team dedicated to
developing new service offerings in emerging technologies and also collaborates
with its customers to develop such offerings. For example, the Company has
recently undertaken Eurocurrency compliance projects and is developing
proprietary solutions using data warehousing and Internet/intranet technology.
To facilitate the development of new solutions, the Company conducts internal
research and development and promotes knowledge building and sharing across the
organization. The Company believes that the continued expansion of its service
offerings will reduce its reliance on any one technology initiative and foster
long-term relationships with its customers.
ENHANCE PROCESSES, METHODOLOGIES AND PRODUCTIVITY TOOLSETS. The Company is
committed to improving and enhancing its proprietary QVIEW software engineering
process and other methodologies and toolsets. With the rapid evolution of
technology, the Company believes that continued investment in research and
development is critical to its success. The Company currently is designing and
developing new productivity software tools to automate testing processes and
improve project estimation and risk assessment techniques. The Company
continually refines its processes by utilizing groupware technology to share
project experience and best practice methodologies across the organization.
EXPAND GEOGRAPHIC PRESENCE. As the Company expands its customer base, it
plans to open additional sales and marketing offices in the United States to
enable it to sell to and support existing and prospective customers. In
addition, the Company intends to pursue market opportunities in Europe through
its recently established U.K. office.
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PURSUE SELECTIVE STRATEGIC ACQUISITIONS. The Company believes that
opportunities exist in the fragmented IT services market to expand its business
through selective strategic acquisitions. The Company believes that acquisition
candidates may enable it to expand its geographic presence, enter new technology
areas or expand capacity.
SERVICES
CTS provides a broad range of software services, including: (i) application
development; (ii) application maintenance support; (iii) Year 2000 compliance;
(iv) Eurocurrency compliance; (v) testing and quality assurance; and (vi)
re-hosting and re-engineering. The Company 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 these services, the Company utilizes its QVIEW proprietary processes and
methodologies to define the execution and delivery of the projects.
<TABLE>
<CAPTION>
SERVICE SUMMARY DESCRIPTION OF SERVICE OFFERINGS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Application Development................................. Define requirements, write specifications and design,
develop and test software.
Application Maintenance Support......................... Support some or all of a customer's applications
ensuring that systems remain operational and responsive
to changing user requirements.
Year 2000 Compliance.................................... Renovate applications to correctly process dates in the
next century, including impact analysis, code
conversion, testing and implementation.
Eurocurrency Compliance................................. Renovate applications to correctly process transactions
which are denominated in Eurocurrency, as well as
existing currencies.
Testing and Quality Assurance........................... Test source and/or binary code to verify that it
conforms to specifications and compatibility
requirements.
Re-hosting and Re-engineering........................... Modify and test applications to enable systems to
function in new operating environments.
</TABLE>
APPLICATION DEVELOPMENT SERVICES. The Company develops new applications for
IBM mainframe, client/server architectures and other emerging technology
environments. The Company follows either of two alternative approaches,
including (i) full life cycle application development, in which the Company
assumes total start-to-finish responsibility and accountability for analysis,
design, implementation and testing of systems, or (ii) cooperative development,
in which the Company's employees work with a customer's in-house IT personnel to
jointly analyze, design, implement and test new systems. In both cases, the
Company'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 the Company's six
software development centers located in India. In addition, the Company
maintains an on-site presence at the customer's location in order to address
evolving customer needs and resulting changes to the project.
APPLICATION MAINTENANCE SUPPORT SERVICES. The Company provides services to
ensure that a customer's legacy software systems are operational and responsive
to end-users' changing needs. In doing so, the Company is often able to
introduce process enhancements and improve service levels to customers
requesting modifications and on-going support.
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Through its on-site and offshore delivery model, the Company 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.
Routine maintenance services, including modifications, enhancements and
documentation, which typically have longer turn around times, are completed
offshore utilizing satellite telecommunications and the resources of the
Company's software development centers.
YEAR 2000 COMPLIANCE SERVICES. With the year 2000 approaching, computer
software systems that were not designed to correctly process dates in the next
century are expected to fail. Organizations rely on mission-critical software
systems and must either repair the problem presented by the Year 2000 issue or
replace legacy systems.
The Company uses its proprietary Year 2000 toolset and methodology, Century
Transition Services 2000, to provide a cost-effective total solution for all
phases of a Year 2000 compliance project. The Century Transition Services 2000
methodology covers the entire life cycle of a Year 2000 compliance project, and
is comprised of a seven step process: (i) inventory preparation; (ii) impact
analysis; (iii) strategy and design; (iv) code change and data migration; (v)
unit, system and acceptance testing; (vi) implementation; and (vii)
post-implementation support. The Company believes that it differentiates itself
from its competitors through the use of its Century Transition Services 2000.
The Century Transition Services 2000 toolset covers a wide array of common
programming languages and environments including many client/server
environments. This toolset is capable of identifying Year 2000 problems in
COBOL, Model 204, SAS, Mark IV, CLIST, REXX, PL/1, IBM Mainframe Assembler,
TELON, JCL and other languages. In the midrange and client/server environment,
the Company's toolset addresses, among other languages, C, C++, Visual Basic,
PowerBuilder, Sybase, MS-Office (Word, Excel, Access), Oracle, Informix,
Paradox, Clipper, FoxPro and Lotus Notes. The Company is thus able to provide
complete solutions across a large portion of customers' systems.
EUROCURRENCY COMPLIANCE SERVICES. The upcoming monetary union of the
European Community presents a significant opportunity for the Company as
computer systems which deal with any European denominated currency will need to
be modified to handle local currency and Eurocurrency transactions. Based on the
current schedule for European monetary unification, non-cash Euro transactions
will start on January 1, 1999, bank notes and coins will start circulating on
January 1, 2002 and national currencies will be withdrawn by July 1, 2002.
The Company has begun to address the Eurocurrency compliance problem and has
established a dedicated practice to focus on this problem. The Company believes
that portions of its Year 2000 toolset and methodology can be extended to
efficiently address the Eurocurrency compliance needs of customers.
TESTING AND QUALITY ASSURANCE SERVICES. Testing and quality assurance is a
critical aspect of any software development activity. The Company works with
customers to better define the quality assurance processes which are in use by
the customers' in-house IT departments. The Company utilizes its quality
assurance expertise, based on its QVIEW software engineering process, to ensure
better quality software through fundamental process improvements.
The Company also advises certain customers, principally independent software
vendors, on testing applications which may or may not have been developed by the
Company. Various types of testing services such as top-down testing, bottom-up
testing, black-box/white-box testing, unit testing, integration testing and
system testing are provided by a large offshore team in a short time, with
minimal impact on product release. Defect tracking is automated by a
CTS-developed tool that ensures that all detected defects are tracked to
closure.
RE-HOSTING AND RE-ENGINEERING SERVICES. Through the Company's re-hosting
and re-engineering service offerings, the Company works with customers to
migrate systems based on legacy computing
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environments to newer, open systems-based platforms and client/server
architectures. The Company's re-engineering tools automate many of the processes
required to implement advanced client/server technologies, thereby substantially
reducing the time and cost to perform these services. These tools enable the
Company to perform source code analysis and to re-design target databases and
convert certain programming languages. If necessary, the Company's software
engineers also re-design and convert user interfaces.
CUSTOMERS AND REPRESENTATIVE PROJECTS
Historically, the Company has provided services principally to affiliated
companies. The Company has provided services to third-party customers only for a
limited time and has generated only limited revenues from such engagements.
During the period from January 1, 1997 to March 31, 1998, the Company provided
services to a total of 27 customers. The Company received revenues in excess of
$200,000 in 1997 from ACNielsen, Aetna Canada, CSC Consulting, Cognizant,
Douglas County, Nebraska, The Dun & Bradstreet Corporation, First Data Investor
Services Group, Inc., GEAC, Manugistics, Inc., Northwest Airlines, Inc., the
Pacific Exchange, Pilot Software and SQM. During 1997 and the three months ended
March 31, 1998, the Company's top five third-party customers accounted for 36.6%
and 45.6% of revenues, respectively. During 1997 and the three months ended
March 31, 1998, Cognizant and its current subsidiaries accounted for 41.8% and
36.2% of revenues, respectively. The volume of work performed for specific
customers is likely to vary from year to year, and a significant customer in one
year may not use the Company's services in a subsequent year. See "Risk
Factors--Customer Concentration" and "--Limited Operating History With
Unaffiliated Customers; Limited Third-Party Revenues To Date."
While customer engagements vary, the following examples illustrate the types
of business needs the Company has addressed:
APPLICATION DEVELOPMENT FOR NIELSEN MEDIA RESEARCH. Nielsen Media Research,
a subsidiary of Cognizant, is the leading provider of television information
services, both nationally and locally, for television networks and affiliates,
independent stations, syndicators, cable networks, cable systems, advertisers
and advertising agencies in the United States and Canada. Nielsen Media Research
contracted with the Company to develop a new media planning product called New
Millennium. The product, which collects, sorts and analyzes large amounts of
research data from Nielsen Media Research's database, addresses the information
and planning needs of media planners such as advertising agencies, television
stations and Internet advertisers. This allows media planners to optimize the
allocation of media dollars across various media outlets in order to maximize
the return on customers' advertising budgets.
As part of the project, the Company provided overall project management,
application design, development and testing. The Company worked closely with
Nielsen Media Research to specify, design, implement and test the New Millenium
product. The Company worked with Nielsen Media Research subject matter experts,
end-users and internal IT staff to define the product requirements. During the
design phase of the project that was conducted on-site, an offshore CTS team
provided extensive prototype development support. The offshore team also
performed all of the construction and testing for the product, working
simultaneously with the on-site team to ensure that customer requirements were
fully met.
APPLICATION MAINTENANCE FOR AETNA LIFE INSURANCE COMPANY OF CANADA. Aetna
Canada is a leading provider of individual life and disability insurance
products and one of the top ten providers of employee group benefits in Canada.
In early 1997, the Company was engaged by Aetna Canada to provide maintenance,
enhancement and support services for Aetna Canada's Employee Benefit Services
Systems. The system is comprised of several large IBM mainframe-based
applications, which were developed more than ten years ago. The system tends to
be highly volatile as frequent regulatory changes and user requirement changes
are required to keep the system operational. Working on-site, CTS employees
worked with Aetna Canada technical and application experts before returning to
the CTS software development centers in India, where second level
(non-emergency) support is currently being provided. In addition, a core team of
CTS employees remain on-site at Aetna Canada to provide emergency and time
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critical maintenance, enhancement and support, as required. By outsourcing the
maintenance of this system to the Company, Aetna Canada has been able to improve
service levels by creating a 24-hour maintenance cycle. Aetna Canada has also
benefited from the flexible staffing that the Company is able to provide to
cover peak demand situations.
RE-ENGINEERING OF DATA MANAGEMENT SYSTEM FOR IMS AMERICA. IMS America, Ltd.
("IMS America"), a subsidiary of Cognizant, is a leading provider of business
information to the pharmaceutical and healthcare industries. One of IMS
America's flagship products, DDD-TM-, is used by pharmaceutical manufacturers in
the United States to monitor and measure product movement through the
marketplace. IMS America decided in 1995 to re-engineer one of the core data
management processes that supported the DDD product lines. Working with CSC
Consulting, the Company designed, developed, and implemented a new data
management system to accomplish these goals. Working in on-site design sessions
with CSC consultants and IMS America, the Company first developed a conceptual
system prototype to support the redesigned business process. An offshore team
then developed a functional prototype that was tested and refined in on-site
business processing simulations. Detailed design was performed primarily
on-site, and construction and testing of the system was then performed offshore,
with concurrent on-site coordination and integration testing. By utilizing a
rules-based pattern matching engine and a three-tiered client/ server
architecture, the system reduced the number of unresolved exceptions in the data
management process and significantly reduced the number of days to process the
data, which improved productivity and provided faster results to customers.
YEAR 2000 COMPLIANCE FOR THE PACIFIC EXCHANGE. The Pacific Exchange is
America's third most active stock exchange and third largest stock options
market. The Pacific Exchange operates automated equities trading floors in San
Francisco and Los Angeles, trading more than 2,600 stocks, bonds, options and
warrants.
The Pacific Exchange engaged the Company to provide Year 2000 compliance
services to support the trading of long-term options with expiration dates in
the next century. A significant risk existed that if the project was not
completed on time, it would result in long-term options failing to trade
properly on the Pacific Exchange. The Company was involved in all aspects of the
Year 2000 compliance project, including impact analysis, code compliance,
testing and implementation, and was able to complete the project within budget
and ahead of schedule. Following the successful completion of the Year 2000
compliance of the options system, the Pacific Exchange has engaged the Company
on various other Year 2000 and non-Year 2000 projects.
SALES AND MARKETING
The Company markets and sells its services directly through its professional
staff, senior management and direct sales persons operating out of its New York
City headquarters and business development offices in Chicago, Toronto and
London. At March 31, 1998, the Company had four direct sales persons, 20 account
managers and eight independent sales agents. The sales and marketing group works
with the Company's technical team as the sales process moves closer to the
customer's selection of an IT service provider. The duration of the sales
process varies depending on the type of service, ranging from approximately two
months to over one year. The account manager or sales executive works with the
technical team to define the scope, deliverables, assumptions and execution
strategies for a proposed project, develop project estimates, prepare pricing
and margin analyses and finalize sales proposals. Management reviews and
approves the proposal, which is then presented to the prospective customer.
Sales and account management personnel remain actively involved in the project
through the execution phase.
The Company focuses its marketing efforts on businesses with intensive
information processing needs. The Company maintains a prospect/customer
database, which is continuously updated and utilized throughout the sales cycle
from prospect qualification to close. As a result of this marketing system, the
Company prequalifies sales opportunities, and direct sales representatives are
able to minimize the time
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<PAGE>
spent on prospect qualification. The Company also generates a portion of its
business through outside agents, who work on a commission basis. In this regard,
account managers play an important role in developing a long-term relationship
with customers. In addition, substantial emphasis is placed on customer
retention and expansion of services provided to existing customers.
COMPETITION
The IT services market includes a large number of participants, is subject
to rapid change and is highly competitive. This market includes participants
from a variety of market segments, including systems integration firms, contract
programming companies, application software companies, the professional services
groups of computer equipment companies, facilities management and outsourcing
companies and "Big Six" accounting firms, as well as smaller local competitors
in the various geographic markets in which the Company operates. The Company
competes with, among others, Alydaar Corp., Cambridge Technology Partners, Inc.,
Cap Gemini America, Inc., Complete Business Solutions, Inc., Computer Horizons
Corp., Computer Task Group, Inc., CSC Consulting, Information Management
Resources, Inc., Infosys, Inc., IBM Global Services, Keane, Inc., Mastech
Corporation, Satyam Computer Services Limited, SHL Systemhouse (a division of
MCI Communications Corporation), Syntel, Inc., Tata Consultancy Services and
Whittman-Hart, Inc. In certain markets in which the Company competes, such as
the Year 2000 compliance market, there are no significant barriers to entry.
Current and potential competitors may introduce new and more competitive
services, make strategic acquisitions or establish cooperative relationships
among themselves or with third parties, thereby increasing the ability of their
services to address the needs of customers. Many of the Company's competitors
have significantly greater financial, technical and marketing resources and
greater name recognition than the Company. The principal competitive factors
affecting the markets for the Company'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. The Company competes by
offering a well developed recruiting, training and retention model, a successful
service delivery model, an excellent referral base, continual investment in
process improvement and knowledge capture, and continued focus on responsiveness
to customer needs, quality of services, competitive prices, project management
capabilities and technical expertise. In order to be successful in the future,
the Company must continue to respond promptly and effectively to technological
change and competitors' innovations. There can be no assurance that the Company
will be able to compete successfully against current and future competitors, and
its failure to do so would have a material adverse effect upon the Company's
business, results of operations and financial condition. See "Risk
Factors--Intense Competition."
INTELLECTUAL PROPERTY
The Company's business includes the development of software applications and
other deliverables including written specifications and documentation in
connection with specific customer engagements. The Company's future success will
depend on its ability to protect its intellectual property rights. The Company
presently holds no patents or registered copyrights, and relies upon a
combination of copyright and trade secret laws, non-disclosure and other
contractual arrangements and various security measures to protect its
intellectual property rights. India is a member of the Berne Convention, and has
agreed to recognize protections on copyrights conferred under the laws of
foreign countries, including the laws of the United States. The Company believes
that laws, rules, regulations and treaties in effect in the United States and
India are adequate to protect it from misappropriation or unauthorized use of
its copyrights. However, there can be no assurance that such laws will not
change and, in particular, that the laws of India will not change in ways that
may prevent or restrict the transfer of software components, libraries and
toolsets from India to the United States. There can be no assurance that the
steps taken by the Company to protect its intellectual property rights will be
adequate to deter misappropriation of any of its intellectual property, or that
the Company will be able to detect unauthorized use and take appropriate steps
to enforce its rights.
40
<PAGE>
A competitor of the Company recently announced the filing with the U.S.
Patent and Trademark Office of three patent applications relating to Year 2000
processes. The Company does not know the proprietary features of the processes
covered by such patent applications since patent applications are not publicly
available until the patents are issued. The Company has no prior relationship
with this competitor. Although the Company believes that its intellectual
property rights do not infringe on the intellectual property rights of such
competitor or others, there can be no assurance that such claims will not be
asserted against the Company in the future, that assertion of such claims will
not result in litigation or that the Company would prevail in such litigation or
be able to obtain a license for the use of any infringed intellectual property
from a third party on commercially reasonable terms, if at all. The Company
expects that the risk of infringement claims against the Company will increase
if more of the Company's competitors are able to successfully obtain patents for
software products and processes. Any such claims, regardless of their outcome,
could result in substantial cost to the Company and divert management's
attention from the Company's operations. Any infringement claim or litigation
against the Company could, therefore, have a material adverse effect on the
Company's business, results of operations and financial condition.
Pursuant to the License Agreement, Cognizant has granted to the Company a
non-exclusive, non-assignable, revocable license to use the "Cognizant" name and
certain related trade and service marks. The License Agreement provides that,
subject to Cognizant's right to revoke such license under certain circumstances,
such license will remain in effect for at least ten years following this
offering. The revocation of such license could have a material adverse effect on
the Company's business, results of operations and financial condition. However,
Cognizant has agreed to transfer all of its rights to the "Cognizant" name and
related trade and service marks to the Company upon the consummation of the
previously announced reorganization of Cognizant which, subject to certain
conditions, is expected to be consummated by mid-1998. See "Risk
Factors--Limited Protection of Intellectual Property Rights," "Company
Background" and "Certain Transactions--Agreements with Cognizant."
EMPLOYEES
At March 31, 1998, the Company employed approximately 270 persons on a
full-time basis in its North American headquarters and satellite offices and
on-site North American customer locations (15 of whom are United States citizens
or permanent residents), approximately 30 persons on a full-time basis in its
European satellite office and on-site European customer locations and
approximately 870 persons on a full-time basis in its offshore software
development centers in India. As of March 31, 1998, approximately 245, or 93% of
the Company's employees working in the United States, were working in the H-1B,
nonimmigrant work-permitted visa classification. None of the Company's employees
is subject to a collective bargaining arrangement. The Company considers its
relations with its employees to be good. See "Risk Factors--Exposure to
Regulatory, Economic and Political Conditions in India" and "--United States
Immigration Issues."
The future success of the Company will depend to a significant extent on its
ability to attract, train and retain highly skilled software development
professionals, particularly project managers, software engineers and other
senior technical personnel. The Company believes that in both the United States
and India there is a shortage of, and significant competition for, software
development professionals with the advanced technological skills necessary to
perform the services offered by the Company. The Company has an active
recruitment program in India and has developed a recruiting system and database
that facilitates the rapid identification of skilled candidates. During the
course of the year, the Company visits approximately 45 premier colleges and
technical schools in India. The Company evaluates candidates based on academic
performance, the results of a written aptitude test measuring problem-solving
skills and a technical interview. In addition, the Company has an active lateral
recruiting program. The Company believes it is one of the more attractive
employers for IT graduates in India.
41
<PAGE>
Senior project managers are hired from leading consulting firms in the
United States and India. The Company's senior management and substantially all
of the project managers have experience working in the United States and Europe,
which enhances the Company's ability to attract and retain other professionals
with experience in the United States.
The Company has also adopted a career and education management program to
define the employees' objectives and career plans. Through an intensive
orientation and training program, the Company introduces new employees to the
QVIEW software engineering process and the Company's services. See "Risk
Factors--Extremely Competitive Market for Technical Personnel" and "--United
States Immigration Issues."
FACILITIES
The Company's executive and business development office is located in New
York, New York. The Company intends to relocate this office locally within the
next 12 months. The Company believes that its existing facilities are adequate
to support its existing operations and that, as needed, it will be able to
obtain suitable additional facilities on commercially reasonable terms. The
remaining lease terms on the Company's development facilities in India range up
to nine years. The Company may terminate such leases, without penalty, upon 90
days' notice.
The Company occupies the following properties, which are all leased:
<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION (IN SQ. FEET) USE NATURE OF OCCUPANCY
- ----------------------------- ----------------- ------------------------------------ -----------------------------
<S> <C> <C> <C>
Chennai, India............... 33,700 Software Development Facility Lease expiring 12/1/06 with a
renewal option
Chennai, India............... 20,100 Software Development Facility Multiple leases expiring
11/15/98-2/28/01
with renewal options
Chennai, India............... 20,000 Software Development Facility Lease expiring 8/31/04 with a
renewal option
Chennai, India............... 15,500 Software Development Facility Multiple leases expiring
1/31/06-4/30/06
with renewal options
Calcutta, India.............. 9,300 Software Development Facility Lease expiring 12/1/00 with a
renewal option
Calcutta, India.............. 4,000 Software Development Facility Lease expiring 3/31/01
New York, New York........... 3,800 Executive and Business Development Lease expiring 5/31/99
Office
London, England.............. 800 Business Development Office Monthly lease
Chicago, Illinois............ 400 Business Development Office Monthly lease
Toronto, Canada.............. 200 Business Development Office Lease expiring 1/31/99
</TABLE>
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Wijeyaraj Mahadeva................................... 46 Chairman of the Board and Chief Executive Officer
Lakshmi Narayanan.................................... 45 President and Chief Operating Officer
Gordon Coburn........................................ 34 Chief Financial Officer, Treasurer and Secretary
Francisco D'Souza.................................... 29 Vice President, North American Operations and
Business Development
Anthony Bellomo (2).................................. 44 Director
Paul Cosgrave (1)(2)................................. 47 Director
Victoria Fash........................................ 46 Director
John Klein (1)(2).................................... 56 Director
Venetia Kontogouris.................................. 47 Director
</TABLE>
- --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
WIJEYARAJ (KUMAR) MAHADEVA was elected Chairman and Chief Executive Officer
of the Company's Indian subsidiary in 1994, and led the team that established
the software development and maintenance business conducted by the Company. Mr.
Mahadeva was elected Vice President of the Company in 1994, and was elected
President on April 17, 1996. Effective in March 1998, Mr. Mahadeva was elected
Chairman and Chief Executive Officer of the Company. Mr. Mahadeva concurrently
served as Chairman of The Dun & Bradstreet Corporation India and China from 1993
to 1996. Mr. Mahadeva previously served as Vice President, Corporate Strategy,
at The Dun & Bradstreet Corporation from 1989 to 1993, as Director, Business
Markets Group, at AT&T from 1985 to 1989, and as a management consultant at
McKinsey and Company from 1978 to 1985. Mr. Mahadeva holds a Master of Business
Administration degree from Harvard University and a Masters in Electrical
Engineering from Cambridge University (U.K.).
LAKSHMI NARAYANAN was elected President and Chief Operating Officer of the
Company in March 1998. Mr. Narayanan joined the Indian subsidiary of the Company
as Chief Technology Officer in 1994 and was elected President of such subsidiary
on January 1, 1996. Prior to joining the Company, Mr. Narayanan was the regional
head of Tata Consultancy Services, a large consulting and software services
company in India, from 1975 to 1994. Mr. Narayanan holds a Bachelor of Science
degree, a Master of Science degree and a Master of Business Administration
degree from the Indian Institute of Science.
GORDON COBURN was elected Chief Financial Officer, Treasurer and Secretary
of the Company in March 1998 and Vice President of the Company in September
1996. Since 1990, Mr. Coburn has held key financial positions with Cognizant and
The Dun & Bradstreet Corporation. Mr. Coburn most recently served as Senior
Director--Group Finance & Operations for Cognizant from November 1996 to
December 1997. Mr. Coburn holds a Bachelor of Arts degree from Wesleyan
University and a Master of Business Administration degree from the Amos Tuck
School at Dartmouth College.
FRANCISCO D'SOUZA was appointed Vice President, North American Operations
and Business Development of the Company in March 1998 and was appointed
Director--North American Operations and Business Development on June 1, 1997.
From January 1996 to June 1997, Mr. D'Souza was employed as a
43
<PAGE>
consultant to the Company. From February 1995 to December 1995, Mr. D'Souza was
employed as Product Manager at Pilot Software. Between 1992 and 1995, Mr.
D'Souza held various marketing, business development and technology management
positions as a Management Associate at The Dun & Bradstreet Corporation. While
working at The Dun & Bradstreet Corporation, Mr. D'Souza was part of the team
that established the software development and maintenance business conducted by
the Company. Mr. D'Souza holds a Bachelor of Business Administration degree from
the University of East Asia and a Master of Science degree in Industrial
Administration from Carnegie-Mellon University.
ANTHONY BELLOMO was elected to the Board of Directors of the Company in
March 1998. Mr. Bellomo is President of Erisco, which position he has held since
1994. Mr. Bellomo joined Erisco in 1977 and has held various positions at Erisco
since that time. Mr. Bellomo holds a Bachelor of Arts degree in engineering from
the Polytechnic Institute of Brooklyn.
PAUL COSGRAVE was elected to the Board of Directors in March 1998. Mr.
Cosgrave serves as President of Strategies4Success, a strategic consulting firm.
From July 1994 until February 1998, he was Chairman, President and CEO of
Claremont Technology Group, Inc., an information technology consulting services
company. From January 1993 until June 1994, Mr. Cosgrave was Executive Vice
President of Technology Solutions Company, also an information technology
services company. From February 1992 until January 1993, he was President and
Chief Executive Officer of AGS Computers, Inc., a subsidiary of NYNEX
Corporation. From September 1982 until January 1992, he was a Partner at
Andersen Consulting, LLP, a management consulting firm. Mr. Cosgrave holds a
Bachelor of Science degree and a Master of Science degree from Rensselaer
Polytechnic Institute.
VICTORIA FASH was elected to the Board of Directors of the Company in
December 1997. Ms. Fash was appointed Chairman and Chief Executive Officer of
IMS in December 1997. She serves concurrently as Executive Vice President and
Chief Financial Officer of Cognizant, a position she has held since 1996. From
1991 to 1995, she was the Vice President, Business Operations at The Dun &
Bradstreet Corporation, and in 1995 was promoted to Senior Vice President,
Business Strategy. Ms. Fash serves on the board of directors of Ligand
Pharmaceuticals Inc. and Orion Capital Corporation. Ms. Fash holds a Bachelor of
Science degree in computer science and a Master of Business Administration
degree from the University of Illinois.
JOHN KLEIN was elected to the Board of Directors in March 1998. Mr. Klein
currently serves as Chief Executive Officer of MDIS Group PLC, a software
development and service company, where he has been employed since June 1995.
From July 1997, Mr. Klein has also served as the Chairman and Chief Executive
Officer of Glovia International, a resource planning software and services
company. From August 1996, Mr. Klein has also served as the Chairman of PRO IV
Limited, a 4GL development tools company. From January 1993 to April 1994, Mr.
Klein was the Vice President, Consumer, Process & Transportation-- Customer
Business Unit, for Digital Equipment Corporation. Mr. Klein holds a Bachelor of
Science degree from the U.S. Merchant Marine Academy and a Master of Business
Administration degree from New York University.
VENETIA KONTOGOURIS was elected to the Board of Directors of the Company in
December 1997. Ms. Kontogouris is currently President of Cognizant Enterprises,
Inc. where she has held various positions since 1989. Prior to joining Cognizant
Enterprises, Ms. Kontogouris was Vice President of New Product Development for
The Dun & Bradstreet Corporation. Ms. Kontogouris serves on the board of
directors of e data resources, inc., T.R.A.D.E., Inc., SR Research, Inc.,
Internet Profiles Corporation, Vality Technology Inc., Viant Corporation and
Avesta Technologies, Inc. Ms. Kontogouris holds a Bachelor of Arts degree from
Northeastern University and a Master of Business Administration degree and a
Master in International Relations degree from the University of Chicago.
44
<PAGE>
SIGNIFICANT EMPLOYEES
G. BALAKRISHNAN was appointed Director, Projects in July 1995 for the
Company's Indian subsidiary. Prior to joining the Company, Mr. Balakrishnan
worked as a Consultant for The World Bank, International Finance Corporation and
International Monetary Fund in the United States from 1983 to 1995. Mr.
Balakrishnan holds a Bachelor of Science degree and a Bachelor of Technology
degree from the University of Madras and a Master of Business Administration
degree from the University of Wisconsin, Milwaukee.
SIDDHARTHA MUKHERJEE was appointed Director of Calcutta Operations in
January 1998 for the Company's Indian subsidiary, which he joined in June 1996
as Senior Manager. Prior to joining the Company, Mr. Mukherjee served as
Regional Manager in the United States and as a consultant in India for Tata
Consultancy Services from May 1982 to May 1996. Mr. Mukherjee holds a Masters in
Economics degree and Masters of Business Administration degree from Xavier
Institute, Jamshedpur, India.
NARESH NAGARAJAN was appointed Director of Projects in January 1998 for the
Company's Indian subsidiary, which he joined in March 1994 as Senior Manager,
Business Development. Prior to joining the Company, Mr. Nagarajan was Group
Business Manager for Citibank's Technology Division in India from December 1990
to February 1994. Mr. Nagarajan holds a Bachelor of Mechanical Engineering
degree from the University of Mysore, India and a Masters of Science in Computer
Science and a degree in Business Management from Rutgers University.
S. RENGARAJAN was appointed Director, Projects in January 1997 for the
Company's Indian subsidiary, which he joined in September 1995 as Senior
Manager, Projects. Prior to joining the Company, Mr. Rengarajan served as Senior
Consultant in India for Tata Consultancy Services from December 1989 to August
1995. His prior experience includes seven years of independent consulting in
Scandinavia. Mr. Rengarajan holds a Masters of Science in Mathematics from
Madras University and a Masters of Technology in Computer Science from the
Indian Institute of Technology, Madras.
KASI SAMBASIVAM was appointed Director, Projects in January 1997 for the
Company's Indian subsidiary, which he joined in January 1994 as Senior Manager,
Projects. Prior to joining the Company, Mr. Sambasivam served as Deputy General
Manager of Pentafour Software & Exports in India from October 1992 to December
1993. In addition, he was a consultant to IBM's Federal Sector Division in the
United States from January 1991 to September 1992 and Data Processing Manager
for Zambia State Insurance Corporation in Zambia from July 1987 to August 1990.
Mr. Sambasivam holds a Bachelor of Engineering degree from the University of
Madras.
WILLIAM SCHULE was appointed Director of Sales of the Company in April 1997.
From January 1991 to March 1997, he was a Regional Sales Manager of Syncsort,
Inc., a large international manufacturer and distributor of high-performance
systems software packages specializing in the mainframe, mid-range and PC
marketplace. Prior to joining Synscort, Mr. Schule was a Branch Manager for
Howard Systems Inc., an IT consulting firm based in New York, from April 1986 to
January 1991. Mr. Schule holds a Bachelor of Arts degree from St. John's
University.
CHANDRA SEKARAN was appointed Vice President, Software Services in January
1997 of the Company's Indian subsidiary, which he joined in December 1994 as
Assistant Vice President. Prior to joining the Company, Mr. Sekaran served as
Regional Director in the United States and as a consultant in India for Tata
Consultancy Services from May 1985 to November 1994. Mr. Sekaran holds a
Bachelor of Engineering degree from Madras University and a Master of Business
Administration degree from the Indian Institute of Management.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Board of Directors does not have an Executive or Nominating
Committee. The selection of nominees to the Board of Directors will be made by
the entire Board of Directors.
45
<PAGE>
The Audit Committee, which is comprised of Messrs. Cosgrave and Klein, is
responsible for reviewing with management the financial controls and accounting
and reporting activities of the Company. The Audit Committee reviews the
qualifications of the Company's independent auditors, makes recommendations to
the Board of Directors regarding the selection of independent auditors, reviews
the scope, fees and results of any audit and reviews non-audit services and
related fees.
The Compensation Committee, which is comprised of Messrs. Bellomo, Cosgrave
and Klein, is responsible for the administration of all salary and incentive
compensation plans for the officers and key employees of the Company, including
bonuses. The Compensation Committee also administers the Company's stock option
plans and establishes the terms and conditions of all stock options granted
thereunder.
DIRECTOR COMPENSATION
Directors who are employees of the Company and its subsidiaries or Cognizant
and its subsidiaries receive no cash remuneration for serving as directors. All
other non-employee directors receive $2,000 for attendance at each meeting of
the Board of Directors and $1,000 for attendance at each meeting of a committee
of the Board of Directors. All directors who are not employees of the Company
and its subsidiaries are eligible to participate in the Directors' Option Plan.
Options to purchase 6,500 shares of Class A Common Stock have been granted to
each of Mr. Bellomo, Ms. Fash and Ms. Kontogouris and options to purchase 15,000
shares of Class A Common Stock have been granted to each of Mr. Cosgrave and Mr.
Klein under the Directors' Option Plan. See "--Stock Option Plans--Directors'
Option Plan."
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company in 1997 to the Company's Chief Executive
Officer and each of the other executive officers of the Company (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND POSITIONS SALARY ($) BONUS($) OPTIONS(#) COMPENSATION($)
- ---------------------------------------------------------- ----------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Wijeyaraj Mahadeva(1)..................................... 235,000 228,136 130,000 14,717
Chairman of the Board and
Chief Executive Officer
Lakshmi Narayanan(2)...................................... 57,566 60,440 58,500 1,372
President and Chief
Operating Officer
Gordon Coburn(3).......................................... -- -- 26,000 0
Chief Financial Officer,
Treasurer and Secretary
Francisco D'Souza(4)...................................... 120,000 35,000 32,500 0
Vice President, North
American Operations and
Business Development
</TABLE>
- ------------------------
(1) Mr. Mahadeva's other compensation consisted of a 401(k) plan Company
matching contribution.
(2) Mr. Narayanan's other compensation consisted of the interest savings on a
loan made to Mr. Narayanan by the Company in October 1997, which bears
interest at 2% per annum. See "Certain Transactions--Transactions with
Cognizant and Other Affiliates."
(3) Mr. Coburn was employed by Cognizant during 1997 and his responsibilities
included significant activities unrelated to the Company's business as well
as services provided to the Company on behalf of Cognizant. Mr. Coburn's
compensation expenses for 1997 were an unallocated component of the
aggregate costs allocated to the Company by Cognizant based upon assets
employed by the Company in proportion to Cognizant's total assets. Mr.
Coburn's 1998 compensation, including salary of $133,250, bonus target of
$38,813, and $5,162 of other compensation comprised of 401(k) plan Company
matching contribution, will be borne entirely by the Company.
(4) Reflects compensation received in all capacities from the Company during
1997. Mr. D'Souza worked as an independent consultant to the Company until
June 1, 1997, when he became a full-time employee of the Company.
47
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options during
the year ended December 31, 1997 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF APPRECIATION FOR
UNDERLYING TOTAL OPTIONS OPTION
OPTIONS GRANTED TO EXERCISE OR TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------------- ----------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Wijeyaraj Mahadeva................ 130,000 25.0% 3.85 7/24/07 314,447 796,871
Lakshmi Narayanan................. 58,500 11.2 3.85 7/24/07 141,501 358,592
Gordon Coburn..................... 26,000 5.0 3.85 7/24/07 62,889 159,374
Francisco D'Souza................. 32,500 6.3 3.85 7/24/07 78,612 199,218
</TABLE>
- ------------------------
(1) All options were granted pursuant to the Employee Option Plan at an exercise
price equal to or greater than the fair market value of the Class A Common
Stock on the date of grant, as determined by the Company's Board of
Directors, and vest 25% a year over a four-year period. Such options expire
on the tenth anniversary of the date of grant. Pursuant to the agreements
described below under "--Severance and Noncompetition Agreements," such
options will vest in full immediately upon a Change of Control (as defined
therein).
(2) Potential realizable value is based on the assumption that the price of the
Class A Common Stock appreciates from the exercise price of $3.85 per share
at the annual rate shown (compounded annually) from the date of grant until
the expiration of the ten year option term. Calculated using the initial
public offering price, assumed to be $12.00 per share, as a base, the
potential realizable value at the assumed 5% and 10% rates of stock
appreciation would be as follows: $981,076 and $2,486,238 for Mr. Mahadeva,
$441,484 and $1,118,807 for Mr. Narayanan, $196,215 and $497,248 for Mr.
Coburn and $245,269 and $621,560 for Mr. D'Souza. These values are
calculated in accordance with rules promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price appreciation.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the number and
value of the outstanding options held by the Named Executive Officers at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
(#): ($):
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------------------------- ----------------------------- ----------------------------
<S> <C> <C>
Wijeyaraj Mahadeva................................... --/130,000 --/680,000
Lakshmi Narayanan.................................... --/58,500 --/306,000
Gordon Coburn........................................ --/26,000 --/136,000
Francisco D'Souza.................................... --/32,500 --/170,000
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock as of December 31, 1997
($9.08 per share), as determined by the Company's Board of Directors.
48
<PAGE>
SEVERANCE AND NONCOMPETITION AGREEMENTS
The Company has entered into a Severance and Noncompetition Agreement
(collectively, the "Severance and Noncompetition Agreements") with each of the
Named Executive Officers. The Severance and Noncompetition Agreements provide
that each Named Executive Officer will receive one year's base salary and a full
annual bonus upon termination of employment, other than in the case of a
termination for cause. In addition, such agreements provide that all options
held by the Named Executive Officers will vest in full immediately upon a Change
of Control. Pursuant to such agreements, each Named Executive Officer has agreed
not to engage in any competitive business in any capacity for one year following
termination of employment and not to solicit any of the Company's employees to
leave the Company within the one-year period following termination of
employment. Finally, such agreements include customary proprietary rights
assignment and confidentiality provisions. See "Risk Factors--Dependence on Key
Personnel."
STOCK OPTION PLANS
EMPLOYEE OPTION PLAN
The Company's Employee Option Plan became effective in July 1997, and was
amended in March 1998. The aggregate number of shares of Class A Common Stock
reserved for issuance under the Employee Option Plan is 698,750 shares, of which
options to acquire 619,200 shares of Class A Common Stock are outstanding at a
weighted average exercise price of $5.33 per share (assuming an exercise price
of $12.00 for options which become effective at the time of this offering).
Prior to this offering, no shares of Common Stock have been issued upon exercise
of options granted under the Employee Option Plan.
Options granted under the Employee Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the Code
or (ii) stock options that are non-qualified for Federal income tax purposes.
Options may be granted under the Employee Option Plan to key employees (but not
members of the Compensation Committee or any person who serves only as a
director) of the Company and its subsidiaries and Cognizant and its subsidiaries
(if such persons are responsible for the management, growth and protection of
the business of the Company).
The Employee Option Plan is administered by the Compensation Committee of
the Board of Directors. Subject to the provisions of the Employee Option Plan,
the Compensation Committee has the authority to interpret the provisions of the
Employee Option Plan, to determine the persons to whom options will be granted,
the number of shares to be covered by each option and the terms and conditions
upon which an option may be granted. Options granted under the Employee Option
Plan may not be granted at an exercise price less than fair market value of the
underlying shares on the date of grant. Options granted under the Employee
Option Plan become exercisable (i) as to 25% upon the later of the first
anniversary of the grant and the consummation of this offering, (ii) as to 25%
upon the later of the second anniversary of the date of grant and the
consummation of this offering, (iii) as to 25% upon the later of the third
anniversary of the grant and the consummation of this offering and (iv) as to
25% upon the later of the fourth anniversary of the date of grant and the
consummation of this offering. Pursuant to the Severance and Noncompetition
Agreements, the options held by executive officers will vest in full immediately
upon a Change of Control. Furthermore, in the case of options held by certain
other key employees, certain options will vest 50% upon a Change of Control (as
such term is defined in the Employee Option Plan). Options granted under the
Employee Option Plan expire in 10 years, are nontransferable and, with certain
exceptions in the event of a death of a participant, may be exercised by the
optionee only during employment. In the event of an optionee's death, disability
or retirement, the unexercised portion of an option may be exercised during the
shorter of the remaining stated term of the option or five years after the date
of death, disability or retirement, but only to the extent such option was
exercisable at the time of such termination or becomes exercisable during such
later period as stated in the Employee Option Plan. In the case of a termination
for any other reason, the unexercised portion of and option may be exercised for
the period ending ninety days after termination, but only to the extent such
49
<PAGE>
option was exercisable at the time of termination. Notwithstanding the
foregoing, the Compensation Committee may, in its sole discretion, accelerate
the vesting of unvested options if an optionee is terminated without cause (as
determined by the Compensation Committee).
DIRECTORS' OPTION PLAN
The Directors' Option Plan became effective in December 1997 and was amended
in March 1998. The aggregate number of shares of Class A Common Stock reserved
for issuance under the Directors' Option Plan is 71,500 shares, of which options
to acquire 49,500 shares of Class A Common Stock are outstanding at a weighted
average exercise price of $11.23 per share (assuming an exercise price of $12.00
for options which become effective upon the consummation of this offering).
Prior to this offering, no shares of Class A Common Stock have been issued upon
exercise of options granted under the Directors' Option Plan.
The Directors' Option Plan, which is administered by the Compensation
Committee, provides for the issuance of non-qualified stock options to purchase
up to 15,000 shares of Class A Common Stock in any year to any director of the
Company who is not an employee of the Company or any subsidiary of the Company.
Subject to the provisions of the Directors' Option Plan, the Compensation
Committee has the authority to interpret the provisions of the Directors' Option
Plan, to determine the persons to whom options will be granted, the number of
shares to be covered by each option and the terms and conditions upon which an
option may be granted. The option price for options granted under the Directors'
Option Plan shall be determined by the Compensation Committee and may be granted
at an exercise price greater than, less than or equal to the fair market value
of the underlying shares on the date of grant. Options granted under the
Directors' Option Plan become exercisable (i) as to 50% upon the later of the
first anniversary of the grant and the consummation of this offering and (ii) as
to 50% upon the later of the second anniversary of the date of grant and the
consummation of this offering. Options granted under the Director's Option Plan
expire after 10 years, are nontransferable and, with certain exceptions in the
event of a death of a participant, may be exercised by the optionee only during
service. In the event of an optionee's death or disability, the unexercised
portion of an option immediately vests in full and may be exercised until (i)
the earlier of the remaining stated term of the option or five years after the
date of death with respect to a termination due to death or (ii) the earlier of
the remaining stated term of the option and the longer of five years after the
date of termination due to disability or one year after the date of death, in
the case of a termination due to disability. In the case of a termination for
any other reason, the unexercised portion of and option may be exercised for the
period ending ninety days after termination, but only to the extent such option
was exercisable at the time of termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide that the
liability of the directors for monetary damages shall be limited to the fullest
extent permissible under Delaware law. This limitation of liability does not
affect the availability of injunctive relief or other equitable remedies.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permissible under Delaware law. These
indemnification provisions require the Company to indemnify such persons against
certain liabilities and expenses to which they may become subject by reason of
their service as a director or officer of the Company or any of its affiliated
enterprises. In addition, prior to the consummation of this offering, the
Company will enter into indemnification agreements with each of its directors
and executive officers providing indemnification to the fullest extent permitted
by applicable law and also setting forth certain procedures, including the
advancement of expenses, that apply in the event of a claim for indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bellomo serves as a member of the Compensation Committee of the Board of
Directors. In March 1998, the Company granted non-qualified stock options under
the Directors' Option Plan to purchase 6,500 shares of Class A Common Stock to
Mr. Bellomo for an exercise price equal to the initial public offering price per
share.
