<PAGE>
EXHIBIT 99.1
SUBJECT TO COMPLETION OR AMENDMENT, DATED JUNE 9, 2000
INFORMATION STATEMENT RELATING TO THE SPIN-OFF OF
ST SPIN, INC.
FROM IMS HEALTH INCORPORATED
----------------------
ST SPIN, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-------------------
This Information Statement is being furnished in connection with the pro
rata distribution (the "Distribution") to holders of common stock, par value
$0.01 per share (the "IMS HEALTH Common Stock"), of IMS Health Incorporated
("IMS HEALTH"), of all outstanding shares of common stock, par value $0.01
per share (the "New Strategic Technologies Common Stock"), of ST Spin, Inc.
("New Strategic Technologies"). As of [______], 2000, New Strategic
Technologies, a wholly owned subsidiary of IMS HEALTH, will own all or
substantially all of those assets and businesses comprising the New Strategic
Technologies Business (as defined below), which accounted for approximately
14% of IMS HEALTH's revenues and 1% of its operating income in 1999.
These businesses were all previously managed as part of the core IMS segment
of IMS HEALTH. See "New Strategic Technologies Business".
Shares of New Strategic Technologies Common Stock will be distributed to
holders of record of IMS HEALTH Common Stock as of the close of business on
[_______], 2000 (the "Record Date"). Each such holder will receive one share of
New Strategic Technologies Common Stock for every 20 shares of IMS HEALTH Common
Stock held on the Record Date. You do not have to take any action to receive
your shares of New Strategic Technologies Common Stock. Share certificates
representing shares of New Strategic Technologies Common Stock will be mailed as
promptly as practicable after the Record Date. No consideration will be paid by
holders of IMS HEALTH Common Stock for shares of New Strategic Technologies
Common Stock. Prior to the date hereof, there has not been any established
trading market for the New Strategic Technologies Common Stock, although a
"when-issued" market is expected to develop prior to the Distribution.
Application has been made for listing the shares of New Strategic Technologies
Common Stock on the Nasdaq National Market ("Nasdaq") under the symbol "[XXX]".
See "The Distribution--Listing and Trading of New Strategic Technologies Common
Stock".
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY RECIPIENTS OF NEW STRATEGIC TECHNOLOGIES COMMON
STOCK.
--------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Stockholders of IMS HEALTH with inquiries related to the Distribution
should contact EquiServe Trust Company, the Distribution Agent for the
Distribution, at 800-519-3111 or the Vice President-- Investor Relations of
IMS HEALTH at 203-222-4250.
The date of this Information Statement is [____________], 2000.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement on Form 10 relating to certain of these securities has
been filed with the Securities and Exchange Commission. This preliminary
Information Statement shall not constitute an offer to sell or the
solicitation of an offer to buy any securities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND RELATED MATTERS..................................................2
INFORMATION STATEMENT SUMMARY.....................................................................................4
NEW STRATEGIC TECHNOLOGIES SUMMARY FINANCIAL DATA.................................................................9
FORWARD-LOOKING STATEMENTS.......................................................................................10
RISK FACTORS.....................................................................................................11
THE DISTRIBUTION.................................................................................................17
RELATIONSHIP BETWEEN NEW STRATEGIC TECHNOLOGIES AND IMS HEALTH
AFTER THE DISTRIBUTION......................................................................................20
DIVIDEND POLICY..................................................................................................24
NEW STRATEGIC TECHNOLOGIES CAPITALIZATION........................................................................25
NEW STRATEGIC TECHNOLOGIES SELECTED FINANCIAL DATA...............................................................26
NEW STRATEGIC TECHNOLOGIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................27
NEW STRATEGIC TECHNOLOGIES BUSINESS..............................................................................37
NEW STRATEGIC TECHNOLOGIES MANAGEMENT AND EXECUTIVE
COMPENSATION................................................................................................43
NEW STRATEGIC TECHNOLOGIES SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............................................................................52
DESCRIPTION OF NEW STRATEGIC TECHNOLOGIES CAPITAL STOCK..........................................................54
AVAILABLE INFORMATION............................................................................................62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................62
REPORTS OF NEW STRATEGIC TECHNOLOGIES............................................................................62
INDEX TO FINANCIAL STATEMENTS.................................................................................. F-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE DISTRIBUTION AND RELATED MATTERS
The following section answers various questions that you may have with
respect to the pro rata distribution to IMS HEALTH stockholders of all of the
outstanding shares of New Strategic Technologies Common Stock. We refer to this
distribution in this document as the "Distribution".
Q1: WHAT IS THE DISTRIBUTION?
A: The Distribution is the method by which IMS HEALTH will spin-off New
Strategic Technologies into an independent publicly traded company.
Pursuant to the Distribution, IMS HEALTH will distribute to its
stockholders as of the close of business on [__________], 2000 in a
dividend one share of New Strategic Technologies Common Stock for every 20
shares of IMS HEALTH Common Stock held. Immediately after the Distribution,
IMS HEALTH's stockholders will still own all of the businesses of IMS
HEALTH, but they will own them as two separate investments rather than as a
single investment.
Q2: WHAT IS NEW STRATEGIC TECHNOLOGIES?
A: In order to change the state of incorporation of Clark-O'Neill, Inc.
("Clark-O'Neill"), a wholly owned subsidiary of IMS HEALTH, from New Jersey
to Delaware, prior to the Distribution, ST Spin, Inc. ("New Strategic
Technologies"), a newly created Delaware corporation and another wholly
owned subsidiary of IMS HEALTH, will merge with Clark-O'Neill, with New
Strategic Technologies as the survivor in the merger. Upon the conveyance
of certain assets and stock owned by IMS HEALTH, the businesses of New
Strategic Technologies will include the pharmaceutical industry automated
sales and marketing support business of IMS Health Strategic Technologies,
Inc. and certain other foreign subsidiaries of IMS HEALTH, and
substantially all of IMS HEALTH's interactive and direct marketing
business, including the business of Clark-O'Neill as conducted prior to
the aforementioned conveyance of assets and stock owned by IMS HEALTH.
These businesses were all previously managed as part of the core IMS
segment of IMS HEALTH.
Q3: WHY IS IMS HEALTH EFFECTING THE DISTRIBUTION?
A: IMS HEALTH believes that separating New Strategic Technologies from IMS
HEALTH will enhance the performance of both IMS HEALTH and New Strategic
Technologies by providing both companies with greater managerial,
operational and financial focus to respond to market conditions in their
respective business environments. In addition, the Distribution will
provide each company with a "pure play" publicly traded equity security for
use in its compensation programs and to facilitate acquisitions and
alliances. The Distribution also should enable investors to evaluate better
the financial performance of each company, thereby enhancing the likelihood
of appropriate market valuation.
Q4: HAS IMS HEALTH DONE THIS BEFORE?
A: IMS HEALTH is experienced in effecting spin-off transactions, as IMS HEALTH
itself is the product of a spin-off from Cognizant Corporation in July
1998. Cognizant Corporation was a spin-off from The Dun & Bradstreet
Corporation in October 1996. Moreover, IMS HEALTH effected the spin-off of
IMS HEALTH's equity interest in Gartner Group, Inc. in July 1999.
Q5: WHAT IS THE TAX EFFECT OF THE DISTRIBUTION?
A: The Distribution is the most tax-efficient means of separating New
Strategic Technologies' businesses from IMS HEALTH. IMS HEALTH believes
that the Distribution should be tax-free to IMS HEALTH and to IMS HEALTH
stockholders for U.S. federal income tax purposes, except, with respect to
IMS HEALTH stockholders, for any tax payable because of any cash
stockholders may receive in lieu of a fractional share of New Strategic
Technologies Common Stock. In the opinion of McDermott, Will & Emery,
special tax counsel to IMS HEALTH, the foregoing treatment should prevail.
Q6: WHAT WILL IMS HEALTH STOCKHOLDERS RECEIVE IN THE DISTRIBUTION?