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CERTAIN TRANSACTIONS
AGREEMENTS WITH COGNIZANT
The Company and IMS America, IMS and Nielsen Media Research, operating
subsidiaries of Cognizant, have entered into Master Services Agreements and,
prior to the consummation of this offering, the Company and Cognizant will enter
into the Intercompany Agreement, the Intercompany Services Agreement and the
License Agreement, each of which will be effective upon the consummation of this
offering. The material terms of these agreements are summarized below. Because
the Company is controlled by Cognizant, none of these agreements results from
arms'-length negotiations and, therefore, the terms thereof may be more or less
favorable to the Company than those obtainable from unaffiliated third parties.
Upon the consummation of the previously announced reorganization of Cognizant,
the Master Services Agreements will remain in effect and the Intercompany
Agreement and the Intercompany Services Agreement will be assigned by Cognizant
to IMS HEALTH. See "Company Background."
MASTER SERVICES AGREEMENTS. The Company and Cognizant's operating
subsidiaries, IMS America, IMS and Nielsen Media Research, have entered into the
Master Services Agreements, pursuant to which the Company will continue to
provide software development and maintenance services to such operating
subsidiaries. Pursuant to each Master Services Agreement, the Company and the
Cognizant subsidiary issue work orders for specific projects. The Company
invoices the subsidiaries monthly for services on a time-and-materials basis for
Year 2000 compliance services and as provided in the applicable work order for
other services. Each Master Service Agreement provides that it and any work
order issued thereunder may be terminated by the Cognizant subsidiary with or
without cause on 30 days' prior written notice.
INTERCOMPANY AGREEMENT. The Intercompany Agreement provides that until
Cognizant and its affiliates cease to control at least 50% of the combined
voting power of the outstanding voting stock of the Company, the prior written
consent of Cognizant will be required for (i) any acquisition of capital stock
or assets by the Company or any of its subsidiaries or disposition of assets of
the Company or any of its subsidiaries (other than transactions to which the
Company and its subsidiaries are the only parties), or any series of related
acquisitions or dispositions, involving gross consideration (including the
assumption of indebtedness) in excess of the greater of $10.0 million and six
percent of the Company's total equity market capitalization, (ii) any issuance
by the Company or any subsidiary of the Company of any equity securities or
rights, warrants or options to purchase such equity securities, except for
equity securities issued to directors, employees and consultants pursuant to the
Employee Option Plan and Directors' Option Plan and other outstanding options
and equity securities issued in connection with acquisitions approved by
Cognizant and (iii) the creation or incurrence by the Company or any of its
subsidiaries of indebtedness for borrowed money in excess of $10.0 million,
except for indebtedness incurred to finance any acquisition approved by
Cognizant. Pursuant to the Intercompany Agreement, for a period of 18 months
following this offering (the "Restricted Period"), the approval of a majority of
the members of the Board of Directors of the Company who are not employed by or
otherwise affiliated with Cognizant, the Company (other than as directors) or
any of their respective affiliates (the "Independent Directors") will be
required for a merger or consolidation involving the Company, a sale by the
Company of all or substantially all of its assets or a liquidation, dissolution
or winding up of the Company's business, in any case, for per share
consideration below the initial public offering price per share, and a fairness
opinion from a nationally recognized investment banking firm or the approval of
at least one Independent Director will be required for any of such transactions
for per share consideration at or above the initial public offering price per
share. Also pursuant to the Intercompany Agreement, during the Restricted
Period, subject to certain limited exceptions, Cognizant will not sell any of
the shares of Common Stock owned by it on the date of this Prospectus other than
pursuant to a registered public offering, pursuant to Rule 144 promulgated under
the Securities Act, at a price per share equal to or greater than the initial
public offering price per share or, with the approval of a majority of the
Independent Directors, at a price per share below the initial public offering
price per share. In addition, during the Restricted Period, Cognizant will not
acquire additional shares of Common Stock, other than pursuant to a transaction
involving all of
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the Company's outstanding Common Stock at a price per share in excess of the
initial public offering price per share, with respect to which a fairness
opinion from a nationally recognized investment banking firm or the approval of
at least one Independent Director has been obtained. During the Restricted
Period, Cognizant will not vote its shares of Common Stock (or act by written
consent) to reduce the ratio of Independent Directors to be less than the ratio
of two of seven directors and will not vote its shares of Common Stock (or act
by written consent) to remove any Independent Director other than for cause or
with the approval of the holders of a majority of the outstanding Class A Common
Stock voting as a separate class.
Pursuant to the Intercompany Agreement, the Company will grant to Cognizant
certain demand and "piggyback" registration rights with respect to shares of
Common Stock owned by Cognizant. Cognizant will have the right to request up to
two demand registrations in each calendar year, but not more than six in any
five-year period. The Company may postpone such a demand under certain
circumstances. Cognizant will also have the right, which it may exercise at any
time and from time to time, to include the shares of Common Stock held by it in
any registration of common equity securities of the Company initiated by the
Company on its own behalf or on behalf of any other stockholders of the Company.
Such registration rights will be transferable by Cognizant. The Company will
agree to pay all costs and expenses in connection with each such registration,
except underwriting discounts and commissions applicable to the shares of Common
Stock sold by Cognizant. The Intercompany Agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Common Stock on behalf of Cognizant.
Pursuant to the Intercompany Agreement, the Company will indemnify Cognizant
and its subsidiaries (other than the Company) and their respective officers,
directors, employees and agents against certain losses based on, arising out of
or resulting from the conduct of the Company's business and Cognizant will
similarly indemnify the Company and its subsidiaries and their respective
officers, directors, employees and agents against certain losses based on,
arising out of or resulting from Cognizant's other businesses. In addition,
Cognizant will assign to the Company certain rights to indemnification from The
Dun & Bradstreet Corporation and certain of its former affiliates.
The Intercompany Agreement may not be amended without the approval of a
majority of the Independent Directors.
INTERCOMPANY SERVICES AGREEMENT. Pursuant to the Intercompany Services
Agreement, Cognizant will provide certain services to the Company, including
payroll and payables processing, e-mail, tax, finance, personnel administration,
real estate and risk management services, and the Company and its employees will
continue to be covered by Cognizant's insurance policies and certain Cognizant
employee benefit plans. The Intercompany Services Agreement's initial term will
extend through December 31, 1998. Subsequent to December 31, 1998, the
Intercompany Services Agreement will continue for successive one-year terms
unless terminated by either party on not less than 60 days' written notice prior
to the end of the initial term or any renewal term. Any change in the fees
provided for under the terms of the Intercompany Services Agreement will be
subject to the approval of a majority of the Independent Directors.
LICENSE AGREEMENT. Pursuant to the License Agreement, Cognizant will grant
to the Company a non-exclusive, non-transferable, revocable license to use the
"Cognizant" trade name and certain other trade and service marks specifically
identified in the License Agreement (collectively, the "Marks"). The License
Agreement has an initial term of ten years from the consummation of this
offering and renews for successive ten-year terms. Cognizant may revoke the
license if the Company breaches the terms and conditions thereof. Upon
revocation of such license, the Company and its subsidiaries would be required
to discontinue use of the Marks and to change their names to exclude the word
"Cognizant." In addition, the License Agreement will provide that the Company
and its subsidiaries will not, without the prior written consent of Cognizant,
take any action with respect to (i) any litigation or proceeding involving the
Marks, (ii) any change in the Company's names, logos and other identifications
that might reasonably be
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expected to adversely affect the Marks or (iii) any advertising campaigns or
strategies that use the Marks or that refer to Cognizant that are inconsistent
with Cognizant's guidelines and standards. In addition, Cognizant can revoke any
of the Company's subsidiaries' use of the Marks if there is a change of control
of any such subsidiary.
Pursuant to the License Agreement, Cognizant will transfer all rights to the
Marks to the Company upon the consummation of the previously announced
reorganization of Cognizant expected to be consummated by mid-1998, subject to
certain conditions. See "Company Background."
TRANSACTIONS WITH COGNIZANT AND OTHER AFFILIATES
Prior to this offering, Cognizant and The Dun & Bradstreet Corporation
provided the Company with certain administrative services, including financial
planning and administration, legal, tax planning and compliance, treasury and
communications, and permitted the Company to participate in Cognizant's
insurance and employee benefit plans. Costs for these services were allocated to
the Company based on utilization of certain specific services and, where not
estimable, based upon assets employed by the Company in proportion to
Cognizant's total assets. Management believes that such amounts are lower than
the aggregate amounts the Company would have paid for these services had the
Company obtained such services from unrelated third parties. These allocations
were $185,000, $354,000 and $835,000 for the years ended December 31, 1995, 1996
and 1997, respectively, and $405,000 for the three months ended March 31, 1998.
On January 1, 1997, the Company began subleasing office space in New York
City from a subsidiary of Cognizant. The Company made lease payments to the
subsidiary of $99,000 in 1997 and $26,000 in the three months ended March 31,
1998, which it believes is fair market value for the sublease.
In November 1996, Cognizant and its subsidiaries, including the Company,
were spun-off from The Dun & Bradstreet Corporation. In connection with that
transaction, certain benefits were accelerated and paid to certain employees of
The Dun & Bradstreet Corporation. In this regard, Mr. Mahadeva was paid an
aggregate of $408,398 and restrictions on transfer were removed from 598 shares
of the common stock of The Dun & Bradstreet Corporation held by Mr. Mahadeva.
During 1996, Mr. Mahadeva devoted time to the Company as well as to other
business conducted by The Dun & Bradstreet Corporation, as a result of which
only $222,064 of the amount referred to above was expensed over a three-year
period ended December 31, 1996, in the Company's financial statements. Also in
November 1996, in consideration for his services to the Company, Cognizant
granted Mr. Mahadeva options to purchase an aggregate of 114,900 shares of the
common stock of Cognizant at an exercise price of $33.38 per share. Mr. Mahadeva
has agreed to forfeit options to purchase an aggregate of 58,334 shares of
Cognizant common stock upon the consummation of this offering. The balance of
Mr. Mahadeva's options to purchase the common stock of Cognizant will continue
to vest in consideration of Mr. Mahadeva's employment with the Company. In 1997,
Cognizant paid Mr. Mahadeva an aggregate of $93,674 in connection with his
relocation upon the completion of activities unrelated to the Company's
business, none of which was charged to the Company.
In November 1996, in consideration for services to Cognizant, Cognizant
granted Mr. Coburn options to purchase an aggregate of 60,000 shares of the
common stock of Cognizant at an exercise price of $33.38 per share. In addition,
in November 1996, Mr. Coburn was granted options to purchase an aggregate of
20,000 shares of the common stock of Cognizant at an exercise price of $33.38
per share, which was equal to the fair market value at the date of grant by
paying ten percent of the option exercise price as an advance payment toward
such exercise. The remaining 90% is payable at exercise. Mr. Coburn's options to
purchase the common stock of Cognizant will continue to vest in consideration of
Mr. Coburn's employment with the Company.
In the event that Cognizant ceases to own at least 50% of the outstanding
Common Stock of the Company, Cognizant has agreed with Messrs. Mahadeva and
Coburn that certain of their options to purchase the common stock of Cognizant
will continue to vest, rather than cease to vest and terminate as otherwise
provided in Cognizant's options.
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Certain employees of the Company, including Mr. Mahadeva and Mr. Coburn,
participate in Cognizant's defined benefit pension plans. The plans are cash
balance pension plans under which six percent of creditable compensation plus
interest is credited to the employee's retirement account on a monthly basis.
The cash balance earns monthly investment credits based on the 30-year Treasury
bond yield. At the time of retirement, the vested employee's account balance is
actuarially converted into an annuity. The Company's cost for these plans is
included in the allocation of expense from Cognizant for employee benefits
plans.
On July 25, 1997, certain management employees of the Company and its
affiliates subscribed for and subsequently purchased an aggregate of 113,750
shares of Class A Common Stock at the then estimated fair market value of $3.85
per share, including 81,250 shares for Mr. Mahadeva, 16,250 shares for Mr.
Coburn, 9,750 shares for Mr. D'Souza, 3,250 shares for Ms. Fash and 3,250 shares
for Ms. Kontogouris.
On July 25, 1997, the Company granted non-qualified stock options under the
Employee Option Plan to purchase an aggregate of 520,325 shares of Class A
Common Stock to certain executive officers and employees of the Company for an
exercise price of $3.85 per share, including options to purchase (i) 130,000
shares to Mr. Mahadeva, (ii) 58,500 shares to Mr. Narayanan, (iii) 26,000 shares
to Mr. Coburn and (iv) 32,500 shares to Mr. D 'Souza. On December 31, 1997, the
Company granted non-qualified stock options under the Directors' Option Plan to
purchase an aggregate of 13,000 shares of Class A Common Stock to certain
directors of the Company for an exercise price of $9.08 per share, including
options to purchase (i) 6,500 shares to Ms. Fash and (ii) 6,500 shares to Ms.
Kontogouris.
In October 1997, the Company loaned $63,300 to Mr. Narayanan for the
purchase of a residence. The loan is secured by the residence and bears interest
at the rate of two percent per annum. Principal and interest on the loan is
payable over a ten-year period. The loan matures in October 2007. In the event
of termination of employment, Mr. Narayanan must repay the outstanding balance
of the loan, plus interest at a higher rate under certain circumstances. As of
March 31, 1998, the outstanding balance of the loan, including principal and
accrued interest, was $61,190.
In March 1998, the Company granted non-qualified stock options to purchase
an aggregate of 48,750 shares of Class A Common Stock to Mr. Mahadeva for an
exercise price of $6.92 per share.
In March 1998, the Company granted non-qualified stock options under the
Employee Option Plan to purchase an aggregate of 47,450 shares of Class A Common
Stock to certain employees, including options to purchase 6,500 shares to Mr.
D'Souza, effective upon consummation of this offering at an exercise price equal
to the initial public offering price per share. The Company also granted
non-qualified stock options under the Directors' Option Plan to purchase an
aggregate of 36,500 shares of Class A Common Stock to certain directors,
including options to purchase 6,500 shares to Mr. Bellomo and options to
purchase 15,000 shares each to Messrs. Cosgrave and Klein, effective upon
consummation of this offering at an exercise price equal to the initial public
offering price per share.
In May 1998, the Company granted non-qualified stock options under the
Employee Option Plan to purchase an aggregate of 64,750 shares of Class A Common
Stock to certain employees effective upon consummation of this offering at an
exercise price equal to the initial public offering price per share.
In May 1998, in connection with the resolution of certain matters between an
affiliate of Cognizant and Pilot Software, Pilot Software agreed to remit
$500,000 to the Company. Of such amount, $315,321 is in respect of amounts due
to the Company from Pilot Software for services rendered through April 30, 1998
and $184,679 is a prepayment for services to be provided to Pilot Software by
the Company after such date.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus and as adjusted to reflect the sale of the shares offered hereby with
respect to: (i) each director of the Company; (ii) each of the Named Executive
Officers; (iii) the Selling Stockholder, which is the only beneficial owner of
more than 5% of the Company's Common Stock; and (iv) all executive officers and
directors as a group. Except as otherwise noted, the persons or entities named
in the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them, subject to community property laws
where applicable. Except as otherwise indicated, the street address of each
beneficial owner is c/o Cognizant Technology Solutions Corporation, 1700
Broadway, New York, New York 10019. See "Risk Factors--Control By Principal
Stockholder; Benefits of Offering to Cognizant" and "Use of Proceeds."
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY SHARES OF SHARES OF COMMON STOCK BENEFICIALLY
COMMON
OWNED PRIOR TO THE OFFERING(1) STOCK OWNED AFTER THE OFFERING(1)
------------------------------------- TO BE SOLD -------------------------------------
NUMBER OF % OF VOTING IN NUMBER OF % OF VOTING
NAME SHARES OUTSTANDING POWER OFFERING SHARES OUTSTANDING POWER
- ------------------------------------ --------- ------------- ----------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Wijeyaraj Mahadeva.................. 81,250 1.3% * -- 81,250 * *
Lakshmi Narayanan................... -- -- -- -- -- -- --
Gordon Coburn....................... 16,250 * * -- 16,250 * *
Francisco D'Souza................... 9,750 * * -- 9,750 * *
Anthony Bellomo (2)................. -- -- -- -- -- -- --
Paul Cosgrave....................... -- -- -- -- -- -- --
Victoria Fash (2)................... 3,250 * * -- 3,250 * *
John Klein.......................... -- -- -- -- -- -- --
Venetia Kontogouris (2)............. 3,250 * * -- 3,250 * *
All executive officers and directors
as a group (9 persons)............. 113,750 1.7% * -- 113,750 * *
Cognizant Corporation (3)........... 6,500,000 98.3% 99.8% 417,000 6,083,000 66.7 95.3
200 Nyala Farms
Westport, CT 06880
</TABLE>
- ------------------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 6,613,750 shares of Common
Stock outstanding as of the date of this Prospectus and 9,113,750 shares
upon consummation of this offering. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable.
(2) Mr. Bellomo, a director of the Company, is the President of Erisco, a
subsidiary of Cognizant. Ms. Fash, a director of the Company, is Executive
Vice President and Chief Financial Officer of Cognizant. Ms. Kontogouris, a
director of the Company, is President of Cognizant Enterprises, Inc., a
subsidiary of Cognizant. None of the shares indicated as owned by Mr.
Bellomo, Ms. Fash and Ms. Kontogouris include shares owned by Cognizant. Mr.
Bellomo, Ms. Fash and Ms. Kontogouris disclaim beneficial ownership of the
shares owned by Cognizant within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(3) If the Underwriters' over-allotment option is exercised in full, Cognizant
will beneficially own 5,645,500 shares of Class B Common Stock after this
offering, which will represent 61.9% of the outstanding Common Stock and
94.2% of the combined voting power of the outstanding Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 130,000,000 shares
consisting of (i) 100,000,000 shares of Class A Common Stock, par value $.01 per
share, (ii) 15,000,000 shares of Class B Common Stock, par value $.01 per share,
and (iii) 15,000,000 shares of Preferred Stock, par value $.10 per share. As of
the date of this Prospectus, the Company had issued and outstanding 530,750
shares of Class A Common Stock, 6,083,000 shares of Class B Common Stock and had
granted options to purchase 717,450 shares of Class A Common Stock at a weighted
average exercise price of $5.84 per share (assuming an exercise price of $12.00
per share for options which become effective at the time of this offering). No
shares of preferred stock have been designated or issued. The following
description of the capital stock of the Company is a summary and is qualified in
its entirety by the provisions of the Company's Certificate of Incorporation and
the Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to one
vote per share while holders of Class B Common Stock are entitled to ten votes
per share on all matters to be voted on by stockholders. The holders of Common
Stock are not entitled to cumulative voting rights. Generally, all matters to be
voted on by stockholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the votes entitled to be cast by all
shares of Class A Common Stock and Class B Common Stock present in person or
represented by proxy, voting together as a single class, subject to any voting
rights granted to holders of any Preferred Stock. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of shares of Common Stock would be entitled to share ratably in all assets
remaining after payment of liabilities subject to prior distribution rights and
payment of any distributions owing to holders of shares of Preferred Stock then
outstanding, if any. Holders of the shares of Common Stock have no preemptive
rights, and the shares of Common Stock are not subject to further calls or
assessment by the Company. There are no redemption or sinking fund provisions
applicable to the shares of Common Stock.
Holders of Class A Common Stock and Class B Common Stock will share in an
equal amount per share in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock. Dividends
consisting of shares of Class A Common Stock and Class B Common Stock may be
paid only as follows: (i) shares of Class A Common Stock may be paid only to
holders of Class A Common Stock and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A Common Stock
and Class B Common Stock.
While Cognizant does not have a current intention of effecting a Tax-Free
Spin-Off (as hereinafter defined), Cognizant will continually evaluate its
ownership of the Class B Common Stock of the Company and there can be no
assurances whether Cognizant will effect a Tax-Free Spin-Off in the future. Each
outstanding share of Class B Common Stock is convertible at the holder's option
into one share of Class A Common Stock at any time prior to a Tax-Free Spin-Off.
If a Tax-Free Spin-Off occurs, the stockholders of Cognizant will receive Class
B Common Stock, which will continue to have ten votes per share. Thereafter,
shares of Class B Common Stock shall convert upon transfer to Class A Common
Stock but shall no longer be convertible into shares of Class A Common Stock at
the option of the holder thereof. Additionally, each share of Class B Common
Stock shall automatically convert into one share of Class A Common Stock if at
any time the number of outstanding shares of Class B Common Stock represents
less than 35% of the economic ownership represented by the aggregate number of
shares of Common Stock then outstanding.
Except as provided below, any shares of Class B Common Stock transferred to
a person other than Cognizant or any of its subsidiaries or successors
(including IMS HEALTH) shall automatically convert to shares of Class A Common
Stock upon such disposition. Shares of Class B Common Stock transferred to
stockholders of Cognizant in a transaction intended to be on a tax-free basis (a
"Tax-Free Spin-Off") under
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the Code shall not convert to shares of Class A Common Stock upon the occurrence
of such Tax-Free Spin-Off.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall convert
upon transfer to Class A Common Stock; provided, however, that shares of Class B
Common Stock shall automatically convert into shares of Class A Common stock on
the fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free
Spin-Off, Cognizant delivers to the Company written advice of counsel reasonably
satisfactory to the Company to the effect that (i) such conversion could
adversely affect the ability of Cognizant to obtain a favorable ruling from the
Internal Revenue Service that the distribution would be a Tax-Free Spin-Off or
(ii) the Internal Revenue Service has adopted a general non-ruling policy on
tax-free spinoffs and that such conversion could adversely affect the status of
the transaction as a Tax-Free Spin-Off. If such written advice is received,
approval of such conversation shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off, unless Cognizant delivers to the Company written advice of counsel
reasonably satisfactory to the Company prior to such anniversary that such vote
could adversely affect the status of the distribution as a Tax-Free Spin-Off,
including the ability to obtain a favorable ruling from the Internal Revenue
Service. If such written advice is delivered, such vote shall not be held.
Approval of such conversion will require the affirmative vote of the holders of
a majority of the shares of both Class A Common Stock and Class B Common Stock
present and voting, voting together as a single class, with each share entitled
to one vote for such purpose. No assurance can be given that such conversion
would be consummated. The foregoing requirements are intended to ensure that
tax-free treatment of a Tax-Free Spin-Off is preserved should the Internal
Revenue Service challenge such automatic conversion as violating the 80% vote
requirement currently required by the Code for a Tax-Free Spin-Off. See "Risk
Factors--Control by Principal Stockholder; Benefits of Offering to Cognizant."
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with such designations, rights and preferences as may be
determined from time to time by its Board of Directors. Accordingly, the
Company's Board of Directors is empowered, without stockholder approval, to
issue preferred stock with dividends, liquidation, compliance, voting or other
rights that could adversely affect the voting power or other rights of the
holders of Common Stock. Pursuant to the Intercompany Agreement, Cognizant's
consent would be required to issue any preferred stock. In the event of
issuance, the preferred stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company. No shares of preferred stock are issued or outstanding and the Company
has no present plans to issue any shares of preferred stock. See "Risk
Factors--Certain Anti-Takeover Provisions."
CERTAIN PROVISIONS OF DELAWARE LAW
Section 203 of the DGCL prohibits, with certain exceptions, a Delaware
corporation from engaging in any of a broad range of business combinations, such
as mergers, consolidations and sales of assets, with an "interested stockholder"
for a period of three years from the date that such person became an interested
stockholder. This makes a takeover of a company more difficult and may have the
effect of diminishing the possibility of certain types of "front-end loaded"
acquisitions of a company or other unsolicited attempts to acquire a company.
This may further have the effect of preventing changes in the Board of Directors
of a company and it is possible that such provisions could make it more
difficult to accomplish transactions which stockholders may otherwise deem to be
in their best interests. See "Risk Factors--Certain Anti-Takeover Provisions."
LISTING
The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "CTSH."
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Company's Class A Common Stock is Continental
Stock Transfer & Trust Company.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the capital
stock of the Company.
Upon consummation of this offering, the Company will have outstanding
9,113,750 shares of Common Stock and will have granted options for the purchase
of 717,450 shares of Class A Common Stock at a weighted average exercise price
of $5.84 per share (assuming an exercise price of $12.00 for options which
become effective at the time of this offering). Of such options granted, none
are exercisable as of, or within 60 days of, March 1, 1998. Of the 9,113,750
shares of Common Stock outstanding upon consummation of this offering, the
2,917,000 shares of Class A Common Stock sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless they are purchased by "affiliates" of the Company as that term is defined
in Rule 144 under the Securities Act (which sales would be subject to certain
limitations and restrictions described below). The remaining 6,196,750
outstanding shares of Common Stock may be sold only if registered or pursuant to
an exemption from registration such as Rule 144 or 144(k) promulgated under the
Securities Act. The holders of all remaining 6,196,750 shares of Common Stock
have agreed not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of, or agree to dispose of, any shares of Class A Common
Stock until 180 days after the date of this Prospectus without prior written
consent of BancAmerica Robertson Stephens. See "Underwriting." BancAmerica
Robertson Stephens in its sole discretion at any time and without notice may
release for sale in the public market all or any portion of the shares subject
to the lock-up agreements. In addition, pursuant to the Intercompany Agreement,
Cognizant's ability to sell its shares of Common Stock will be restricted for a
period of 18 months following the consummation of this offering. See "Certain
Transactions."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Class A Common Stock then outstanding (approximately 91,000 shares immediately
after this offering); or (ii) the average weekly trading volume in the Class A
Common Stock during the four calendar weeks preceding the required filing of a
Form 144 with respect to such sale. Sales under Rule 144 are subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Under Rule 701 under the
Securities Act, persons who purchase shares upon exercise of options granted
prior to this offering are entitled to sell such shares 90 days after this
offering in reliance on Rule 144, without having to comply with the holding
period requirements of Rule 144 and, in the case of non-affiliates, without
having to comply with the volume limitation or notice filing provisions of Rule
144.
The Company is unable to estimate accurately the number of "restricted"
shares that will be sold under Rule 144 since this will depend in part on the
market price for the Class A Common Stock, the personal circumstances of the
seller and other factors. See "Risk Factors--Shares Eligible for Future Sale."
After the completion of this offering, the Company intends to file
Registration Statements on Form S-8 under the Securities Act to register an
aggregate of 819,000 shares of Class A Common Stock reserved for issuance under
the Employee Option Plan and Directors' Option Plan and other options
outstanding as of the date of this Prospectus. Of the 717,450 options
outstanding on the date of this Prospectus, 351,750 are subject to the lock-up
agreements described above and 300,700 of the remaining 365,700 options will not
become exercisable before December 31, 1998.
58
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, Cowen & Company and Adams, Harkness & Hill, Inc.
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Stockholder the number of shares of Class A Common Stock set forth
opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
BancAmerica Robertson Stephens.......................................................................
Cowen & Company......................................................................................
Adams, Harkness & Hill, Inc..........................................................................
----------
Total........................................................................................ 2,917,000
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Class A Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of not more than $ per
share, of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and reallowance
to dealers may be reduced by the Representatives. No such reduction shall change
the amount of proceeds to be received by the Company as set forth on the cover
page of this Prospectus.
The Selling Stockholder has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase an aggregate of up to an additional 437,550 shares of Class A Common
Stock at the same price per share as the Company and the Selling Stockholder
receive for the 2,917,000 shares that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Class A Common
Stock to be purchased by it shown in the above table represents as a percentage
of the 2,917,000 shares offered hereby. If purchased, such additional shares
will be sold by the Underwriters on the same terms as those on which the
2,917,000 shares are being sold. The Selling Stockholder will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Class A Common
Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholder against certain civil
liabilities, including liabilities under the Securities Act and liability
arising from breaches of representations and warranties contained in the
Underwriting Agreement or the inaccuracy of certain information set forth herein
that was provided by the Underwriters.
59
<PAGE>
Cognizant and the executive officers, directors and stockholders of the
Company have agreed with the Representatives that, until 180 days from the
effective date of the Registration Statement of which this Prospectus is a part,
subject to certain limited exceptions, they will not, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase, pledge, or
otherwise dispose of or transfer, any shares of Class A Common Stock, or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, shares of Class A Common Stock, now owned or hereafter acquired by such
holders or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. BancAmerica Robertson Stephens may, in its sole discretion and without
notice, release all or any portion of the securities subject to the lock-up
agreements. In addition, the Company has agreed that, until 180 days from the
date of this Prospectus, the Company will not, without the prior written consent
of BancAmerica Robertson Stephens, subject to certain exceptions, sell or
otherwise dispose of any shares of Class A Common Stock, any options or warrants
to purchase any shares of Class A Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Class A Common Stock other
than the Company's sale of shares in this offering, the issuance of Common Stock
upon the exercise of outstanding options or the Company's grant of options and
issuance of stock under the Employee Option Plans and the Directors' Option
Plan. See "Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Class A Common Stock at levels above those which might otherwise prevail in
the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Class A Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in
connection with this offering. A penalty bid means an arrangement that permits
the Underwriters to reclaim a selling concession from a syndicate member in
connection with this offering when shares of Class A Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected, where permitted, on the Nasdaq National Market or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Class A Common Stock offered hereby for
employees of the Company and Cognizant, including executive officers, and
certain individuals who have expressed an interest in purchasing shares of Class
A Common Stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as other shares offered hereby.
Prior to this offering, there has been no public market for the capital
stock of the Company. Consequently, the initial public offering price for the
Class A Common Stock will be determined through negotiations among the Company,
the Selling Stockholder and the Representatives. The material factors to be
considered in such negotiations are prevailing market and economic conditions,
certain financial information of the Company for recent periods, the market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. There can be no assurance that an active or
orderly trading market will develop for the Class A Common Stock or that the
Class A Common Stock will trade in the public market subsequent to this offering
at or above the initial trading price. See "Risk Factors--No Prior Public Market
for Common Stock; Possible Volatility of Stock Price."
60
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company and the Selling Stockholder by O'Sullivan Graev &
Karabell, LLP, New York, New York. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Hale and Dorr LLP, Boston,
Massachusetts.
EXPERTS
The Consolidated Financial Statements and schedule included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Coopers & Lybrand L.L.P., independent accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-1 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the shares of
Class A Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other documents are not necessarily complete, and with respect to each such
contract or other document filed as an exhibit to the Registration Statement
reference is made to the exhibit, and each such statement is qualified in all
respects by such reference. For further information regarding the Company and
the Class A Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
The Registration Statement, including the exhibits and schedules forming a
part thereof, filed by the Company with the Commission can be inspected and
copies obtained from the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N. W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a Web site (http:\\www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
61
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Statements of Financial Position as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited).......................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998
(unaudited)......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months Ended March 31, 1998
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998
(unaudited)......................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
THE RECAPITALIZATION, AS DESCRIBED IN NOTE 7 TO THE CONSOLIDATED FINANCIAL
STATEMENTS, HAS NOT BEEN CONSUMMATED. WHEN IT HAS BEEN CONSUMMATED, WE WILL BE
IN A POSITION TO FURNISH THE FOLLOWING REPORT:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Cognizant Technology Solutions
Corporation:
We have audited the accompanying consolidated statements of financial
position of Cognizant Technology Solutions Corporation as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the periods ended December
31, 1997. These consolidated 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 the audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cognizant
Technology Solutions Corporation as of December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the periods ended December 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 24, 1998, except as to
Note 7 which is as of
, 1998.
F-2
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except par values)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
-------------------- ------------
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents...................................................... $ 1,810 $ 2,715 $ 2,197
Trade accounts receivable, net................................................. 1,548 4,733 5,770
Trade accounts receivable--related party....................................... 1,161 2,670 1,993
Other current assets........................................................... 186 778 2,287
--------- --------- ------------
Total current assets..................................................... 4,705 10,896 12,247
Property and equipment, net.................................................... 2,711 4,453 5,080
Goodwill, net.................................................................. -- 2,147 2,068
Other assets................................................................... 411 802 57
--------- --------- ------------
Total assets............................................................. $ 7,827 $ 18,298 $ 19,452
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................... $ 701 $ 1,543 $ 1,295
Accrued and other liabilities.................................................. 1,223 3,659 4,030
--------- --------- ------------
Total current liabilities................................................ 1,924 5,202 5,325
--------- --------- ------------
Deferred income taxes.......................................................... 940 2,593 3,019
Due to related party........................................................... 976 6,646 6,474
Minority interest.............................................................. 1,181 -- --
--------- --------- ------------
Total liabilities........................................................ 5,021 14,441 14,818
--------- --------- ------------
Commitments and contingencies
Mandatorily redeemable common stock (114 shares issued and outstanding)........ -- 438 438
Stockholders' equity:
Preferred stock, $.10 par value, 15,000 shares authorized, none issued
and outstanding.............................................................. -- -- --
Class A common stock, $.01 par value, 100,000 shares authorized, 417 shares
issued and outstanding at December 31, 1996 and 1997 and at March 31, 1998... 4 4 4
Class B common stock, $.01 par value, 15,000 shares authorized, 6,083 issued
and outstanding at December 31, 1996 and 1997 and at March 31, 1998.......... 61 61 61
Additional paid-in capital..................................................... 1,833 1,420 1,482
Retained earnings.............................................................. 908 1,936 2,648
Cumulative translation adjustment.............................................. -- (2) 1
--------- --------- ------------
Total stockholders' equity............................................... 2,806 3,419 4,196
--------- --------- ------------
Total liabilities and stockholders' equity............................. $ 7,827 $ 18,298 $ 19,452
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues..................................................... $ 298 $ 2,775 $ 13,898 $ 2,138 $ 6,529
Revenues-related party....................................... 6,877 9,257 10,846 2,118 3,709
--------- --------- --------- --------- ---------
Total revenues....................................... 7,175 12,032 24,744 4,256 10,238
Cost of revenues............................................. 3,567 6,020 14,359 2,407 5,929
--------- --------- --------- --------- ---------
Gross profit................................................. 3,608 6,012 10,385 1,849 4,309
Selling, general and administrative expense.................. 2,213 3,727 6,898 1,403 2,705
Depreciation and amortization expense........................ 376 819 1,358 281 480
--------- --------- --------- --------- ---------
Income from operations....................................... 1,019 1,466 2,129 165 1,124
Other income:
Interest income.............................................. 7 8 25 1 31
Other income, net............................................ 44 1 -- -- (17)
--------- --------- --------- --------- ---------
Total other income................................... 51 9 25 1 14
--------- --------- --------- --------- ---------
Income before provision for income taxes..................... 1,070 1,475 2,154 166 1,138
Provision for income taxes................................... (247) (341) (581) (19) (426)
Minority interest............................................ (362) (492) (545) (104) --
--------- --------- --------- --------- ---------
Net income................................................... $ 461 $ 642 $ 1,028 $ 44 $ 712
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share, basic.................................. $ 0.07 $ 0.10 $ 0.16 $ 0.01 $ 0.11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share, diluted................................ $ 0.07 $ 0.10 $ 0.16 $ 0.01 $ 0.10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common shares outstanding......... 6,500 6,500 6,547 6,500 6,614
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common shares and stock options
outstanding................................................ 6,500 6,500 6,605 6,500 6,818
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL RETAINED CUMULATIVE
-------------------------- ------------------------ PAID-IN EARNINGS/ TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT
----------- ------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.... 417 $ 4 6,083 $ 61 $ 538 $ (195) $ --
Net transfers (to) from
related party................. -- -- -- -- 897 -- --
Net income.................... -- -- -- -- -- 461 --
--
--- ----- --- ----------- ----------- -----
Balance, December 31, 1995.... 417 4 6,083 61 1,435 266 --
Net transfers (to) from
related party................. -- -- -- -- 398 -- --
Net income.................... -- -- -- -- -- 642 --
--
--- ----- --- ----------- ----------- -----
Balance, December 31, 1996.... 417 4 6,083 61 1,833 908 --
Net transfers (to) from
related party................. -- -- -- -- (413) -- --
Translation adjustment........ -- -- -- -- -- -- (2)
Net income.................... -- -- -- -- -- 1,028 --
--
--- ----- --- ----------- ----------- -----
Balance, December 31, 1997.... 417 4 6,083 61 1,420 1,936 (2)
Net transfers (to) from
related party (unaudited)..... -- -- -- -- 62 -- --
Translation adjustment
(unaudited)................... -- -- -- -- -- -- 3
Net income (unaudited)........ -- -- -- -- -- 712 --
--
--- ----- --- ----------- ----------- -----
Balance, March 31,
1998 (unaudited).............. 417 $ 4 6,083 $ 61 $ 1,482 $ 2,648 $ 1
--
--
--- ----- --- ----------- ----------- -----
--- ----- --- ----------- ----------- -----
<CAPTION>
TOTAL
---------
<S> <C>
Balance, December 31, 1994.... $ 408
Net transfers (to) from
related party................. 897
Net income.................... 461
---------
Balance, December 31, 1995.... 1,766
Net transfers (to) from
related party................. 398
Net income.................... 642
---------
Balance, December 31, 1996.... 2,806
Net transfers (to) from
related party................. (413)
Translation adjustment........ (2)
Net income.................... 1,028
---------
Balance, December 31, 1997.... 3,419
Net transfers (to) from
related party (unaudited)..... 62
Translation adjustment
(unaudited)................... 3
Net income (unaudited)........ 712
---------
Balance, March 31,
1998 (unaudited).............. $ 4,196
---------
---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 461 $ 642 $ 1,028 $ 44 $ 712
Adjustments to reconcile net income to net cash provided
by
operating activities:
Depreciation and amortization.......................... 376 819 1,358 281 480
Provision for doubtful accounts........................ -- -- 239 -- (62)
Deferred income taxes.................................. 397 518 1,170 112 426
Minority interest...................................... 362 492 545 104 --
Changes in assets and liabilities:
Accounts receivable...................................... (1,646) (440) (4,933) (34) (1,269)
Other current assets..................................... (150) 37 (591) (689) (538)
Other assets............................................. (99) (199) (390) 410 747
Accounts payable......................................... 832 (474) 842 1,013 (249)
Accrued and other liabilities............................ 515 487 2,386 (415) 371
--------- --------- --------- --------- ---------
Net cash provided by operating activities................ 1,048 1,882 1,654 826 618
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment...................... (1,737) (1,329) (3,025) (207) (906)
Payment for acquisition of minority interest in
subsidiary............................................. -- -- (3,418) -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities.................... (1,737) (1,329) (6,443) (207) (906)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issued shares/contributed capital.......... 1,088 397 25 (53) (58)
Proceeds to (from) related party......................... (28) 315 5,669 (209) (172)
--------- --------- --------- --------- ---------
Net cash (used in) or provided from financing
activities............................................. 1,060 712 5,694 (262) (230)
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents................ 371 1,265 905 357 (518)
Cash and cash equivalents, at beginning of year.......... 174 545 1,810 1,810 2,715
--------- --------- --------- --------- ---------
Cash and cash equivalents, at end of year................ $ 545 $ 1,810 $ 2,715 $ 2,167 $ 2,197
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental information:
Cash paid for income taxes during the year............... $ -- $ 32 $ 158 $ -- $ 2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. BASIS OF PRESENTATION
Cognizant Technology Solutions Corporation (the "Company") is currently
owned 98% by Cognizant Corporation ("Cognizant") and 2% by certain employees and
directors of the Company. Prior to the reorganization of The Dun & Bradstreet
Corporation on November 1, 1996, the Company was a wholly owned and controlled
subsidiary of The Dun & Bradstreet Corporation, the former parent of Cognizant.
The Company is principally engaged in the software development and
maintenance services business with operations and subsidiaries in India, the
United Kingdom, Canada and the United States. It delivers services to customers,
principally in the United States, through an on-site and offshore project team.
These services include application development and maintenance services, Year
2000 and Eurocurrency compliance services, testing and quality assurance
services and re-hosting and re-engineering services.
The Company is a Delaware corporation originally organized in 1988. The
Company's software development and maintenance services business began
operations in 1994. Since its organization, the Company held stock in various
companies engaged in unrelated businesses. As part of the reorganization of The
Dun & Bradstreet Corporation, these unrelated businesses have been spun-off from
the Company. The results of the Company for all years presented reflect the
Company's software development and maintenance services business, as all other
entities were in dissimilar businesses, historically had been managed and
financed autonomously and had no common facilities or costs. Pursuant to the
Intercompany Agreement between Cognizant and the Company and the assignment of
certain indemnification rights of Cognizant to the Company, there are no
material financial commitments, guarantees or contingent liabilities of the
Company to the unrelated businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements reflect
the consolidated financial position, results of operations and cash flows of the
Company and its consolidated subsidiaries as if it were a separate entity for
all periods presented. The Dun & Bradstreet Corporation and Cognizant provided
the Company with certain administrative services, including financial planning
and administration, legal, tax planning and compliance, treasury and
communications services and permitted the Company to participate in their
respective insurance and employee benefit plans. These services and costs were
allocated to the Company based on utilization of certain specific services and,
where not estimable, based upon total assets employed by the Company in
proportion to Cognizant's total assets. Management believes these allocations
are reasonable.
UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying interim
consolidated balance sheet as of March 31, 1998 and the consolidated statements
of operations and cash flows for the three months ended March 31, 1997 and 1998
together with the related disclosures and amounts set forth in the notes are
unaudited but include all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly, in all
material respects, the consolidated financial position, the consolidated results
of operations and cash flows for the three months ended March 31, 1997 and 1998.
Results for the three months ended March 31, 1997 and 1998 are not necessarily
indicative of results for the entire year.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents primarily include time
and demand deposits in the Company's operating bank accounts. The Company
considers all highly liquid instruments with an initial maturity of three months
or less to be cash equivalents.
F-7
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS. Other assets include approximately $104 in costs incurred in
connection with the contemplated public offering that have been deferred as of
March 31, 1998. These costs will be offset against additional paid-in capital
upon the consummation of the offering.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated on the straight-line basis
over the estimated useful lives of the assets. 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. Maintenance and repairs are
expensed as incurred, while renewals and betterments are capitalized.
GOODWILL. Goodwill represents the excess of the purchase price of the
former minority interest in the Company's Indian subsidiary over the fair values
of amounts assigned to the incremental net assets acquired. Amortization expense
is recorded using the straight-line method over a period of seven years.
Accumulated amortization was $76 and $154 as of December 31, 1997 and March 31,
1998, respectively.
At each balance sheet date, the Company reviews the recoverability of
goodwill by comparing the unamortized balance to the related anticipated
undiscounted future cash flows from operating activities.
REVENUE RECOGNITION. The Company's services are entered into on either a
time-and-materials or fixed-price basis. Revenues related to time-and-material
contracts are recognized as the service is performed. Revenues related to
fixed-price contracts are recognized as the service is performed using the
percentage-of-completion method of accounting, under which the sales value of
performance, including earnings thereon, is recognized on the basis of the
percentage that each contract's cost to date bears to the total estimated cost.
Fixed price contracts are cancellable subject to a specified notice period.
Generally, all services provided by the Company through the date of cancellation
are due and payable under the contract terms. The Company generally issues
invoices related to fixed price contracts based upon achievement of milestones
during a project. Estimates are subject to adjustment as a project progresses to
reflect changes in expected completion costs or dates. The cumulative impact of
any revision in estimates is reflected in the financial reporting period in
which the change in estimate becomes known and any anticipated losses on
contracts are recognized immediately. A reserve for warranty provisions under
such contracts, which generally exist for ninety days past contract completion,
is estimated and accrued during the contract period.