A: In the Distribution, IMS HEALTH stockholders will receive one share of New
Strategic Technologies Common Stock, and the associated Rights under New
Strategic Technologies' Stockholder Rights Plan, for
2
<PAGE>
every 20 shares of IMS HEALTH Common Stock they own. Immediately after the
Distribution, IMS HEALTH's stockholders will still own their shares of IMS
HEALTH Common Stock. Shares of IMS HEALTH Common Stock will represent
stockholders' interests in the businesses retained by IMS HEALTH and shares
of New Strategic Technologies Common Stock that stockholders receive in the
Distribution will represent their interests in the New Strategic
Technologies businesses.
Q7: WHAT HAPPENS TO IMS HEALTH SHARES AFTER THE DISTRIBUTION?
A: After the Distribution, shares of IMS HEALTH Common Stock will continue to
represent ownership of the businesses of IMS HEALTH other than the New
Strategic Technologies businesses and will continue to be publicly traded
on the New York Stock Exchange ("NYSE") under the ticker symbol "RX".
Q8: WHAT DOES AN IMS HEALTH STOCKHOLDER NEED TO DO NOW?
A: IMS HEALTH stockholders do not need to take any action. The approval of the
IMS HEALTH stockholders is not required to effect the Distribution and IMS
HEALTH is not seeking a proxy from any stockholders. IMS HEALTH
STOCKHOLDERS SHOULD NOT SEND IN THEIR IMS HEALTH SHARE CERTIFICATES TO
EFFECT THE DISTRIBUTION. IMS HEALTH stockholders will automatically receive
their shares of New Strategic Technologies Common Stock shortly following
the Distribution.
Q9: WHERE CAN IMS HEALTH STOCKHOLDERS GET MORE INFORMATION?
A: IMS HEALTH stockholders with additional questions related to the
Distribution should contact EquiServe Trust Company, the Distribution Agent
for the Distribution, at Mail Suite 4694, P.O. Box 2536, Jersey City, New
Jersey 06303-2536, 800-519-3111. Questions may also be directed to the Vice
President--Investor Relations of IMS HEALTH at IMS Health Incorporated, 200
Nyala Farms, Westport, Connecticut 06880, 203-222-4250.
3
<PAGE>
INFORMATION STATEMENT SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT. THIS SUMMARY IS INCLUDED FOR CONVENIENCE ONLY AND SHOULD
NOT BE CONSIDERED COMPLETE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS
INFORMATION STATEMENT. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS INFORMATION STATEMENT.
WHY YOU WERE SENT THIS DOCUMENT
IMS HEALTH sent you this document because you were an owner of IMS
HEALTH Common Stock on [_______], 2000. Holders of record of IMS HEALTH
Common Stock as of the close of business on [_____], 2000 will be entitled to
receive a pro rata distribution of one share of New Strategic Technologies,
which is currently a wholly owned subsidiary of IMS HEALTH, for every 20
shares of IMS HEALTH Common Stock held. We refer to this distribution in this
document as the "Distribution". No action is required on your part to
participate in the Distribution and you do not have to pay cash or other
consideration to receive your New Strategic Technologies shares. No
stockholder approval of the Distribution is required or sought. We are not
asking you for a proxy and you are requested NOT to send us a proxy.
This document describes New Strategic Technologies' businesses, the future
relationship between New Strategic Technologies and IMS HEALTH, and how this
transaction benefits IMS HEALTH and its stockholders, and provides other
information to assist you in evaluating the benefits and risks of holding or
disposing of the New Strategic Technologies shares that you will receive in the
Distribution. You should be aware of certain risks relating to the Distribution
and New Strategic Technologies' businesses, which are described in this document
beginning on page 11.
BUSINESSES OF NEW STRATEGIC TECHNOLOGIES
New Strategic Technologies ..... ST Spin, Inc. ("New Strategic Technologies")
is a newly created Delaware corporation and
a wholly owned subsidiary of IMS HEALTH.
In order to change the state of
incorporation of Clark-O'Neill, Inc.