UNBILLED ACCOUNTS RECEIVABLE. Unbilled accounts receivable represent
revenues on contracts to be billed, in subsequent periods, as per the terms of
the contracts.
FOREIGN CURRENCY TRANSLATION. The assets and liabilities of the Company's
Canadian and European subsidiaries are translated into U.S. dollars at current
exchange rates and revenues and expenses are translated at average monthly
exchange rates. The resulting translation adjustments are recorded in a separate
component of stockholders' equity. For the Company's Indian subsidiary ("CTS
India"), the functional currency is the U.S. dollar, since its sales are made
primarily in the United States, the sales price is predominantly in U.S. dollars
and there is a high volume of intercompany transactions denominated in U.S.
dollars between CTS India and its U.S. affiliates. Non-monetary assets and
liabilities are translated at historical exchange rates, while monetary assets
and liabilities are translated at current exchange rates. The resulting gain
(loss) is included in other income. Such gain (loss) was $44 in 1995, not
material in 1997 and 1996 and $(17) for the three months ended March 31, 1998.
F-8
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements, and the reported amounts of revenues and expenses
during the reported period. The most significant estimates relate to the
allowance for doubtful accounts, reserve for warranties, depreciation of fixed
assets and the recognition of revenue and profits based on the percentage of
completion method. Actual results could vary from the estimates and assumptions
used in the preparation of the accompanying financial statements.
All of the Company's software development centers, including a substantial
majority of its employees and assets, are located in India. As a result, the
Company may be subject to certain risks associated with international
operations, including risks associated with foreign currency exchange rate
fluctuations and risks associated with the application and imposition of
protective legislation and regulations relating to import and export or
otherwise resulting from foreign policy or the variability of foreign economic
conditions. To date, the Company has not engaged in any hedging transactions to
mitigate its risks relating to exchange rate fluctuations. Additional risks
associated with international operations include difficulties in enforcing
intellectual property rights, the burdens of complying with a wide variety of
foreign laws, potentially adverse tax consequences, tariffs, quotas and other
barriers.
A significant portion of the Company's current engagements are for the
Company's Year 2000 compliance projects. An unanticipated decline in the demand
for Year 2000 compliance services would have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company believes that demand for Year 2000 compliance services will
diminish after the year 2000, as many solutions are implemented and tested. A
core element of the Company's strategy is to use the business relationships and
the knowledge of its customers' computer systems obtained in providing Year 2000
services to generate additional projects from these customers. There can be no
assurance that the Company will be successful in generating demand for other
services from its Year 2000 customers.
Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that are difficult
to quantify. Any failure in a customer's computer system could result in a claim
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to contractually
limit its liability for damages arising from negligent acts, errors, mistakes or
omissions in rendering its software development and maintenance services, there
can be no assurance that the limitations of liability set forth in its contracts
will be enforceable in all instances or will otherwise protect the Company from
liability for damages. Although the Company has general liability insurance
coverage, including coverage for errors or omissions, there can be no assurance
that such coverage will continue to be available on reasonable terms or will be
available in sufficient amounts to cover one or more large claims, or that the
insurer will not disclaim coverage as to any future claim. The successful
assertion of one or more large claims against the Company that exceed available
insurance coverage or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, would have a material adverse effect on the Company's business,
results of operations and financial condition.
NET INCOME PER SHARE. In 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which replaces the
presentation of primary net income (loss) per
F-9
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
share ("EPS") and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Similar to fully diluted EPS, diluted
EPS includes all dilutive potential common stock in the weighted average shares
outstanding.
Included in diluted net income per share are potentially dilutive common
shares relating to options of 57,130 for the year ended December 31, 1997.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
primarily of cash and cash equivalents and trade accounts receivable. The
Company maintains its cash and cash equivalents with high credit quality
financial institutions.
INCOME TAXES. The Company has been included in the federal and certain
state income tax returns of Cognizant and The Dun & Bradstreet Corporation. The
provision for income taxes in the Company's consolidated financial statements
has been calculated on a separate company basis. Income tax benefits realized by
the Company and utilized by Cognizant or The Dun & Bradstreet Corporation are
included in stockholders' equity. The Company will no longer be included in the
consolidated return of Cognizant, and will be required to file separate income
tax returns, upon the consummation of the Company's initial public offering.
The Company provides for income taxes utilizing the asset and liability
method of accounting for income taxes. Under this method, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. If it is determined that it is more likely than not that future
tax benefits associated with a deferred tax asset will not be realized, a
valuation allowance will be provided. The effect on deferred tax assets and
liabilities of a change in the tax rates is recognized in income in the period
that includes the enactment date.
CTS India is an export oriented company that is entitled to claim a tax
holiday for a period of five years from April 1996 through March 2001 in respect
to its export profits. Under the Indian Income Tax Act of 1961, all of the
earnings of the Company's Indian subsidiary are currently exempt from Indian
Income Tax as profits are attributable to export operations. However, since
management intends to repatriate all accumulated earnings from India to the
United States, the Company has provided deferred U.S. income taxes on all
undistributed earnings.
STOCK-BASED COMPENSATION. With respect to stock options granted to
employees, SFAS No. 123 "Accounting for Stock-Based Compensation" permits
companies to continue using the accounting method promulgated by the Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," to measure compensation or to adopt the fair value based method
prescribed by SFAS No. 123. If the APB 25 method is continued, pro forma
footnote disclosures are required as if SFAS No. 123 accounting provisions were
followed. Management has determined not to adopt the SFAS No. 123's accounting
recognition provisions, but has included the required pro forma disclosures.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive
F-10
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income in the
financial statements. The Company has implemented SFAS No. 130. The adoption of
this pronouncement did not have a material effect of the Company's financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the manner in which public companies report information about operating
segments in annual and interim financial statements. The Company will be
required to implement SFAS No. 131 for the year ending December 31, 1998. The
Company expects that the adoption of this pronouncement will not have a material
effect on the Company's financial statements.
In October 1997, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which provides guidance on when and in what amounts revenue should
be recognized for the licensing, selling, leasing or marketing of computer
software. This statement is effective for the periods beginning after December
15, 1997. The adoption of this pronouncement did not have a material effect on
the Company's financial statements.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits," which changes current
financial statement disclosure requirements from those required under SFAS 87,
Employers' Accounting for Pensions, SFAS 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. The statement does not change the existing
measurement or recognition provisions of FASB Statement Nos. 87, 88 or 106, and
is effective for the fiscal years beginning after December 15, 1997. The Company
is in the process of evaluating the disclosure requirements under this standard.
In March 1998, the AICPA issued SOP 98-1, "Accounting For The Costs Of
Computer Software Developed Or Obtained For Internal Use." SOP 98-1 provides
guidance on costs to be capitalized and when capitalization of such costs should
commence. SOP 98-1 applies to costs incurred after adoption, including costs for
software projects that are in progress at the time of adoption. The Company is
evaluating the impact of this SOP on its financial position and results of
operations and will be required to implement SOP 98-1 for fiscal years beginning
after December 15, 1998.
F-11
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
3. SUPPLEMENTAL FINANCIAL DATA
TRADE ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
-------------------- -----------
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable -- net of allowance of $239 as
of December 31, 1997 and $177 as of March 31, 1998..... $ 1,545 $ 4,523 $ 7,678
Unbilled receivables..................................... 3 210 85
--------- --------- -----------
$ 1,548 $ 4,733 $ 7,763
--------- --------- -----------
--------- --------- -----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIFE -------------------- MARCH 31
(YEARS) 1996 1997 1998
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Computer equipment and purchased software...... 3 $ 2,204 $ 4,196 $ 4,303
Furniture and equipment........................ 5 - 9 1,114 1,700 1,893
Leasehold improvements......................... various 653 1,099 1,504
--------- --------- -----------
Accumulated depreciation and amortization...... (1,260) (2,542) (2,620)
--------- --------- -----------
$ 2,711 $ 4,453 $ 5,080
--------- --------- -----------
--------- --------- -----------
</TABLE>
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued bonuses and commissions.................. $ 582 $ 2,003 $ 1,332
Accrued vacation................................. 203 415 415
Other............................................ 438 1,241 2,283
--------- --------- -----------
$ 1,223 $ 3,659 $ 4,030
--------- --------- -----------
--------- --------- -----------
</TABLE>
4. ACQUISITION OF MINORITY INTEREST
On July 3, 1997, the Company signed a memorandum of understanding to
purchase the 24.0% minority interest in CTS India from a third party. On October
31, 1997, the Company paid $3,468 to the
F-12
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
4. ACQUISITION OF MINORITY INTEREST (CONTINUED)
minority shareholder increasing the Company's ownership in CTS India from 76.0%
to 100.0%. The Company accounted for the acquisition of the minority interest
using the purchase method. The incremental assets acquired have been recorded at
their fair value at the date of acquisition. The excess of purchase price over
the fair value of the incremental net assets acquired has been recorded as
goodwill and is being amortized on a straight-line basis over a seven year
period. The following is a summary of the purchase price allocation for the
acquisition of the minority interest:
<TABLE>
<S> <C>
Fair value of assets................................................ $ 1,727
Deferred taxes...................................................... (482)
Goodwill............................................................ 2,223
---------
Total purchase price................................................ $ 3,468
---------
---------
</TABLE>
The results of operations of CTS India have been included in the Company's
operations since the acquisition date. Had the acquisition of the minority
interest taken place on January 1, 1996 or 1997, the results of operations would
not have reflected minority interest expense in each year and would have
reflected amortization of the related goodwill of $317 for 1996 and 1997.
5. EMPLOYEE BENEFITS
Beginning in 1997, certain U.S. employees of the Company were eligible to
participate in Cognizant's 401(k) plan. The Company matches up to 50% of the
eligible employee's contribution. The amount charged to expense for the matching
contribution was $15 for the year ended December 31, 1997 and $7 for the three
months ended March 31, 1998.
Certain of the Company's employees participate in Cognizant's defined
benefit pension plan. The costs allocated to the Company and recognized as
postretirement benefit costs and related liabilities were not material to the
Company's results of operations or financial position for the years presented.
CTS India maintains an employee benefit plan that covers substantially all
India-based employees. The employees' provident fund, pension and family pension
plans are statutory defined contribution retirement benefit plans. Under the
plans, employees contribute up to ten percent of their base compensation, which
is matched by an equal contribution by CTS India. Contribution expense
recognized was $31, $73 and $128 for the years ended December 31, 1995, 1996 and
1997, respectively.
CTS India also maintains a statutory gratuity plan that is a statutory
postemployment benefit plan providing defined lump sum benefits. CTS India makes
annual contributions to an employees' gratuity fund established with a
government-owned insurance corporation to fund a portion of the estimated
obligation. The Company estimates its obligation based upon employee salary and
projected turnover rates. Expense recognized by the Company was $31, $60 and $94
for the years ended December 31, 1995, 1996 and 1997, respectively.
F-13
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
6. INCOME TAXES
Income (loss) before provision for income taxes consisted of the following
for years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
U.S............................................................. $ (451) $ (611) $ (1,812)
Non-U.S......................................................... 1,521 2,086 3,966
--------- --------- ---------
Total........................................................... $ 1,070 $ 1,475 $ 2,154
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision (benefit) for income taxes consists of the following for the
years ended December 31,
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
U.S. Federal and state:
Current.......................................................... $ (150) $ (177) $ (607)
Deferred......................................................... 397 518 1,178
--------- --------- ---------
Total U.S. Federal and state................................... 247 341 571
--------- --------- ---------
Non-U.S.:
Current.......................................................... -- -- 18
Deferred......................................................... -- -- (8)
--------- --------- ---------
Total non-U.S.................................................. -- -- 10
--------- --------- ---------
Total.......................................................... $ 247 $ 341 $ 581
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the significant differences between the U.S.
federal statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate....................................... $ 364 $ 502 $ 732
Goodwill............................................................ -- -- 26
Effect of minority interest on foreign earnings..................... (123) (168) (185)
Other............................................................... 6 7 8
--------- --------- ---------
Total taxes..................................................... $ 247 $ 341 $ 581
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's deferred tax assets (liabilities) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:....................................................... $ -- $ 8
--------- ---------
Total deferred tax assets.............................................. $ -- $ 8
--------- ---------
Deferred tax liabilities:
Undistributed Indian income............................................ (940) (2,601)
--------- ---------
Total deferred tax liabilities......................................... (940) (2,601)
--------- ---------
Net deferred tax liability................................................. $ (940) $ (2,593)
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
6. INCOME TAXES (CONTINUED)
CTS India is an export oriented company that is entitled to claim a tax
holiday for a period of five years from April 1996 through March 2001 in respect
to its export profits. Under the Indian Income Tax Act of 1961, all of the
Company's earnings are currently exempt from Indian Income Tax as profits are
attributable to export operations. However, since management intends to
repatriate all earnings from India to the United States, the Company has
provided deferred U.S. income taxes on all undistributed earnings. The Company
has determined that the income taxes recorded by the Company would not be
materially different in the absence of the current tax exemption and, therefore,
the tax exemption had no material effect on earnings per share.
7. CAPITAL STOCK
COMMON STOCK. Prior to the date of this Prospectus, the Company will amend
and restate its certificate of incorporation to authorize 100,000,000 shares of
Class A common stock, par value $.01 per share, 15,000,000 shares of Class B
common stock, par value $.01 per share, and 15,000,000 shares of preferred
stock, par value $.10 per share, and to effect a 0.65 reverse stock split. All
applicable shares and per share amounts in the accompanying financial statements
have been retroactively adjusted to reflect this recapitalization. Holders of
Class A common stock have one vote per share and holders of Class B common stock
have ten votes per share. Holders of Class B common stock are entitled to
convert their shares into Class A common stock at any time on a share for share
basis. No preferred stock has been issued.
REDEEMABLE COMMON STOCK. On July 25, 1997, certain management employees of
the Company and its affiliates subscribed and subsequently purchased Common
Stock under the "Key Employees Restricted Stock Purchase Plan." These shares
were purchased by the employees at the then estimated fair market value of $3.85
per share. Holders of the stock may put, at any time, to the Company their
shares at the lower of the purchase price or the share price based on a
valuation of the Company at the time of the put. Upon the consummation of a
public offering, this put right would terminate. The Company has recorded the
value of the purchased stock outside the equity section. When all redemption
conditions are removed, such stock will be reclassified to common stock.
8. EMPLOYEE STOCK OPTIONS PLANS
In July 1997, the Company adopted the Key Employees' Stock Option Plan (the
"Employee Option Plan"). Under the Employee Option Plan, the Company may grant
non-qualified stock options which become exercisable on April 2006, with certain
acceleration provisions of the vesting period to 25.0% per year over four years
from the grant date should an initial public offering or change in control
occur. The number of shares authorized for issuance under the Employee Option
Plan is 747,500 of which 520,325 options were granted as of December 31, 1997.
These options give certain employees the right to purchase the Company's Common
Stock at an exercise price at least equal to the fair value of the stock at the
date of the grant. In July 1997, the exercise price was equal to the fair value
of the Company Stock, determined by the Board of Directors based upon the
purchase price of the minority interest in the Company's Indian subsidiary, as
well as an independent valuation. Effective prior to the consummation of the
Company's initial public offering, the number of shares authorized for issuance
under the Employee Option Plan will be reduced to 698,750 from 747,500. In March
and May 1998, the Company granted options to purchase an aggregate of 112,200
shares under the Employee Option Plan to certain employees effective upon the
F-15
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
8. EMPLOYEE STOCK OPTIONS PLANS (CONTINUED)
consummation of the Company's initial public offering at an exercise price equal
to the initial public offering price per share.
In December 1997, the Company adopted the 1997 Non-Employee Directors' Stock
Option Plan (the "Directors Option Plan"). Under the Directors Option Plan, the
Company granted non-qualified stock options to certain directors which become
exercisable in April 2006, with certain acceleration provisions of the vesting
period to 50.0% per year over two years from the grant date should an initial
public offering or change in control occur. The number of shares authorized for
issuance under the Directors Option Plan is 32,500. On December 31, 1997, 19,500
options were granted under the Directors Option Plan and are outstanding.
Effective prior to the consummation of the Company's initial public offering,
the number of shares authorized for issuance under the Directors Option Plan was
increased to 71,500 from 32,500 shares. In March 1998, the Company granted
options to purchase an aggregate of 36,500 shares under the Directors Option
Plan to certain directors effective upon the consummation of the Company's
initial public offering at an exercise price equal to the initial public
offering price per share.
In March 1998, the Company granted non-qualified stock options to purchase
an aggregate of 48,750 shares to the Company's Chairman and Chief Executive
Officer at an exercise price of $6.92 per share.
A summary of the Company's stock option activity, and related information is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
<S> <C> <C>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
Outstanding at beginning of year.................................................. -- --
Granted, Employee Option Plan................................................... 520,325 $ 3.85
Granted, Directors Option Plan.................................................. 19,500 9.08
Exercised....................................................................... -- --
Canceled........................................................................ -- --
--------- -----
Outstanding -- end of year........................................................ 539,825 4.04
Exercisable -- end of year........................................................ -- --
</TABLE>
The following summarizes information about the Company's stock options
outstanding and exercisable by price range at December 31, 1997:
<TABLE>
<CAPTION>
AVERAGE REMAINING
NUMBER CONTRACTUAL NUMBER
OUTSTANDING LIFE IN YEARS EXERCISE PRICE EXERCISABLE
- ----------- ----------------- --------------- ---------------
<C> <S> <C> <C>
520,325... 8.6 years $ 3.85 --
19,500.... 9.0 years $ 9.08 --
- -----------
539,825
</TABLE>
No compensation cost was recognized by the Company under APB 25 for 1995,
1996 or 1997.
Had compensation cost for the Company's stock-based compensation plans, as
well as Cognizant options held by certain executive officers (Note 9), been
determined based on the fair value at the grant
F-16
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
8. EMPLOYEE STOCK OPTIONS PLANS (CONTINUED)
dates for awards under those plans, consistent with the method prescribed by
SFAS No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net income
As reported.......................................................................... $ 461 $ 642 $ 1,028
Pro forma............................................................................ $ 461 $ 608 $ 778
As reported
Net income per share, basic.......................................................... $ 0.07 $ 0.10 $ 0.16
Net income per share, diluted........................................................ $ 0.07 $ 0.10 $ 0.16
Pro forma
Net income per share, basic.......................................................... $ 0.07 $ 0.09 $ 0.12
Net income per share, diluted........................................................ $ 0.07 $ 0.09 $ 0.12
</TABLE>
The pro forma disclosures shown above are not representative of the effects
on net income and earnings per share in future years.
For purposes of pro forma disclosures only, the fair value for all Company
options was estimated at the date of grant using the Black-Scholes option model
with the following weighted average assumptions in 1997: 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 the Company's
options granted was $2.38 during 1997. The assumptions used in 1996 and 1997 for
Cognizant stock options were: risk-free interest rate of 5.9%, expected dividend
yield of 0.3%, expected volatility of 25.0% and expected life of 4.5 years. The
weighted averge fair value of Cognizant stock options granted to certain
executive officers in 1996 and 1997 was $9.76 and $13.12, respectively.
9. TRANSACTIONS WITH AFFILIATES
BACKGROUND. The Company began its software development and maintenance
services business in early 1994 as an in-house technology development center for
The Dun & Bradstreet Corporation and its operating units. These operating units
principally included A.C.Nielsen, Dun & Bradstreet Information Services, Dun &
Bradstreet Software, Erisco, Inc. ("Erisco"), IMS International, Inc. ("IMS"),
NCH Promotional Services, Inc. ("NCH Promotional Services"), Nielsen Media
Research, Inc. ("Nielsen Media Research"), The Reuben H. Donnelley Corporation
("RHDonnelley"), Pilot Software, Inc. ("Pilot Software") and Sales Technologies,
Inc. ("Sales Technologies"), and a majority interest in Gartner Group, Inc.
("Gartner Group"). In November 1996, the Company, Erisco, IMS, Nielsen Media
Research, Pilot Software, Sales Technologies and certain other entities, plus a
majority interest in Gartner Group, were spun-off from The Dun & Bradstreet
Corporation to form Cognizant, the parent of the Company. At that time,
ACNielsen was separately spun-off from The Dun & Bradstreet Corporation and Dun
& Bradstreet Software was sold to GEAC Software. In 1997, Cognizant sold Pilot
Software to a third party.
F-17
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
9. TRANSACTIONS WITH AFFILIATES (CONTINUED)
REVENUES. In 1995, the Company recognized related party revenues totaling
$6,877 including revenues from A.C.Nielsen, Dun & Bradstreet Information
Services, Dun & Bradstreet Software, NCH Promotional Services, Erisco, IMS,
Nielsen Media Research and Pilot Software.
In 1996, the Company recognized related party revenues totaling $9,257
including revenues from A.C.Nielsen, Dun & Bradstreet Information Services, Dun
& Bradstreet Software and NCH Promotional Services through November 1, 1996 (the
effective date of the spin-off of Cognizant from The Dun & Bradstreet
Corporation) and revenues from Erisco, IMS, Nielsen Media Research and Pilot
Software are included as related party revenues for the full year.
In 1997, the Company recognized related party revenues totaling $10,846
including revenues from Erisco, IMS, Nielsen Media Research, Sales Technologies,
Pilot Software and Gartner Group for the full year.
In the three months ended March 31, 1998, the Company recognized related
party revenues totaling $3,709, including revenues from IMS, Nielsen Media
Research, Sales Technologies and Gartner Group.
SERVICES. The Company and certain operating subsidiaries of Cognizant have
entered into Master Services Agreements pursuant to which the Company provides
IT services to such subsidiaries.
Cognizant and The Dun & Bradstreet Corporation provided the Company with
certain administrative services, including financial planning and
administration, legal, tax planning and compliance, treasury and communications,
and permitted the Company to participate in Cognizant's insurance and employee
benefit plans. Costs for these services were allocated to the Company based on
utilization of certain specific services and, where not estimable, based upon
assets employed by the Company in proportion to Cognizant's total assets.
Management believes that these allocations are reasonable. These allocations
were $185, $354, and $835 for the years ended December 31, 1995, 1996 and 1997,
respectively, and $405 for the three months ended March 31, 1998.
The Company has financed the acquisition of the minority interest and its
operations through the expansion and contraction of intercompany balances with
Cognizant. No interest has been charged on these transactions.
Such transactions in 1995, 1996 and 1997 and the three months ended March
31, 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Loans and advances, net............................. $ (28) $ 315 $ 2,251 $ (172)
Purchase of minority interest....................... -- -- 3,418 --
--- --------- --------- -----
Proceeds (to) from related party.................... $ (28) $ 315 $ 5,669 $ (172)
--- --------- --------- -----
--- --------- --------- -----
</TABLE>
LEASES. Beginning January 1, 1997 through May 31, 1999, the Company began
subleasing office space from a subsidiary of Cognizant. The Company made annual
lease payments to the subsidiary of $99 in 1997 and $26 in the three months
ended March 31, 1998.
F-18
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
9. TRANSACTIONS WITH AFFILIATES (CONTINUED)
PENSION PLANS. Certain employees of the Company participate in Cognizant's
defined benefit pension plans. The plans are cash balance pension plans under
which six percent of creditable compensation plus interest is credited to the
employee's retirement account on a monthly basis. The cash balance earns monthly
investment credits based on the 30-year Treasury bond yield. At the time of
retirement, the vested employee's account balance is actuarially converted into
an annuity. The Company's cost for these plans is included in the allocation of
expense from Cognizant for employee benefits plans.
COGNIZANT STOCK OPTIONS. In November 1996, in consideration for services to
the Company, Cognizant granted an executive officer and director of the Company
options to purchase an aggregate of 114,900 shares of the common stock of
Cognizant at an exercise price of $33.38 per share. Such executive officer and
director has agreed to forfeit options to purchase 58,334 shares of Cognizant
common stock upon the consummation of the Company's initial public offering.
In November 1996, Cognizant granted an executive officer options to purchase
an aggregate of 60,000 shares of the common stock of Cognizant at an exercise
price of $33.38 per share. In addition, in November 1996, such executive officer
was granted options to purchase an aggregate of 20,000 shares of the common
stock of Cognizant at an exercise price of $33.38 per share, which was equal to
the fair market value at the grant date, by paying ten percent of the option
exercise price as an advance payment toward such exercise. The remaining 90
percent is payable at exercise.
LOAN. In October 1997, the Company loaned $63 to an executive officer. The
loan bears interest at the rate of two percent per annum.
10. COMMITMENTS
The Company leases office space under operating leases which expire at
various dates through year 2004. Certain leases contain renewal provisions and
generally require the Company to pay utilities, insurance, taxes, and other
operating expenses. The remaining lease terms on the Company's development
facilities in India range from two to nine years. These leases contain a
one-sided right for the Company to terminate its occupancy, without penalty,
with ninety days notification. Future minimum rental payments under operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 283
1999................................................................ 45
---------
Total minimum lease payments........................................ $ 328
---------
---------
</TABLE>
Included in the above figures are future rental payments to a related party
of $105 in 1998 and $44 in 1999.
Rental expense totaled $141, $241 and $509 for years ended December 31,
1995, 1996 and 1997, respectively and $181 for the three months ended March 31,
1998.
At December 31, 1997, the Company had a letter of credit in the amount of
$725 for the purchase of a mainframe computer. Subsequent to year end, the
letter of credit was paid.
F-19
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
11. SEGMENT INFORMATION
Information about the Company's operations and total assets in North
America, Europe and Asia is presented as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MARCH
1995 1996 1997 31, 1998
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
REVENUES
North America.................................... $ 5,737 $ 9,641 $ 21,217 $ 8,544
Europe........................................... 1,438 2,114 3,177 1,610
Asia............................................. -- 277 350 84
--------- --------- --------- -----------
Consolidated..................................... $ 7,175 $ 12,032 $ 24,744 $ 10,238
--------- --------- --------- -----------
--------- --------- --------- -----------
OPERATING INCOME
North America.................................... $ 838 $ 1,128 $ 1,685 $ 3,596
Europe........................................... 181 303 400 678
Asia............................................. -- 35 44 35
--------- --------- --------- -----------
Consolidated..................................... $ 1,019 $ 1,466 $ 2,129 $ 4,309
--------- --------- --------- -----------
--------- --------- --------- -----------
IDENTIFIABLE ASSETS
North America.................................... $ 2,114 $ 3,110 $ 9,930 $ 10,551
Europe........................................... -- -- 60 1,702
Asia............................................. 3,337 4,717 8,308 7,199
--------- --------- --------- -----------
Consolidated..................................... $ 5,451 $ 7,827 $ 18,298 $ 19,452
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
The Company, operating globally, provides software development and
maintenance services for medium and large businesses. North American operations
consist primarily of software development and maintenance services in the United
States and Canada. European operations consist primarily of software development
and maintenance services principally in the United Kingdom and Germany. Asian
operations consist primarily of software development and maintenance services
principally in India.
In the three months ended March 31, 1998, sales to one related party
customer accounted for 36.2% of revenue and two third-party customers accounted
for 26.6% of revenue. In 1997, sales to one related party customer accounted for
43.8% of revenues and one third party customer accounted for 13.9% of revenues.
In 1996 one related party customer accounted for 76.9% of revenues. In 1995 one
related party customer accounted for 95.8% of revenues.
12. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and legal actions, if decided adversely, will not have a material adverse
effect on the Company's business, financial condition and results of operations.
F-20
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
13. SUBSEQUENT EVENTS
AFFILIATED AGREEMENTS. Subsequent to December 31, 1997, the Company has
agreed to enter into various agreements with Cognizant effective upon the
Company's initial public offering. The agreements will include an Intercompany
Services Agreement for services provided by Cognizant such as payroll and
payables processing, tax, finance, personnel administration, real estate and
risk management services, a License Agreement to use the "Cognizant" trade name
and an Intercompany Agreement.
REORGANIZATION OF COGNIZANT. On January 15, 1998, Cognizant announced that
it would, subject to certain conditions, reorganize itself, by splitting the
Nielsen Media Research business from the rest of its businesses, creating two
publicly traded companies, IMS Health Corporation ("IMS HEALTH") and Nielsen
Media Research. Subject to certain conditions, including obtaining a ruling on
the reorganization from the IRS, and final Cognizant board approval, Cognizant
expects the reorganization to be consummated in mid-1998. The shares of the
Company held by Cognizant will be held by IMS HEALTH following the
reorganization and all services previously provided to the Company by Cognizant
will be provided by IMS HEALTH. Following the reorganization, Nielsen Media
Research will no longer be affiliated with the Company.
PUBLIC OFFERING. On April 8, 1998, the Company filed a Registration
Statement on Form S-1. The Company intends to use a portion of the net proceeds
to repay the amount due to Cognizant.
SUPPLEMENTAL NET INCOME PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, 1997 ENDED MARCH 31, 1998
------------------- -----------------------
<S> <C> <C>
Supplemental net income per share, basic and diluted...... $ 0.14 $ 0.10
----- -----
----- -----
</TABLE>
Supplemental net income per share is presented to reflect the impact on net
income per share when proceeds from 539,500 shares of common stock from the
offering are used to repay amounts due to Cognizant. The supplemental basic
shares of 7,101,229 and diluted shares of 7,144,025 as of December 31, 1997 were
computed by adding 539,500 shares of Class A common stock offered by the Company
hereby to the 6,547,396 basic weighted average shares outstanding and to the
6,604,525 diluted weighted average shares outstanding as of December 31, 1997.
The supplemental basic shares of 7,153,250 and diluted shares of 7,357,896 as of
March 31, 1998 were computed by adding 539,500 shares of Class A Common Stock
offered by the Company hereby to 6,613,750 basic weighted average shares
outstanding and to the 6,818,396 diluted weighted average shares outstanding as
of March 31, 1998.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 12,865
National Association of Securities Dealers, Inc. fee.............. 4,861
Nasdaq National Market listing fee................................ 53,750
Accountants' fees and expenses.................................... 210,000
Legal fees and expenses........................................... 275,000
Blue Sky fees and expenses........................................ 10,000
Transfer Agent's fees and expenses................................ 5,000
Printing and engraving expenses................................... 135,000
Miscellaneous..................................................... 138,524
---------
Total expenses................................................ $ 845,000
---------
---------
</TABLE>
The Company will bear all of the foregoing fees and expenses. The Selling
Stockholder will not bear any of the foregoing fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's Certificate of
Incorporation and Bylaws limit the monetary liability of directors to the
Company and to its stockholders and provide for indemnification of the Company's
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful. The Company also intends to enter into indemnification
agreements with directors and officers that provide for the maximum
indemnification allowed by law. Reference is made to the Company's Certificate
of Incorporation, Bylaws and form of Indemnification Agreement for Officers and
Directors filed as Exhibits 3.1, 3.2 and 10.1 hereto, respectively.
Cognizant Corporation has an insurance policy which insures the directors
and officers of Cognizant and its subsidiaries, including the Company, against
certain liabilities which might be incurred in connection with the performance
of their duties.
The Underwriting Agreement filed as Exhibit 1.1 hereto also contains certain
provisions pursuant to which certain officers, directors and controlling persons
of the Company may be entitled to be indemnified by the underwriters named
therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued the securities set
forth below which were not registered under the Securities Act:
1. On July 25, 1997, the Company sold 16,250 shares of Class A Common
Stock to Mr. Coburn for a purchase price of $3.85 per share.
2. On July 25, 1997, the Company sold 9,750 shares of Class A Common
Stock to Mr. D'Souza for a purchase price of $3.85 per share.
II-1
<PAGE>
3. On July 25, 1997, the Company sold 3,250 shares of Class A Common
Stock to Ms. Fash for a purchase price of $3.85 per share.
4. On July 25, 1997, the Company sold 3,250 shares of Class A Common
Stock to Ms. Kontogouris for a purchase price of $3.85 per share.
5. On July 25, 1997, the Company sold 81,250 shares of Class A Common
Stock to Mr. Mahadeva for a purchase price of $3.85 per share.
6. On July 25, 1997, the Company granted non-qualified stock options to
purchase 26,000 shares of Class A Common Stock to Mr. Coburn at an exercise
price of $3.85 per share.
7. On July 25, 1997, the Company granted non-qualified stock options to
purchase 32,500 shares of Class A Common Stock to Mr. D'Souza at an exercise
price of $3.85 per share.
8. On July 25, 1997, the Company granted non-qualified stock options to
purchase 130,000 shares of Class A Common Stock to Mr. Mahadeva at an
exercise price of $3.85 per share.
9. On July 25, 1997, the Company granted non-qualified stock options to
purchase 58,500 shares of Class A Common Stock to Mr. Narayanan at an
exercise price of $3.85 per share.
10. On July 25, 1997, the Company granted non-qualified stock options to
purchase an aggregate of 273,325 shares of Class A Common Stock to various
key employees of the Company at an exercise price of $3.85 per share.
11. On December 31, 1997, the Company granted non-qualified stock
options to purchase 6,500 shares of Class A Common Stock to a former
director, who was a key employee of a subsidiary of Cognizant, at an
exercise price of $9.08 per share.
12. On December 31, 1997, the Company granted non-qualified stock
options to purchase 6,500 shares of Class A Common Stock to Ms. Fash at an
exercise price of $9.08 per share.
13. On December 31, 1997, the Company granted non-qualified stock
options to purchase 6,500 shares of Class A Common Stock to Ms. Kontogouris
at an exercise price of $9.08 per share.
14. In March 1998, the Company granted non-qualified stock options to
purchase 48,750 shares of Class A Common Stock to Mr. Mahadeva for an
exercise price of $6.92 per share.
15. In March 1998, the Company granted non-qualified stock options to
purchase an aggregate of 47,450 shares of Class A Common Stock to certain
key employees to be effective upon consummation of this offering at an
exercise price equal to the initial public offering price per share,
including options to purchase 6,500 shares to Mr. D'Souza.
16. In March 1998, the Company granted non-qualified stock options to
purchase 6,500 shares of Class A Common Stock to Mr. Bellomo and options to
purchase 15,000 shares of Class A Common Stock to each of Messrs. Cosgrave
and Klein to be effective upon consummation of this offering at an exercise
price equal to the initial public offering price per share.
17. In May 1998, the Company granted non-qualified stock options under
the Employee Option Plan to purchase an aggregate of 64,750 shares of Class
A Common Stock to certain key employees effective upon consummation of this
offering at an exercise price equal to the initial public offering price per
share.
The sales and issuances of the shares of Common Stock and options to
purchase Common Stock discussed above were exempt from registration by virtue of
Section 4(2) of the Securities Act of 1933 and Rule 701 promulgated thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Share Purchase Agreement between the Company and Satyam Computer Services
Limited.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
5.1* Opinion of O'Sullivan Graev & Karabell, LLP, counsel to the Registrant, as
to the legality of the shares being registered.
10.1** Form of Indemnification Agreement for Directors and Officers.
10.2** Amended and Restated Cognizant Technology Solutions Key Employees' Stock
Option Plan.
10.3** Amended and Restated Cognizant Technology Solutions Non-Employee
Directors' Stock Option Plan.
10.4* Option Agreement between the Company and Wijeyaraj Mahadeva.
10.5* Form of Master Services Agreement between the Company and each of I.M.S.
International, Inc., IMS America, Ltd. and Nielsen Media Research, Inc.
10.6* License Agreement between the Company and Cognizant Corporation.
10.7* Intercompany Agreement between the Company and Cognizant Corporation.
10.8* Intercompany Services Agreement between the Company and Cognizant
Corporation.
10.9** Form of Severance and Noncompetition Agreement between the Company and
each of its Executive Officers.
21.1** List of Subsidiaries.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
** Previously filed.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE
THE RECAPITALIZATION, AS DESCRIBED IN NOTE 7 TO THE CONSOLIDATED FINANCIAL
STATEMENTS, HAS NOT BEEN CONSUMMATED. WHEN IT HAS BEEN CONSUMMATED, WE WILL BE
IN A POSITION TO FURNISH THE FOLLOWING REPORT:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Cognizant Technology Solutions
Corporation:
Our report on the consolidated financial statements of Cognizant Technology
Solutions Corporation as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, has been included in this
Form S-1 of Cognizant Technology Solutions Corporation. In connection with our
audits of such consolidated financial statements, we have also audited the
related financial statement schedule.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
New York, New York
March 24, 1998, except as to
Note 7 which is as of , 1998.
<TABLE>
<CAPTION>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------
BALANCE BEGINNING ADDITIONS CHARGED BALANCE END
DESCRIPTION OF PERIOD TO EXPENSE DEDUCTIONS OF PERIOD
- ------------------------------------------------- ----------------- ----------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1995............. $ -- $ -- $ -- $ --
------- ------- ----------- ------------
------- ------- ----------- ------------
For the Year Ended December 31, 1996............. $ -- $ -- $ -- $ --
------- ------- ----------- ------------
------- ------- ----------- ------------
For the Year Ended December 31, 1997............. $ -- $ 239 $ -- $ 239
------- ------- ----------- ------------
------- ------- ----------- ------------
For the Three Months Ended March 31, 1998
(unaudited).................................... $ 239 $ -- $ (62) $ 177
------- ------- ----------- ------------
------- ------- ----------- ------------
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York on the 22nd day of May, 1998.
<TABLE>
<S> <C> <C>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
By: /s/ WIJEYARAJ MAHADEVA
-----------------------------------------
Wijeyaraj Mahadeva
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed on this 22nd day of May, 1998,
by the persons listed below.
SIGNATURE TITLE
- ------------------------------ --------------------------
Chairman and Chief
/s/ WIJEYARAJ MAHADEVA Executive Officer
- ------------------------------ (principal executive
Wijeyaraj Mahadeva officer) and Director
Chief Financial Officer,
/s/ GORDON COBURN Treasurer and Secretary
- ------------------------------ (principal financial and
Gordon Coburn accounting officer)
*
- ------------------------------ Director
Anthony Bellomo
*
- ------------------------------ Director
Paul J. Cosgrave
*
- ------------------------------ Director
Victoria R. Fash
*
- ------------------------------ Director
John E. Klein
*
- ------------------------------ Director
Venetia Kontogouris
<TABLE>
<S> <C> <C>
*By /s/ GORDON COBURN
-------------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
Exhibit 1.1
Hale and Dorr Draft 5/11/98
2,917,000 Shares(1)
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Class A Common Stock
UNDERWRITING AGREEMENT
____________, 1998
BANCAMERICA ROBERTSON, STEPHENS & COMPANY LLC
COWEN & COMPANY
ADAMS, HARKNESS & HILL, INC.
As Representatives of the several Underwriters
c/o BancAmerica Robertson, Stephens & Company LLC
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
Cognizant Technology Solutions Corporation, a Delaware corporation (the
"Company"), and Cognizant Corporation, a Delaware corporation (the "Selling
Stockholder"), address you as the Representatives of each of the persons, firms
and corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirm their respective agreements with the several
Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell 2,500,000
shares of its authorized and unissued Class A common stock, $.01 par value per
share, to the several Underwriters. The Selling Stockholder proposes to sell
417,000 shares of the Company's authorized and outstanding Class A common stock,
$.01 par value per share, to the several Underwriters. The 2,500,000 shares of
Class A common stock, $.01 par value per share, of the Company to be sold by the
Company are hereinafter called the "Company Shares" and the 417,000 shares of
Class A common stock, $.01 par value per share, of the Company to be sold by the
Selling Stockholder are hereinafter called the "Selling Stockholder Shares." The
Company
- ---------------
(1) Plus an option to purchase up to 437,550 additional shares from the Selling
Stockholder to cover over-allotments, if any.
<PAGE>
Shares and the Selling Stockholder Shares are hereinafter collectively referred
to as the "Firm Shares." The Selling Stockholder also proposes to grant to the
Underwriters an option to purchase up to 437,550 additional shares of the
Company's Class A common stock, $.01 par value per share (the "Option Shares"),
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Class A
common stock, $.01 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Class A Common Stock;" all shares of Class B common
stock, $.01 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as "Class B
Common Stock;" and the Class A Common Stock and the Class B Common Stock,
collectively, are hereinafter referred to as "Common Stock."
2. Representations, Warranties and Agreements of the Company and the Selling
Stockholder.
(a) The Company and the Selling Stockholder represent and warrant to, and
agree with, each Underwriter that:
(i) A registration statement on Form S-1 (File No. 333-_____) with respect
to the Shares, including a prospectus subject to completion, has been prepared
by the Company in conformity in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. True and
correct copies of such registration statement and amendments of each related
prospectus subject to completion (the "Preliminary Prospectuses") and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if BancAmerica Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in any
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term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if BancAmerica
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) or files a term sheet pursuant to Rule 434 of the Rules and Regulations,
the information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in the Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of BancAmerica Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and Regulations)
last provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed with
the Commission pursuant to Rule 424(b) of the Rules and
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Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use.
(ii) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus conformed in all material respects to the
requirements of the Act and the Rules and Regulations and, as of its date, did
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (as hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Registration
Statement and the Prospectus; the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
(a "Material Adverse Effect"); and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification. Each of the Company and its
Subsidiaries (as defined in subparagraph (iv) below) is in possession of and
operating in compliance with all
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authorizations, licenses, certificates, consents, orders and permits from
foreign, federal, state and other regulatory authorities which are material to
the conduct of its respective business, all of which are valid and in full force
and effect. Neither the Company nor any Subsidiary is in violation of its
charter or bylaws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness, or in any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company, any of its Subsidiaries or their respective properties may be bound;
and neither the Company nor any Subsidiary is in violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company, any of its Subsidiaries or over their respective properties; except
for any such violations or defaults which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
(iv) All the Company's subsidiaries (each, a "Subsidiary" and collectively,
the "Subsidiaries") are listed in an exhibit to the Registration Statement. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify would not have a Material Adverse Effect; all the
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned
by the Company directly, or indirectly through one of the other Subsidiaries,
free and clear of any lien, adverse claim, security interest, equity or other
encumbrance.
(v) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as rights to indemnification and contribution hereunder may be
limited by applicable law and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. The performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (i) any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement
5
<PAGE>
or instrument to which the Company or any of its Subsidiaries is a party or by
which the Company, any of its Subsidiaries or any of their respective properties
may be bound, (ii) the charter or bylaws of the Company or any Subsidiary, or
(iii) any law, order, rule, regulation, writ, injunction, judgment or decree of
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company, any of its Subsidiaries or any of their
respective properties; except for any such breaches, violations or defaults
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company, any of its
Subsidiaries or any of their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required under the Act
or under state or other securities or Blue Sky laws, all of which requirements
under the Act have been satisfied.
(vi) There is not pending or, to the Company's knowledge, threatened, any
action, suit, claim or proceeding against the Company, any of its Subsidiaries,
their respective directors, officers or properties, assets or rights, before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, any of its Subsidiaries or over their respective
directors, officers or properties, assets or rights which (i) could reasonably
be expected to have a Material Adverse Effect, (ii) might prevent consummation
of the transactions contemplated hereby or (iii) is required to be disclosed in
the Registration Statement or Prospectus and is not so fully and accurately
disclosed; and there are no agreements, contracts, leases or documents of the
Company or any of its Subsidiaries of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been described or filed.
(vii) All outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly authorized and validly issued and are
fully paid and nonassessable, have been issued in compliance with all federal
and state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
the authorized and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Company
Shares have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest,
6
<PAGE>
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Company Shares or the issuance
and sale thereof. No further approval or authorization of any stockholders, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. Except as disclosed in the
Prospectus or in the financial statements of the Company and the related notes
thereto included in the Prospectus, the Company has no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted or to be granted and exercised thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(viii) Coopers & Lybrand L.L.P., which has examined the financial
statements of the Company, together with the related schedules and notes
thereto, as of December 31, 1996 and 1997 and for each of the years in the three
(3) years ended December 31, 1997 (collectively, the "Financial Statements"),
filed with the Commission as a part of the Registration Statement, which are
included in the Prospectus, are independent accountants within the meaning of
the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the consolidated financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes thereto, and the unaudited consolidated financial information, filed with
the Commission as part of the Registration Statement, have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved except as may be otherwise
stated therein. Except as and to the extent (a) reflected and reserved against
at December 31, 1997 in the Financial Statements or (b) incurred in the ordinary
course of business after December 31, 1997 and not material in amount, either
individually or in the aggregate, the Company and its Subsidiaries have no
liability or obligation, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, which is material to the Company. The
selected and summary financial and statistical data included in the Registration
Statement accurately and fairly present the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements, schedules or statistical data
are required to be included in the Registration Statement.
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(ix) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus and except as otherwise disclosed
therein, there has not been (i) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its Subsidiaries, taken as a whole, (ii) any transaction that
is material to the Company, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company or any Subsidiary, (iv) any
change in the capital stock or outstanding indebtedness of the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company or any Subsidiary, or (vi) any loss or damage (whether or not
insured) to the property of the Company or any Subsidiary which has been
sustained or will have been sustained which has had, or result in, a Material
Adverse Effect.
(x) Except as set forth in the Registration Statement and Prospectus, (i)
the Company or one of its Subsidiaries has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by the Company, free and clear of any material pledge, lien, security
interest, encumbrance, claim or equitable interest, other than as reflected in
the Financial Statements, (ii) the agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles, and, to the Company's knowledge, the other contracting
party or parties thereto are not in breach or default in any material respect
under any of such agreements, and (iii) the Company or one of its Subsidiaries
has valid and legally enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company or one of its Subsidiaries
owns or leases all such properties as are necessary to their respective
operations as now conducted and as proposed to be conducted. The description of
the Company's properties contained in the Prospectus is true and complete in all
material respects. Except as otherwise disclosed in the Prospectus, no officer,
director, stockholder or employee of the Company, nor any spouse, child or other
relative or affiliate thereof, owns directly or indirectly, in whole or in part,
any of the properties or assets of the Company or any of its Subsidiaries.
(xi) The general ledgers and books of account of the Company and its
Subsidiaries, all foreign, federal, state and local income, franchise, property
and other tax returns filed by the Company and its Subsidiaries are complete and
correct and have been maintained in accordance with good business
8
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practice and in accordance with all applicable procedures required by laws and
regulations.
(xii) Each of the Company and its Subsidiaries has timely filed all
necessary foreign, federal, state and local income and franchise tax returns and
has paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the Company's knowledge, might be asserted against the Company or
any of its Subsidiaries that could reasonably be expected to have a Material
Adverse Effect; and all tax liabilities are adequately provided for on the books
and records of the Company.
(xiii) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its Subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against; all policies
of insurance and fidelity or surety bonds insuring the Company, its Subsidiaries
and their respective businesses, assets, employees, officers and directors are
in full force and effect; the Company and its Subsidiaries are in compliance
with the terms of such policies and instruments in all material respects; there
are no claims by the Company or any Subsidiary under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any Subsidiary has
ever been refused any insurance coverage sought or applied for; and the Company
has no reason to believe that the Company and its Subsidiaries will not be able
to renew their respective existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue their business at a cost that would not have a Material Adverse
Effect.
(xiv) No labor disturbance by the employees of the Company or any
Subsidiary exists or, to the Company's knowledge, is threatened or imminent. No
collective bargaining agreement exists with any employees of the Company or any
Subsidiary and, to the Company's knowledge, no such agreement is threatened or
imminent.
(xv) The Company or one of its Subsidiaries owns, licenses or otherwise
possesses legally enforceable rights to use all patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names and
copyrights which are necessary to conduct their business as described in the
Registration Statement and Prospectus; the expiration of any such patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not result in a Material Adverse Effect; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the
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Company and its Subsidiaries by others with respect to any such patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and neither the Company nor any Subsidiary has received any
notice of, and the Company has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could reasonably be expected to result in a
Material Adverse Effect.
(xvi) The Class A Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(xvii) The Company has filed a registration statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
to register the Class A Common Stock under the Exchange Act.
(xviii) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(xix) Each of the Company, its directors and officers has not distributed
and will not distribute prior to the later of (i) the Closing Date, or any date
on which Option Shares are to be purchased, as the case may be, and (ii)
completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any Preliminary
Prospectuses, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.
(xx) Neither the Company nor, to the knowledge of the Company, any of its
directors and officers has at any time during the last five (5) years (i) made
any unlawful contribution to any candidate for foreign, federal, state or local
elective office or failed to disclose fully any contribution in violation of
applicable law, or (ii) made any payment to any foreign, federal, state or local
governmental officer or official, or other person charged with similar public or
quasi-public duties, other thanpayments required or permitted by the laws of the
United States or any other applicable jurisdiction.
(xxi) Each of the Company, its directors and officers has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Class A Common Stock to facilitate the sale or resale of the
Shares.
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(xxii) Each of the Company's executive officers, directors and stockholders
has agreed in writing (the "Lock-up Agreements") that such holder of Securities
(as defined below) will not, directly or indirectly, for a period of 180 days
from the date that the Registration Statement is declared effective by the
Commission (the "Lock-up Period"), offer, sell, contract to sell, grant any
option to purchase, pledge or otherwise dispose of or transfer (collectively, a
"Disposition") any shares of Common Stock or any securities convertible into or
exchangeable for, or any right to purchase or acquire, shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by such
holder or with respect to which such holder has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, or transfers to
family limited partnerships or to trusts for the benefit of such holder and his
or her family provided that each donee thereof agrees in writing to be bound by
this restriction or (ii) with the prior written consent of BancAmerica
Robertson, Stephens & Company LLC. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, each holder of Securities has
also agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
holder except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all security
holders of the Company and the number and type of securities held by each
security holder. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other Stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancAmerica Robertson, Stephens & Company LLC.
(xxiii) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its Subsidiaries is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws"), (ii) neither the Company nor any Subsidiary has received any notice from
any foreign, federal, state or local governmental authority or third party of an
asserted claim under Environmental Laws, (iii) neither the Company nor any
Subsidiary will be required to make future capital expenditures to comply with
Environmental Laws
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and (iv) no property which is, or was previously, owned, leased or occupied by
the Company or any Subsidiary has been designated as a Superfund site pursuant
to the Comprehensive Response, Compensation, and Liability Act of 1980, as
amended (42 U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated
site under applicable foreign, federal, state or local law.
(xxiv) Each of the Company and its Subsidiaries has fulfilled its
respective obligations, if any, under the minimum funding standards of Section
302 of the U.S. Employee Retirement Income Security Act of 1974 ("ERISA") and
the regulations and published interpretations thereunder with respect to each
"plan" as defined in Section 3(3) of ERISA and such regulations and published
interpretations in which its employees are eligible to participate and each such
plan is in compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations. Neither
the Company nor any Subsidiary has incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of ERISA.
(xxv) Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and prompt appropriate action is taken with respect to any
differences.
(xxvi) Except as otherwise disclosed in the Prospectus, there are no
outstanding loans, advances (except normal advances for business expenses in the
ordinary course of business) or guarantees of indebtedness by the Company or any
Subsidiary to or for the benefit of any of the officers or directors of the
Company, its Subsidiaries or any of the members of the families of any of them.
(xxvii) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Shares shall be deemed a representation and warranty by the Company, as
to matters covered thereby, to each Underwriter.
(b) The Selling Stockholder represents and warrants as follows:
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(i) The Selling Stockholder has good and valid title to all the shares of
Class A Common Stock to be sold by the Selling Stockholder hereunder, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever, with full right and authority to deliver the same hereunder, subject
to the rights of Continental Stock Transfer & Trust Company, as custodian (the
"Custodian"), and that upon the delivery of and payment for such shares of Class
A Common Stock hereunder, the several Underwriters will receive good and valid
title thereto, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever.
(ii) Certificates in negotiable form for the Selling Stockholder Shares to
be sold by the Selling Stockholder have been placed in custody under a Letter of
Transmittal and Custodian Agreement (the "Custody Agreement") for delivery under
this Agreement with the Custodian; the Selling Stockholder specifically agrees
that the Selling Stockholder Shares represented by the certificates so held in
custody for the Selling Stockholder are subject to the interest of the several
Underwriters and the Company, that the arrangements made by the Selling
Stockholder for such custody, including the Selling Stockholder's Irrevocable
Power of Attorney (the "Power of Attorney") provided for in the Custody
Agreement, are not to be terminated by any act of the Selling Stockholder or by
operation of law, whether by the dissolution or liquidation of the Selling
Stockholder or the occurrence of any other event; if any such dissolution,
liquidation or other such event should occur before the delivery of such Selling
Stockholder Shares hereunder, certificates for such shares of Stock shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
dissolution, liquidation or other event.
(iii) All consents, approvals, authorizations and orders necessary for the
execution and delivery by the Selling Stockholder of this Agreement, the Power
of Attorney and the Custody Agreement, and (assuming the making of all filings
required under Rule 424(b) or Rule 430A and the due qualification of the Shares
for public offering by the Underwriters under state and foreign securities laws)
for the sale and delivery of the Class A Common Stock to be sold by the Selling
Stockholder hereunder, have been obtained; and the Selling Stockholder has the
right, power and authority to enter into this Agreement, the Power of Attorney
and Custody Agreement and to sell, assign, transfer and deliver the Class A
Common Stock to be sold by the Selling Stockholder hereunder; and the Power of
Attorney and the Custody Agreement constitute valid and binding obligations and
agreements of the Selling Stockholder enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles.
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(iv) The performance of this Agreement, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder or its
properties is bound, or (assuming the making of all filings required under Rule
424(b) or Rule 430A and the due qualification of the Common Stock for public
offering by the Underwriters under state and foreign securities laws) any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Selling Stockholder or the property of the
Selling Stockholder.
(v) The Selling Stockholder has not taken and will not take, directly or
indirectly, any action which has constituted, or which is designed to or might
reasonably be expected to cause or result in, stabilization or manipulation of
the price of sale or resale of the Class A Common Stock.
(vi) The Selling Stockholder has reviewed the Registration Statement and
Prospectus and nothing has come to the attention of the Selling Stockholder that
would lead the Selling Stockholder to believe that either (A) on the Effective
Date, the Registration contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (B) on the Effective
Date, the Prospectus contained and, on the Closing Date and any later date on
which Option Stock is to be purchased, contains any untrue statement of a
material fact or omitted or omits to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
3. Purchase, Sale and Delivery of Shares. On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company and the Selling Stockholder agree,
severally and not jointly, to sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from the Company and the Selling
Stockholder, respectively, at a purchase price of $_____ per share, the
respective number of Company Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholder in Schedule B hereto. The obligation of each Underwriter to the
Company and to the Selling Stockholder shall be to purchase from the Company or
the Selling Stockholder that number of Company Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or the Selling Stockholder in Schedule B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in Schedule A
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hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. The Selling Stockholder agrees that the certificates for the Selling
Stockholder Shares of the Selling Stockholder so held in custody are subject to
the interests of the Underwriters hereunder, that the arrangements made by the
Selling Stockholder for such custody, including the Power of Attorney, is to
that extent irrevocable and that the obligations of the Selling Stockholder
hereunder shall not be terminated by the act of the Selling Stockholder or by
operation of law, whether by the dissolution or liquidation of the Selling
Stockholder or other such event, except as specifically provided herein or in
the Custody Agreement. If any event should occur before the delivery of the
certificates for the Selling Stockholder Shares hereunder, the Selling
Stockholder Shares to be sold by the Selling Stockholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such event had not occurred, regardless of whether the Custodian shall have
received notice of such event.
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by wire transfer of same day
funds, to the account designated by the Company with regard to the Shares being
purchased from the Company, and to the account designated by the Custodian for
the account of the Selling Stockholder with regard to the Shares being purchased
from the Selling Stockholder, at the offices of Hale and Dorr LLP, 60 State
Street, Boston, MA 02109 (or at such other place as may be agreed upon among the
Representatives and the Company and the Attorneys as defined in the Custody
Agreement), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives, the Company and the Attorneys may determine (or at such time
and date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date"; PROVIDED, HOWEVER, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may
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reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page, on
the inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the second, sixth, seventh and eighth paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholder that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as soon as practicable; the Company will use its best efforts to cause
any abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations as may be required subsequent to the date the Registration Statement
is declared effective to become effective as soon as practicable; the Company
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration
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Statement, any subsequent amendment to the Registration Statement or any
abbreviated registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence reasonably satisfactory to you that the Prospectus contains
such information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence reasonably satisfactory to
you that the Prospectus and term sheet meeting the requirements of Rule 434(b)
or (c), as applicable, of the Rules and Regulations, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of Hale
and Dorr LLP, counsel for the several Underwriters ("Underwriters' Counsel"),
may be necessary or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required under the Act to deliver a prospectus nine (9)
months or more after the effective date of the Registration Statement in
connection with the sale of the Shares, it will prepare promptly upon request,
but at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing, subject, however, to compliance with the Act and the Rules
and Regulations and the provisions of this Agreement.
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(b) The Company will advise you, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the Commission suspending
the effectiveness of the Registration Statement or of the initiation or threat
of any proceeding for that purpose; and it will promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the case
of the Prospectus and any term sheet or abbreviated term sheet under Rule 434,
in no event later than the first (1st) full business day following the first day
that Shares are traded, copies of the Registration Statement (three of which
will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if BancAmerica Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the Company shall provide to you copies of a
Preliminary Prospectus updated in all respects through the date specified by you
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which shall be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.
(f) During a period of five (5) years after the date hereof, the Company
will furnish to its Stockholders as soon as practicable after the end of each
respective year, annual reports (including financial statements audited by
independent certified public accountants) and the Company will make available to
its
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Stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will furnish to you and the other several
Underwriters hereunder, upon request, (i) concurrently with making available
such reports to its Stockholders, statements of operations of the Company for
each of the first three (3) quarters in the form made available to the Company's
Stockholders, (ii) concurrently with furnishing to its Stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with statements
of operations, of Stockholders' equity, and of cash flows of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to Stockholders, (iv) as soon
as they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"), (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was generally released to Stockholders or prepared by the Company,
and (vi) any additional information of a public nature concerning the Company or
its business which you may reasonably request. During such five (5) year period,
if the Company shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and its Subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant Subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the Firm
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company or the Selling
Stockholder to perform any agreement on their respective parts to be performed
hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company shall reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including reasonable fees and disbursements
of Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion
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the market price of the Common Stock has been or is likely to be materially
adversely affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of BancAmerica Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares to be sold by the Company hereunder and the Company's
issuance of options or Common Stock upon the exercise of Options granted under
the Company's presently authorized stock option and purchase plans
(collectively, the "Option Plans").
5. Expenses.
(a) The Company and the Selling Stockholder agree with each Underwriter
that:
(i) The Company and the Selling Stockholder will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholder in connection with the performance of their
obligations hereunder. The provisions of this Section 5(a)(i) are intended to
relieve the Underwriters from the payment of the expenses and costs which the
Company and the Selling Stockholder hereby agree to pay, but shall not affect
any agreement which the Company and the Selling
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Stockholder may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholder hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(a)
hereof, it will reimburse the Underwriters on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(iii) In addition to its other obligations under Section 8(b) hereof, the
Selling Stockholder agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(b) hereof relating to the Selling Stockholder, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Selling
Stockholder's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholder, together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof, the
Underwriters severally and not jointly agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
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described in Section 8(c) hereof, they will reimburse the Company and the
Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and the Selling Stockholder
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
and the Selling Stockholder shall promptly return such payment to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company and the Selling Stockholder within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii) and
5(b) hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholder
herein, to the performance by the Company and the Selling Stockholder of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
2:00 P.M., San Francisco time, on the date following the date of this
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Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section 6.
(c) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date, or any later date on which Option Shares are to be purchased,
as the case may be, there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse or that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of counsel for the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise),
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earnings, operations, business or business prospects of the Company. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity;
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein and giving effect to the assumptions stated therein, the
issued and outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) The Firm Shares to be issued by the Company pursuant to the terms of
this Agreement have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right;
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except insofar as indemnification and contribution provisions may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles;
(viii) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(ix) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration
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Statement, complied as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Class A
Common Stock comply with Delaware law;
(xi) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company are accurate and fairly present the
information required to be presented by the Act and the applicable Rules and
Regulations;
(xii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xiii) The performance of this Agreement and the consummation of the
transactions herein contemplated will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any material bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument known to
such counsel (including, without limitation, any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement
included as an exhibit to the Registration Statement) to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company, its Subsidiaries or over any of their respective
properties or operations;
(xiv) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company, or over any of its properties or operations is necessary in
connection with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
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(xv) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character required to
be disclosed in the Registration Statement or the Prospectus by the Act or the
Rules and Regulations, other than those described therein;
(xvi) To such counsel's knowledge, neither the Company nor any Subsidiary
is presently (a) in violation of its charter or bylaws, or (b) in breach of any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company, any Subsidiaries or over
any of their respective properties or operations;
(xvii) To such counsel's knowledge, except as described in the Prospectus,
no holders of Common Stock or other securities of the Company have registration
rights with respect to securities of the Company;
(xviii) The Power of Attorney and Custody Agreement of the Selling
Stockholder has been duly executed and delivered by or on behalf of the Selling
Stockholder; and the Power of Attorney and Custody Agreement of the Selling
Stockholder constitutes the valid and binding agreement of the Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles;
(xix) To such counsel's knowledge, the Selling Stockholder has full right,
power and authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold by the
Selling Stockholder hereunder;
(xx) This Agreement has been duly executed and delivered by or on behalf of
the Selling Stockholder; and
(xxi) Upon the delivery of and payment for the Shares as contemplated by
this Agreement, each of the Underwriters will receive valid marketable title to
the Shares purchased by it from the Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest. In
rendering such opinion, such counsel may assume that the Underwriters are
without notice of any defect in the title of the Shares being purchased from the
Selling Stockholder.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and Coopers & Lybrand L.L.P., the
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independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although they have not verified the accuracy
or completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads them
to believe that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on any later date
on which Option Shares are to be purchased, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Counsel rendering the foregoing opinions may rely as to questions of law
not involving the laws of the United States or the State of New York upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling Stockholder or officers of
the Selling Stockholder, and of government officials, in which case their
opinion is to state that they are so relying and that they have no actual
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of local counsel for the Company in India, dated the Closing Date or
such later date on which Option Shares are to be purchased, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) Cognizant Technology Solutions Ltd. (India) (the "Indian Subsidiary")
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation;
(ii) The Indian Subsidiary has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus;
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(iii) The Indian Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification;
(iv) The authorized, issued and outstanding capital stock of the Indian
Subsidiary is as set forth on Schedule __ attached hereto, the issued and
outstanding shares of capital stock of the Indian Subsidiary, all of which are
held of record by the Company, have been duly and validly issued and are fully
paid and nonassessable, and, to such counsel's knowledge, were not issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Indian Subsidiary; and
(vi) To such counsel's knowledge, the Indian Subsidiary is not presently
(a) in violation of its charter or bylaws, or (b) in breach of any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Indian Subsidiary, or over any of its properties or
operations.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Underwriters' Counsel, in form and substance satisfactory to you, with respect
to the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have reasonably requested for the purpose of enabling them
to pass upon such matters.
(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from
Coopers & Lybrand L.L.P. addressed to the Underwriters, dated the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on
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which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Coopers & Lybrand
L.L.P. shall be addressed to or for the use of the Underwriters in form and
substance reasonably satisfactory to the Underwriters and shall (i) represent,
to the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the balance sheet of the Company as of December 31, 1996
and 1997, and related statements of operations, Stockholders' equity, and cash
flows for the twelve (12) months ended December 31, 1995, 1996 and 1997, (iii)
state that Coopers & Lybrand L.L.P. has performed the procedures set out in
Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of Coopers & Lybrand L.L.P. as
described in SAS 71 on the financial statements for the quarter ended March 31,
1998 (the "Quarterly Financial Statements"), (iv) state that in the course of
such review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with GAAP consistently applied
across the periods presented, and (v) address other matters agreed upon by
Coopers & Lybrand L.L.P. and you. In addition, you shall have received from
Coopers & Lybrand L.L.P. a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of March 31, 1998, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by a Chief Executive Officer and
the Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this Agreement are
true and correct, as if made on and as of the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be, and
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the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the Act
and the Rules and Regulations and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus and except as otherwise disclosed
therein, there has not been (i) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its Subsidiaries, taken as a whole, (ii) any transaction that
is material to the Company, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company or any Subsidiary, (iv) any
change in the capital stock or outstanding indebtedness of the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company or any Subsidiary, or (vi) any loss or damage (whether or not
insured) to the property of the Company or any Subsidiary which has been
sustained or will have been sustained which has had, or result in, a Material
Adverse Effect.
(i) You shall be satisfied that, and you shall have received a certificate,
dated the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, from the Attorneys for the Selling Stockholder to
the effect that, as of the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, they have not been informed
that:
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(i) The representations and warranties made by the Selling Stockholder
herein are not true or correct on the Closing Date or on any later date on which
Option Shares are to be purchased, as the case may be; or
(ii) The Selling Stockholder has not complied with any obligation or
satisfied any condition which is required to be performed or satisfied on the
part of the Selling Stockholder at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be.
(j) The Company shall have obtained and delivered to you the Lock-up
Agreements.
(k) The Company and the Selling Stockholder shall have furnished to you
such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholder or
officers of the Selling Stockholder) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholder herein, as to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(l) The Company and the Selling Stockholder shall have entered into the
Intercompany Agreement as filed as an exhibit to the Registration Statement,
which agreement shall be in full force and effect.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholder shall furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Selling
Stockholder hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
437,550 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company and the Attorneys. The number of Option Shares to be purchased by each
Underwriter upon the exercise of such option shall be the same proportion of the
total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of
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such option as the number of Firm Shares purchased by such Underwriter (set
forth in Schedule A hereto) bears to the total number of Firm Shares purchased
by the several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. The Selling Stockholder agrees that the certificates for the Selling
Stockholder Shares so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Stockholder
for such custody, including the Power of Attorney, are to that extent
irrevocable and that the obligations of the Selling Stockholder hereunder shall
not be terminated by the act of the Selling Stockholder or by operation of law,
by the occurrence of any event, except as specifically provided herein or in the
Custody Agreement. If any such event should occur before the delivery of the
certificates for the Selling Stockholder Shares hereunder, the Selling
Stockholder Shares to be sold by the Selling Stockholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such event had not occurred, regardless of whether the Custodian shall have
received notice of such event.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor by
the several Underwriters by wire transfer of same day to the account designated
by the Custodian for the account of the Selling Stockholder. Such delivery and
payment shall take place at the offices of Hale and Dorr LLP, 60 State Street,
Boston, MA 02109, or at such other place as may be agreed upon among the
Representatives, the Company and the Attorneys (i) on the Closing Date, if
written notice of the exercise of such option is received by the Attorneys at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company and the Attorneys receive written notice of the exercise of
such option, if such notice is received by the Company and the Attorneys less
than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit
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through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholder herein, to
the accuracy of the statements of the Company, the Selling Stockholder and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness of
any of the representations, warranties or statements, the performance of any of
the covenants or agreements of the Company and the Selling Stockholder or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary
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Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E or the Bylaws of the NASD) under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any breach of any
representation, warranty, agreement or covenant of the Selling Stockholder
herein contained, (iii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iv) any untrue statement
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or alleged untrue statement of any material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or the
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and the Selling Stockholder for any legal or other expenses
reasonably
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incurred by the Company and the Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
the Selling Stockholder and each person, if any, who controls the Company or the
Selling Stockholder within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party shall not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof, as the case may be, who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the
36
<PAGE>
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(e) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 8 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that, except as set forth in Section 8(f)
hereof, the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount bears
to the initial public offering price, and the Company and the Selling
Stockholder are responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Underwriter exceeds the amount of damages which such Underwriter has
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
37
<PAGE>
9. Representations, Warranties, Covenants and Agreements to Survive Delivery.
All representations, warranties, covenants and agreements of the Company, the
Selling Stockholder and the Underwriters herein or in certificates delivered
pursuant hereto, and the indemnity and contribution agreements contained in
Section 8 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter within the meaning of the Act or the Exchange Act,
or by or on behalf of the Company or any Selling Stockholder, or any of their
officers, directors or controlling persons within the meaning of the Act or the
Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall fail
to take up and pay for the number of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) reasonably satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any
38
<PAGE>
other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 10, neither the Company nor the Selling Stockholder
shall be liable to any Underwriter (except as provided in Sections 5 and 8
hereof) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholder and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or the Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30 A.M.,
San Francisco time, on the first full business day following the effective date
of the Registration Statement, or (ii) the time of the initial public offering
of any of the Shares by the Underwriters after the Registration Statement
becomes effective. The time of the initial public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or the
39
<PAGE>
Selling Stockholder shall have failed, refused or been unable to perform any
agreement on his part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, or (ii) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to you shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to you c/o BancAmerica Robertson, Stephens & Company LLC, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: General Counsel; if sent to the Company, such notice shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Cognizant Technology Solutions Corporation, 1700
Broadway, 26th floor, New York,
40
<PAGE>
N.Y. 10019, telecopier number (212) 887-2450, Attention: Chief Executive
Officer; if sent to the Selling Stockholder, such notice shall be sent mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to Cognizant Corporation, 200 Nyala Farms, Westport, Connecticut 06880.
13. Parties. This Agreement shall inure to the benefit of and be binding upon
the several Underwriters and the Company and the Selling Stockholder and their
respective legal representatives, executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective legal representatives executors, administrators, successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign merely by reason of
such purchase.
In all dealings with the Company and the Selling Stockholder under this
Agreement, you shall act on behalf of each of the several Underwriters, and the
Company and the Selling Stockholder shall be entitled to act and rely upon any
statement, request, notice or agreement made or given by you jointly or by
BancAmerica Robertson, Stephens & Company LLC on behalf of you.
14. Default by Selling Stockholder. The Company agrees to use its best efforts
to cause the Selling Stockholder to sell the Firm Shares or Option Shares which
the Selling Stockholder has agreed to sell as set forth in Schedule B hereto.
15. Attorneys. Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Stockholder represents by so doing that he has
been duly appointed as Attorney-in-fact by the Selling Stockholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action.
16. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
17. Counterparts. This Agreement may be signed in several counterparts, each of
which will constitute an original.
41
<PAGE>
[This space intentionally left blank]
42
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholder and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Stockholder and the several
Underwriters.
Very truly yours,
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION
By
--------------------------------------------
Chief Executive Officer
COGNIZANT CORPORATION
By
--------------------------------------------
Attorney-in-Fact for the Selling Stockholder
Accepted as of the date first above written:
BANCAMERICA ROBERTSON, STEPHENS & COMPANY LLC
COWEN & COMPANY
ADAMS, HARKNESS & HILL, INC On their behalf and on behalf of each of the several
Underwriters named in Schedule A hereto.
By: BANCAMERICA ROBERTSON, STEPHENS & COMPANY LLC
By: BANCAMERICA ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:
---------------------------
Authorized Signatory
43
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm
Shares
To Be
Underwriter Purchased
-------------------------------------------------- -----------------
<S> <C>
Total: ................................................
-----------------
-----------------
</TABLE>
1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Number of
Firm Firm
Shares To Shares To
Company Be Sold Be Sold
- ---------------------------------------------- --------- -------
<S> <C> <C>
Cognizant Technology Solutions
Corporation .................................. 2,500,000 0
Cognizant Corporation ........................ 417,000 437,500
--------- -------
Total: .................................. 2,917,000 437,500
--------- -------
--------- -------
</TABLE>
2
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
The undersigned officer of Cognizant Technology Solution Corporation, a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The name of the Corporation is Cognizant Technology Solutions
Corporation. The Corporation was originally incorporated under the
name Anemone Investments, Inc.
2. The Corporation's original Certificate of Incorporation was filed with
the Secretary of State on April 6, 1988.
3. An Amended and Restated Certificate of Incorporation of the
Corporation, in the form attached hereto as Exhibit A, has been duly
adopted by the Board of Directors and by the stockholders of the
Corporation in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation of the Corporation is hereby amended
and restated to read in its entirety as set forth in the Amended and
Restated Certificate of Incorporation attached hereto as Exhibit A,
which is hereby incorporated by reference.
5. Upon the filing of this Amended and Restated Certificate of
Incorporation, each issued and outstanding share of Common Stock of
the Corporation shall, without any action on the part of the record
holder thereof, be automatically redesignated, changed and converted
into .65 of a share of Class A Common Stock (such redesignation,
change and conversion to be done on a record holder by record holder
basis such that all shares of Common Stock held by each such record
holder shall be aggregated for the purpose of determining the number
of shares of Class A Common Stock thereafter held by such record
holder); provided, however, that no fractional shares of Class A
Common Stock shall be issued and any record holder otherwise entitled
to such a fractional share, promptly after the filing hereof, shall be
paid an amount in cash equal to the fair market value thereof (as
determined in good faith by the Board of Directors of the
Corporation). Each record holder of outstanding shares of Common
Stock so redesignated, changed and converted shall be entitled to
receive, in exchange for the certificate or certificates representing
the outstanding shares so redesignated, changed and converted,
registered in such record holder's name, a new certificate or
certificates representing such shares as
<PAGE>
so redesignated, changed and converted registered in such record
holder's name; provided, however, that the failure of any record
holder to so exchange such record holder's certificate or certificates
shall in no way affect the redesignation, change and conversion of
such holder's shares as aforesaid.
IN WITNESS WHEREOF, Cognizant Technology Solutions Corporation has caused
this Amended and Restated Certificate of Incorporation to be signed by its Chief
Executive Officer this ____ day of _____, 1998.
-----------------------------
Wijeyaraj Mahadeva
Chief Executive Officer
-2-
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
ARTICLE I
The name of the Corporation is Cognizant Technology Solutions Corporation
(hereinafter, the "Corporation").
ARTICLE II
The registered office of the Corporation within the State of Delaware is
located at [Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle]. The name of its registered agent at that address is [The
Corporation Trust Company].
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware (the "GCL").
ARTICLE IV
A. The total number of shares of stock that the Corporation shall have
authority to issue is One Hundred Thirty Million (130,000,000) of which (i) One
Hundred Million (100,000,000) shares shall be shares of Class A Common Stock,
$.01 par value per share (the "Class A Common Stock"), and Fifteen Million
(15,000,000) shares shall be shares of Class B Common Stock, $.01 par value per
share (the "Class B Common Stock") (the Class A Common Stock and the Class B
Common Stock being collectively referred to herein as the "Common Stock"), and
(ii) Fifteen Million (15,000,000) shares shall be shares of Preferred Stock,
$.10 par value per share (the "Preferred Stock").
B. The number of authorized shares of any class or classes of stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of the Common Stock of the Corporation,
voting together as a single class, irrespective of the provisions of Section
242(b)(2) of the GCL or any corresponding provision hereinafter enacted.
<PAGE>
C. The following is a statement of the powers, preferences and relative
participating, optional or other special rights and qualifications, limitations
and restrictions of the Class A Common Stock and Class B Common Stock of the
Corporation:
(1) Except as otherwise set forth below in this Article IV, the
powers, preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions of the Class A
Common Stock and Class B Common Stock shall be identical in all respects.
(2) Subject to the rights of the holders of Preferred Stock, and
subject to any other provisions of this Amended and Restated Certificate of
Incorporation, holders of Class A Common Stock and Class B Common Stock
shall be entitled to receive such dividends and other distributions in
cash, stock or property of the Corporation as may be declared thereon by
the Board of Directors of the Corporation from time to time out of assets
or funds of the Corporation legally available therefor. If any dividend or
other distribution in cash or other property is paid with respect to Class
A Common Stock or with respect to Class B Common Stock (other than
dividends or other distributions payable in shares of Common Stock), a like
dividend or other distribution in cash or other property shall also be paid
with respect to shares of the other class of Common Stock, in an amount
equal per share. In the case of dividends or other distributions payable
in Common Stock, including distributions pursuant to stock splits or
divisions of Common Stock of the Corporation, only shares of Class A Common
Stock shall be paid or distributed with respect to Class A Common Stock and
only shares of Class B Common Stock shall be paid or distributed with
respect to Class B Common Stock. The number of shares of Class A Common
Stock and Class B Common Stock so distributed shall be equal in number on a
per share basis. Neither the shares of Class A Common Stock nor the shares
of Class B Common Stock may be reclassified, subdivided or combined unless
such reclassification, subdivision or combination occurs simultaneously and
in the same proportion for each class.
(3) (a) At every meeting of the stockholders of the Corporation,
every holder of Class A Common Stock shall be entitled to one vote in
person or by proxy for each share of Class A Common Stock standing in his,
her or its name on the transfer books of the Corporation, and every holder
of Class B Common Stock shall be entitled to ten votes in person or by
proxy for each share of Class B Common Stock standing in his, her or its
name on the transfer books of the Corporation in connection with the
election of directors and all other matters submitted to a vote of the
stockholders; provided, however, that with respect to any proposed
conversion subsequent to a Tax-Free Spin-Off (as defined in paragraph
(C)(6)(b) below) of the shares of Class B Common Stock into shares of Class
A Common Stock pursuant to paragraph (C)(6)(b) below, each holder of a
share of Common Stock, irrespective of class, shall have one vote in person
or by proxy for each share of Common Stock standing in his, her or its name
on the transfer books of the Corporation. Except as may be otherwise
required by this Article IV, the holders of Class A Common Stock and Class
B Common Stock shall vote together as a single class on all matters
submitted to a vote of the holders of Common Stock.
(b) Subject to any rights of the holders of Preferred Stock, the
provisions of
-2-
<PAGE>
this Amended and Restated Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded in whole or in
part, without the approval of a majority of the votes entitled to be cast
by the holders of the Class A Common Stock and the Class B Common Stock,
voting together as a single class; provided, however, that with respect to
any proposed amendment of this Amended and Restated Certificate of
Incorporation which would alter or change the powers, preferences or
special rights of the shares of Class A Common Stock or Class B Common
Stock so as to affect them adversely, the approval of a majority of the
votes entitled to be cast by the holders of the shares affected by the
proposed amendment, voting separately as a class, shall be obtained in
addition to the approval of a majority of the votes entitled to be cast by
the holders of the Class A Common Stock and the Class B Common Stock voting
together as a single class as hereinbefore provided. Any increase in the
authorized number of shares of any class or classes of stock of the
Corporation or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase,
acquire or receive, shares of any such class or classes of stock shall be
deemed not to affect adversely the powers, preferences or special rights of
the shares of Class A Common Stock or Class B Common Stock. Neither the
outcome of any vote with respect to any proposed conversion subsequent to a
Tax-Free Spin-Off of the shares of Class B Common Stock into shares of
Class A Common Stock pursuant to paragraph (C)(6)(b) below nor the
occurrence of the events described in the last sentence of paragraph
(C)(6)(b)(iii) below shall be deemed to be a modification, revision,
alteration, amendment, repeal or rescission of the provisions of this
Amended and Restated Certificate of Incorporation.
(c) Every reference in this Amended and Restated Certificate of
Incorporation to a majority or other proportion of shares of Common Stock,
Class A Common Stock or Class B Common Stock shall refer to such majority
or other proportion of the votes to which such shares of Common Stock,
Class A Common Stock or Class B Common Stock, as applicable, are entitled.
(4) In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment
in full of the amounts required to be paid to the holders of Preferred
Stock, the remaining assets and funds of the Corporation shall be
distributed pro rata to the holders of Class A Common Stock and Class B
Common Stock. For the purposes of this paragraph (C)(4), the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation
with one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary.
(5) In the event of any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation unless immediately following such
event, and based solely on the securities issued in connection therewith, a
majority of the total voting power of the successor corporation is held by
Persons (as defined in paragraph (C)(6)(b)(ii) below) that were
stockholders of the Corporation immediately prior to such event, each
holder of a share of Class A Common Stock shall be entitled to receive with
respect to such share the same
-3-
<PAGE>
kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of Class B Common Stock and each holder of a
share of Class B Common Stock shall be entitled to receive with respect to
such share the same kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reorganization,
consolidation or merger by a holder of a share of Class A Common Stock;
provided, however, that in the event of any such reorganization or
consolidation in which a majority of the total voting power of the
successor corporation is held by Persons that were stockholders of the
Corporation immediately prior to such event, each holder of a share of
Class A common Stock shall be entitled to receive with respect to such
share the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization,
consolidation or merger by a holder of a share of Class B common Stock and
vice versa except that any stock or securities received may differ insofar
as is necessary to preserve the respective voting rights of the Class A
Common Stock and Class B Common Stock hereunder.
(6) (a) Prior to the date on which shares of Class B Common Stock
are distributed to stockholders of Cognizant (as defined in paragraph
(C)(6)(b) below) in a Tax-Free Spin-Off, each record holder of shares of
Class B Common Stock may convert from time to time any or all of such
shares into an equal number of shares of Class A Common Stock by
surrendering the certificates for such shares, accompanied by any required
tax transfer stamps and by a written notice by such record holder to the
Corporation stating that such record holder desires to convert such shares
of Class B Common Stock into the same number of shares of Class A Common
Stock and requesting that the Corporation issue all of such shares of Class
A Common Stock to Persons named therein, setting forth the number of shares
of Class A Common Stock to be issued to each such Person and the
denominations in which the certificates therefor are to be issued. To the
extent permitted by law, such voluntary conversion shall be deemed to have
been effected at the close of business on the date of such surrender.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall no
longer be convertible into shares of Class A Common Stock except as set
forth in paragraph (C)(6)(b) below.
(b) (i) Prior to a Tax-Free Spin-Off, each share of Class B
Common Stock shall automatically convert into one share of Class A Common
Stock immediately prior to the transfer of such share if, after such
transfer, such share is not Beneficially Owned (as defined below) by
Cognizant. Shares of Class B Common Stock shall not convert into shares of
Class A Common Stock (x) in any transfer effected in connection with a
distribution of Class B Common Stock as a spin-off, split-up or split-off
to stockholders of Cognizant intended to be on a tax-free basis under the
Internal Revenue Code of 1986, as amended from time to time (the "Code") (a
"Tax-Free Spin-Off"), or (y) except as otherwise set forth below in this
paragraph (C)(6)(b), in any transfer after a Tax-Free Spin-Off. For
purposes of this paragraph (C)(6), a Tax-Free Spin-Off shall be deemed to
have occurred at the time shares are first transferred to stockholders of
Cognizant following receipt of an affidavit described in clauses (vi) or
(vii) of the first sentence of paragraph (C)(6)(d) below. For purposes of
this paragraph (C)(6), "Cognizant" shall mean Cognizant Corporation, a
Delaware corporation, all successors to Cognizant Corporation by way of
merger, consolidation or sale of all or substantially all its assets,
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and all corporations, partnerships, joint ventures, associations and other
entities in which Cognizant Corporation Beneficially Owns, directly or
indirectly, 50% or more of the outstanding voting stock, voting power or
similar voting interests ("Voting Interests") (each, a "Subsidiary
Entity"), but which shall not include the Corporation or any Subsidiary
Entity in which the Corporation Beneficially Owns, directly or indirectly,
50% or more of the outstanding Voting Interests (it being understood that
Cognizant shall mean IMS Health Incorporated upon consummation of the
reorganization of Cognizant into IMS Health Incorporated and Nielsen Media
Research on or about June 30, 1998). The terms "Beneficially Own,"
"Beneficially Owns" and "Beneficially Owned" as used herein shall have the
meanings ascribed to such terms in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as in effect on the
date of filing of this Amended and Restated Certificate of Incorporation.
(ii) The term "Person" as used herein shall mean any individual,
firm, corporation or other entity; each reference to an "individual" (or to
a "record holder" of shares, if an individual) shall be deemed to include
in his or her representative capacity a guardian, committee, executor,
administrator or other legal representative of such individual or record
holder.
(iii) In the event of a Tax-Free Spin-Off, each share of Class B
Common Stock shall automatically convert into one share of Class A Common
Stock (x) immediately prior to the first transfer of such share after such
share is transferred to a stockholder of Cognizant in the Tax-Free Spin-Off
or (y) if later, on the fifth anniversary of the date on which such share
of Class B Common Stock is first transferred to a stockholder of Cognizant
in the Tax-Free Spin-Off unless, prior to such Tax-Free Spin-Off, Cognizant
delivers to the Corporation the written advice of counsel, reasonably
satisfactory to the Corporation, to the effect that such conversion could
adversely affect the ability of Cognizant to obtain a favorable ruling from
the Internal Revenue Service that the distribution would be a Tax-Free
Spin-Off under the Code or the Internal Revenue Service has adopted a
general non-ruling policy on tax-free spinoffs and that such conversion
could adversely affect the status of the transaction as a Tax-Free
Spin-Off. If such written advice of counsel is received, approval of such
conversion shall be submitted to a vote of the holders of the Common Stock
as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off. At the meeting of stockholders called for such purpose, every
holder of Common Stock shall be entitled to one vote (irrespective of the
voting rights provided for such shares under paragraph (C)(3)(a) above) in
person or by proxy for each share of Common Stock standing in his or her
name on the transfer books of the Corporation. Approval of such conversion
shall require the approval of a majority of the votes, on the per share
voting basis provided in the preceding sentence, entitled to be cast by the
holders of the Class A Common Stock and Class B Common Stock present and
voting, voting together as a single class, and the holders of the Class B
Common Stock shall not be entitled to a separate class vote. Such
conversion shall be effective on the date on which such approval is given
at a meeting of stockholders called for such purpose. Notwithstanding the
foregoing, if Cognizant delivers to the Corporation prior to such
anniversary the written advice of counsel, reasonably satisfactory to the
Corporation, to the effect that such vote could adversely affect the status
of the transaction as a Tax-Free Spin-Off (including without limitation the
ability
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to obtain a favorable ruling from the Internal Revenue Service), such vote
shall not be held and no such conversion shall take place. Upon delivery
of such written advice of counsel as to such vote, and the further advice
that the continued existence of this paragraph (C)(6)(b)(iii) itself could
adversely affect the status of the transaction as a Tax-Free Spin-Off
(including without limitation the ability to obtain a favorable ruling from
the Internal Revenue Service), then this paragraph (C)(6)(b)(iii) shall
thereafter be null and void and no longer be deemed to be part of this
Amended and Restated Certificate of Incorporation.
(iv) If at any time the outstanding shares of Class B Common Stock
shall cease to represent at least 35% of the economic ownership represented
by the aggregate number of shares of Common Stock then outstanding, then
each share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock.
(v) The Corporation will provide notice of any automatic conversion
of all outstanding shares of Class B Common Stock to holders of record as
soon as practicable after the conversion; provided, however, that the
Corporation may satisfy such notice requirement by providing such notice
prior to conversion. Such notice shall be provided by mailing notice of
such conversion first class postage prepaid, to each holder of record of
the Common Stock, at such holder's address as it appears on the transfer
books of the Corporation; provided, however, that no failure to give such
notice nor any defect therein shall affect the validity of the automatic
conversion of any shares of Class B Common Stock. Each such notice shall
state, as appropriate, the following:
(A) the automatic conversion date;
(B) that all outstanding shares of Class B Common Stock are
automatically converted;
(C) the place or places where certificates for such shares
are to be surrendered for conversion; and
(D) that no dividends will be declared on the shares of
Class B Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares
of Class B Common Stock as such shall cease and such holders shall be treated
for all purposes as having become the record owners of the shares of Class A
Common Stock issuable upon such conversion; provided, however, that such Persons
shall be entitled to receive when paid any dividends declared on the Class B
Common Stock as of a record date preceding the time of such conversion and
unpaid as of the time of such conversion, subject to paragraph (C)(6)(f) below.