("Clark-O'Neill"), another wholly owned
subsidiary of IMS HEALTH, from New Jersey
to Delaware, prior to the Distribution, New
Strategic Technologies will merge with
Clark-O'Neill, with New Strategic
Technologies as the survivor in the merger.
Upon the conveyance of certain assets and
stock owned by IMS HEALTH, the businesses
of New Strategic Technologies (the "New
Strategic Technologies Business") will
include the pharmaceutical industry
automated sales and marketing support
business of IMS Health Strategic
Technologies, Inc. and certain other
foreign subsidiaries of IMS HEALTH, and
substantially all of IMS HEALTH's
interactive and direct marketing
business, including the business of
Clark-O'Neill as conducted prior to the
aforementioned conveyance of assets and
stock owned by IMS HEALTH. These
businesses were all previously managed as
part of the core IMS segment of IMS
HEALTH. Wayne P. Yetter is currently the
Chief Operating Officer of IMS HEALTH.
Mr. Yetter will resign from such position
effective upon the date of the
Distribution and will become the Chief
Executive Officer of New Strategic
Technologies. Craig S. Kussman is
currently the Senior Vice President -
Corporate Development of IMS HEALTH. Mr.
Kussman will resign from such position
effective upon the date of the
Distribution and will become the Chief
Financial Officer of New Strategic
Technologies. Ronald D. Brown, currently
the Chief Executive Officer of IMS Health
Strategic Technologies, Inc., Loftus S.
Lucas, currently the General Manager of
Clark-O'Neill, and Kevin B. Tarrant,
currently the Vice President - Global
Human Resources of IMS Health Strategic
Technologies, Inc., will become the
4
<PAGE>
President, Chief Operating Officer, and Vice
President and Chief Human Resources Officer
of New Strategic Technologies, respectively,
upon the date of the Distribution. In
addition to Messrs. Yetter, Kussman, Brown,
Lucas, and Tarrant, additional executive
officers of New Strategic Technologies may
be drawn from the current management of IMS
HEALTH or its subsidiaries. See "New
Strategic Technologies Management and
Executive Compensation--New Strategic
Technologies Executive Officers". New
Strategic Technologies expects to have a
Board of Directors composed of 6 members,
including Mr. Yetter. See "New Strategic
Technologies Management and Executive
Compensation--New Strategic Technologies
Board of Directors".
THE DISTRIBUTION
Form of Transaction............. The Distribution is the method by which IMS
HEALTH will spin off New Strategic
Technologies into a publicly traded company.
In the Distribution, IMS HEALTH will
distribute to its stockholders as of the
close of business on [______], 2000 shares
of New Strategic Technologies Common Stock,
which will represent a continuing interest
in the New Strategic Technologies
businesses. After the Distribution, IMS
HEALTH's businesses will include all of the
pre-Distribution businesses of IMS HEALTH,
less the businesses that comprise the New
Strategic Technologies Business; and the
shares of IMS HEALTH Common Stock held by
IMS HEALTH stockholders will represent a
continuing ownership interest in those pre-
Distribution businesses.
Shares to be Distributed......... The Distribution will be made to holders of
record as of the close of business on the
Record Date of issued and outstanding shares
of IMS HEALTH Common Stock. Each holder of
IMS HEALTH Common Stock on the Record Date
will receive as a dividend one share of New
Strategic Technologies Common Stock for
every 20 shares of IMS HEALTH Common Stock
held. Based on the shares of IMS HEALTH
Common Stock outstanding as of [___], 2000,
the Distribution would consist of [___]
shares of New Strategic Technologies Common
Stock.
The Board of Directors of New Strategic
Technologies will adopt a stockholder rights
plan (the "New Strategic Technologies Rights
Plan") prior to the Distribution.
Certificates evidencing shares of New
Strategic Technologies Common Stock issued
in the Distribution will therefore represent
the same number of New Strategic
Technologies Rights (as defined below)
issued under the New Strategic Technologies
Rights Plan. See "Description of New
Strategic Technologies Capital Stock--New
Strategic Technologies Rights Plan". Unless
the context otherwise requires, references
herein to the New Strategic Technologies
Common Stock include the related New
Strategic Technologies Rights.