(c) Prior to a Tax-Free Spin-Off, holders of shares of Class B Common
Stock may (i) sell or otherwise dispose of or transfer any or all of such shares
held by them, respectively, only in connection with a transfer which meets the
qualifications of paragraph (C)(6)(d) below, and under no other circumstances,
or (ii) convert any or all of such shares into shares of Class A Common Stock as
provided in paragraph (C)(6)(a)
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above. Prior to a Tax-Free Spin-Off, no one other than those Persons in whose
names shares of Class B Common Stock originally are registered on the stock
ledger of the Corporation, or transferees or successive transferees who receive
shares of Class B Common Stock in connection with a transfer which meets the
qualifications set forth in paragraph (C)(6)(d) below, shall by virtue of the
acquisition of a certificate for shares of Class B Common Stock have the status
of an owner or holder of shares of Class B Common Stock or be recognized as such
by the Corporation or be otherwise entitled to enjoy for his or her own benefit
the special rights and powers of a holder of shares of Class B Common Stock.
Holders of shares of Class B Common Stock may at any and all times
transfer to any Person the shares of Class A Common Stock issuable upon
conversion of such shares of Class B Common Stock.
(d) Prior to a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred on the books of the Corporation and a new certificate therefor
issued, upon presentation at the office of the Secretary of the Corporation (or
at such additional place or places as may from time to time be designated by the
Secretary of the Corporation) of the certificate for such shares, in proper form
for transfer and accompanied by all requisite stock transfer tax stamps, only if
such certificate when so presented shall also be accompanied by any one of the
following:
(i) an affidavit from Cognizant stating that such certificate is being
presented to effect a transfer by Cognizant of such shares to a successor of
Cognizant or Subsidiary Entity of Cognizant; or
(ii) an affidavit from Cognizant or a successor of Cognizant stating that
such certificate is being presented to effect a transfer by any Subsidiary
Entity of Cognizant or a successor of Cognizant of such shares to Cognizant or a
successor of Cognizant or another Subsidiary Entity of Cognizant or a successor
of Cognizant; or
(iii) an affidavit from Cognizant or a successor of Cognizant stating that
such certificate is being presented to effect a transfer by Cognizant or a
successor of Cognizant of such shares to the stockholders of Cognizant or a
successor of Cognizant in connection with a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this paragraph
(C)(6)(d) shall be verified as of a date not earlier than five days prior to the
date of delivery thereof, and, where such record holder is a corporation or
partnership, shall be verified by an officer of the corporation or by a general
partner of the partnership, as the case may be.
(e) Prior to the occurrence of a Tax-Free Spin-Off, each certificate for
shares of Class B Common Stock shall bear a legend on the face thereof reading
as follows:
"The shares of Class B Common Stock represented by this Certificate may not
be transferred to any person or entity in connection with a transfer that does
not meet the qualifications set forth in paragraph (C)(6)(d) of Article IV of
the Amended and Restated Certificate of Incorporation of this Corporation and no
person who receives such shares
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in connection with a transfer which does not meet the qualifications prescribed
by paragraph (C)(6)(d) of said Article IV is entitled to own or to be registered
as the record holder of such shares of Class B Common Stock and such shares will
have been automatically converted into Class A Common Stock upon any such
purported transfer. The record holder of this certificate may at any time
convert such shares of Class B Common Stock into the same number of shares of
Class A Common Stock. Each holder of this certificate, by accepting the same,
accepts and agrees to all of the foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off, shares of
Class B Common Stock shall no longer bear the legend set forth above in this
paragraph (C)(6)(e).
(f) Upon any conversion of shares of Class B Common Stock into shares of
Class A Common Stock pursuant to the provisions of this paragraph (C)(6), any
dividend, for which the payment date shall be subsequent to such conversion,
which may have been declared on the shares of Class B Common Stock so converted
shall be deemed to have been declared, and shall be payable, with respect to the
shares of Class A Common Stock into or for which such shares of Class B Common
Stock shall have been so converted, and any such dividend payable in Common
Stock shall be deemed to have been declared, and shall be payable, in shares of
Class A Common Stock.
(g) The Corporation shall not reissue or resell any shares of Class B
Common Stock which shall have been converted into shares of Class A Common Stock
pursuant to or as permitted by the provisions of this paragraph (C)(6), or any
shares of Class B Common Stock which shall have been acquired by the Corporation
in any other manner. The Corporation shall, from time to time, take such
appropriate action as may be necessary to retire such shares and to reduce the
authorized amount of Class B Common Stock accordingly. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued Common
Stock, such number of shares of Class A Common Stock as would become issuable
upon the conversion of all shares of Class B Common Stock then outstanding.
(h) In connection with any transfer or conversion of any stock of the
Corporation pursuant to or as permitted by the provisions of this paragraph
(C)(6) or in connection with the making of any determination referred to in this
paragraph (C)(6):
(i) the Corporation shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the
Corporation responsible for making such transfer or determination or
issuing Class A Common Stock pursuant to such conversion has substantial
reason to believe, or unless the Board of Directors (or a committee of the
Board of Directors designated for such purpose) determines that there is
substantial reason to believe, that any affidavit or other document is
incomplete or incorrect in a material respect or that an investigation
would disclose facts upon which any determination referred to in paragraph
(C)(6)(f) above should be made, in either of which events the Corporation
shall make or cause to be made such investigation as it may deem necessary
or desirable in the circumstances and have
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a reasonable time to complete such investigation; and
(ii) neither the Corporation nor any director, officer, employee
or agent of the Corporation shall be liable in any manner for any
action taken or omitted in good faith.
(i) The Corporation will not be required to pay any documentary,
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Class A Common Stock on the conversion of shares of
Class B Common Stock pursuant to this paragraph (C)(6), and no such issue
or delivery shall be made unless and until the Person requesting such issue
has paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(7) All rights to vote and all voting power (including, without
limitation thereto, the right to elect directors) shall be vested
exclusively in the holders of Common Stock, voting together as a single
class, except as otherwise expressly provided in this Amended and Restated
Certificate of Incorporation, in a Preferred Stock Designation or as
otherwise expressly required by applicable law.
D. Subject to the limitations and in the manner provided by law, shares
of the Preferred Stock may be issued from time to time in series, and the Board
of Directors of the Corporation or a duly-authorized committee of the Board of
Directors of the Corporation, in accordance with the laws of the State of
Delaware, is hereby authorized to determine or alter the relative rights, powers
(including voting powers), preferences, privileges and restrictions granted to
or imposed upon Preferred Stock or any wholly unissued series of shares of
Preferred Stock, and to increase or decrease (but not below the number of shares
of any series of Preferred Stock then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall upon the taking of any action required by applicable law
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Amended and
Restated Certificate of Incorporation or the bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation. Election of
directors need not be by written ballot unless the bylaws so provide.
ARTICLE VI
The books and records of the Corporation may be kept (subject to any
mandatory requirement of law) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or by
the bylaws of the Corporation.
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ARTICLE VII
In furtherance and not in limitation of the powers conferred upon it by the
laws of the State of Delaware, the Board of Directors shall have the power
without the assent or vote of the stockholders to make, alter, amend, change,
add to or repeal the bylaws of the Corporation.
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation and its stockholders; (b) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violations of law; (c) under Section 174 of the GCL; or (d) for any transaction
from which the director derived an improper personal benefit.
If the GCL hereafter is amended to further eliminate or limit the liability
of directors, then the liability of a director of the Corporation, in addition
to the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended GCL. Any repeal or modification of the
foregoing provisions of this Article VIII shall not adversely affect any right
or protection of any director, officer, employee or agent of the Corporation
existing at the time of such repeal or modification.
ARTICLE IX
The Corporation reserves the right to amend or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
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Exhibit 3.2
BY-LAWS
Of
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of the corporation for the
purpose of electing directors and for the transaction of such other business
as may properly be brought before the meeting shall be held on the third
Wednesday in April of each year, if not a legal holiday, and if a legal
holiday, then on the next secular day following, within or without the State
of Delaware, or at such time and place as may be designated from time to time
by the Board of Directors.
SECTION 2. Special meetings of the stockholders may be held upon call of the
Board of Directors or the President (and shall be called by the President at the
request in writing of stockholders owning a majority of the outstanding shares
of the corporation entitled to vote at the meeting) at such time and at such
place within or without the State of Delaware as may be fixed by the Board of
Directors or the President or by the stockholders owning a majority of the
outstanding shares of the corporation so entitled to vote, as the case may be,
and as may be stated in the notice setting forth such call.
<PAGE>
SECTION 3. Except as otherwise provided by law, notice of the time, place and
purpose or purposes of every meeting of stockholders shall be delivered
personally or mailed not earlier than fifty, nor less than ten, days previous
thereto to each stockholder of record entitled to vote at the meeting, at his
address as it appears on the records of the corporation. Notice of any meeting
of stockholders need not be given to any stockholders who shall waive notice
thereof, before or after such meeting, in writing, or to any stockholder who
shall attend such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 4. The holders of record of a majority of the issued and outstanding
shares of the corporation, which are entitled to vote at the meeting, shall,
except as otherwise provided by law, constitute a quorum at all meetings of the
stockholders. If there be no such quorum present in person or by proxy, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time.
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SECTION 5. Meetings of the stockholders shall be presided over by the President
or, if he is not present, by a Vice President or, if no such officer is present,
by a chairman to be chosen at the meeting. The Secretary of the corporation or,
in his absence, an Assistant Secretary shall act as secretary of the meeting. If
neither the Secretary nor an Assistant Secretary is present, the chairman shall
appoint a secretary.
SECTION 6. Each stockholder entitled to vote at any meeting may vote in
person or by proxy for each share of stock held by him which has voting power
upon the matter in question at the time; but no proxy shall be voted on after
three years from its date, unless such proxy provides for a longer period.
SECTION 7. At all elections of directors the voting shall be by ballot, and a
majority of the votes cast shall elect. Except as otherwise provided by law, all
other questions presented to stockholders shall also be determined by a majority
of the votes cast on such questions.
SECTION 8. In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express
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consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which
shall be not more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If for any
reason the Board of Directors shall not have fixed a record date for any such
purpose, the record date for such purpose, shall be determined as provided by
law. Only those stockholders of record on the date so fixed or determined
shall be entitled to any of the foregoing rights, not withstanding the
transfer of any such stock on the books of the corporation after any such
record date so fixed or determined.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. The Board of Directors of the corporation shall consist of such
number of directors, not less than three, as shall from time to time be fixed by
resolution of the Board of Directors. Directors shall hold office until the
annual meeting of the stockholders next ensuing after their election, and until
their respective successors are elected and qualified. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
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Directors need not be stockholders.
SECTION 2. Vacancies in the Board of Directors shall be filled by a majority of
the remaining directors, though less than a quorum; and in case of an increase
in number of directors, the additional directors shall be elected by a majority
of the directors in office at the time of increase, though less than a quorum;
and the directors so chosen shall hold office until the next annual election and
until their successors shall be duly elected and qualified, unless sooner
displaced pursuant to law.
SECTION 3. Meetings of the Board of Directors shall be held at such place within
or without the State of Delaware as may from time to time be fixed by resolution
of the Board or as may be specified in the notice of call of any meeting.
Regular meetings of the Board of Directors shall be held at such times as may
from time to time be fixed by resolution of the Board and special meetings may
be held at any time upon the call of the President, by oral, telegraphic or
written notice, duly served on or sent or mailed to each director not less than
one day before the meeting. The notice of any meeting need not specify the
purposes thereof. A meeting of the Board may be held without notice immediately
after the meeting of stockholders at the same place at which
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such meeting is held. Notice need not be given of regular meetings of the Board
held at times fixed by resolution of the Board. Notice of any meeting need not
be given to any director who shall attend such meeting in person or who shall
waive notice thereof, before or after such meeting, in writing. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 4. The Board of Directors may, by resolution or resolutions, passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation which, to the extent
provided in said resolution or resolutions, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the corporation, and may authorize the seal of the corporation to be affixed
to all papers which may require it. A majority of the members of a committee
shall constitute a quorum for the transaction of its business. In the absence or
disqualification of any member of any such committee or
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committees, but not in the case of a vacancy therein, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors, who is not an officer of the corporation or any of
its subsidiaries, to act at the meeting for all purposes in the place of any
such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
SECTION 5. A director of the corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the corporation
either as vendor, purchaser or otherwise, nor in the absence of fraud, shall any
transaction or contract of the corporation be void or voidable or affected by
reason of the fact that any director or any firm of which any director is a
member, or any corporation of which the director is an officer, director or
stockholder, is in any way interested in such transaction or contract, provided
that, at the meeting of the Board of Directors or of a committee thereof having
authority in the premises to authorize or confirm said contract or transaction,
the interest of such director, firm or corporation therein and the material
facts with respect thereto are disclosed or known, and there shall be present a
quorum of directors or of the directors constituting such
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committee not interested or connected, and such contract or transaction shall be
approved by a majority of such quorum, which majority shall consist of directors
not so interested or connected. Nor shall such contract or transaction be void
or voidable or affected by reason of the fact that the vote of such director
or directors, who have or may have interest therein which are or might be
adverse to the interests of the corporation, shall have been necessary to
obligate the corporation upon such contract or transaction, nor shall any
director or directors having such adverse interest be liable to the corporation
or to any stockholder or creditor thereof, or to any other person, for any loss
incurred by it under or by reason of any such contract or transaction nor shall
any such director or directors be accountable for any gains or profits realized
thereon; always provided, however, that such contract or transaction shall, at
the time it was entered into, have been a reasonable one to have been entered
into and shall have been upon terms that at the time were fair.
SECTION 6. Any contract, transaction or act of the corporation or of the Board
of Directors or of the Executive Committee which shall be ratified by a majority
vote of the stockholders of the corporation having voting power at any annual
meeting or any special meeting called for such purpose and to whom the material
facts with respect thereto are disclosed or known, shall be as valid and as
binding as though ratified by every
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stockholder of the corporation, provided, however, that any failure of the
stockholders to approve or ratify such contract, transaction or act, when and if
submitted, shall not be deemed in any way to invalidate the same or to deprive
the corporation, its directors or officers, of their right to proceed with such
contract, transaction or action. Any director of the corporation may vote upon
any contract or other transaction between the corporation and any subsidiary or
affiliated corporation without regard to the fact that he is also a director of
such subsidiary or affiliated corporation.
ARTICLE III.
OFFICERS
SECTION 1. The Board of Directors as soon as may be after their election held in
each year shall elect officers of the corporation, including a President, one or
more Vice Presidents, a Secretary and a Treasurer. The Board of Directors may
also from time to time appoint such other officers (including a Chairman who
shall be a member of the Board of Directors, one or more Vice Chairmen, one or
more Assistant Vice presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers) as it may deem proper or may delegate to any elected
officer of the corporation the power so to appoint and remove any such other
officers and to prescribe their respective terms of office, authorities and
duties. Any Vice President may be designated Executive, Senior, or Regional, or
may be given such other designation or combination of designations.
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SECTION 2. All officers of the corporation elected or appointed by the Board of
Directors shall hold office until their respective successors are chosen and
qualified. Any officer may be removed from office at any time either with or
without cause by the affirmative vote of a majority of the members of the Board
then in office, or, in the case of appointed officers, by any elected officer
upon whom such power of removal shall have been conferred by the Board of
Directors.
SECTION 3. Each of the officers of the corporation elected or appointed by the
Board of Directors shall have the powers and duties prescribed by law, by the
By-laws or by the Board of Directors and, unless otherwise prescribed by the
By-Laws or by the Board of Directors, shall have such further powers and duties
as ordinarily pertain to his office. The President shall be the Principal
Executive Officer and shall have the general direction of the affairs of the
corporation. Any officer, agent, or employee of the corporation may be required
to give bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors may from time to time prescribe.
SECTION 4. The corporation shall indemnify, to the full extent that it shall
have power under applicable law to do so and in a manner permitted by such law,
any person made or threatened to be made a party to any threatened, pending or
completed action,
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suit or proceeding whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the corporation.
The corporation may indemnify, to the full extent that it shall have power under
applicable law to do so and in a manner permitted by such law, any person made
or threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was an employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The indemnification provided by this Article III shall not be
deemed exclusive of any other rights to which any person indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be such director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other
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enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article III or otherwise.
ARTICLE IV.
CERTIFICATES OF STOCK
SECTION 1. The interest of each stockholder of the corporation shall be
evidenced by a certificate or certificates for shares of stock in such form as
the Board of Directors may from time to time prescribe. The shares in the stock
of the corporation shall be transferable on the books of the corporation by the
holder thereof in person or by his attorney, upon surrender for cancellation of
a certificate or certificates for the same number of shares, with an assignment
and power of transfer endorsed thereon or attached thereto, duly executed, and
with such proof of the authenticity of the signature as the corporation or its
agents may reasonably require.
SECTION 2. The certificates of stock shall be signed by such officer or officers
as may be permitted by law to sign (except that where any such certificate is
countersigned by a transfer agent other than the corporation or its employee, or
by a registrar other than the corporation or its employee, the
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signatures of any such officer or officers may be facsimiles), and shall be
countersigned and registered in such manner, all as the Board of Directors may
by resolution prescribe. In case any officer or officers who shall have signed,
or whose facsimile signature or signatures shall have been used on any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been issued by the corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates, or whose
facsimile signature or signatures shall have been used thereon had not ceased to
be such officer or officers of the corporation.
SECTION 3. No certificate for shares of stock in the corporation shall be issued
in place of any certificate alleged to have been lost, stolen or destroyed,
except upon production of such evidence of such loss, theft or destruction and
upon delivery to the corporation of a bond of indemnity in such amount, upon
such terms and secured by such surety, as the Board of Directors in its
discretion may require.
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ARTICLE V.
CORPORATE BOOKS
The books of the corporation may be kept outside of the State of Delaware at
such place or places as the Board of Directors may from time to time determine.
ARTICLE VI.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the corporation's bank accounts and all bills
of exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be thereunto authorized from time to time
by the Board of Directors. Proxies to vote and consents with respect to
securities of other corporations owned by or standing in the name of the
corporation may be executed and delivered from time to time on behalf of the
corporation by the President, or by such officers as the Board of Directors may
from time to time determine.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the fist day of
January in each year and shall end on the thirty-first day of December
following.
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ARTICLE VIII.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal" state and date of incorporation. In
lieu of the corporate seal, when so authorized by the Board of Directors or a
duly empowered committee thereof, a facsimile thereof may be impressed or
affixed or reproduced.
ARTICLE IX.
OFFICES
The corporation and the stockholders and the directors may have offices
outside of the State of Delaware at such places as shall be determined from time
to time by the Board of Directors.
ARTICLE X.
AMENDMENTS
Subject to any limitations that may be imposed by the stockholders, the
Board of Directors may make By-Laws and from time to time may alter, amend or
repeal any By-Laws, but any By-Laws made by the Board of Directors or the
stockholders at any annual meeting or at any special meeting, provided that
notice of such proposed alteration, amendment or repeal is included in the
notice of such meeting.
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May 22, 1998
Cognizant Technology
Solutions Corporation
1700 Broadway, 26th Floor
New York, New York 10019
Cognizant Technology Solutions Corporation
3,354,550 Shares of Class A Common Stock, $.01 par value
Dear Sirs:
We have acted as counsel for Cognizant Technology Solutions
Corporation, a Delaware corporation (the "Company"), in connection with the
preparation and filing of the Registration Statement of the Company on Form S-1,
as amended (File No. 333-49783) (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Securities Act"), relating to 3,354,550
shares (the "Shares") of the Class A Common Stock, $.01 par value (the "Common
Stock"), of the Company.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary for the
purposes of rendering the opinions set forth below. As to certain questions of
fact material to the opinions contained herein, we have relied upon certificates
or statements of officers of the Company and certificates of public officials.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as certified or photostatic
copies.
Based upon the foregoing, we are of the opinion as follows:
1. The Company is a validly existing corporation under the
laws of the State of Delaware.
2. Upon consummation of the Recapitalization (as defined in
the Registration Statement), the Shares will have been duly authorized and, when
issued and sold as contemplated by the Registration Statement and the
Underwriting Agreement to be entered into among the Company, Cognizant
Corporation, BancAmerica Robertson Stephens, Cowen & Company and Adams, Harkness
& Hill, Inc., as representatives of the several
<PAGE>
Cognizant Technology Solutions Corporation
May 22, 1998
Page 2
Underwriters (as defined therein), will be validly issued, fully paid and
nonassessable.
We are admitted to the Bar of the State of New York and we
express no opinion as to the laws of any other jurisdiction other than the
Delaware General Corporation Law.
We know that we are referred to under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement, and we
hereby consent to such use of our name in said Registration Statement and to the
use of this opinion for filing with said Registration Statement as Exhibit 5
thereto.
Very truly yours,
/s/ O'Sullivan Graev & Karabell, LLP
<PAGE>
Exhibit 10.4
COGNIZANT TECHNOLOGY SOLUTIONS
NOTICE OF GRANT OF STOCK OPTIONS AND OPTION AGREEMENT
1. Grant of Options
Effective March 20, 1998 (the "Grant Date"), you have been granted a
Non-Qualified Stock Option to purchase 48,750 shares of Class A Common Stock of
Cognizant Technology Solutions Corporation (the "Company") at an exercise price
of $6.92 per share.
2. Purpose of the Option Grant
The purpose of the option grant hereunder is to aid the Company and
its Subsidiaries in securing and retaining key employees of outstanding ability
and to motivate such employees to exert their best efforts on behalf of the
Company and its Subsidiaries by providing incentives through the granting of
Awards. The Company expects that it will benefit from the added interest which
such key employees will have in the welfare of the Company as a result of their
proprietary interest in the Company's success.
3. Definitions
The following capitalized terms used in this Agreement have the
respective meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) Appraised Company Value: The value of the Company, determined as
provided below. The Appraised Company Value as of any date
(a "Valuation Date") shall be determined by the Committee based
upon an independent valuation conducted by an investment bank
or other professional firm retained for that purpose by the
Committee, or such other valuation methods as the Committee,
in its discretion, deems appropriate. All determinations of
the Committee as to the amount of the Appraised Company Value
shall be binding and conclusive on the Participant and all
other persons. The Appraised Company Value is an arbitrary
valuation, and is not represented as being the actual
fair market value of the Company or the price at which Shares
would sell in a private sale or public market.
(c) Applicable Valuation Date: The meaning set forth in Section 7 of
this Agreement.
(d) Award: Options granted pursuant to this Agreement.
(e) Beneficial Owner: As such term is defined in Rule 13d-3 under the
Act (or any successor rule thereto).
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(f) Board: The Board of Directors of the Company.
(g) Change in Control: The occurrence of any of the following events:
(i) any Person (other than (A) the Company, (B) any trustee or
other fiduciary holding securities under an employee
benefit plan of the Company, (C) any Subsidiaries of
the Company, (D) 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 or (E) Cognizant
or its Subsidiaries or, upon the consummation of the
reorganization of Cognizant, IMS Health Incorporated
or its Subsidiaries), becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing 35% 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 date of an IPO), 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 3(g) (i), (iii) or
(iv) of this Agreement, (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 shareholders is or was approved 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 shareholders 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
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35% or more of the combined voting power of the
then-outstanding securities of the Company or such
surviving entity; or
(iv) the shareholders 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;
provided, however, that an IPO, as defined below, shall
not constitute a Change in Control.
(h) Code: The Internal Revenue Code of 1986, as amended, or any
successor thereto.
(i) Cognizant: Cognizant Corporation, a Delaware corporation, and
its successors and assigns.
(j) Committee: The Stock Option Committee of the Board, which shall
consist of two or more directors, each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 under
the Act (or any successor rule thereto) and "outside directors"
within the meaning of Section 162(m) of the Code (or any
successor Section thereto).
(k) Company: Cognizant Technology Solutions Corporation, a Delaware
corporation.
(l) Controlling Interest: Solely for purposes of this Agreement,
thirty-five percent (35%) or more of the issued and outstanding
shares of capital stock of the Company determined assuming all
securities issued by the Company (other than stock options
issued to employees or directors of the Company and its
affiliate and subsidiary corporations) convertible into or
exercisable for capital stock of the Company had been converted
and exercised in full.
(m) Controlling Interest Sale: The sale or transfer of (i) a
Controlling Interest of the Company, other than an IPO as
defined below, or (ii) all or substantially all of the assets of
the Company, in one or a related series of related transactions,
provided, in either case (i) or (ii), such sale or transfer is
to any person of which neither Cognizant nor any of its direct
or indirect subsidiaries (a) owns 50 percent or more of any
class of equity securities nor (b) has over 50 percent of the
voting power of all classes of capital stock combined.
(n) Disability: Inability to engage in any substantial gainful
activity by reason of a medically determinable physical or
mental impairment which constitutes a permanent and total
disability, as defined in Section 22(e) (3)
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of the Code (or any successor section thereto). The determination
whether the Participant has suffered a Disability shall be made
by the Committee based upon such evidence as it deems necessary
and appropriate, and shall be conclusive and binding on the
Participant. The Participant shall not be considered disabled
unless he or she furnishes such medical or other evidence of the
existence of the Disability as the Committee, in its sole
discretion, may require.
(o) Fair Market Value: With respect to Shares or any other property,
the fair market value as determined in its sole discretion by
the Committee or in the manner established by the Committee from
time to time.
(p) IPO: The closing of an initial public offering of equity
securities of the Company registered with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended.
(q) Option: A stock option granted pursuant to this Agreement.
(r) Option Price: The exercise price per Share of the options
granted hereunder, as set forth in Section 1 hereof.
(s) Participant: Wijeyaraj Mahadeva, the individual who has been
selected by the Committee to receive options hereunder.
(t) Person: As such term is used for purposes of Section 13(d) or
14(d) of the Act (or any successor section thereto).
(u) Post-Retirement Exercise Period: The meaning set forth in
Section 5(d) of this Agreement.
(v) Purchase Request: The meaning set forth in Section 7(a) of this
Agreement.
(w) Retirement: Termination of employment with the Company or a
Subsidiary of the Company or of Cognizant after the Participant
has attained age 55 and five years of service with the Company
or a subsidiary of the Company or of Cognizant; or, with the
prior written consent of the Committee that such termination be
treated as a Retirement hereunder, termination of employment
under other circumstances.
(x) Selling Stockholder: The meaning set forth in Section 7(a) of
this Agreement.
(y) Shares: Shares of Class A Common Stock, $.01 par value, of the
Company.
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(z) Special Exercise Period: The meaning set forth in Section 5(d)
of this Agreement.
(aa) Subsidiary: A subsidiary corporation, as defined in Section
424(f) of the Code (or any successor section thereto).
(bb) Valuation Date: The meaning set forth in Section 3(b) of this
Agreement.
4. Administration
This Agreement shall be administered by the Committee, which may
delegate its duties and powers in whole or in part to any subcommittee thereof
consisting solely of at least two individuals who are each "non-employee
directors" within the meaning of Rule 16b-3 under the Act (or any successor rule
thereto) and "outside directors" within the meaning of Section 162(m) of the
Code (or any successor section thereto). The Committee is authorized to
interpret the terms of this Agreement, to establish, amend and rescind any rules
and regulations relating to this Agreement, and to make any other determinations
that it deems necessary or desirable for the administration of this Agreement.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Agreement in the manner and to the extent the Committee
deems necessary or desirable. Any decision of the Committee in the
interpretation and administration of this Agreement, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, the Participant
and his beneficiaries or successors). The Committee shall require payment of any
amount it may determine to be necessary to withhold for federal, state, local or
other taxes as a result of the exercise of an Award.
5. Terms and Conditions of Options
Options granted under this Agreement shall be non-qualified stock
options and shall be subject to the foregoing and the following terms and
conditions and to such other terms and conditions, not inconsistent therewith,
as the Committee shall determine:
(a) Exercisability. Options granted under this Agreement shall be
exercisable at the following times and upon such terms and conditions as may be
determined by the Committee, but in no event shall an Option be exercisable more
than ten years after the date it is granted:
(i) Each Option will become fully vested on April 1, 2006.
(ii) Notwithstanding paragraph (i), if an IPO or a Controlling
Interest Sale occurs prior to April 1, 2006, each Option will
become exercisable as follows:
(A) 25% upon the later of (x) the first anniversary of the
Grant Date or (y) the occurrence of the IPO or Controlling
Interest Sale;
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(B) 25% upon the later of (x) the second anniversary of the
Grant Date or (y) the occurrence of the IPO or Controlling
Interest Sale;
(C) 25% upon the later of (x) the third anniversary of the
Grant Date or (y) the occurrence of the IPO or Controlling
Interest Sale; and
(D) 25% upon the later of (x) the fourth anniversary of the
Grant Date or (y) the occurrence of the IPO or Controlling
Interest Sale.
Notwithstanding the foregoing, in the event of a Change of Control,
then such portion of the Options will become immediately vested as, when added
to previously vested portions of the Options, will equal 100% of the Options.
(b) Exercise of Options. An Option may be exercised for all or any
part of the Shares for which it is then exercisable. For purposes of this
Section 5, the exercise date of an Option shall be the later of the date a
notice of exercise is received by the Company and, if applicable, the date
payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the
following sentence. The purchase price for the Shares as to which an Option is
exercised shall be paid to the Company in full at the time of exercise at the
election of the Participant (i) in cash (including cash advanced by the
Participant's stockbroker under a loan in which the Option Shares are held as
collateral), (ii) in Shares having a Fair Market Value equal to the aggregate
Option Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee, (iii) partly in cash and partly
in such Shares, (iv) through the withholding of Shares (which would otherwise be
delivered to the Participant) with an aggregate Fair Market Value on the
exercise date equal to the aggregate Option Price or (v) through the delivery of
irrevocable instructions to a broker to deliver promptly to the Company an
amount equal to the aggregate Option Price for the Shares being purchased. The
Participant shall be permitted to elect, subject to such terms and conditions as
the Committee shall determine, to have the number of Shares deliverable to him
as a result of the exercise reduced by a number sufficient to pay the amount the
Company determines to be necessary to withhold for federal, state, local or
other taxes as a result of the exercise of the Option. The Participant shall not
have any rights to dividends or other rights of a stockholder with respect to
Shares subject to an Option until the Participant has given written notice of
exercise of the Option, paid in full for such Shares and, if applicable, has
satisfied any other conditions imposed by the Committee pursuant to this
Agreement.
(c) Exercisability Upon Termination of Employment by Death or
Disability. If the Participant's employment with the Company and its
Subsidiaries terminates by reason of death or Disability after the date of grant
of an Option, an unexercised Option may thereafter be exercised during the
shorter of (i) the remaining stated term of the Option or (ii) five years after
the date of death or Disability, but only to the extent the Option was
exercisable at the time of such termination of employment or becomes exercisable
during such later period.
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(d) Exercisability Upon Termination of Employment by Retirement. If
the Participant's employment with the Company and its Subsidiaries terminates by
reason of Retirement after the date of grant of an Option, an unexercised Option
may thereafter be exercised during the shorter of (i) the remaining stated term
of the Option or (ii) five years after the date of such termination of
employment (the "Post-Retirement Exercise Period"), but only to the extent to
which such Option was exercisable at the time of such termination of employment
or becomes exercisable during the Post-Retirement Exercise Period; provided,
however, that if the Participant dies within a period of five years after such
termination of employment, an unexercised Option may thereafter be exercised,
during the shorter of (i) the remaining stated term of the Option or (ii) the
period that is the longer of (A) five years after the date of such termination
of employment or (B) one year after the date of death (the "Special Exercise
Period"), but only to the extent to which such Option was exercisable at the
time of such termination of employment or becomes exercisable during the Special
Exercise Period.
(e) Effect of Other Termination of Employment. If the Participant's
employment with the Company and its Subsidiaries terminates for any reason other
than death or Disability under the circumstances of Section 5(c), or Retirement,
after the date of grant of an Option as described above, an unexercised Option
may thereafter be exercised during the period ending 90 days after the date of
such termination of employment, but only to the extent to which such Option was
exercisable at the time of such termination of employment. Notwithstanding the
foregoing, the Committee may, in its sole discretion, accelerate the vesting of
unvested Options held by the Participant if such Participant is terminated from
employment without "cause" (as such term is defined by the Committee in its sole
discretion) by the Company.
(f) For purposes of this Agreement, the following events shall not
be deemed a termination of employment of the Participant:
(i) a transfer to the employment of the Company from one of
its Subsidiaries or from the Company to one of its
Subsidiaries, or from one Subsidiary of the Company to
another, or
(ii) an approved leave of absence for military service or
sickness, or for any other purpose approved by the
Company, if the Participant's right to reemployment is
guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted
or if the Committee otherwise so provides in writing, or
(iii) if the Committee approves, a transfer to or from the
employment of Cognizant or an entity owned or controlled,
directly or indirectly, by Cognizant.
For purposes of this Agreement, employees of a Subsidiary of the Company shall
be deemed to have terminated their employment on the date on which such
subsidiary ceases to be a Subsidiary of the Company.
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6. Restrictions on Transfer
Without the prior written consent of the Committee, no Shares
acquired upon exercise of an Option may be sold, transferred, pledged or
otherwise disposed of, voluntarily or involuntarily, until the occurrence of an
IPO or a Controlling Interest Sale, except as provided in Section 7. In addition
to said restrictions, the Participant may not, in connection with the Company's
IPO, sell, make any short sale of, loan, hypothecate, pledge, grant any option
for the purchase of or otherwise dispose of any Shares, or purchase any call or
put option for any Shares, without the prior written consent of Company or its
underwriters, for such period of time from the date of the IPO as may be
specified by the Company.
7. Sales to Company
(a) On or after April 1, 2007, if no IPO has theretofore occurred,
the Company shall, upon written request (the "Purchase Request") of the
Participant or his or her legal representative, acquire from the Participant or
his or her estate (the "Selling Stockholder") all Shares purchased under the
Option and which are requested by such Selling Stockholder to be acquired in the
Purchase Request, at the purchase price determined under Section 7(c) and on a
date set forth in the Purchase Request that is at least 30 days after the
delivery of the Purchase Request. The purchase price shall be paid in four equal
annual installments, the first of which shall be paid on the date of delivery of
Share certificates pursuant to Section 7(c) (but in no event earlier than 30
days after receipt by the Company of the Purchase Request); provided, however,
that the Committee in its sole discretion may accelerate said installment
payments to one or more earlier dates. No interest shall be due or payable on
any installment of the purchase price.
(b) On or after April 1, 2011, if an IPO has not theretofore
occurred, the Company shall have the continuing right and option, but not the
obligation, to purchase any Shares acquired under an Option, at the purchase
price determined under Section 7(c). The notice of exercise by the Company of
this right and option shall state the place, date and time for consummation of
the purchase, which shall be not less than 10 nor more than 30 days after the
date of such notice. The Company may assign its right and option under this
Section 7(b), in whole or in part, to any other person designated by it.
(c) The per share purchase price for Shares acquired under this
Section 7 shall be the Appraised Company Value as at the Applicable Valuation
Date, as defined below, divided by the total number of shares of capital stock
of the Company which are issued and outstanding of record on the date on which
the Shares are acquired by the Company, with all outstanding securities
(including all options and warrants and convertible stock) of the Company which
are convertible into or exercisable for capital stock of the Company being
deemed fully converted or exercised to the extent exercise or conversion is then
permitted thereunder. The purchase price for Shares acquired under this Section
7 shall be paid only upon delivery to the Company of the certificates for the
Shares to be sold together with stock assignments therefor duly executed in
blank with guaranteed signatures, in form and substance satisfactory to the
Company, clear of all liens, claims, restrictions and encumbrances other than
those imposed hereunder or under applicable securities laws.
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(d) The "Applicable Valuation Date" shall be the latest Valuation
Date preceding the date the Purchase Request is delivered to the Company. If no
IPO has theretofore occurred, the Committee shall determine an Appraised Company
Value as at December 31 of each year beginning with 2005, each such
determination to be competed no later than March 31 of the following year unless
the Committee otherwise consents.
8. Adjustments Upon Certain Events
Notwithstanding any other provisions in this Agreement to the
contrary, the following provisions shall apply to the Award granted under this
Agreement:
(a) Generally. In the event of any change in the outstanding Shares
after the date hereof by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares of other corporate exchange, or any distribution to stockholders of
Shares other than regular cash dividends, or any significant equity investment
in the Company prior to the occurrence of an IPO or Controlling Interest Sale,
the Committee in its sole discretion and without liability to any person may
make such substitution or adjustment, if any, as it deems to be equitable, as to
(i) the number or kind of Shares or other securities to be issued or reserved
for issuance pursuant to this Agreement, (ii) the Option Price and/or (iii) any
other affected terms of the Award.
(b) Change in Control. Except as otherwise provided in this
Agreement, in the event of a Change in Control, the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount
in exchange for the cancellation of an Award and/or (iii) the requiring of the
issuance of substitute Awards that will substantially preserve the value, rights
and benefits of any affected Award previously granted hereunder) as of the date
of the consummation of the Change in Control.
9. No Right to Employment
The granting of an Award under this Agreement shall impose no
obligation on the Company or any Subsidiary to continue the employment of the
Participant and shall not lessen or affect the Company's or Subsidiary's right
to terminate the employment of such Participant.
10. Successors and Assigns
This Agreement shall be binding on all successors and assigns of the
Company and the Participant, including without limitation, the estate of such
Participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Participant's
creditors.
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11. Nontransferability of Award.
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution. During the
lifetime of the Participant, an Award shall be exercisable only by such
Participant. An Award exercisable after the death of a Participant may be
exercised by the legatees, personal representatives or distributees of the
Participant. Notwithstanding anything to the contrary herein, the Committee, in
its sole discretion, shall have the authority to waive this Section 11 (or any
part thereof) to the extent that this Section 11 (or any part thereof) is not
required under the rules promulgated under any law, rule or regulation
applicable to the Company.
12. Amendments or Termination
The Board may amend this Agreement, but no amendment shall be made
which, without the consent of the Participant, would impair any of the rights or
obligations under any Award theretofore granted to the Participant under this
Agreement; provided, however, that the Committee may amend this Agreement in
such a manner as it deems necessary to meet the requirements of the Code or
other applicable laws. Notwithstanding anything to the contrary herein, the
Board may not amend, alter or discontinue the provisions relating to Section
8(b) of this Agreement after the occurrence of a Change in Control.
13. International Participants
With respect to Participants who reside or work outside the United
States of America and who are not (and who are not expected to be) "covered
employees" within the meaning of Section 162(m) of the Code, the Committee may,
in its sole discretion, amend the terms of this Agreement with respect to the
Participant in order to conform such terms with the requirements of local law.
14. Choice of Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed in the State of New York.
15. Additional Optionholder Agreements
Participant acknowledges and agrees that neither by entering into
this Agreement, exercising an Option nor acquiring Shares, is he or she entering
into or forming a partnership relationship, and that neither the Company nor any
shareholder of it shall owe to Participant the same or substantially the same
fiduciary duties that partners owe to one another, even if the Company is found
to be a "close corporation". Accordingly, Participant acknowledges and agrees
that, without limitation, he or she shall not, solely by virtue of acquisition
or ownership of Shares, be entitled, among other things, (i) to employment by
the Company; (ii) to serve as a director or officer of the Company; (iii) to
receive dividends or other distributions on Shares, except as the same may be
declared from time to time by the directors in their sole discretion; (iv) to
have Shares redeemed by the Company when Shares of other shareholders are being
10
<PAGE>
redeemed; (v) to participate in or have preemptive rights with respect to any
issue of capital stock, or rights to acquire capital stock of the Company,
unless the directors shall have determined in their discretion to make such
rights available; or (vi) to sell Shares when another shareholder is selling
Shares.
Participant further acknowledges, agrees and consents that, before
and after any Shares are acquired under the Option, the Company may enter into
or refrain from entering into arrangements, agreements or transactions with
Cognizant or other shareholders of the Company and other entities owned,
directly or indirectly, in whole or in part, by Cognizant or other shareholders
of the Company, on terms less favorable than could be obtained from unaffiliated
third parties (including, without limitation, making loans and advances at below
market interest rates or on an interest free basis, purchasing goods and
services at above market rates, and providing goods and services at below market
rates or free of charge) and that the Company may make distributions of
securities, cash or property to or redeem securities of the Company owned by
such entities without offering same to minority stockholders and that the
Company may participate in, conduct or consummate (or refrain from so doing)
transactions with third parties or corporate or other recapitalizations,
reorganizations and restructurings that are or could be disadvantageous to or
discriminatory against minority shareholders of the Company. The Participant
shall not, as a shareholder or in any other capacity, object to or seek to
prevent or to delay any such transaction, arrangement or agreement to be entered
into or performed by the Company, or to require the Company to enter into or
perform any such transactions, agreements or arrangements or seek any legal or
other redress or damages on account thereof.
In the event Participant, or his or her estate or legal
representative, shall (i) bring, commence or join in any suit, action or other
proceeding against the Committee, the Company or any of the Company's affiliates
or Subsidiaries, or any of their officers or directors, (a) alleging, alone or
with other allegations or claims, that any action, omission to act, decision, or
interpretation taken or made with respect to, under or affecting any term,
provision or condition of this Agreement or any Award granted under this
Agreement was not permitted or performed correctly under the terms of this
Agreement or any Award or that any such action, omission to act, decision or
interpretation was illegal or wrongful or (b) challenging, contesting or seeking
to prevent, delay or require any action taken or omitted to be taken, or any
action to be taken or to be omitted to be taken, under this Agreement by the
Company or the Committee, (in any case, a "Participant Claim") and (ii) not
prevail on all counts in such suit, action or other proceeding by final decision
of a court of competent jurisdiction in favor of the Participant, or his or her
estate or legal representative, which is no longer subject to any appeal or
further review, then the Option shall, unless the Committee otherwise consents,
immediately terminate and be null and void. Notwithstanding any other term or
provision of this Agreement during the pendency of any Participant Claim the
Option may not be exercised. If the Option terminates pursuant to its terms
during the pendency of a Participant Claim, Participant, and his or her estate
and legal representatives, shall be limited to receive and be paid only monetary
damages if and to the extent awarded if they prevail in any Participant Claim,
and in no event shall they be granted or receive any Share unless the Company
otherwise consents.
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Participant shall take no actions to limit or impair the
effectiveness of the provisions of this Agreement and if Participant shall take
or commence any such actions, the Option shall immediately terminate and any
such action shall be deemed a breach of this Agreement.
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By your signature and the Company's signature below, you and the
Company agree that these options are granted under and governed by the terms and
conditions of this Agreement:
Cognizant Technology Solutions Corporation Date
- ------------------------------------------ --------------------------------
Wijeyaraj Mahadeva Date
- ------------------------------------------ --------------------------------
<PAGE>
Exhibit 10.5
COGNIZANT
[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
- --------------------------------------------------------------------------------
1700 Broadway New York NY 10019
[FORM OF]
SERVICE AGREEMENT
This Agreement dated as of __________is between _______________
("CUSTOMER") as customer, and Cognizant Technology Solutions Corporation
("CTS"), as service provider, and it defines the agreement between CUSTOMER
and CTS for the services ("Services") that will be rendered by CTS for
CUSTOMER pursuant hereto. The details of Services to be provided by CTS to
CUSTOMER are outlined in the enclosed Work Schedule or Schedules which are
attached hereto and made a part hereof.
1. CERTAIN DEFINITIONS
a) "Project" shall mean the Services and Deliverables to be provided by
CTS under a specific Work Schedule.
b) "Work Schedule" shall mean an attachment to this Agreement which
references this Agreement and defines, with respect to a specific
Project, the scope, Services, Deliverables, CTS responsibilities,
CUSTOMER responsibilities, acceptance criteria, fees and payment
schedule, and any modifications to this Agreement. Work Schedules
shall be signed by both parties and shall be incorporated in and made
part of this Agreement. In the event of a conflict between a Work
Schedule and this Agreement, the Work Schedule shall prevail.
c) "Deliverables" are the outputs of Services to be supplied under any
Work Schedule, and shall include but are not limited to, all software
and written material, including programs, tapes, listings, and other
programming documentation.
2. OWNERSHIP OF SERVICES AND DELIVERABLES
a) CTS agrees and acknowledges that all ownership, title, intellectual
property and other proprietary rights (including, without limitation,
all patents, copyrights, trademarks and trade secrets) (collectively,
"Proprietary Rights") in any Services or Deliverables provided to or
developed for CUSTOMER by CTS or any Representative (as defined below)
of CTS, whether such Proprietary Rights arise under the laws of India,
USA or any other country in the world, shall automatically vest in
CUSTOMER and CTS hereby assigns all such Proprietary Rights in such
Services and Deliverables to CUSTOMER, except for those Services and
Deliverables listed on any Work Schedule, which shall remain the
property of CTS.
b) CTS agrees that it shall not, either directly or through its
Representatives, claim any Proprietary Rights with respect to any
Services or Deliverables provided to CUSTOMER and that any work
performed by CTS or its Representatives for CUSTOMER shall be
considered a "Work for Hire" and CUSTOMER shall own all rights
comprised in any copyright obtained or obtainable by CTS with respect
to such Services or Deliverables.
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[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
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c) Notwithstanding the foregoing, Proprietary Rights, Deliverables and
Services shall not include any of CTS's methodologies for managing
Year 2000 projects or CTS's or third parties' software tools,
including but not limited to (a) Impact Analyzer and Viewer, (b) Code
Changers and (c) Data Migration Program Generator, nor any new or
improved methodologies or tools developed by CTS during the course of
any Project hereunder which are not explicitly included within the
Deliverables defined in any Work Schedule hereunder (all such
methodologies and tools, collectively, the "Tools"). The Tools are
proprietary to CTS or used under license from third parties and shall
not be considered "Works for Hire." CUSTOMER further acknowledges that
CTS shall be free to use the Residuals relating to Services or
Deliverables for any purpose, including use in the development and
enhancement of tools to support delivery of its services, and that
such Residuals shall not constitute Proprietary Rights or "Works for
Hire" and will not be the property of CUSTOMER. The term "Residuals"
as used herein means ideas and concepts related to Services or
Deliverables in non-tangible form which are mentally retained by
employees of CTS.
d) In the event of termination of this Agreement or any Work Schedule by
reason of a breach or default of CTS, CTS hereby grants to CUSTOMER,
effective in such event, a royalty-free, irrevocable, non-exclusive
paid-up license to use and modify the Tools for the purpose of
completing any Project and undertaking any additional Year 2000
remediation projects for CUSTOMER and shall deliver to CUSTOMER copies
of all program code, specifications, documentation and other
information as may be necessary to effectuate such license, subject,
however, to any restrictions imposed on CTS by third-party vendors
with respect to embedded software, licensed software and any other
restrictions or limitations to which CTS is subject; provided,
however, that CUSTOMER may utilize such license only for its internal
use as aforesaid and may not sublicense or remarket the licensed Tools
to any third party.
3. CONFIDENTIALITY
a) CTS shall, and shall cause each of its employees, officers, directors,
agents and consultants (collectively, "Representatives") who are
involved in the CUSTOMER relationship to, keep all Confidential
Information of CUSTOMER confidential, not to disclose it to any third
party without the prior written consent of CUSTOMER, and not to use it
for any purpose other than that for which it was provided to CTS.
b) CTS shall only disclose Confidential Information to those of its
Representatives who have a need to know the same for legitimate
business purposes.
c) CTS shall make only such notes, sketches, drawings, photocopies or
other written or photographic records of or relating to the
Confidential Information (collectively, "Records") as are reasonably
necessary to provide the Services or Deliverables and all such Records
shall belong to CUSTOMER and such Records shall be deemed to be
Confidential Information for purposes of this Agreement. All
Confidential Information shall be handed over to CUSTOMER promptly
upon the written request of CUSTOMER.
d) In the event that CTS or its Representatives become legally compelled
to disclose any Confidential Information, CTS shall, if feasible, give
sufficient notice to CUSTOMER to permit CUSTOMER to seek a protective
order or other appropriate relief. If such order or other relief is
not obtained, CTS shall only make disclosure of such portion of the
Confidential Information that is legally required and no more.
e) CTS confirms and acknowledges that any disclosure of Confidential
Information by CUSTOMER to CTS shall not be construed as granting in
any manner any license or other right to use such Confidential
Information other than for the sole purpose for which it was provided
to CTS.
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[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
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f) CUSTOMER and its Representatives similarly agree to maintain
information regarding CTS's processes, tools, methodologies and any
other Confidential Information of CTS strictly confidential, and the
foregoing paragraphs (a) - (e) shall apply equally to CUSTOMER's
obligations to CTS.
g) "Confidential Information" hereunder includes all information which is
considered proprietary to CTS or CUSTOMER, as the case may be,
including but not limited to information or materials related to the
business affairs of the respective party, customer information, design
programs and documentation of data processing applications systems and
software, and the Services and Deliverables developed as part of this
Agreement. Confidential Information shall not include, however, any
information which (i) is generally available to the public, or becomes
available to the public other than as a result of an improper
disclosure hereunder, (ii) was previously known to the party obligated
hereunder, (iii) becomes available to the obligated party on a
non-confidential basis from a source other than the disclosing party,
provided the source is not known by the obligated party to be in
violation of a confidentiality obligation to the disclosing party, or
(iv) was independently developed by the obligated party without
reference to or reliance on Confidential Information of the other
party.
4. DOCUMENTATION
As an integral part of any Project as set forth in the Work Schedule, CTS
shall be required to provide detailed documentation describing the content,
purpose, methods and operation of any programs and procedures developed by
CTS in connection with such Project.
5. PERSONNEL; NON-SOLICITATION
a) All persons assigned to any Project will be employees of CTS or its
affiliated companies, provided that CTS may retain independent
contractors with the prior written approval of CUSTOMER. CTS shall
assign a dedicated group of qualified programmers or other personnel,
subject to CUSTOMER's approval, whose primary responsibility will be
to provide Deliverables for the Project as set forth in the relevant
Work Schedule. CTS will submit to CUSTOMER for approval each CTS
employee at or above the level of Assistant Project Manager to be
assigned to the Project ("Approvable Employees"), together with a
summary of the Approvable Employee's education, background and
experience. If CUSTOMER does not reject the proposed Approvable
Employee within 15 days after the request for approval, CUSTOMER will
be deemed to have approved the Approvable Employee for the Project. In
the event that CUSTOMER is unsatisfied with the qualifications of any
such person, CTS will select a different individual who reasonably
meets CUSTOMER's requirements. Notwithstanding CUSTOMER's prior
approval of a CTS Approvable Employee, if CUSTOMER notifies CTS that
the Approvable Employee does not adequately perform assigned
responsibilities, lacks the abilities or skills (including
interpersonal skills) needed to fulfill the tasks relating to the
Project, fails to comply with company policies and procedures for
maintaining security of CUSTOMER's computer systems, or is otherwise
unsatisfactory to CUSTOMER, CTS shall take such necessary actions to
substantially improve such person's conduct or performance, or at
CUSTOMER's request and at no cost to CUSTOMER, CTS shall replace such
person with an individual who reasonably meets CUSTOMER's
requirements.
b) CTS reserves the right to replace its employees assigned to CUSTOMER
when CTS deems necessary, provided that (I) prior to replacing any
Approvable Employee, CTS shall give CUSTOMER not less than 10 days
prior written notice and shall discuss with CUSTOMER the reasons for
the replacement, (ii). any CTS employee
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COGNIZANT
[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
- --------------------------------------------------------------------------------
substituted for an Approvable Employee shall meet the qualifications
set forth in the preceding paragraph (a),. (iii) if CTS removes a
Project Manager from a Project for reassignment to another client, CTS
shall provide a replacement Project Manager who will start on the
Project prior to the end date of the replaced individual and CTS will
not charge CUSTOMER for the services provided by the replacement
Project Manager for a reasonable overlap period not exceeding one
week, and (iv) CTS agrees that it may not divert employees from any
Project under this Agreement solely in the interest of attracting or
better servicing other clients of CTS only if such diversion would not
materially delay or otherwise have a material adverse effect on the
completion of any Project hereunder.
c) CTS represents that all employees, agents and consultants engaged in
work on any Project under this Agreement will have executed agreements
with CTS sufficient to permit CTS to carry out its obligations under
Sections 2 and 3 hereof.
d) CUSTOMER and CTS agree that they will not employ as a staff or
contractor, any person working for the other, for one year from the
date such person ceases, while this agreement is in effect, to be an
employee of CUSTOMER or CTS, as the case may be; provided, however,
that CUSTOMER shall not be bound by this prohibition in the event of a
termination of the Agreement by reason of a breach or default by CTS.
6. PROJECT MANAGEMENT
a) Each party will designate in the Work Schedule at least one individual
to serve as its Project Manager. Both parties may from time to time
replace their Project Managers, provided such replacement does not
delay the completion of the Project and provided that each new Project
Manager shall be subject to the reasonable approval of the other
party. If CTS's Project Manager is unable to perform his or her duties
for any reason, CTS will use its best efforts to replace the Project
Manager within 5 business days. The Project Managers will manage the
Project and be the primary contacts for notices and communications
hereunder. CTS will deliver periodic status reports to CUSTOMER's
Project Manager as more specifically set out in the Work Schedule,
identifying, among other things, material issues that have been
resolved or are to be resolved, along with a projected date of
resolution. On a mutually agreed upon time and schedule, until final
acceptance as defined in the Work Schedule, the Project Managers, and
other appropriate personnel, will meet regularly to discuss the
progress of the Project and any outstanding issues to resolve, and
make reasonable efforts to resolve any problems in performing the
Project.
b) Either party, through its Project Manager, may propose changes to the
Work Schedule, which shall be subject to agreement of the other party.
With respect to any change requested by CUSTOMER, CTS will notify
CUSTOMER's Project Manager in writing no later than 10 days after the
change request is submitted, how the change would impact the Project,
including but not limited to changes in CTS or CUSTOMER staffing
requirements or other resources, effects on the quality or nature of
the Deliverables, effects on the Project schedule, adjustments to
CTS's professional charges, or any other effects on the Work Schedule.
If CUSTOMER, in its sole discretion, authorizes the change and if the
change is accepted by CTS, the change shall be implemented; provided
that CTS shall use its best efforts to accept any changes so
authorized by CUSTOMER that relate to acceleration or deceleration of
the time schedule of the Project.
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COGNIZANT
[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
- --------------------------------------------------------------------------------
7. PRICING
Fees for Year 2000 remediation Projects charged on a time-and-materials
basis shall be as set forth on Exhibit 1 hereto. Fees for Year 2000
remediation Projects charged on a line-of-code basis and fees for non-Year
2000 Projects shall be set forth in the respective Work Schedule.
8. PAYMENT TERMS
a) CTS shall invoice CUSTOMER every month for the services rendered. The
invoice payment terms are net thirty days from the invoice date,
assuming the services or goods have been satisfactorily delivered to
CUSTOMER. Each invoice shall set forth the supporting details listed
in Exhibit 1 hereto.
b) CUSTOMER shall perform any tax withholding required by any state or
the U.S. government. This withholding shall be deducted from the
payments made to CTS by the CUSTOMER. CUSTOMER shall not be liable
for reimbursing CTS for such withholding. This provision shall not
apply to state sales or use tax, which CUSTOMER shall be responsible
for paying. CTS shall make clear on its invoices to the CUSTOMER the
amount billed for any services provided in any state and the amount
billed for any services provided outside the United States.
9. VISA/WORK PERMITS
In the event it is necessary for CTS to obtain visas or work permits for
CTS employees, the CUSTOMER will provide documentation indicating the
nature and location of the work to be performed, and its necessity, or
other documentation as may be reasonably required and related to this
Agreement, and will post such notices as are required by law. CTS shall not
be liable or deemed in default hereunder for any delay or failure in
performance under this Agreement resulting from (i) failure of CUSTOMER to
comply with the foregoing sentence or (ii) changes in government visa or
immigration regulations or requirements beyond CTS's control, either of
which renders CTS unable to supply personnel without unreasonable
additional expense or regulatory compliance efforts.
10. WARRANTIES
a) CTS warrants and represents that the Services and Deliverables
provided or developed by CTS hereunder shall not infringe upon the
patents, patent applications, trade secrets, copyrights, trademarks or
other Proprietary Rights of CTS or any third party and that CUSTOMER
shall have full and unencumbered rights thereto.
b) CTS warrants that any Services provided shall be done in a workmanlike
manner by competent personnel, knowledgeable in the Services and
Deliverables thereunder. CTS will follow quality assurance plans and
standards based on IEEE standards and process certified by KPMG's ISO
9001 certification for CTS Total Quality Management.
c) CTS will supply a sufficient number of suitably qualified, trained and
experienced personnel to meet the requirements of the Project,
including the project deadlines.
d) In the event of breach of any warranty hereunder, CTS shall remedy
such breach at its own expense within a reasonable time after CUSTOMER
has given CTS written notice thereof.
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COGNIZANT
[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
- --------------------------------------------------------------------------------
e) Notwithstanding any other provisions of this Agreement, (i) CTS shall
not be liable to CUSTOMER for any incidental or consequential damages,
including, without limitation, the loss of sales or revenues, loss of
goodwill, loss of business information or loss of profits, even if
advised of the possibility of such damages or loss, and (ii) CTS's
aggregate liability, if any, for any or all losses or injuries to
CUSTOMER arising out of or under any Work Schedulethis Agreement
shall not exceed the amount paid by CUSTOMER under such Work Schedule
this Agreement.
CTS MAKES NO OTHER WARRANTIES OF ANY KIND OR NATURE, WHETHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR WARRANTIES OF UNINTERRUPTED OR ERROR-FREE
PERFORMANCE OF COMPUTER SYSTEMS, APPLICATIONS, SOFTWARE, HARDWARE OR EQUIPMENT.
11. ENTIRE AGREEMENT
By executing a Work Schedule with respect to a Project, CTS and CUSTOMER
acknowledge that there are no agreements or understandings written or oral,
between them with respect to the Project other than as set forth herein or
in the Work Schedules and that this Agreement and such Work Schedule
contain the entire agreement between CTS and CUSTOMER with respect to such
Project. Neither this Agreement nor any Work Schedule may be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is
sought. In the event that CTS provides Services or Deliverables to CUSTOMER
without a Work Schedule being executed with respect thereto, CTS agrees
that all of the terms and conditions of this Agreement shall apply with
respect to the provision of such Services or Deliverables to the extent
that they are not in conflict with any other written agreement governing
the provision of such Services and Deliverables.
12. TERM; CANCELLATION OF A PROJECT; TERMINATION
a) The term of this Agreement shall continue indefinitely until
terminated as provided herein.
b) CUSTOMER may cancel a Project before completion at any time and for
any reason without incurring liability except as set forth below by
providing thirty (30) days' written notice to CTS. In the event that a
Project is canceled before its completion, CUSTOMER shall pay CTS for
its Services and Deliverables provided (whether or not complete) until
the date of cancellation plus any reasonable wind-down expenses
actually incurred by CTS within 30 days thereafter (including, without
limitation, any reasonable expenses incurred in reallocating employees
of CTS to other projects).
c) CUSTOMER may terminate this Agreement or any Work Schedule without
incurring liability in the event of a Default by or relating to CTS. A
Default will be deemed to have occurred if: (i) CTS fails to comply
with a material term of a Work Schedule, including failing to timely
deliver any of the Deliverables, or to complete the Project in
accordance with the Project schedule set forth in the Work Schedule,
(ii) CTS gives CUSTOMER notice to terminate or terminates the
Agreement or a Work Schedule, or ceases work on an ongoing Project,
before CTS completes work on a Project under a Work Schedule to
CUSTOMER's satisfaction, (iii) CTS fails, neglects or refuses to duly
observe or perform any other material obligation under the Agreement
or a Work
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[LOGO] TECHNOLOGY
SOLUTIONS
A Cognizant Company
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Schedule in a timely manner and fails to cure such default within 20
days of receipt of a written notice of non-compliance, or (iv) CTS
becomes insolvent, generally fails to pay its debts as they come due,
enters into receivership or any arrangement or composition with
creditors generally, is the subject of a voluntary or involuntary
petition or other action or proceeding for bankruptcy or
reorganization or dissolution or winding-up, or makes an assignment
for the benefit of creditors. In addition to CUSTOMER's right of
termination in any such event, CUSTOMER shall have all other rights
provided under this Agreement or by law, including, without
limitation, those set forth in Sections 2(d) and 5(d) hereof.
13. NO WAIVER
No omission or delay by CTS or CUSTOMER at any time to enforce any right or
remedy reserved to it, or to require performance of any other terms,
covenants or provisions hereof or of a Work Schedule shall be a waiver of
any such right or remedy.
14. SURVIVAL OF OBLIGATIONS
All agreements, representations and warranties contained in this Agreement
and any Work Schedule attached hereto or in any document delivered pursuant
hereto or thereto shall be for the benefit of CTS or CUSTOMER, as the case
may be, and their respective successors and permitted assigns and shall
survive the termination of this Agreement and any Work Schedule.
15. NOTICES
All notices, requests, demands, waivers and other communications required
or permitted to be given hereunder or under any Work Schedule shall be
given in writing and shall not only be deemed received upon actual receipt
by CTS or CUSTOMER, as the case may be, and shall be sent to the person and
to the address or fax number for such party set forth below or to such
changed person, address or fax number as may be subsequently submitted by
written notice of either party. Telecopy and courier service are
permissible non-exclusive means of delivery.
16. SEVERABILITY
In the event any one or more of the provisions of this Agreement and/or any
Work Schedule shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Agreement and/or any such
Work Schedule shall be unimpaired, and the invalid, illegal or
unenforceable provision shall be replaced by a mutually acceptable valid,
legal and enforceable provision which comes closest to the intention of the
parties underlying the invalid, illegal or unenforceable provision.
17. AMENDMENTS
Any changes to this Agreement or any Work Schedule must be reviewed and
agreed upon in writing by both parties.
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[LOGO] TECHNOLOGY
SOLUTIONS
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18. GOVERNING LAW
This Agreement shall be construed in accordance with and governed for all
purposes by the laws of New York for all tasks to be performed entirely in
New York .
19. INSURANCE; COMPLIANCE WITH LAWS
a) CTS shall maintain, during the term of this Agreement, insurance
covering general liability, bodily injury, and property damage. CTS
shall provide written documentation to the CUSTOMER that indicates the
amounts of said insurance coverages maintained by CTS. In addition,
CTS shall maintain workers' compensation insurance as required by all
applicable laws.
b) The Services or Deliverables shall not be provided in violation of any
U.S. or foreign law, treaty, rule or regulation, and CTS shall have
obtained all permits, visas and other materials necessary to comply
with such laws, treaties, rules and regulations.
20. ARBITRATION
Any controversy or dispute arising out of or with respect to the Agreement
or the Services to be provided under it shall be decided solely by
arbitration held in New York, New York , in accordance with the commercial
arbitration rules of the American Arbitration Association and the laws of
the State of New York, provided the panel of arbitrators to be selected
shall all be persons engaged primarily in businesses associated with the
design, manufacture, sale and service of high-technology equipment and
systems. The arbitrators shall have all the powers of a New York Court;
their award may include, at their discretion, reasonable attorney's fees
and costs. Judgment upon award may be entered in any court having
jurisdiction.
21. ASSIGNMENT
This Agreement shall not be assignable by either party without prior
written consent of the other party, which shall not be unreasonably
withheld; provided, however, that CTS may assign its rights and obligations
under this Agreement to any entity controlling, controlled by, or under
common control with, CTS, provided that no such assignment shall relieve
CTS of its obligations hereunder, and CUSTOMER may assign its rights and
obligations under this Agreement to any entity controlling, controlled by,
or under common control with, CUSTOMER, provided that such entity agrees in
writing to assume CUSTOMER's obligations hereunder.
22. INDEPENDENT CONTRACTOR STATUS
CTS and the CUSTOMER agree and understand that CTS is performing under this
Agreement as an independent contractor for the CUSTOMER, and neither CTS
nor any of its employees, agents or subcontractors are employees or agents
or the CUSTOMER. Accordingly CTS, its employees, agents and subcontractors
have no authority to make any contract or presentation to create any
obligation or liability whatsoever on behalf of the CUSTOMER. Nothing
herein contained shall be construed as reserving to the CUSTOMER any right
to control CTS with respect to CTS's conduct in the performance of this
Agreement or the manner in which the Services herein are performed. CTS,
its employees,
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A Cognizant Company
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agents or subcontractors shall not be entitled to any benefits accorded to
CUSTOMER's employees, including, without limitation, workers' compensation,
disability insurance, vacation or sick pay.
23. INDEMNIFICATION
a) CTS shall indemnify and save harmless the CUSTOMER, its agents and
employees (individually a "CUSTOMER Indemnitee", and collectively
"CUSTOMER Indemnitees") from and against any and all loss, damage,
injury or liability to, or death of, any natural person, including any
employee, subcontractor, agent or invitee of CTS, as well as
attorneys' fees and expenses relating thereto, arising out of the
services performed by, or any other act of, CTS under this Agreement,
unless such loss, damage, injury, liability, death or claim is the
result of the negligence or willful misconduct of a CUSTOMER
Indemnitee. The CUSTOMER's right to indemnification shall be
independent of the CUSTOMER's rights with respect to insurance as
provided in this Agreement, except that any claim by CUSTOMER
hereunder shall be reduced by any recovery under such insurance.
b) CUSTOMER shall indemnify and save harmless CTS, its agents and
employees (individually a "CTS Indemnitee", and collectively "CTS
Indemnitees") from and against any and all loss, damage, injury or
liability to, or death of, any natural person, including any employee,
subcontractor, agent or invitee of CUSTOMER or CTS, as well as
attorneys' fees and expenses relating thereto, arising out of or
relating to the services performed under this Agreement or by reason
of CTS personnel's presence on CUSTOMER's premises, unless such loss,
damage, injury, liability, death or claim is the result of the
negligence or willful misconduct of a CTS Indemnitee.
24. PUBLICITY
CTS may refer to CUSTOMER as a customer reference in business dealings
(including written sales materials) with potential customers and financial
concerns, and CTS and its parent companies may refer to CUSTOMER as a
customer in public securities law or other government filings. At the
request of CTS, CUSTOMER and CTS will prepare a joint press release
announcing the execution and general subject matter of this Agreement,
provided that the financial terms of this Agreement shall not be disclosed.
Except as provided above, neither party will refer to or disclose the terms
of this Agreement to any third party or use the name of the other party in
any form of publicity or advertising, either directly or indirectly,
without the prior written consent of the other party.
SIGNATORIES
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED
REPRESENTATIVES TO SET THEIR HAND AS OF THE DATE FIRST ABOVE WRITTEN.
CUSTOMER CTS
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Signature : Signature :
9
<PAGE>
Exhibit 10.6
LICENSE AGREEMENT
This License Agreement ("Agreement"), dated as of May 15, 1998, between
Cognizant Corporation, a Delaware corporation ("Cognizant"), and Cognizant
Technology Solutions Corporation, a Delaware corporation (the "Company").
WHEREAS, the Company is a subsidiary of Cognizant;
WHEREAS, the Company expects to effect a public offering of its Class A
Common Stock (the "IPO");
WHEREAS, following completion of the IPO, Cognizant will continue to
control the Company and will continue to license the Cognizant name and certain
related trademarks, trade names and service marks to the Company as provided
herein; and
WHEREAS, Cognizant intends to reorganize (the "Reorganization") by
splitting the Nielsen Media Research business from the rest of its businesses,
creating two publicly held companies, IMS Health Incorporated ("IMS HEALTH") and
Nielsen Media Research and, in connection therewith, the capital stock of the
Company theretofore held by Cognizant will thereafter be held by IMS HEALTH;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, Cognizant and the Company hereby agree
as follows:
ARTICLE I
LICENSE
1.1 GRANT OF LICENSE.
Cognizant hereby grants to the Company a non-exclusive and non-transferable
license (which is revocable under the circumstances set forth below) (the
"License") to use the name "Cognizant" and the trademarks, trade names and
service marks specified in Exhibit A hereto, as such Exhibit A may be amended
from time to time in accordance with Section 1.3(b) (such trademarks, trade
names and service marks hereinafter collectively referred to as the "Marks"),
solely for the purpose of identifying the Company and identifying and
advertising the Company's software development and maintenance services (the
"Scope of the License"). Notwithstanding the foregoing, the Company shall only
use the Marks in connection with operations, services and products of a quality
specified and approved by Cognizant in accordance with Section 1.7 hereof. The
Company shall have no right to transfer, assign or sublicense its rights with
regard to the License or authorize any person to use the Marks without
Cognizant's prior written consent and any such purported transfer, assignment or
sublicense without Cognizant's prior written consent shall be null and void;
PROVIDED, HOWEVER, that any subsidiary (as hereinafter defined) of the Company
that agrees in writing to be bound by the terms of this Agreement (a "Designated
Subsidiary") may use the Marks in accordance with the terms of this Agreement.
Notwithstanding the foregoing, in the event that a Designated Subsidiary ceases
to be a
<PAGE>
subsidiary of the Company, the License shall automatically be deemed amended
(without any action by the parties hereto) to no longer license hereunder the
Marks for use by such Designated Subsidiary, and such Designated Subsidiary
shall, and the Company shall use commercially reasonable efforts to cause such
Designated Subsidiary to, cease as promptly as commercially reasonably
practicable, but no later than 10 days following such termination, all use of
the Marks in connection with all of such Designated Subsidiary's operations,
products and services and all rights of such Designated Subsidiary with respect
to the Marks shall revert automatically to Cognizant. The Company and each
Designated Subsidiary shall execute all additional documents that Cognizant may
reasonably request, both prior and subsequent to the expiration or earlier
termination of the License, in order to perfect, maintain, defend or terminate
any right of Cognizant in the Marks in any country of the world, as determined
by Cognizant in its sole discretion. As used herein, "subsidiary" shall mean
any corporation, partnership or other entity of which another entity (a) owns,
directly or indirectly, ownership interests sufficient to elect a majority of
the Board of Directors (or persons performing similar functions) (irrespective
of whether at the time any other class or classes of ownership interests of such
corporation, partnership or other entity shall or might have such voting power
upon the occurrence of any contingency) or (b) is a general partner or an entity
performing similar functions (e.g., a trustee).
1.2 COGNIZANT GUIDELINES AND STANDARDS.
The Company agrees that all advertising, promotion and use of the Marks by
the Company and the Designated Subsidiaries shall in all material respects be
consistent with such guidelines and standards of Cognizant as may be issued from
time to time and disclosed to the Company, it being agreed that the Company will
use commercially reasonable efforts to comply as promptly as practicable with
any such guidelines. The Company agrees that, in the conduct of the business
and activities of the Company and the Designated Subsidiaries under the Marks,
it shall, and shall cause each Designated Subsidiary to, adhere to the
appropriate ethical, legal and business standards and the standards of Cognizant
pertaining to the Company's and the Designated Subsidiaries' businesses and
operations, and the Company shall, and shall cause each Designated Subsidiary
to, knowingly do nothing to bring disrepute to or in any manner damage the
goodwill symbolized by the Marks and shall make available to Cognizant any
requested information necessary for Cognizant to evaluate any such effect on
said goodwill.
1.3 COGNIZANT RETENTION OF OWNERSHIP.
(a) The Company acknowledges and agrees that Cognizant is the owner of all
of the right, title and interest in the Marks and all goodwill associated
therewith and acknowledges the validity of all trademark and service mark
registrations of Cognizant pertaining thereto. The Company agrees that it
shall, and shall cause each of its officers, directors and Designated
Subsidiaries to, uphold the goodwill inherent in the Marks and to assist
Cognizant in any commercially reasonable manner to protect the rights of
Cognizant therein. All use of the Marks by the Company and the Designated
Subsidiaries (including all past, present and future use), and the goodwill
generated thereby, shall inure to the benefit of Cognizant and shall not vest in
the Company or in any Designated Subsidiary, and, for purposes of trademark
registration, all use of the Marks by the Company and the Designated
Subsidiaries shall be deemed to have been made for the benefit of Cognizant.
The Company and the Designated Subsidiaries shall not, without
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the prior written consent of Cognizant, file or prosecute any trademark, trade
name and/or service mark application for any of the Marks or any trademarks or
service marks confusingly similar thereto.
(b) Additional trademarks, trade names and service marks may be added to
Exhibit A hereto if (i) the Company makes a written request therefor to such
effect, which request shall specify in reasonable detail a description or
drawing of such trademarks, trade names or service marks and a description of
the manner in which such trademarks, trade name or service marks are to be used,
(ii) the Company shall have provided to Cognizant all additional information
reasonably requested by Cognizant with respect thereto within 10 Business Days
(as hereinafter defined) after such request and (iii) within 30 Business Days
after its receipt of the written request referred to in clause (i) above,
Cognizant shall have consented in writing to the inclusion of such trademark,
trade name or service mark on Exhibit A hereto. If the conditions set forth in
clauses (i), (ii) and (iii) above are satisfied, Exhibit A shall be deemed to
have been amended to include such trademark, trade name or service marks (and
such trademark, trade name or service marks shall become part of the Marks) and
promptly thereafter the parties shall execute and deliver to each other a
written instrument acknowledging such amendment and attaching Exhibit A, as so
amended, thereto. The Company acknowledges that Cognizant shall be the
exclusive owner of all of the right, title and interest in all the marks that
become part of the Marks subsequent to the date hereof. As used herein, the
term "Business Day" shall mean any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
1.4 INFRINGEMENT.
The Company acknowledges that it is of the utmost importance to protect the
Marks against unfair competition, disparagement, infringement and dilution. The
Company shall as promptly as practicable notify Cognizant in writing of any
infringement of the Marks or of any act of unfair competition, disparagement or
dilution by third parties relating to the Marks, whenever such infringement or
act shall come to the Company's attention. Cognizant shall have the primary
responsibility promptly to initiate and pursue appropriate actions that, in the
reasonable judgment of Cognizant, are necessary to protect Cognizant's rights to
the Marks against such infringement or act; provided, however, that if, in the
reasonable judgment of the Company, Cognizant has not within 60 days after
written notification by the Company of such infringement or act, initiated and
pursued appropriate actions necessary to protect Cognizant's rights against such
infringement or act, the Company may commence a suit or other action in its name
that is necessary to protect the Marks with regard thereto. Cognizant and the
Company shall cooperate with each other to the fullest extent necessary to
maintain and/or implement the actions taken by the other under this Section 1.4,
including, without limitation, being joined as a necessary co-plaintiff in an
action brought hereunder. In any such action where the parties hereto are
co-plaintiffs, any recoveries, damages and costs (including attorneys' fees) or
proceeds of a settlement resulting from such action shall be equitably
apportioned between Cognizant and the Company.
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1.5 LICENSE FEE.
From the date hereof until the license terminates, the Company shall pay
Cognizant a fee of $1,000 per annum (the "License Fee"). The License Fee with
respect to the first 12-month period shall be payable in advance on the Closing
Date (as hereinafter defined) and the License Fee with respect to each 12-month
period thereafter shall be payable in advance on each successive anniversary of
the Closing Date; PROVIDED, HOWEVER, that if any such anniversary falls on a day
that is not a Business Day, the License Fee shall be paid on the next succeeding
Business Day. In the event the License is terminated prior to the end of any
such 12-month period, Cognizant shall refund to the Company the pro rata portion
of the License Fee relating to the remaining portion of such 12-month period.
1.6 TRANSACTIONS AFFECTING THE COMPANY, COGNIZANT AND THE MARKS.
The Company shall not, and shall cause each of the Designated Subsidiaries
not to, take any action with respect to the following matters without informing
Cognizant in advance in writing of all material facts relating thereto and
without obtaining Cognizant's prior written consent thereto: (a) the
commencement, settlement, defense of or consent to a judgment or decree or other
activity with respect to any suit, action or proceeding before any federal,
state, local or foreign court, agency, authority, instrumentality, arbitration
panel or other governmental body or authority involving the Marks, except as
otherwise provided in Section 1.4; (b) any changes in the Company's or the
Designated Subsidiaries' names, logos, signs, trademarks or other
identifications that might reasonably be expected to affect the appearance of,
the reputation of or the goodwill associated with the Marks or Cognizant; or (c)
any television, radio, newspaper, magazine or other advertising campaign or
strategy using the Marks or referring, directly or indirectly, to Cognizant.
1.7 TRADEMARK, TRADE NAME AND/OR SERVICE MARK USAGE MARKING REQUIREMENTS AND
QUALITY CONTROL.
(a) The Company shall, and shall cause the Designated Subsidiaries to,
apply the appropriate statutory notice (i.e., the letter "R" in a circle, unless
the mark is unregistered, in which case, "TM" or "SM", as appropriate) or such
other notice as may be required by foreign jurisdictions in connection with the
use of the Marks and will, to the extent reasonably practicable, disclose that
use of the Marks is pursuant to the License granted herein by Cognizant.The
quality standards applied to the products and services bearing the Marks, or
offered in connection with the Marks, shall be as specified by Cognizant from
time to time in writing. Notwithstanding any other provision in this Article I,
all operations, products and services offered in connection with the Marks by
the Company and any Designated Subsidiary shall conform in all material respects
to such quality standards. To assure that the applicable quality standards are
maintained, Cognizant shall have the right to periodically inspect and evaluate
the use of the Marks; PROVIDED that such inspections and evaluations shall be
conducted (i) during regular business hours and (ii) in such manner as will not
interfere with the conduct of business by the Company or any Designated
Subsidiary, as the case may be, in the ordinary
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course. Upon request, the Company shall deliver to Cognizant samples of use of
the Marks by the Company and the Designated Subsidiaries. If Cognizant
disapproves of the quality of such samples, the Company and/or the Designated
Subsidiaries shall have 30 days to cure the deficiency and neither the Company
nor the Designated Subsidiaries may use the Marks in such manner unless and
until such deficiency is cured to Cognizant's reasonable satisfaction.
1.8 TERM AND TERMINATION OF LICENSE.
(a) The License granted pursuant to this Article I shall commence on the
Closing Date and, subject to termination in accordance with paragraph (b) or (c)
of this Section 1.8, shall continue in full force and effect for a term of 10
years and thereafter shall automatically be renewed without any required action
or consent of Cognizant the Company for successive 10-year terms. As used
herein, "Closing Date" shall mean the date of the closing of the IPO.
(b) The License shall terminate, subject to earlier termination in
accordance with Section 1.8(c), upon the earlier to occur of (i) the date on
which the Company gives written notice to Cognizant of the complete termination
of the use of the Marks by the Company and the Designated Subsidiaries or (ii)
the date that is 365 days from the date on which Cognizant gives written notice
to the Company that it has elected to terminate the License; PROVIDED, HOWEVER,
that Cognizant may not give the Company any such notice until the end of the
ninth year of the initial term or any renewal term.
(c) Cognizant shall have the right to terminate the License upon written
notice to the Company at any time if Cognizant notifies the Company in writing
that, in the reasonable judgment of Cognizant, the Company or any Designated
Subsidiary has failed to comply with any term or provision of this Article I and
such noncompliance is not cured to the reasonable satisfaction of Cognizant
within 30 days after the Company's receipt of such notice.
1.9 EFFECT OF TERMINATION; FURTHER ASSURANCES; ATTORNEY-IN FACT.
(a) Upon the termination of the License (other than as contemplated by
Section 2.1): (i) all rights of the Company and the Designated Subsidiaries
with respect to the Marks shall revert automatically to Cognizant and the
Company shall, and shall cause each of the Designated Subsidiaries to,
discontinue all use of the Marks within 30 days after such termination; (ii) to
the extent requested by Cognizant, the Company shall, and shall cause each
Designated Subsidiary to, as promptly as reasonably practicable but not later
than 30 days, at its own expense take all legal and administrative steps that
may be required to protect Cognizant's ownership of and goodwill symbolized by
the Marks; and (iii) the Company shall, and shall cause each of its Designated
Subsidiaries to, amend its respective charter or other organizational documents
to change each such person's name to one that does not include the word
"Cognizant" or any Mark or any variant or derivative thereof subject to any
required regulatory approval, which the Company will use commercially reasonable
efforts to obtain or cause to be obtained.
(b) The Company hereby appoints Cognizant as its agent and
attorney-in-fact to execute on its behalf and in its name any documents that
Cognizant, in its good faith reasonable judgment, deems necessary in order to
terminate any rights of the Company or the Designated
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Subsidiaries in respect of the Marks, however created, anywhere in the world
under or pursuant to this Agreement. This provision shall not relieve the
Company of its obligation to, as promptly as reasonably practicable, execute any
such documents upon the request of Cognizant.
ARTICLE II
MISCELLANEOUS
2.1 EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective on the date of the initial closing of
the IPO.
2.2 TRANSFER OF MARKS.
In the event that the Reorganization is consummated, simultaneously
therewith, Cognizant shall convey, sell, transfer, assign and deliver to the
Company, for no additional consideration, on an "as is, where is" basis, forever
all of the right, title, interest and claims of Cognizant in, to, relating to
and arising under the Marks, including, without limitation, all registrations,
registration applications, renewals or extensions relating thereto and all
goodwill associated therewith (the "Transfer"), and, upon the Transfer, the
License and Article I of this Agreement shall terminate. In connection with the
Transfer, Cognizant shall deliver to the Company such deeds, bills of sale,
endorsements, assignments and other good and sufficient instruments of sale,
transfer, conveyance and assignment as shall be identified by the Company and as
shall be reasonably necessary to sell, transfer, convey and assign to the
Company title to the Marks. Cognizant shall, at any time after the Transfer,
upon the reasonable request of the Company and at the Company's expense, do,
execute, acknowledge, deliver and file, or shall cause to be done, executed,
acknowledged, delivered and filed, all such further acts, transfers,
conveyances, assignments or assurances as may reasonably be required for
selling, transferring, conveying and/or assigning to the Company, the Marks.
2.3 ASSIGNABILITY OF AGREEMENT.
Except (a) by operation of law, (b) in connection with the sale of all or
substantially all the assets of a party hereto or (c) in connection with the
Reorganization, this Agreement shall not be assignable, in whole or in part,
directly or indirectly by either party hereto without the prior written consent
of the other, and any attempt to assign any rights or obligations arising under
this Agreement without such consent shall be void; PROVIDED, HOWEVER, that the
provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by Cognizant and the Company and their respective successors and
permitted assigns, including, without limitation, IMS HEALTH.
2.4 FURTHER ASSURANCES.
Subject to the provisions hereof, each of the parties hereto shall make,
execute, acknowledge and deliver such other actions and documents as may be
reasonably required in order to effectuate the purposes of this Agreement, and
to comply with all applicable laws, regulations, orders and decrees, and obtain
all required consents and approvals and make all
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<PAGE>
required filings with any governmental agency, other regulatory or
administrative agency, commission or similar authority, as may be necessary or
desirable in connection herewith.
2.5 WAIVERS.
No failure or delay on the part of Cognizant or the Company in exercising
any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, or any abandonment or discontinuance of
steps to enforce such a right, preclude any other or further exercise thereof or
the exercise of any other right. No modification or waiver of any provision of
this Agreement nor consent to any departure by Cognizant or the Company
therefrom shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Any consent or waiver by the Company under
this Section 2.4 shall be approved by the Independent Directors (as hereinafter
defined). As used herein, the "Independent Directors" shall mean a majority of
the members of the Board of Directors of the Company that are not employed by or
otherwise affiliated with Cognizant, the Company (other than solely as a result
of being a director thereof) or any of their respective affiliates.
2.6 ENTIRE AGREEMENT; RULES OF CONSTRUCTION.
This Agreement contains the entire understanding of the parties with
respect to the transactions contemplated hereby. References in this Agreement
to any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include",
"includes" and "including" when used in this Agreement shall be deemed to be
followed by the phrase "without limitation." Unless the context otherwise
requires, the words "hereof", "hereby" and "herein" and words of similar meaning
when used in this Agreement refer to this Agreement in its entirety and not to
any particular Article, Section or provision of this Agreement.
2.7 AMENDMENTS.
This Agreement may be amended or supplemented only in a writing executed by
the parties (provided that, in the case of the Company, such amendment or
supplement shall require the approval of the Independent Directors).
2.8 NOTICES.
All notices, requests and other communications hereunder shall be in
writing and shall be given (i) by mail (postage prepaid, registered or certified
mail, return receipt requested), (ii) by hand delivery, (iii) by nationally
recognized courier service or (iv) by telecopier, receipt confirmed addressed
as follows (or to such other address as shall be specified by a party by notice
pursuant hereto):
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(i) if to Cognizant, to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: Chief Financial Officer
Telecopier: (203) 222-4201;
with a copy to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
Telecopier: (203) 222-4313; and
(ii) if to the Company, to:
Cognizant Technology Solutions Corporation
1700 Broadway, 26th Floor
New York, New York 10019
Attention: Chief Executive Officer
Telecopier: (212) 887-2450;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Julie M. Allen, Esq.
Telecopier: (212) 408-2420.
Each such notice, request or communication shall be effective (i) if mailed,
three Business Days after mailing, (ii) if delivered by hand or by nationally
recognized courier service, when delivered and (iii) if given by telecopier,
when transmitted and the confirmation is received.
2.9 DISPUTE RESOLUTION.
(a) NEGOTIATION. In the event of a controversy, dispute or claim arising
out of, in connection with or relating to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to, this Agreement or the transactions contemplated
hereby, including, without limitation, any claim based on contract, tort,
statute or constitution (collectively, "Agreement Disputes"), a representative
of each of Cognizant and the Company (the representative of the Company being
selected by the Independent Directors) shall negotiate in good faith for a
reasonable period of time to settle such Agreement Dispute; PROVIDED, HOWEVER,
that such reasonable period shall not, unless otherwise agreed by the parties in
writing, exceed 30 days from the time the parties began such
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negotiations; PROVIDED FURTHER that in the event of any arbitration in
accordance with Section 2.9(b) hereof, the parties shall not assert the defenses
of statute of limitations and laches arising for the period beginning after the
date the parties began negotiations hereunder, and any contractual time period
or deadline under this Agreement to which such Agreement Dispute relates shall
not be deemed to have passed until such Agreement Dispute has been resolved.
(b) ARBITRATION. If after such reasonable period, such representatives
are unable to settle such Agreement Dispute (and in any event, unless otherwise
agreed in writing by the parties, after 60 days have elapsed from the time the
parties began such negotiations), such Agreement Dispute shall be determined, at
the request of either party, by arbitration conducted in New York City, before
and in accordance with the then-existing International Arbitration Rules of the
American Arbitration Association (the "Rules"). In any dispute between the
parties hereto, the number of arbitrators shall be one. Any judgment or award
rendered by the arbitrator shall be final, binding and nonappealable (except
upon grounds specified in 9 U.S.C. Section 10(a) as in effect on the date
hereof). If the parties are unable to agree on an arbitrator, the arbitrator
shall be selected in accordance with the Rules. Any controversy concerning
whether an Agreement Dispute is an arbitrable Agreement Dispute, whether
arbitration has been waived, whether an assignee of this Agreement is bound to
arbitrate or as to the interpretation of enforceability of this Section 2.9(b)
shall be determined by the arbitrator. In resolving any dispute, the parties
intend that the arbitrator apply the substantive laws of the State of New York,
without regard to the choice of law principles thereof. The parties intend that
the provisions to arbitrate set forth herein be valid, enforceable and
irrevocable. The undersigned agree to comply with any award made in any such
arbitration proceeding that has become final in accordance with the Rules and
agree to enforcement of or entry of judgment upon such award, by any court of
competent jurisdiction, including the Supreme Court of the State of New York,
New York County, or the United States District Court for the Southern District
of New York. The arbitrator shall be entitled, if appropriate, to award any
remedy in such proceedings, including, without limitation, monetary damages,
specific performance and all other forms of legal and equitable relief;
provided, however, that the arbitrator shall not be entitled to award punitive
damages. Without limiting the provisions of the Rules, unless otherwise agreed
in writing by the parties or permitted by this Agreement, the parties shall keep
confidential all matters relating to the arbitration or the award, provided such
matters may be disclosed (A) to the extent reasonably necessary in any
proceeding brought to enforce the award or for entry of a judgment upon the
award and (B) to the extent otherwise required by law. Notwithstanding Article
32 of the Rules, the party other than the prevailing party in the arbitration
shall be responsible for all of the costs of the arbitration, including legal
fees and other costs specified by such Article 32. Nothing contained herein is
intended to or shall be construed to prevent any party, in accordance with
Article 22(3) of the Rules or otherwise, from applying to any court of competent
jurisdiction for interim measures or other provisional relief in connection with
the subject matter of any Agreement Disputes.
2.10 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the choice of law principles
thereof.
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2.11 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which shall, taken together, be
considered one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COGNIZANT CORPORATION
By:
-----------------------------
Name:
Title:
COGNIZANT TECHNOLOGY
SOLUTIONS CORPORATION
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
MARKS
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Cognizant service and trademark
Interlocking C logo
<PAGE>
Exhibit 10.7
INTERCOMPANY AGREEMENT
This Intercompany Agreement ("Agreement"), dated as of May 15, 1998,
between Cognizant Corporation, a Delaware corporation ("Cognizant"), and
Cognizant Technology Solutions Corporation, a Delaware corporation (the
"Company").
WITNESSETH
WHEREAS, the Company is a subsidiary of Cognizant;
WHEREAS, the Company expects to effect a public offering of its Class A
Common Stock (the "IPO");
WHEREAS, following completion of the IPO, Cognizant will continue to
control the Company;
WHEREAS, in contemplation of the IPO, Cognizant and the Company desire to
enter this Agreement to set forth the terms and define the nature of their
relationship subsequent to the IPO; and
WHEREAS, Cognizant intends to reorganize (the "Reorganization") by
splitting the Nielsen Media Research business from the rest of its businesses,
creating two publicly held companies, IMS Health Incorporated ("IMS HEALTH") and
Nielsen Media Research, and, in connection therewith, the capital stock of the
Company theretofore held by Cognizant will thereafter be held by IMS HEALTH;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, Cognizant and the Company hereby agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
"ACNielsen" shall mean ACNielsen Corporation, a Delaware corporation.
"ACNielsen Liabilities" shall have the meaning ascribed thereto in the
Distribution Agreement.
"Affiliate" shall mean, when used with respect to a specified person,
another person that controls, is controlled by or is under common control with
the person specified. As used herein, "control" means the possession, directly
or indirectly, of the power to direct or cause the direction
<PAGE>
of the management and policies of such person, whether through the ownership of
voting securities or other interests, by contract or otherwise.
"Business Day" shall mean any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
"Class A Common Stock" shall mean the Class A Common Stock, $.01 par value
per share, of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, $.01 par value
per share, of the Company.
"Cognizant Auditors" shall mean Cognizant's independent certified public
accountants.
"Cognizant Business" shall mean any and all businesses heretofore or
hereafter conducted by Cognizant and its subsidiaries other than the Company
Business, but excluding any businesses operated by Cognizant for and on behalf
of ACNielsen or D&B after the date of the Distribution Agreement.
"Cognizant Indemnitees" shall mean Cognizant and its subsidiaries (other
than the Company) and each of their respective directors, officers, employees
and agents.
"Cognizant Liabilities" shall mean any and all Liabilities relating to,
arising out of or resulting from the operation of the Cognizant Business, but
excluding ACNielsen Liabilities and D&B Liabilities.
"Common Stock" shall mean the Class A Common Stock and the Class B Common
Stock.
"Company Business" shall mean the software development and maintenance
services business heretofore or hereafter conducted by the Company or its
subsidiaries as more fully described in the definitive prospectus for the IPO,
including, without limitations, the business conducted by D&B Satyam Software,
or any other business conducted by the Company after the Effective Date.
"Company Indemnitees" shall mean the Company and its subsidiaries and each
of their respective directors, officers, employees and agents.
"Company Liabilities" shall mean any and all Liabilities relating to,
arising out of or resulting from the operation of the Company Business or any
other business conducted by the Company after the Effective Date.
"D&B" shall mean The Dun & Bradstreet Corporation, a Delaware corporation.
"D&B Liabilities" shall have the meaning ascribed thereto in the
Distribution Agreement.
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"Distribution Agreement" shall mean the Distribution Agreement dated
October 28, 1996, among D & B, Cognizant and ACNielsen, as supplemented by the
Purchase and Sale Agreement dated as of September 2, 1997, among D&B, Cognizant,
Dun & Bradstreet India Private Limited ("D&B IPL") and Dun & Bradstreet
Information Services India Private Limited, the Purchase and Sale Agreement
dated as of September 11, 1997, among ACNielsen, Cognizant, D&B IPL and
ACNielsen Marketing Research India Private Limited and the India Agreement dated
as of October 28, 1996, among D&B, Cognizant and ACNielsen.
"Effective Date" shall mean the date of the initial closing of the IPO.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, with respect to any publicly traded
security, its Market Price, and with respect to any property or assets other
than cash or publicly traded securities, the fair market value thereof
determined in good faith by at least a majority of the Independent Directors.
"GAAP" shall mean United States generally accepted accounting principles.
"Guaranty" means any obligation, contingent or otherwise, of any Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness or
other obligation of any other Person in any manner, whether directly or
indirectly, including any obligation of such Person, direct or indirect, (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Indebtedness or other
obligation, (ii) to purchase property, securities or services for the purpose of
assuring the owner of such Indebtedness or other obligation of the payment
thereof, (iii) to purchase or otherwise pay for merchandise, materials,
supplies, services or other property under an arrangement which provides that
payment for such merchandise, materials, supplies, services or other property
shall be made regardless of whether delivery of such merchandise, materials,
supplies, services or other property is ever made or tendered or (iv) to
maintain the working capital, equity capital or other financial statement
condition of any primary obligor; provided, however, that the term Guaranty
shall not include endorsement of instruments for deposit and collection in the
ordinary course of business.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by (or which
customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property
or assets purchased by such Person, (e) all obligations of such Person incurred,
issued or assumed as the deferred purchase price of property or services other
than accounts payable incurred and paid on terms customary in the business of
such Person (it being understood that the "deferred purchase price" in
connection with any purchase of property or assets shall include only that
portion of the purchase price which shall be deferred beyond the date on which
the purchase is actually
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consummated), (f) all obligations secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or other encumbrance on property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (g) all
obligations of such Person under forward sales, futures, options and other
similar hedging arrangements (including interest rate hedging or protection
agreements), (h) all obligations of such Person to purchase or otherwise pay for
merchandise, materials, supplies, services or other property under an
arrangement which provides that payment for such merchandise, materials,
supplies, services or other property shall be made regardless of whether
delivery of such merchandise, materials, supplies, services or other property is
ever made or tendered, (i) all Guaranties by such Person of obligations of
others and (j) all capitalized lease obligations of such Person.
"Independent Directors" shall mean the members of the Board of Directors of
the Company that are not employed by or otherwise affiliated with Cognizant, the
Company (other than solely as a result of being a director thereof) or any of
their respective affiliates.
"Intercompany Agreements" shall mean and include this Agreement, the
Intercompany Services Agreement dated as of the date hereof between Cognizant
and the Company and the License Agreement dated as of the date hereof between
Cognizant and the Company.
"Initial Holdings" shall mean the total number of shares of Common Stock
owned by Cognizant on the Effective Date, plus any shares of Common Stock
received in respect thereof, whether by way of stock dividend, stock split or
otherwise.
"IPO Price" shall mean the initial public offering price per share of Class
A Common Stock of the Company sold in the IPO.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckoning bonds, specialties, indemnities
and similar obligations, exonerations, covenants, contracts, controversies,
agreements, promises, doings, omissions, variances, guarantees, make whole
agreements and similar obligations and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, and including those arising under any law, rule, regulation, action,
threatened or contemplated action (including the costs and expenses of demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all costs and expenses whatsoever reasonably
incurred in investigating, preparing or defending against any such actions or
threatened or contemplated actions), order or consent decree of any governmental
or other regulatory or administrative agency, body or commission or any award of
any arbitrator or mediator of any kind, and those arising under any contract,
commitment or undertaking, in each case, whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person.
"Market Capitalization" shall mean, on any day, the Market Price of a share
of Class A Common Stock multiplied by the aggregate number of shares of Common
Stock outstanding.
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"Market Price" shall mean, as to any publicly traded security, the average
of the closing prices of such security's sales on all United States securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the Nasdaq Stock Market as of 4:00 P.M., New York
time, on such day, or, if on any day such security is not quoted in the Nasdaq
Stock Market, the average of the highest bid and lowest asked prices on such day
in the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar or successor organization.
"Person" shall mean any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Regulation S-X" shall mean Regulation S-X promulgated by the SEC.
"Restricted Period" shall mean the period beginning on the Effective Date
and ending on the 18-month anniversary of the Effective Date.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"subsidiary" shall mean any corporation, partnership or other entity of
which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
ARTICLE III
CONSENTS; TRANSFER RESTRICTIONS;
STANDSTILL; OTHER LIMITATIONS
2.1 COGNIZANT CONSENT TO CERTAIN ACTIONS.
Until the date on which Cognizant ceases to beneficially own at least 50
percent of the voting power of the outstanding Common Stock, the Company will
not permit any of the following to occur without the prior written consent of
Cognizant:
(a) any sale, lease, exchange or other disposition or any acquisition
(by way of merger or consolidation, acquisition of stock, other securities or
assets, or otherwise), in each case by the Company or any subsidiary of the
Company, directly or indirectly, in a single transaction, or series of related
transactions, involving consideration in excess of the greater of $10,000,000
and 6% of the Company's average total Market Capitalization for the preceding 30
calendar days (other than transactions to which the Company and one or more
wholly owned subsidiaries of the Company are the only parties);
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(b) any issuance by the Company or any subsidiary of the Company of
any shares of capital stock or any options, warrants or rights to acquire such
capital stock or securities convertible into or exchangeable for such capital
stock, except shares of Class A Common Stock and any options exercisable
therefor issuable pursuant to the Company's employee and director stock option
plans in effect on the Effective Date or other stock options outstanding on the
Effective Date or any such capital stock, options, warrants, rights or
convertible or exchangeable securities issued in connection with any acquisition
approved by Cognizant pursuant to Section 2.1(a); or
(c) the creation or incurrence by the Company or any subsidiary of
the Company, in a single transaction or a series of related transactions, of
Indebtedness in excess of $10,000,000 except for Indebtedness incurred in
connection with any acquisition approved by Cognizant pursuant to Section 2.1(a)
(it being understood that the acquisition of an entity with Indebtedness in
excess of $10,000,000 shall be deemed to be the incurrence of Indebtedness in
excess of $10,000,000).
2.2 APPROVAL OF MAJOR TRANSACTIONS.
(a) During the Restricted Period, the Company will not consummate any of
the following transactions, or enter into any agreement to consummate any of the
following transactions, without the approval of at least a majority of the
Independent Directors:
(i) any merger or consolidation of the Company with any other person
in which the stockholders of the Company receive consideration other than
Common Stock if the consideration to be received by the stockholders of the
Company on a per share basis has a Fair Market Value that is less than the
IPO Price (as adjusted for any stock split, stock dividend, stock
combination, reverse stock split or similar occurrence after the Effective
Date);
(ii) the sale of all or substantially all of the assets of the Company
in a single transaction or a series of related transactions if the Fair
Market Value of the consideration to be received by the Company divided by
the number of shares of all classes of Common Stock of the Company
outstanding is less than the IPO Price (as adjusted for any stock split,
stock dividend, stock combination, reverse stock split or similar
occurrence after the Effective Date); or
(iii) the liquidation, dissolution or winding-up of the Company if
the Fair Market Value of the consideration to be received by the
stockholders of the Company on a per share basis is less than the IPO price
(as adjusted for any stock split, stock dividend, stock combination,
reverse stock split or similar occurrence after the Effective Date).
(b) During the Restricted Period, the Company will not consummate any of
the following transactions, or enter into any agreement to consummate any of the
following transactions, without (x) the approval of at least one of the
Independent Directors or (y) first obtaining an opinion from a nationally
recognized investment banking firm that the consideration
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to be received by the stockholders of the Company in such transaction is fair to
such stockholders from a financial point of view:
(i) any merger or consolidation of the Company with any other person
in which the stockholders of the Company receive consideration other than
Common Stock if the consideration to be received by the stockholders of the
Company on a per share basis has a Fair Market Value that is equal to or
greater than the IPO Price (as adjusted for any stock split, stock
dividend, stock combination, reverse stock split or similar occurrence
after the Effective Date);
(ii) the sale of all or substantially all of the assets of the Company
in a single transaction or a series of related transactions if the Fair
Market Value of the consideration to be received by the Company divided by
the number of shares of all classes of Common Stock of the Company
outstanding is equal to or greater than the IPO Price (as adjusted for any
stock split, stock dividend, stock combination, reverse stock split or
similar occurrence after the Effective Date); or
(iii) the liquidation, dissolution or winding-up of the Company if
the Fair Market Value of the consideration to be received by the
stockholders of the Company on a per share basis is equal to or greater
than the IPO price (as adjusted for any stock split, stock dividend, stock
combination, reverse stock split or similar occurrence after the Effective
Date).
2.3 LIMITATIONS ON SALES BY COGNIZANT OF COMMON STOCK.
During the Restricted Period, without the approval of at least a majority
of the Independent Directors, Cognizant shall not sell, distribute or otherwise
transfer any shares of Class B Common Stock or shares of Class A Common Stock
into which such shares of Class B Common Stock are convertible, or enter into an
agreement to do so, except:
(a) in a tax-free spin-off of such shares to the stockholders of
Cognizant;
(b) subject to Section 2.2, in a merger or consolidation;
(c) to an Affiliate, provided that such Affiliate agrees in writing
to be bound by the terms of this Agreement;
(d) at a price per share equal to or greater than the IPO price (as
adjusted for any stock split, stock dividend, stock combination, reverse stock
split or similar occurrence after the Effective Date);
(e) in a sale pursuant to Rule 144 promulgated under the Securities
Act (or any successor rule thereto);
(f) in a registered public offering pursuant to Article 4 hereof; or
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(g) for sales not otherwise permitted by this Section 2.3 or approved
by at least a majority of the Independent Directors of up to an aggregate of 15%
of the Initial Holdings.
2.4 STANDSTILL.
During the Restricted Period, without the approval of at least a majority
of the Independent Directors, Cognizant shall not increase its beneficial
ownership of Common Stock above the Initial Holdings, except pursuant to a
tender offer, exchange offer, merger or other transaction involving all of the
outstanding Common Stock, for consideration on a per share basis having a Fair
Market Value greater than the IPO Price (as adjusted for any stock split, stock
dividend, stock combination, reverse stock split or similar occurrence after the
Effective Date), approved by at least one Independent Director or with respect
to which a nationally recognized investment banking firm has first rendered an
opinion that the consideration to be received by the stockholders of the Company
in such transaction is fair from a financial point of view.
2.5 OTHER LIMITATIONS.
During the Restricted Period, Cognizant shall not vote its shares of Common
Stock (or give its written consent in lieu of a vote at a meeting) to take any
of the following actions:
(a) to reduce the number of Independent Directors on the Company's
Board of Directors or to increase the size of the Board of Directors so that the
ratio of the number of Independent Directors to the total number of directors,
expressed as a percentage, is less than the ratio of two to seven, expressed as
a percentage; or
(b) to remove any Independent Director other than with the approval
of a majority of the entire Board of Directors of the Company for cause or with
the approval of the holders of a majority of the outstanding Class A Common
Stock, voting as a separate class, provided that nothing contained herein shall
preclude any action taken to not nominate, or other failure to nominate, an
Independent Director for reelection at an annual meeting of stockholders at the
expiration of his or her term.
ARTICLE III
FINANCIAL AND OTHER INFORMATION
3.1 TWENTY PERCENT THRESHOLD.
The Company agrees that in any period in which Cognizant beneficially owns
at least 20 percent of the voting power of the outstanding Common Stock or
during any period in which Cognizant is required to account for its investment
in the Company on a consolidated basis or under the equity method of accounting
(determined in accordance with GAAP, consistently applied after consultation
with the Cognizant Auditors):
(a) MAINTENANCE OF BOOKS AND RECORDS. The Company shall, and shall cause
each of its consolidated subsidiaries to (i) make and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of
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the Company and such subsidiaries and (ii) devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(A) transactions are executed in accordance with management's general or
specific authorization, (B) transactions are recorded as necessary (1) to permit
preparation of financial statements in conformity with GAAP and (2) to maintain
accountability for assets and (C) access to assets is permitted only in
accordance with management's general or specific authorization.
(b) FISCAL YEAR. The Company shall, and shall cause each of its
consolidated subsidiaries to, maintain a fiscal year that commences on January 1
and ends on December 31 of each calendar year; provided, however, that if on the
date hereof any consolidated subsidiary of the Company does not maintain a
fiscal year that commences on January 1 and ends on December 31, the Company
shall use its best efforts to cause such subsidiary to change its fiscal year to
one which ends on December 31 if such change is reasonably practicable.
(c) UNAUDITED QUARTERLY FINANCIAL STATEMENTS. As soon as practicable, and
within 20 days after the end of each of the first three fiscal quarters in each
fiscal year of the Company, the Company shall deliver to Cognizant drafts of the
consolidated financial statements of the Company (and notes thereto) for such
periods and for the period from the beginning of the current fiscal year to the
end of such quarter setting forth in each case in comparative form for each such
fiscal quarter of the Company the consolidated figures (and noted thereto) for
the corresponding quarter and periods of the previous fiscal year and all in
reasonable detail and prepared in accordance with Article 10 of Regulation S-X.
The information set forth in this subsection (c) is herein referred to as the
"Quarterly Financial Statements." The Company shall deliver to Cognizant all
revisions to such drafts as soon as practicable after any such revisions are
prepared or made. No later than the date the Company publicly files the
Quarterly Financial Statements with the SEC or otherwise, the Company shall
deliver to Cognizant the final form of the Quarterly Financial Statements.
(d) AUDITED ANNUAL FINANCIAL INFORMATION. As soon as is practicable, and
within 40 days after the end of each fiscal year of the Company, the Company
shall deliver to Cognizant drafts of the consolidated financial statements of
the Company (and notes thereto) for such year setting forth in each case in
comparative form the consolidated figures (and notes thereto) for the previous
fiscal year and all in reasonable detail and prepared in accordance with
Regulation S-X. The information set forth in this subsection (d) is herein
referred to as the "Annual Financial Statements." The Company shall deliver to
Cognizant all revisions to such drafts as soon as any such revisions are
prepared or made. The Company shall deliver to Cognizant, no later than 90 days
after the end of each fiscal year of the Company (or on such earlier date on
which the same are filed with the SEC), in final form, the Annual Financial
Statements accompanied by an opinion thereon by the Company's independent
certified public accountants.
(e) OTHER FINANCIAL INFORMATION. The Company shall provide to
Cognizant upon request such other information and analyses as Cognizant may
reasonably request in order to analyze the financial statements and condition of
the Company and its subsidiaries and shall provide Cognizant and its accountants
with an opportunity to meet with management of the Company (and shall use
commercially reasonable efforts to cause its accountants to so meet) in
connection therewith. The Company shall deliver to Cognizant all
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Quarterly Financial Statements and Annual Financial Statements of each
subsidiary of the Company that is itself required to file financial statements
with the SEC or otherwise make such financial statements publicly available,
with such financial statements to be provided in the same manner and detail and
on the same time schedule as those financial statements of the Company required
to be delivered to Cognizant pursuant to this Section 3.1.
(f) GENERAL FINANCIAL STATEMENT REQUIREMENTS. All information provided by
the Company or any of its subsidiaries to Cognizant pursuant to this Section 3.1
shall be consistent in all material respects with the format and detail and
otherwise with the procedures and practices in effect on the date hereof with
respect to the provision of such financial and other information by the Company
and its subsidiaries to Cognizant, with such changes therein as may be
reasonably requested by Cognizant from time to time, unless changes in such
procedures or practices are required in order to comply with GAAP, the rules and
regulations of the SEC or any other applicable regulatory authority, as
applicable.
(g) PUBLIC INFORMATION AND SEC REPORTS. The Company and each of its
subsidiaries that file information with the SEC shall deliver to Cognizant (to
the attention of its General Counsel) as promptly as practicable as the same are
substantially final, drafts of all reports, notices and proxy and information
statements to be sent or made available by the Company or any of its
subsidiaries to their security holders and all regular, periodic and other
reports filed under the Exchange Act (including Reports on Forms 10-K, 10-Q and
8-K and Annual Reports to Shareholders), and all registration statements and
prospectuses to be filed by the Company or any of its subsidiaries with the SEC
or any securities exchange pursuant to the listed company manual (or similar
requirements) of such exchange (collectively, "the Company Public Documents")
prior to the filing thereof with the SEC, and, no later than the date the same
are printed, sent or filed, whichever is earliest, final copies of all the
Company Public Documents. Prior to issuance, the Company shall deliver to
Cognizant copies of all press releases and other statements to be made available
by the Company or any of its subsidiaries to the public, including, without
limitation, information concerning material developments in the business,
properties, results of operations, financial condition or prospects of the
Company or any of its subsidiaries. No report, registration, information or
proxy statement, prospectus or other document that refers, or contains
information with respect to Cognizant shall be filed with the SEC or otherwise
made public by the Company or any of its subsidiaries without the consent of
Cognizant (which shall not be unreasonably withheld or delayed) with respect to
those portions of such document which contain information with respect to
Cognizant except as may be required by law, rule or regulation (in which case
the Company shall use commercially reasonable efforts to notify Cognizant and
obtain its consent before making such a filing with the SEC or otherwise making
any such information public).
(h) BUDGETS AND PROJECTIONS. The Company shall, as promptly as
practicable, deliver to Cognizant copies of annual and other budgets and
financial projections (consistent in terms of format and detail and otherwise
with the procedures in effect on the date hereof) relating to the Company or any
of its subsidiaries and shall provide Cognizant an opportunity to meet with
management of the Company and its subsidiaries to discuss such budgets and
projections.
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(i) OTHER INFORMATION. With reasonable promptness, the Company shall
deliver to Cognizant such additional financial and other information and data
with respect to the Company and its subsidiaries and their business, properties,
financial position, results of operations and prospects as from time to time may
be reasonably requested by Cognizant.
(j) EARNINGS RELEASES. Cognizant agrees that, unless required by law,
rule or regulation or unless the Company shall have consented thereto, Cognizant
shall not publicly release any quarterly, annual or other financial information
of or concerning the Company or any of its subsidiaries (the "Company
Information") delivered to Cognizant pursuant to this Section 3.1 prior to the
time that the Company publicly releases such information. The Company and
Cognizant will consult on the timing of their annual and quarterly earnings
releases. In the event that Cognizant is required by law to publicly release
such Company Information prior to the public release of Cognizant's financial
information, Cognizant will use commercially reasonable efforts to give the
Company notice of such release of the Company Information and to obtain its
consent prior to such release of the Company Information.
(k) COGNIZANT PUBLIC FILINGS. Cognizant and the Company shall cooperate
with each other to the extent reasonably requested by the other in the
preparation of any of their respective public earnings releases, quarterly
reports on Form 10-Q, Annual Reports to Shareholders, annual reports on Form
10-K, any current reports on Form 8-K and any other proxy, information and
registration statements, notices, prospectuses and other filings made by them or
any of their respective subsidiaries with the SEC, any national securities
exchange, any governmental or regulatory authority or otherwise made publicly
available (collectively, "Public Filings"). Cognizant and the Company agree to
provide to each other all information that the other reasonably requests in
connection with any such Public Filings or that, in the reasonable judgment of
their respective General Counsels, is required to be disclosed therein under any
law, rule or regulation. Such information shall be provided by Cognizant or the
Company, as the case may be, in as timely a manner as practicable to enable the
Company or Cognizant, as the case may be, to prepare, print and release the
Public Filings. If and to the extent requested by Cognizant or the Company, the
other party shall diligently review all drafts of such Public Filings and
prepare in a diligent and timely fashion any portion of such Public Filing
pertaining to such other party or its subsidiaries. Unless required by law,
rule or regulation, Cognizant or the Company, as the case may be, shall not
publicly release any financial or other information that conflicts with the
information with respect to the other party that is included in any Public
Filing without the prior written consent of the Company or Cognizant, as the
case may be.
(l) Subject to the requirements of applicable laws, rules and regulations,
(i) if the Company chooses or is required to submit to a vote of its
stockholders the election, approval or ratification of the selection of its
independent certified public accountants pursuant to Schedule 14A under the
Exchange Act, the Company shall so submit to such a vote and (ii) if the Company
does not submit a firm of accountants to such a vote, the Company shall cause
its independent certified public accountants to be such accounting firm as is
designated, from time to time, by Cognizant, unless the stockholders of the
Company oppose or fail to ratify such firm, or elect another firm.
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(m) Promptly, but in no event later than five Business Days following the
receipt thereof, the Company shall deliver to Cognizant copies of all reports
submitted to the Company or any of its subsidiaries by their independent
certified public accountants, including, without limitation, each report
submitted to the Company or any of its subsidiaries concerning its accounting
practices and systems and any comment letter submitted to management in
connection with their annual audit and all responses by management to such
reports and letters.
3.2 COGNIZANT ANNUAL STATEMENTS.
In connection with Cognizant's preparation of its audited annual financial
statements (collectively, the "Cognizant Annual Financial Statements"), during
any period in which Cognizant beneficially owns, in the aggregate, at least 20
percent of the voting power of the outstanding Common Stock, or during any
period in which Cognizant is required to account for its investment in the
Company on a consolidated basis or under the equity method of accounting
(determined in accordance with GAAP consistently applied after consultation with
the Cognizant Auditors), the Company agrees as follows:
(a) COORDINATION OF AUDITOR'S OPINIONS. The Company will use
commercially reasonable efforts to enable its independent certified public
accountants (the "Company Auditors") to complete their audit such that they will
date their opinion on the Company's audited annual financial statements (the
"Company Annual Financial Statements") on or before the date that the Cognizant
Auditors date their opinion on the Cognizant Annual Financial Statements, and to
enable Cognizant to meet its timetable for the printing, filing and public
dissemination of the Cognizant Annual Financial Statements.
(b) ACCESS TO PERSONNEL AND WORKING PAPERS. The Company will
authorize the Company Auditors to make available to the Cognizant Auditors both
the personnel who performed or are performing the annual audit of the Company
and, consistent with customary professional practice and courtesy of such
auditors with respect to the furnishing of work papers, work papers related to
the annual audit of the Company, in all cases within a reasonable time after the
Company Auditor's opinion date, so that the Cognizant Auditors are able to
perform the procedures they consider necessary to take responsibility for the
work of the Company Auditors as it relates to the Cognizant Auditors report on
the Cognizant Annual Financial Statements, all within sufficient time to enable
Cognizant to meet its timetable for the printing, filing and public
dissemination of the Cognizant Annual Financial Statements; provided, however,
that nothing in this Section 3.2(b) shall in any way be construed as a
representation of or covenant by the Company that any or all of such personnel
or work papers will be so provided.
3.3 FORTY PERCENT THRESHOLD.
The Company agrees that, during any period in which Cognizant beneficially
owns at least 40 percent of the voting power of the outstanding Common Stock or
during any period in which Cognizant is required to account for its investment
in the Company on a consolidated basis or under the equity method of accounting
(determined in accordance with GAAP consistently applied after consultation with
the Cognizant Auditors):
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(a) INTERNAL AUDITORS. The Company shall provide Cognizant and the
internal auditors or other representatives of Cognizant reasonable access to the
Company's and its subsidiaries' books and records so that Cognizant may conduct
reasonable audits relating to the financial statements provided by the Company
pursuant to Sections 3.1(c)-(f) inclusive, as well as to the internal accounting
controls and operations of the Company and its subsidiaries; PROVIDED, HOWEVER,
that such audits shall be conducted (i) during regular business hours and (ii)
in such manner as will not interfere with the conduct of business by the Company
or any subsidiary in the ordinary course.
(b) ACCOUNTING ESTIMATES AND PRINCIPLES. The Company will give
Cognizant as much prior notice as reasonably practicable of any proposed
significant charges in accounting estimates or discretionary accounting
principles from those in effect on the date hereof. In this connection, the
Company will consult with Cognizant and, if requested by Cognizant, the Company
will consult with the Cognizant Auditors with respect thereto. The Company will
not make any change in discretionary accounting principles without Cognizant's
prior consent (which consent will not be unreasonably withheld or delayed) if
such a change would be sufficiently material to be required to be disclosed in
the Company's financial statements as filed with the SEC or otherwise publicly
disclosed therein.
3.4 TEN PERCENT THRESHOLD.
The Company agrees that, during any period in which Cognizant beneficially
owns at least 10 percent of the voting power of the outstanding Common Stock,
the Company shall:
(a) furnish to Cognizant as soon as practicable after they are
publicly available, copies of all financial statements, reports, notices and
proxy statements sent by the Company in a general mailing to all its
stockholders, of all reports on Forms 10-K, 10-Q and 8-K, and of all final
prospectuses filed pursuant to Rule 424 under the Securities Act except with
respect to the IPO; and
(b) permit Cognizant to visit and inspect any of the properties,
corporate books, and financial and other records of the Company and its
subsidiaries, and to discuss the affairs, finances and accounts of any such
corporations with the officers of the Company and the Company Auditors, all at
such time as often as Cognizant may reasonably request; provided, however, that
the foregoing shall be conducted (i) during regular business hours and (ii) in
such manner as will not interfere with the conduct of business of the Company or
any subsidiary in the ordinary course.
3.5 CONFIDENTIALITY.
All information provided by the Company and its subsidiaries pursuant to
this Article 3, except if the purpose for which such information is furnished to
Cognizant pursuant to this Agreement contemplates such disclosure be kept
confidential by Cognizant and Cognizant will not disclose any such information
until such information becomes available generally to the public, except as such
disclosure may be required by law, rule or regulation. Further, Cognizant shall
not, (i) use in any manner any such information in connection with the purchase
or sale of or any offer to purchase or sell any securities issued by the Company
or (ii) make any purchase or sale of
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or any offer to purchase or sell any security while in possession of any such
information, unless and until in each such case such information is publicly
disclosed.
ARTICLE IV
REGISTRATION RIGHTS
4.1 PIGGY-BACK RIGHTS.
(a) Each time the Company is planning to file a registration
statement under the Securities Act in connection with the proposed offer and
sale of Common Stock, the Company will give prompt written notice thereof to
Cognizant regarding Cognizant's rights under this Section 4.1, at least 30 days
prior to the anticipated filing date of such registration statement. Upon the
written request of Cognizant made within 15 days after the receipt of any such
notice from the Company, which request shall specify the shares of Common Stock
(the "COGNIZANT PIGGY-BACK SHARES") intended to be disposed of by Cognizant in
such offering, the Company will effect the registration under the Securities Act
of all Cognizant Piggy-Back Shares which the Company has been so requested to
register by Cognizant, to the extent required to permit the disposition of the
Cognizant Piggy-Back Shares to be registered; provided, that (i) if, at any time
after giving written notice of its intention to register any Common Stock and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
proceed with the proposed registration, the Company may at its election give
written notice of such determination to the holder of Cognizant Piggy-Back
Shares and thereupon shall be relieved of its obligation to register any
Cognizant Piggy-Back Shares in connection with such registration, and (ii) if
such registration involves an underwritten offering, the holder of Cognizant
Piggy-Back Shares requesting to be included in the Company's registration must
sell its shares to the underwriters pursuant to the Underwriting Agreement
entered into by the Company in connection therewith.
(b) If a registration pursuant to this Section 4.1 involves an
underwritten offering and the managing underwriter or underwriters in good faith
advise the Company in writing that, in their opinion, the number of shares of
Common Stock which the Company, the holder of Cognizant Piggy-Back Shares and
any other Persons intend to include in such registration exceeds the largest
number of shares of Common Stock which can be sold in such offering without
having an adverse effect on such offering (including the price at which the
shares of Common Stock can be sold), then the Company will include in such
registration (i) first, 100% of the shares of Common Stock the Company proposes
to sell for its own account, if any, and (ii) second, to the extent that the
number of shares of Common Stock which the Company proposes to sell is less than
the number of shares of Common Stock which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, the
number of Cognizant Piggy-Back Shares to be included in such offering will be
determined on the basis of the relative percentage relationships of (a) the
number of Cognizant Piggy-Back Shares and (b) the number of shares of Common
Stock held by any other Persons sought to be included in the offering pursuant
to an agreement granting registration rights.
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4.2 DEMAND REGISTRATION.
(a) Upon the written request (a "Request") of Cognizant that the
Company effect the registration under the Securities Act of all or part of the
shares of Common Stock owned by Cognizant, the Company will as expeditiously as
reasonably practicable effect the registration under the Securities Act of such
shares as provided herein; provided that the Company shall not be required to
file a registration statement pursuant to this Section 4.2 (i) within 120 days
after the effective date of any other registration statement of the Company
requested by Cognizant hereunder or pursuant to which Cognizant shall have been
given the opportunity to participate pursuant to Section 4.1 or (ii) relating to
an offer, on a delayed or continuous basis pursuant to Rule 415 (or any
successor rule to similar effect) promulgated under the Securities Act if the
Company is not at the time, eligible to register shares of Common Stock on Form
S-3 (or a successor form) or (iii) more than two times in any calendar year or
more than six times in any five consecutive calendar years.
(b) The obligations of the Company to cause the shares of Common
Stock to be registered under the Securities Act hereunder are subject to the
limitation that the Company shall be entitled to postpone for a reasonable
period of time not to exceed 90 days the filing or effectiveness of, or suspend
for a reasonable period of time the rights of Cognizant to make sales pursuant
to, any registration statement otherwise required to be prepared, filed and made
and kept effective by it hereunder if there has been a determination made in
good faith by the Board of Directors, in view of the advisability of deferring
public disclosure of material corporate developments or other information, that
such registration statement or any amendments thereto would not be in the best
interest of the Company at such time; provided, however, that the Company may
not exercise its rights under this Section 4.2(b) more than once in any 12-month
period. The Company shall extend the period during which such registration
statement shall be maintained effective as provided in Section 4.4(b) by the
number of days during the period from and including the date of suspension of
the rights of Cognizant to make sales pursuant to the registration statement to
the date sales may recommence.
(c) If a registration pursuant to this Section 4.2 involves an
underwritten offering and the managing underwriter or underwriters in good faith
advise the Company in writing that, in its opinion, the number of shares of
Common Stock which Cognizant and others who are seeking to include shares of
common stock in the offering exceeds the largest number of shares of Common
Stock which can be sold in such offering without having an adverse effect on
such offering (including the price at which the shares of Common Stock can be
sold), then the Company will include in such registration, if such registration
is pursuant to a Request, (i) first, 100% of the shares of Common Stock that
Cognizant proposes to sell (the "Cognizant Amount") and (ii) second, to the
extent that the Cognizant Amount is less than the number of shares of Common
Stock which the Company has been advised can be sold in such offering without
having the adverse effect referred to above (the "Maximum Amount"), shares of
third parties or the Company up to the difference between the Maximum Amount and
the Cognizant Amount.
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4.3 OTHER REGISTRATION-RELATED MATTERS.
(a) The Company agrees not to effect any sales of Common Stock during
the 14 days prior to and the 90 day period beginning on the effective date of
any registration statement in which Cognizant is participating in connection
with an underwritten public offering of Common Stock (including the IPO), if and
to the extent reasonably requested in writing (with reasonable prior notice) by
the managing underwriter of the underwritten public offering.
(b) The Company may require Cognizant, to the extent it is selling
shares of Common Stock pursuant to Section 4.1 or 4.2, to furnish to the Company
such information regarding Cognizant and the distribution of such shares of
Common Stock as may from time to time reasonably be requested in writing in
order to comply with the Securities Act.
4.4 REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this Agreement
to cause the registration of any Common Stock under the Securities Act as
provided in this Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement on an
appropriate registration form of the SEC for the disposition of such Common
Stock in accordance with the intended method of disposition thereof as shall be
selected by the Company, and use its best efforts to cause such registration
statement to become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for such period
(which shall not be required to exceed 120 days) as Cognizant shall request and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Common Stock covered by such registration statement in
accordance with the intended methods of disposition by Cognizant set forth in
such registration statement;
(c) furnish, without charge, to Cognizant and each underwriter, if
any, of the securities covered by such registration statement such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits), and the prospectus included in such
registration statement (including each preliminary prospectus) in conformity
with the requirements of the Securities Act, and other documents, as such seller
and underwriter may reasonably request in order to facilitate the public sale or
other disposition of the Common Stock owned by Cognizant, but only while the
Company is required under the provisions hereof to keep such registration
statement effective;
(d) use its best efforts to register or qualify the Common Stock
covered by such registration statement under such other securities or "blue sky"
laws of such jurisdictions as Cognizant or any managing underwriter, if any,
shall reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable Cognizant or such underwriter, if
any, to consummate the disposition of the Common Stock in such jurisdictions,
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except that in no event shall the Company be required to qualify to do business
as a foreign corporation in any jurisdiction where it would not, but for the
requirements of this paragraph (d), be required to be so qualified, to subject
itself to taxation in any such jurisdiction, to consent to general service of
process in any such jurisdiction or to conform the composition of its assets at
the time to the securities or "blue sky" laws of any jurisdiction;
(e) promptly notify Cognizant and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission for amendments or supplements to the
registration statement or the prospectus related thereto or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any Common
Stock for sale under the securities or blue sky laws of any jurisdiction or the
initiation of any proceeding for such purpose; and (v) of the existence of any
fact of which the Company becomes aware which results in the registration
statement, the prospectus related thereto or any document incorporated therein
by reference containing an untrue statement of a material fact or omitting to
state a material fact required to be stated therein or necessary to make any
statement therein not misleading; and, in the case the notification relates to
an event described in clause (v), the Company shall promptly prepare and furnish
to each such seller and each underwriter, if any, a reasonable number of copies
of a prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Common Stock, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading;
(f) comply with all applicable rules and regulations of the SEC, and
make generally available to its securityholders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 16 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) use its best efforts to cause all such Common Stock covered by
such registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Common Stock is then permitted under the rules of such exchange,
or (ii) if no similar securities are then so listed, use its best efforts to,
either (as the Company may elect) (x) cause all such Common Stock to be listed
on a national securities exchange or (y) cause all such Common Stock to be
quoted on the Nasdaq National Market and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such shares with the National Association of Securities Dealers, Inc.
("NASD");
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<PAGE>
(h) provide a transfer agent and registrar for all such Common Stock
covered by such registration statement not later than the effective date of such
registration statement;
(i) enter into such customary agreements (including, if applicable,
an underwriting agreement in customary form containing, among other provisions,
standard provisions with respect to the indemnification of the underwriters) and
take such other actions as Cognizant shall reasonably request in order to
expedite or facilitate the disposition of such Common Stock, provided that the
underwriting agreement, if any, shall be reasonably satisfactory to the Company.
Cognizant shall be a party to such underwriting agreement and may, at its
option, require that the Company make to and for the benefit of Cognizant the
representations, warranties and covenants of the Company which are being made to
and for the benefit of such underwriters and which are of the type customarily
provided to institutional investors in secondary offerings;
(j) use its best efforts to obtain an opinion from the Company's
counsel and a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters as are customarily
covered by such opinions and "cold comfort" letters delivered to underwriters in
underwritten public offerings, and to furnish to Cognizant and to each
underwriter, if any, a copy of such opinion and letter addressed to Cognizant or
such underwriter;
(k) deliver promptly to Cognizant and each underwriter, if any,
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and, upon receipt of such
confidentiality agreements as the Company may reasonably request, make available
for inspection by Cognizant, by any underwriter, if any, participating in any
disposition to be effected pursuant to such registration statement and by any
attorney, accountant or other agent retained by Cognizant or any such
underwriter, the properties of the Company and all pertinent financial and other
records and corporate documents of the Company, and cause all of the Company's
officers, directors and employees to supply all information reasonably requested
by Cognizant, any such underwriter, attorney, accountant or agent in connection
with such registration statement and provide them with opportunities to discuss
the business of the Company with its officers and independent public accountants
as shall be necessary in the opinion of Cognizant, any such underwriters or
their counsel, to conduct a reasonable investigation (i.e, "due diligence")
under the Securities Act;
(l) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
(m) cooperate with Cognizant and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Common Stock to be sold; and enable such Common Stock
to be in such denominations and registered in such names as Cognizant or the
managing underwriter or underwriters, if any, may request at least three
business days prior to any delivery of Common Stock;
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<PAGE>
(n) provide a CUSIP number for the Common Stock, not later than the
effective date of the registration statement; and
(o) use its best efforts to cause the Common Stock covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Cognizant to consummate the
disposition of such Common Stock.
Cognizant agrees that upon receipt of any notice from the Company of the
happening of any event of the kind described in clause (v) of paragraph (e) of
this Section 4.4, Cognizant will discontinue its disposition of Common Stock
pursuant to the registration statement covering such Common Stock until
Cognizant's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (e) of this Section 4.4 and, if so requested by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in Cognizant's possession of the
prospectus covering such Common Stock that was in effect at the time of receipt
of such notice. In the event the Company shall give any such notice, the period
mentioned in paragraph (b) of this Section 4.4 shall be extended by the number
of days during the period from and including the date of the giving of such
notice to and including the date when Cognizant shall have received the copies
of the supplemented or amended prospectus contemplated by paragraph (e) of this
Section 4.4.
If any such registration statement or comparable statement under "blue sky"
laws refers to Cognizant by name or otherwise as a holder of any securities of
the Company, then the Company shall provide copies of such registration or other
statement to Cognizant prior to the filing thereof and Cognizant shall have the
right to require (i) the insertion therein of language, in form and substance
satisfactory to Cognizant and the Company, to the effect that the holding by
Cognizant of such securities is not to be construed as a recommendation by
Cognizant of the investment quality of the Company's securities covered thereby
and that such holding does not imply that Cognizant will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to Cognizant by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky" or securities law then in force, the
deletion of the reference to Cognizant.
4.5 INDEMNIFICATION.
(a) In the event of any registration of any equity securities of the
Company under the Securities Act, the Company will, and hereby does, indemnify
and hold harmless, Cognizant, its directors and officers, each other Person who
participates as an underwriter in the public offering of such securities, each
officer and director of each such underwriter, and each other Person, if any,
who controls Cognizant or any such underwriter within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities and expenses, joint or several, to which such
seller or any such director or officer or participating or controlling Person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities
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were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse Cognizant, and each such director, officer,
underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company for use in the preparation thereof by Cognizant or such
underwriter, as the case may be, or (ii) an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus but
notified to Cognizant and such underwriter prior to any sale of Common Stock and
subsequently corrected by the Company in any final prospectus, amendment or
supplement made available to Cognizant or such underwriter but which final
prospectus, amendment or supplement was not used by Cognizant or such
underwriter in the sale of Common Stock that gave rise to such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of Cognizant or any such director, officer, underwriter or
controlling Person and shall survive the transfer of such Common Stock by
Cognizant.
(b) The Company may require, as a condition to including any Common
Stock in any registration statement filed pursuant to Section 4.1 or Section
4.2, that the Company shall have received an undertaking satisfactory to it from
(i) Cognizant to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 4.5(a)), except that Cognizant shall not in any
event be liable to the Company pursuant thereto for an amount in excess of the
net proceeds of sale of Cognizant's Common Stock) the Company, each such
underwriter of such Common Stock, each officer and director of each such
underwriter and each other Person, if any, who controls the Company or any such
underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, and (ii) each such underwriter of such Common Stock, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.5(a)) the Company, each officer and director of the Company,
Cognizant, each officer and director of and each other Person, if any, who
controls the Company or within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, with respect to any statement in or omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus included therein, or any amendment or supplemental
thereto, if such statement or omission was made in reliance upon and in
conformity with written information furnished by Cognizant or such underwriter,
as the case may be, to the Company for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person.
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(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Sections 4.5(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the proceeding provisions of this Section 4.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all sellers of Common Stock, or more
than one counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
4.6 CONTRIBUTION.
(a) If the indemnification provided for in Section 4.5 is unavailable
to the indemnified parties in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party and the Company
shall contribute to the amounts paid or payable by such indemnified parties as a
result of such losses, claims, damages or liabilities (i) as between the Company
and Cognizant on the one hand, and the underwriters, on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and Cognizant, on the one hand, and the underwriters, on the other, from
the public offering of the Common Stock, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and Cognizant, on
the one hand, and of the underwriters, on the other, in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations, and (ii) as
between the Company, on the one hand, and Cognizant, on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
Cognizant in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and Cognizant, on the one hand, and the underwriters, on the other,
shall be deemed to be in the same proportion as the total proceeds from the
public offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and Cognizant bear to the total
underwriting discounts and commissions received by the underwriters. The
relative fault of the Company and Cognizant, on the one hand, and of the
underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement
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of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and Cognizant or by the
underwriters. The relative fault of the Company, on the one hand, and of
Cognizant, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(b) The Company and Cognizant agree that it would not be just and
equitable if contribution pursuant to this Section 4.6 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the next preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the next preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.6, no underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Common
Stock underwritten by it and distributed to the public were offered to the
public pursuant to such public offering exceeds the amount of any damages that
such underwriter has otherwise been required to pay by reason of such untrue or
alleged statement or omission or alleged omission, and Cognizant shall not be
required to contribute any amount in excess of the amount by which the proceeds
to Cognizant from such public offering exceeds the amount of any damages that
Cognizant has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
4.7 EXPENSES.
The Company shall, whether or not any registration pursuant to this
Agreement becomes effective, pay all fees, costs and expenses incident to the
Company's performance of or compliance with this Article 4, including (i)
commission, stock exchange or NASD registration and filing fees and all listing
fees and fees with respect to the inclusion of securities in the Nasdaq National
Market, (ii) fees and expenses of compliance with federal, state and foreign
securities laws and in connection with the preparation of a "blue sky" survey,
including, without limitation, reasonable fees and expenses of blue sky counsel,
(iii) printing expenses, (iv) messenger and delivery expenses, (v) internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal and accounting duties), (vi)
fees and disbursements of counsel for the Company, (vii) with respect to each
registration, the fees and disbursements of one counsel for Cognizant (selected
by Cognizant) as well as of one local counsel (as applicable), (viii) fees and
disbursements of all independent public accountants (including the expenses of
any audit and/or "cold comfort" letter) and fees and expenses of other persons,
including special experts, retained by the Company, (ix) any fees and
disbursements of underwriters, if any, customarily paid by issuers or sellers of
securities, and (x) the preparation and execution or filing of any and all
further documents, agreements, forms, applications, contracts or consents
associated with the registration. Notwithstanding the
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foregoing, Cognizant shall pay all underwriting discounts and commissions and
transfer taxes, if any, attributable to the Common Stock transferred by it.
ARTICLE V
INDEMNIFICATION AND RELATED MATTERS
5.1 INDEMNIFICATION BY COGNIZANT.
Subject to the provisions of this Article 5, Cognizant shall indemnify and
hold the Company Indemnitees harmless from and against any and all Liabilities
suffered by the Company Indemnitees that are Cognizant Liabilities.
5.3 INDEMNIFICATION BY THE COMPANY.
(a) Subject to the provisions of this Article 5, the Company agrees
to indemnify and hold the Cognizant Indemnitees harmless from and against any
and all Liabilities suffered by the Cognizant Indemnitees that are Company
Liabilities; provided, however, that nothing contained herein shall entitle
Cognizant to indemnification for Liabilities resulting from the breach by
Cognizant of any of the Intercompany Agreements or for any matters subject to
the indemnification provisions of any underwriting agreement entered into in
connection with the IPO or any registered public offering pursuant to Article IV
hereof or for any matters otherwise subject to the indemnification provisions of
Article IV hereof nor shall anything contained herein entitle any director of
the Company to indemnification for Liabilities for which a corporation is not
permitted under Section 145 of the Delaware General Corporation Law to indemnify
its directors or eliminate the liability of any director of the Company for
breach of fiduciary duty except as permitted by Section 102(b)(7) of the
Delaware General Corporation Law.
5.3 DETERMINATION OF DAMAGES AND RELATED MATTERS.
In calculating any amounts payable to the Company pursuant to Section 5.1
or payable to Cognizant pursuant to Section 5.2, the Company or Cognizant, as
the case may be, shall receive credit for any reduction in tax liability as a
result of the facts giving rise to the claim for indemnification and for any
insurance recoveries. No amount shall be included for the Company's or
Cognizant's, as the case may be, special or consequential damages.
5.4 NOTICE OF INDEMNIFICATION.
In the event any legal proceeding shall be threatened or instituted or any
claim or demand shall be asserted by any person in respect of which payment may
be sought by one party hereto from the other party under the provisions of this
Article 5, the party seeking indemnification (the "Indemnitee") shall promptly
cause written notice of the assertion of any such claim of which it has
knowledge which is covered by this indemnity to be forwarded to the other party
(the "Indemnitor"). Any such notice shall state specifically the provision of
this Agreement with respect to which the claim is made, the facts giving rise to
an alleged basis for the claim, and the amount of the liability asserted against
the Indemnitor by reason of the claim.
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5.5 INDEMNIFICATION PROCEDURE FOR THIRD-PARTY CLAIMS.
(a) In the event of the initiation of any legal proceeding against an
Indemnitee by a third party, the Indemnitor shall have the absolute right after
the receipt of notice, at its option and at its own expense, to engage counsel
of its choice and to defend against, negotiate, settle or otherwise deal with
any proceeding, claim, or demand which relates to any loss, liability or damage
indemnified against hereunder, and the Indemnitee shall cooperate fully with the
Indemnitor and its designee; provided, however, that the Indemnitee may
participate in, but not control, any such proceeding with counsel of its choice
and at its expense.
(b) The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any legal proceeding,
claim or demand affected by this Agreement and to engage in no action or conduct
that would result in or increase liability on the part of another party. To the
extent the Indemnitor elects not to defend such proceeding, claims or demand,
and the Indemnitee defends against or otherwise deals with any such proceeding,
claim or demand, the Indemnitee may retain counsel, at the expense of the
Indemnitor, and control the defense of such proceeding. The Indemnitee may not
settle any proceeding without the consent of the Indemnitor, which shall not be
unreasonably withheld.
5.6 ASSIGNMENT OF RIGHTS UNDER THE DISTRIBUTION AGREEMENT.
Cognizant hereby assigns to the Company all rights to indemnification from
D&B and ACNielsen pursuant to the Distribution Agreement that relate to D&B
Liabilities and ACNielsen Liabilities to the extent such rights are in respect
of Liabilities suffered by the Company. Anything contained in this Section 5.6
to the contrary notwithstanding, this agreement shall not constitute an
agreement or attempted agreement to assign any contract or any claim of or right
to any benefit arising thereunder or resulting therefrom if an attempted
assignment thereof, without the consent of any other party thereto, would
constitute a breach thereof. Cognizant shall cooperate with Company, to obtain
the consent of any such third party to the assignment or transfer thereof
contemplated by this Section 5.6 to the Company in all cases in which such
consent is required for assignment. If such consent is not obtained, Cognizant
shall cooperate with the Company, at the expense of the Company, in any
arrangements reasonably necessary to provide for the Company the benefits
thereunder.
ARTICLE VI
TAX MATTERS
6.1 TAX BENEFITS.
(a) Any federal or state income tax benefits generated by the Company
and its subsidiaries (i) during the period that the Company and its affiliates
were included in Cognizant's consolidated federal income tax return or in a
state combined income tax return that included Cognizant (the "Consolidated
Returns") and (ii) utilized by Cognizant in its Consolidated Returns shall
remain the property of Cognizant and shall not give rise to any right of
reimbursement in favor of the Company. Cognizant shall bear the risk that such
benefits may be challenged and disallowed in whole or part upon subsequent
examination by the applicable tax
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authorities and in such event shall have no recourse against the Company or its
subsidiaries. Cognizant shall be responsible for properly preparing and timely
filing all Consolidated Returns and for paying all amounts shown on such
Consolidated Returns to be due and payable.
(b) All other income tax benefits (including, without limitation,
federal, state, local and foreign income tax benefits) generated by the Company
and its affiliates during the period the Company was included in Cognizant's
Consolidated Returns shall remain the property of the Company and shall not give
rise to any right of reimbursement against the Company. The Company and its
subsidiaries shall bear the risk that such benefits may be challenged and
disallowed in whole or part upon subsequent examination by the applicable tax
authorities and in such event shall have no recourse against Cognizant. The
Company and its subsidiaries shall be responsible for properly preparing and
timely filing all tax returns (other than Consolidated Returns) that they are
required to file and for paying all amounts shown on such tax returns to be due
and payable.
6.2 TAX INDEMNITY.
(a) From and after the Effective Date, Cognizant shall indemnify and
hold the Company and its subsidiaries harmless from any (x) federal or state
income tax liability assessed or proposed to be assessed against the Company and
its subsidiaries (i) with respect to tax items or income generated by the
Company and its subsidiaries and utilized, included or includible in Cognizant's
Consolidated Returns and (ii) solely as a consequence of having been previously
included in Cognizant's Consolidated Returns and (y) liability for reasonable
legal, accounting and other fees and expenses incurred in connection with such
tax liability.
(b) From and after the Effective Date, the Company shall indemnify
and hold Cognizant harmless from any (x) income tax liability (including,
without limitation federal, state, local and foreign income tax liability)
assessed or proposed to be assessed against the Company and its subsidiaries
other than federal and state income tax liabilities for which Cognizant is
responsible pursuant to Section 6.2.(a) of this Agreement and (y) liability for
reasonable legal, accounting and other fees or expenses incurred in connection
with tax liabilities for which the Company is responsible under this Section
6.2.(b).
6.3 INDEMNIFICATION PROCEDURE.
(a) If a claim shall be made by any tax authority relating to any tax
items generated by the Company and its subsidiaries and utilized, included or
includible in Cognizant's Consolidated Returns ("Tax Claim"), Cognizant shall,
at its expense, control all proceedings and make all decisions in connection
with such Tax Claim (including selection of counsel) and, without limiting the
foregoing, may in its sole discretion pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any tax
authority with respect thereto, and may, in its sole discretion, either pay the
tax claimed and sue for a refund where applicable law permits such refund suits
or contest the Tax Claim in any permissible manner. Cognizant shall be under no
obligation to notify the Company of such Tax Claim unless the resolution thereof
may have a material adverse impact on the tax position of the Company or its
subsidiaries for any taxable period beginning after the last taxable period in
which the Company and its subsidiaries were included in a Cognizant Consolidated
Return (the "Post-Cognizant Period"), which determination shall
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be made by Cognizant acting in good faith. If the resolution of such Tax Claim
may have a material adverse impact on the tax position of the Company or its
subsidiaries for a Post-Cognizant Period, Cognizant shall promptly notify, and
consult with, the Company in order to achieve a mutually satisfactory resolution
to the Tax Claim, with both parties acting in good faith. If Cognizant and the
Company cannot agree to a mutually satisfactory resolution within 30 days of the
initial notice by Cognizant to the Company, Cognizant shall retain full control
of the resolution of such Tax Claim in accordance with the first sentence of
this Section 6.3; provided that if the Company waives its right to be
indemnified hereunder and agrees in writing to bear any cost or expense arising
from such Tax Claim and indemnify Cognizant therefor, Cognizant may, but shall
not be obligated to, relinquish control of the resolution of such Tax Claim and
shall have no further responsibility for such Tax Claim. If Cognizant does not
relinquish control of a Tax Claim pursuant to the preceding sentence, it shall
remain liable to the Company and its subsidiaries for indemnification under
Section 6.2(a)
(b) If any claim shall be made by any tax authority relating to any
tax items generated by the Company or its subsidiaries (including, without
limitation, Federal, state, local or foreign tax items) other than those
utilized, included or includible in Cognizant's Consolidated Returns ("Separate
Company Tax Claim"), the Company shall, at its expense, control all proceedings
and make all decisions in connection with such Separate Company Tax Claim
(including selection of counsel) and, without limiting the foregoing, may, in
its sole discretion, pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any tax authority with respect
thereto, and may, in its sole discretion, either pay the tax claimed and sue for
a refund where applicable law permits such refund suits or contest the Separate
Company Tax Claim in any permissible manner. The Company shall be under no
obligation to notify Cognizant of such Separate Company Tax Claim.
6.4 PRE-COGNIZANT PERIODS.
With respect to any tax benefits or liabilities generated by, or proposed
to be assessed against, the Company or its Affiliates for taxable periods prior
to the Company having been included in Cognizant's Consolidated Return (the
"Pre-Cognizant Period") which are addressed in, and governed by, the Tax
Allocation Agreement dated October 28, 1996, among D&B, Cognizant and ACNielsen
(the "TAA"), Cognizant hereby assigns the Company its rights and obligations
with respect to the Pre-Cognizant Period under the TAA.
ARTICLE VII
MISCELLANEOUS
7.1 EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective on the Effective Date.
7.2 NONASSIGNABILITY OF AGREEMENT; ASSIGNMENT TO IMS HEALTH.
(a) Except (i) by operation of law (ii) in connection with the sale
of all or substantially all the assets of a party hereto or (iii) in connection
with the Reorganization, this Agreement shall not be assignable, in whole or in
part, directly or indirectly by either party hereto without the prior written
consent of the other, and any attempt to assign any rights or obligations
arising under this Agreement without such consent shall be void; PROVIDED,
HOWEVER, that the
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provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by Cognizant and the Company and their respective successors and
permitted assigns, including, without limitation, IMS HEALTH.
(b) In connection with the Reorganization, Cognizant shall assign
this Agreement to IMS HEALTH, whereupon all references herein to Cognizant shall
be deemed to be references to IMS HEALTH.
7.3 FURTHER ASSURANCES.
Subject to the provisions hereof, each of the parties hereto shall make,
execute, acknowledge and deliver such other actions and documents as may be
reasonably required in order to effectuate the purposes of this Agreement, and
to comply with all applicable laws, regulations, orders and decrees, and obtain
all required consents and approvals and make all required filings with any
governmental agency, other regulatory or administrative agency, commission or
similar authority, as may be necessary or desirable in connection herewith.
7.4 WAIVERS.
No failure or delay on the part of Cognizant or the Company in exercising
any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, or any abandonment or discontinuance of
steps to enforce such a right, preclude any other or further exercise thereof or
the exercise of any other right. No modification or waiver of any provision of
this Agreement nor consent to any departure by Cognizant or the Company
therefrom shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Any consent or waiver by the Company under
this Section 7.3 shall be approved by at least a majority of the Independent
Directors.
7.5 ENTIRE AGREEMENT; RULES OF CONSTRUCTION.
(a) This Agreement contains the entire understanding of the parties
with respect to the transactions contemplated hereby.
(b) References in this Agreement to any gender include references to
all genders, and references to the singular include references to the plural and
vice versa. The words "include," "includes" and "including" when used in this
Agreement shall be deemed to be followed by the phase "without limitation."
Unless the context otherwise requires, the words "hereof", "hereby" and "herein"
and words of similar meaning when used in this Agreement refer to this Agreement
in its entirety and not to any particular Article, Section or provision of this
Agreement.
7.6 AMENDMENTS.
This Agreement may be amended or supplemented only in a writing execute by
the parties (PROVIDED that, in the case of the Company, such amendment or
supplement shall require the approval of at least a majority of the Independent
Directors).
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7.7 NOTICES.
All notices, requests and other communications hereunder shall be in
writing and shall be given (i) by mail (postage prepaid, registered or certified
mail, return receipt requested), (ii) by hand delivery, (iii) by nationally
recognized courier service or (iv) by telecopier, receipt confirmed, addressed
as follows (or to such other address as shall be specified by a party by notice
pursuant hereto):
(a) if to Cognizant, to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: Chief Financial Officer
Telecopier: (203) 222-4201;
with a copy to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
Telecopier: (203) 222-4313; and
(b) if to the Company, to:
Cognizant Technology Solutions Corporation
1700 Broadway, 26th Floor
New York, New York 10019
Attention: Chief Executive Officer
Telecopier: (212) 887-2450;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Julie M. Allen, Esq.
Telecopier: (212) 408-2420.
Each such notice, request or communication shall be effective (i) if mailed,
three Business Days after mailing, (ii) if delivered by hand or by nationally
recognized courier service, when delivered and (iii) if given by telecopier,
when such telecopy is transmitted and the appropriate confirmation is received.
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7.8 DISPUTE RESOLUTION.
(a) NEGOTIATION. In the event of a controversy, dispute or claim
arising out of, in connection with or relating to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement or the transactions
contemplated hereby, including, without limitation, any claim based on contract,
tort, statute or constitution (collectively, "Agreement Disputes"), a
representative of each of Cognizant and the Company (the representative of the
Company being selected by the Independent Directors) shall negotiate in good
faith for a reasonable period of time to settle such Agreement Dispute, PROVIDED
such reasonable period shall not, unless otherwise agreed by the parties in
writing, exceed 30 days from the time the parties began such negotiations;
PROVIDED FURTHER that in the event of any arbitration in accordance with Section
7.8(b) hereof, the parties shall not assert the defenses of statute of
limitations and laches arising for the period beginning after the date the
parties began negotiations hereunder, and any contractual time period or
deadline under this Agreement to which such Agreement Dispute relates shall not
be deemed to have passed until such Agreement Dispute has been resolved.
(b) ARBITRATION. If after such reasonable period such
representatives are unable to settle such Agreement Dispute (and in any event,
unless otherwise agreed in writing by the parties, after 60 days have elapsed
from the time the parties began such negotiations), such Agreement Dispute shall
be determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing International Arbitration
Rules of the American Arbitration Association (the "Rules"). In any dispute
between the parties hereto, the number of arbitrators shall be one. Any
judgment or award rendered by the arbitrator shall be final, binding and
nonappealable (except upon grounds specified in 9 U.S.C. Section 10(a) as in
effect on the date hereof). If the parties are unable to agree on an
arbitrator, the arbitrator shall be selected in accordance with the Rules. Any
controversy concerning whether an Agreement Dispute is an arbitrable Agreement
Dispute, whether arbitration has been waived, whether an assignee of this
Agreement is bound to arbitrate or as to the interpretation of enforceability of
this Section 7.8(b) shall be determined by the arbitrator. In resolving any
dispute, the parties intend that the arbitrator apply the substantive laws of
the State of New York, without regard to the choice of law principles thereof.
The parties intend that the provisions to arbitrate set forth herein be valid,
enforceable and irrevocable. The undersigned agree to comply with any award
made in any such arbitration proceedings that has become final in accordance
with the Rules and agree to enforcement of or entry of judgment upon such award,
by any court of competent jurisdiction, including the Supreme Court of the State
of New York, New York County, or the United States District Court for the
Southern District of New York. The arbitrator or arbitrators shall be entitled,
if appropriate, to award any remedy in such proceedings, including, without
limitation, monetary damages, specific performance and all other forms of legal
and equitable relief; PROVIDED, HOWEVER, that the arbitrator shall not be
entitled to award punitive damages. Without limiting the provisions of the
Rules, unless otherwise agreed in writing by or among the relevant parties or
permitted by this Agreement, the parties shall keep confidential all matters
relating to the arbitration or the award, PROVIDED such matters may be disclosed
(A) to the extent reasonably necessary in any proceeding brought to enforce the
award or for entry of a judgment upon the award and (B) to the extent otherwise
required by law. Notwithstanding Article 32 of the Rules, the party other than
the prevailing party in the arbitration shall be responsible for all of
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the costs of the arbitration, including legal fees and other costs specified by
such Article 32. Nothing contained herein is intended to or shall be construed
to prevent any party, in accordance with Article 22(3) of the Rules or
otherwise, from applying to any court of competent jurisdiction for interim
measures or other provisional relief in connection with the subject matter of
any Agreement Disputes.
(c) CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed
in writing, the parties will continue to provide service and honor all other
commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Agreement with respect to all matters not
subject to such dispute, controversy or claim.
7.9 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the choice of law principles
thereof.
7.10 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which shall, taken together, be
considered one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COGNIZANT CORPORATION
By:
-----------------------------
Name:
Title:
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit 10.8
INTERCOMPANY SERVICES AGREEMENT
-------------------------------
This Intercompany Services Agreement ("Agreement"), dated as of May 15,
1998, between Cognizant Corporation, a Delaware corporation ("Cognizant"), and
Cognizant Technology Solutions Corporation, a Delaware corporation (the
"Company").
WHEREAS, the Company is a subsidiary of Cognizant;
WHEREAS, the Company expects to effect a public offering of its Class A
Common Stock (the "IPO");
WHEREAS, Cognizant has provided the Company with various corporate
services, as more fully delineated below;
WHEREAS, following completion of the IPO, Cognizant will continue to
control the Company, and is willing to continue to provide many of the services
to the Company historically provided by it, and the Company is willing to accept
and pay for such services, as provided herein; and
WHEREAS, Cognizant intends to reorganize (the "Reorganization") by
splitting the Nielsen Media Research business from the rest of its businesses,
creating two publicly held companies, IMS Health Incorporated ("IMS HEALTH") and
Nielsen Media Research, and, in connection therewith, the capital stock of the
Company theretofore held by Cognizant will thereafter be held by IMS HEALTH;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, Cognizant and the Company hereby agree
as follows:
1. CORPORATE SERVICES TO BE MADE AVAILABLE.
During the Term (as hereinafter defined), Cognizant agrees to make
available to the Company, as required from time to time by the Company, the
services described below (collectively, the "Corporate Services") on the terms
provided herein:
(a) payroll and accounts payable services, to be provided by
Cognizant's shared transaction services center;
(b) tax advice and services, including, without limitation, the
preparation of federal, state and local tax returns, to be provided by
Cognizant's internal tax staff;
(c) risk management services, to be provided by Cognizant's
controller's staff (or through third parties providing such services to
Cognizant);
(d) financial advice and services, including, without limitation,
assistance with respect to the raising of additional capital, cash
management and treasury management, to be provided by Cognizant's treasury
staff;
<PAGE>
(e) personnel administration advice and services, including, without
limitation, the administration of employee insurance plans, savings plans
and other employee benefit plans, to be provided by Cognizant's human
resources staff;
(f) real estate services, including, without limitation, evaluation,
development and negotiation activities, and lease administration, to be
provided by Cognizant's corporate staff;
(g) electronic mail services; and
(h) such other services (other than legal services), not specified
above, which are of the type normally performed by the corporate staffs of
public corporations, to be provided by Cognizant's corporate staff.
In providing the Corporate Services to the Company, Cognizant's officers and
employees shall conduct themselves in accordance with any written policies and
procedures of the Company that are provided to Cognizant.
2. HEALTH AND WELFARE BENEFITS.
During the Term, but only for so long as Cognizant shall continue to
beneficially own at least 50%, by voting power, of the outstanding voting stock
of the Company, the employees of the Company shall continue to be eligible to be
covered by Cognizant's Employee Benefit Plans (as hereinafter defined) to the
extent, and on the same basis, as immediately prior to the Effective Date, as
such coverage shall be determined by the Company for any eligible employee;
PROVIDED, HOWEVER, that Cognizant shall have no obligation to provide such
coverage if it shall thereby become a "multiple employer welfare agent" within
the meaning of ERISA (as hereinafter defined). As used in this Agreement,
"Employee Benefit Plans" shall mean and include all "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), entered into or maintained by Cognizant for the benefit of
its and its subsidiaries employees.
3. INSURANCE.
(a) During the Term, but only for so long as Cognizant shall continue
to beneficially own at least 50%, by voting power, of the outstanding
voting stock of the Company, the Company shall be insured under all
insurance policies maintained by Cognizant, including, without limitation,
primary, excess and umbrella policies, comprehensive general liability
policies, director and officer liability, fiduciary liability, automobile
liability, aircraft liability, property, workers' compensation and employee
dishonesty insurance policies, that provide coverage for Cognizant and its
subsidiaries, including the Company and its business, property, directors
and employees (such policies being referred to herein as the "Shared
Policies"). If any person shall assert a claim against the Company or any
of its subsidiaries (including, without limitation, where the Company or
its subsidiaries are joint defendants with other persons) with respect to
any claim, suit, action, proceeding, injury, loss, liability, damage or
expense that may arise
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out of an insured or insurable occurrence under one or more of the Shared
Policies, Cognizant shall, at the time such claim is asserted, to the
extent any such Shared Policy may require that insurance proceeds
thereunder be collected directly by the named insured or anyone other than
the party against whom the insured claim is asserted, be deemed to
designate, without need of further documentation, the Company as the agent
and attorney-in-fact to assert and to collect any related insurance
proceeds under such Shared Policy, and shall further be deemed to assign,
without need of further documentation, to the Company any and all rights of
an insured party under such Shared Policy with respect to such asserted
claim, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer and the right to any
applicable insurance proceeds thereunder; PROVIDED, HOWEVER, that nothing
in this Section 3 shall be deemed to constitute (or to reflect) an
assignment of the Shared Policies, or any of them, to the Company.
(b) Except as otherwise provided in Section 3(a) hereof, from and
after the Effective Date, Cognizant shall be responsible for
administration, including claims administration, of the Shares Policies;
PROVIDED that the retention of such responsibilities by Cognizant is in no
way intended to limit, inhibit or preclude any right to insurance coverage
for any insured claim of a named insured under such Shared Policies as
contemplated by the terms of this Agreement; and PROVIDED FURTHER that
Cognizant's retention of the administrative responsibilities for the Shared
Policies shall not relieve the party submitting any insured claim of the
primary responsibility for reporting such insured claim accurately,
completely and in a timely manner or of such party's authority to settle
any such insured claim within any period permitted or required by the
relevant Shared Policy. Cognizant may discharge its administrative
responsibilities under this Section 3(b) by contracting for the provision
of services by independent parties. Each of the parties hereto shall
administer and pay any costs relating to defending its respective insured
claims under Shared Policies to the extent such defense costs are not
covered under such Shared Policies and shall be responsible for obtaining
or reviewing the appropriateness of releases upon settlement of its
respective insured claims under Shared Policies. The disbursements,
out-of-pocket expenses and direct and indirect costs of employees or agents
of Cognizant relating to administration contemplated by this Section 3(b)
shall be reimbursed in accordance with the terms of Section 4 hereof.
(c) The Company may claim coverage for insured claims under any
Shared Policy as and to the extent that such insurance is available up to
the full extent of the applicable limits of liability of such Shared Policy
(and may receive any insurance proceeds with respect thereto), subject to
the terms of this Section 3.
(d) Except as set forth herein, Cognizant shall not be liable to the
Company for claims not reimbursed by insurers for any reason not within the
control of Cognizant, including, without limitation, coinsurance
provisions, deductibles, quota share deductibles, self-insured retentions,
bankruptcy or insolvency of an insurance carrier, Shared Policy limitations
or restrictions, any coverage disputes, any failure to timely claim by
Cognizant or the Company or any defect in such claim or its processing.
3
<PAGE>
(e) In the event that the aggregate limits on any Shared Policies are
exceeded by the aggregate of outstanding insured claims by the parties
hereto, such parties agree to allocate the insurance proceeds received
thereunder based upon their respective percentage of the total of their
bona fide claims which were covered under such Shared Policy (their
"allocable portion of Insurance Proceeds"), and either party who has
received insurance proceeds in excess of such party's allocable portion of
insurance proceeds shall pay to the other party the appropriate amount so
that each party will have received its allocable portion of Insurance
Proceeds pursuant hereto. Each of the parties agrees to use commercially
reasonable efforts to maximize available coverage under the Shared Policies
and to take all commercially reasonable steps to recover from all other
responsible parties in respect of an insured claim to the extent coverage
limits under a Shared Policy have been exceeded or would be exceeded as a
result of such insured claim.
(f) In the event that both parties have bona fide claims under any
Shared Policy for which a deductible is payable, the parties agree that the
aggregate amount of the deductible paid shall be borne by the parties in
the same proportion which the Insurance Proceeds received by each such
party bears to the total Insurance Proceeds received under the applicable
Shared Policy (their "allocable share of the deductible"), and any party
who has paid more than such share of the deductible shall be entitled to
receive from the other party an appropriate amount so that each party has
borne its allocable share of the deductible pursuant hereto.
(g) The parties agree to use their commercially reasonable efforts to
cooperate with respect to the various insurance matters contemplated by
this Agreement.
4. FEES FOR SERVICES AND OTHER BENEFITS.
(a) For the Corporate Services, employee benefit plans and insurance
benefits to be provided by Cognizant to the Company hereunder, the Company
shall pay the following fees to Cognizant:
(i) for Corporate Services provided by Cognizant's shared
transaction services department, the fee set forth on Schedule 1
attached hereto;
(ii) for electronic mail, the fee set forth on Schedule 2
attached hereto;
(iii) for the employee benefit plans coverage, the fee set forth
on Schedule 3 attached hereto; and
(iv) for the insurance coverage, the fee set forth on Schedule
4 attached hereto.
Other than as set forth above, no fee shall be payable to Cognizant by the
Company for the Corporate Services provided hereunder.
4
<PAGE>
(b) The Company agrees to pay to Cognizant on the first business day
of each fiscal quarter that portion of the fees, determined as set forth in
Section 4(a), attributable to such quarter.
(c) The Company also agrees to reimburse Cognizant, within 15
Business Days (as hereinafter defined) of presentation of invoices
therefor, for all out-of-pocket expenses incurred by Cognizant in providing
Corporate Services. As used herein, "Business Day" shall mean any day that
is not a Saturday, Sunday or day on which banking institutions in New York,
New York are not required to be open.
5. REQUIREMENT OF APPROVAL BY INDEPENDENT DIRECTORS OF THE COMPANY.
All determinations on behalf of the Company made pursuant to Sections 3, 4,
7, 8 and 9(c) hereof must be approved by at least a majority of directors of the
Company who are not employed by or otherwise affiliated with Cognizant, the
Company (other than solely as a result of being a director thereof) or any of
their respective affiliates (the "Independent Directors"). In carrying out
their duties pursuant to this Agreement, the Independent Directors may retain
such independent accountants, lawyers and other experts as they deem necessary
or prudent to retain, and the expenses of all such professionals shall be
reimbursed by the Company.
6. INFORMATION AND WITNESSES.
Cognizant shall provide to the Company and the Company shall provide to
Cognizant, upon the other's written request, at reasonable times, full and
complete access to, and duplication rights with respect to, any and all such
Information (as hereinafter defined) as the other may reasonably request and
require, and Cognizant shall use commercially reasonable efforts to make
available to the Company, and the Company shall use commercially reasonable
efforts to make available to Cognizant, upon the other's written request, the
officers, directors, employees and agents of Cognizant and the Company,
respectively, as witnesses to the extent that such persons may reasonably be
required in connection with any legal, administrative or other proceedings to
which the Company or Cognizant, as the case may be, may from time to time be a
party; provided, however, that neither Cognizant nor the Company need provide
any Information or make available witnesses to the other to the extent that
doing so would (i) unreasonably interfere with the performance by any person of
such person's duties to the party to which a request under this Section 4 is
made or otherwise cause unreasonable burden to such party, (ii) result in a
waiver of any attorney-client or work product privilege of such party or its
legal counsel, (iii) require either Cognizant or the Company to provide any
Information which relates to the subject matter of any legal, administrative or
other proceeding to which Cognizant and the Company are adverse parties or (iv)
result in any breach of any agreement with a third party; and provided, further,
that the party providing Information or making available witnesses pursuant to
this Section 4 shall be entitled to receive from the other party, upon
presentation of reasonably detailed invoices therefor, payment of its
out-of-pocket costs (including reasonable attorneys' fees) incurred in
connection with providing Information or making witnesses available. The term
"Information" as used in this Section 4 means any books, records, contracts,
instruments, data, facts and other information in the possession or under the
control of either
5
<PAGE>
Cognizant or the Company necessary or desirable for use in legal, administrative
or other proceedings and for auditing, accounting and tax purposes.
7. TERM OF AGREEMENT.
This Agreement shall become effective on the initial closing date of the
IPO (the "Effective Date") and shall remain in effect (the "Term") through
December 31, 1998, and shall continue in effect thereafter for successive
one-year terms unless terminated by either party upon not less than 60 days'
written notice prior to the end of the initial term or any renewal term.
8. PRIOR SERVICES.
It is recognized that certain services of the kind described in Section 1
have been and will continue to be performed by Cognizant for the benefit of the
Company prior to the commencement of the term of this Agreement. As soon as
practicable after the Effective Date, Cognizant and the Company shall review
such services and value them in the manner set forth in Section 4 (except for
insurance, for which the fee shall be at the rate of $2,667 per month) and,
subject to approval of at least a majority of the Independent Directors as set
forth in Section 5, the Company shall pay Cognizant such fee and reimburse
Cognizant for such expenses as shall have been so determined and approved.
9. MISCELLANEOUS.
(a) NONASSIGNABILITY OF AGREEMENT; ASSIGNMENT TO IMS HEALTH. Except
(i) by operation of law, (ii) in connection with the sale of all or
substantially all the assets of a party hereto or (iii) in connection with
the Reorganization, this Agreement shall not be assignable, in whole or in
part, directly or indirectly by either party hereto without the prior
written consent of the other, and any attempt to assign any rights or
obligations arising under this Agreement without such consent shall be
void; PROVIDED, HOWEVER, that the provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Cognizant and
the Company and their respective successors and permitted assigns,
including, without limitation, IMS HEALTH. In connection with the
Reorganization, Cognizant shall assign this Agreement to IMS HEALTH,
whereupon all references herein to Cognizant shall be deemed to be
references to IMS HEALTH.
(b) FURTHER ASSURANCES. Subject to the provisions hereof, each of
the parties hereto shall make, execute, acknowledge and deliver such other
actions and documents as may be reasonably required in order to effectuate
the purposes of this Agreement, and to comply with all applicable laws,
regulations, orders and decrees, and obtain all required consents and
approvals and make all required filings with any governmental agency, other
regulatory or administrative agency, commission or similar authority, as
may be necessary or desirable in connection herewith.
(c) WAIVERS. No failure or delay on the part of Cognizant or the
Company in exercising any right hereunder shall operate as a waiver
thereof, nor shall any single or
6
<PAGE>
partial exercise of any such right, or any abandonment or discontinuance of
steps to enforce such right, preclude any other or further exercise thereof
or the exercise of any other right. No modification or waiver of any
provision of this Agreement nor consent to any departure by Cognizant or
the Company therefrom shall in any event be effective unless the same shall
be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. Any consent or
waiver by the Company under this Section 8(c) shall be approved by the
Independent Directors.
(d) ENTIRE AGREEMENT; RULES OF CONSTRUCTION. This Agreement contains
the entire understanding of the parties with respect to the transactions
contemplated hereby. References in this Agreement to any gender include
references to all genders, and references to the singular include
references to the plural and vice versa. The words "include", "includes"
and "including" when used in this Agreement shall be deemed to be followed
by the phrase "without limitation." Unless the context otherwise requires,
the words "hereof", "hereby" and "herein" and words of similar meaning when
used in this Agreement refer to this Agreement in its entirety and not to
any particular Article, Section or provision of this Agreement.
(e) AMENDMENTS. This Agreement may be amended or supplemented only
in a writing executed by the parties (provided that, in the case of the
Company, such amendment or supplement shall require the approval of the
Independent Directors).
(f) NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be given (i) by mail (postage
prepaid, registered or certified mail, return receipt requested), (ii) by
hand delivery, (iii) by nationally recognized courier service or (iv) by
telecopier, receipt confirmed, addressed as follows (or to such other
address as shall be specified by a party by notice pursuant hereto):
(i) if to Cognizant, to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: Chief Financial Officer
Telecopier: (203) 222-4201;
with a copy to:
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Attention: General Counsel
Telecopier: (203) 222-4313; and
7
<PAGE>
(ii) if to the Company, to:
Cognizant Technology Solutions Corporation
1700 Broadway, 26th Floor
New York, New York 10019
Attention: Chief Executive Officer
Telecopier: (212) 887-2450;
with copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10012
Attention: Julie M. Allen, Esq.
Telecopier: (212) 408-2420.
Each such notice, request or communication shall be effective (i) if mailed,
three Business Days after mailing, (ii) if delivered by hand or by nationally
recognized courier service, when delivered and (iii) if given by telecopier,
when such telecopy is transmitted and the appropriate confirmation is received.
(g) DISPUTE RESOLUTION.
(i) NEGOTIATION. In the event of a controversy dispute or claim
arising out of, in connection with or relating to the interpretation,
performance, nonperformance, validity or breach of this Agreement or
otherwise arising out of, or in any way related to, this Agreement or the
transactions contemplated hereby, including, without limitation, any claim
based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), a representative of each of Cognizant and the Company (the
representative of the Company being selected by the Independent Directors)
shall negotiate in good faith for a reasonable period of time to settle
such Agreement Dispute; PROVIDED, HOWEVER, that such reasonable period
shall not, unless otherwise agreed by the parties in writing, exceed 30
days from the time the parties began such negotiations; PROVIDED FURTHER
that in the event of any arbitration in accordance with Section 8(g) (ii)
hereof, the parties shall not assert the defenses of statute of limitations
and laches arising for the period beginning after the date the parties
began negotiations hereunder, and any contractual time period or deadline
under this Agreement to which such Agreement Dispute relates shall not be
deemed to have passed until such Agreement Dispute has been resolved.
(ii) ARBITRATION. If after such reasonable period such
representatives are unable to settle such Agreement Dispute (and in any
event, unless otherwise agreed in writing by the parties, after 60 days
have elapsed from the time the parties began such negotiations), such
Agreement Dispute shall be determined, at the request of either party, by
arbitration conducted in New York City, before and
8
<PAGE>
in accordance with the then-existing International Arbitration Rules
of the American Arbitration Association (the "Rules"). In any dispute
between the parties hereto, the number of arbitrators shall be one.
Any judgment or award rendered by the arbitrator shall be final,
binding and nonappealable (except upon grounds specified in 9 U.S.C.
Section 10(a) as in effect on the date hereof). If the parties are
unable to agree on an arbitrator, the arbitrator shall be selected in
accordance with the Rules. Any controversy concerning whether an
Agreement Dispute is an arbitrable Agreement Dispute, whether
arbitration has been waived, whether an assignee of this Agreement is
bound to arbitrate or as to the interpretation of enforceability of
this Section 8 (g) (ii) shall be determined by the arbitrator. In
resolving any dispute, the parties intend that the arbitrator apply
the substantive laws of the State of New York, without regard to the
choice of law principles thereof. The parties intend that the
provisions to arbitrate set forth herein be valid, enforceable and
irrevocable. The undersigned agree to comply with any award made in
any such arbitration proceedings that has become final in accordance
with the Rules and agree to enforcement of or entry of judgment upon
such award, by any court of competent jurisdiction, including the
Supreme Court of the State of New York, New York County, or the United
States District Court for the Southern District of New York. The
arbitrator shall be entitled, if appropriate, to award any remedy in
such proceedings, including, without limitation, monetary damages,
specific performance and all other forms of legal and equitable
relief; provided, however, that the arbitrator shall not be entitled
to award punitive damages. Without limiting the provisions of the
Rules, unless otherwise agreed in writing by or among the relevant
parties or permitted by this Agreement, the parties shall keep
confidential all matters relating to the arbitration or the award,
provided such matters may be disclosed (A) to the extent reasonably
necessary in any proceeding brought to enforce the award or for entry
of a judgment upon the award and (B) to the extent otherwise required
by law. Notwithstanding Article 32 of the Rules, the party other than
the prevailing party in the arbitration shall be responsible for all
of the costs of the arbitration, including legal fees and other costs
specified by such Article 32. Nothing contained herein is intended to
or shall be construed to prevent any party, in accordance with Article
22(3) of the Rules or otherwise, from applying to any court of
competent jurisdiction for interim measures or other provisional
relief in connection with the subject matter of any Agreement
Disputes.
(iii) Continuity of Service and Performance. Unless otherwise
agreed in writing, the parties will continue to provide service and
honor all other commitments under this Agreement during the course of
dispute resolution pursuant to the provisions of this Agreement with
respect to all matters not subject to such dispute, controversy or
claim.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
choice of law principles thereof.
9
<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
shall, taken together, be considered one and the same agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COGNIZANT CORPORATION
By:
----------------------------
Name:
Title:
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
By:
----------------------------
Name:
Title:
<PAGE>
Schedule 1
1998 Charge
-----------
U.S. Payroll and Payables Services $7,100 per month
<PAGE>
Schedule 2
1998 Charge
-----------
1998 Charge E-Mail Services $8,275 per month
<PAGE>
Schedule 3
Rate (US$) per person/month
---------------------------
POS Medical (only) & Dental $375
Medical/Dental/Basic Life/ Dependent
Care/Financial Planning/Disability $500
Medical/Dental/Basic Life/Retirement
Dependent Care/Financial Planning/Disability $750
<PAGE>
Schedule 4
1998 Charge
-----------
Insurance Coverage 8,333 per month
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports dated March 24, 1998 (except as to Note 7 which is as of ,
1998) on our audits of the consolidated financial statements and financial
statement schedule of Cognizant Technology Solutions Corporation. We also
consent to the reference to our firm under the caption "Experts."
New York, New York
, 1998
THE RECAPITALIZATION AS DESCRIBED IN NOTE 7 TO THE CONSOLIDATED FINANCIAL
STATEMENTS HAS NOT BEEN CONSUMMATED. WHEN IT HAS BEEN CONSUMMATED, WE WILL BE IN
A POSITION TO FURNISH THE ABOVE CONSENT.
Coopers & Lybrand L.L.P.
New York, New York
May 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's audited financial statements as of December 31, 1996 and 1997
and unaudited financial statements as of March 31, 1998 and for each of
the three years in the period ended December 31, 1997 and unaudited financial
statement for the three months ended March 31, 1997 and 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 2,197 0
<SECURITIES> 0 0
<RECEIVABLES> 7,940 0
<ALLOWANCES> 177 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,247 0
<PP&E> 5,484 0
<DEPRECIATION> 404 0
<TOTAL-ASSETS> 19,452 0
<CURRENT-LIABILITIES> 5,325 0
<BONDS> 0 0
438 0
0 0
<COMMON> 65 0
<OTHER-SE> 3,693 0
<TOTAL-LIABILITY-AND-EQUITY> 4,196 0
<SALES> 0 0
<TOTAL-REVENUES> 10,238 4,256
<CGS> 0 0
<TOTAL-COSTS> 5,929 2,407
<OTHER-EXPENSES> 3,185 1,684
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,138 166
<INCOME-TAX> 426 19
<INCOME-CONTINUING> 712 44
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 712 44
<EPS-PRIMARY> .11 .01
<EPS-DILUTED> .10 .01
</TABLE>