IMS HEALTH stockholders will not have to
make any payment or surrender or exchange
certificates representing shares of IMS
HEALTH Common Stock in order to receive
their pro rata share of the Distribution. No
vote of holders of IMS HEALTH Common Stock
is required or sought in connection with the
Distribution.
5
<PAGE>
Record Date..................... The "Record Date" will be [______], 2000. To
be entitled to receive shares of New
Strategic Technologies Common Stock in the
Distribution, holders of shares of IMS
HEALTH Common Stock must be stockholders as
of the close of business on the Record Date.
Distribution Date.............. The "Distribution Date" will be as soon as
practicable after the Record Date, and is
presently expected to be on or about
[_______], 2000.
Distribution Agent............ EquiServe Trust Company will be the
Distribution Agent (the "Distribution
Agent") for the Distribution.
Federal Income Tax Consequences
of the Distribution ............ IMS HEALTH believes that the Distribution
should be tax-free to IMS HEALTH and to IMS
HEALTH stockholders for U.S. federal income
tax purposes, except, with respect to IMS
HEALTH stockholders, to the extent that cash
is received in lieu of fractional share
interests of New Strategic Technologies
Common Stock. In the opinion of McDermott,
Will & Emery, special tax counsel to IMS
HEALTH, the foregoing treatment should
prevail. The tax basis of the IMS HEALTH
stockholders' shares of IMS HEALTH Common
Stock should be reduced and the shares of
New Strategic Technologies Common Stock
should be given a new tax basis, each
adjustment based on the relative fair market
values of the IMS HEALTH Common Stock and
the New Strategic Technologies Common Stock
as of the Distribution Date. IMS HEALTH will
provide appropriate information as of the
Distribution Date to each holder of record
of IMS HEALTH Common Stock as of the close
of business on the Record Date enabling such
holder to determine the tax basis of IMS
HEALTH Common Stock and the tax basis of New
Strategic Technologies Common Stock held by
such holder. See "The Distribution--Federal
Income Tax Consequences of the Distribution"
and "Risk Factors--Potential Taxation".
Stock Exchange Listing
and Trading........................ Prior to the date hereof, there has not been
any established trading market for the New
Strategic Technologies Common Stock.
Application has been made for listing the
shares of New Strategic Technologies Common
Stock on the Nasdaq National Market under
the symbol "[XXX]", and trading is expected
to commence on a "when-issued" basis prior
to the Distribution Date. On the first
Nasdaq trading day following the
Distribution Date, "when-issued" trading in
respect of the New Strategic Technologies
Common Stock will end and "regular-way"
trading will begin. See "The
Distribution--Listing and Trading of New
Strategic Technologies Common Stock".
IMS HEALTH Common Stock will continue to
trade on the NYSE after the Distribution
Date, and the symbol under which it trades
will remain "RX". See "The Distribution
--Listing and Trading of New Strategic
Technologies Common Stock".
Relationship Between New Strategic
Technologies and IMS HEALTH
After the Distribution......... Prior to the Distribution, IMS HEALTH will
enter into agreements with New Strategic
Technologies to transfer to New Strategic
Technologies selected assets and liabilities
currently held by IMS HEALTH and its
subsidiaries related to the businesses that
New
6
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Strategic Technologies is expected to
operate, to make arrangements for the
Distribution and to define the ongoing
relationships between IMS HEALTH and New
Strategic Technologies. New Strategic
Technologies and IMS HEALTH will also enter
into certain agreements providing for the
allocation of tax, employee benefits and
certain other assets and liabilities and
obligations arising from periods prior to
the Distribution, including contingent
liabilities relating to certain litigation.
Additionally, New Strategic Technologies and
IMS HEALTH will enter into agreements to
cross-license data and software products,
sublease office space, provide data
processing capabilities, provide certain
corporate services and, during a
transitional period, provide certain
shared transaction services. After the
Distribution, New Strategic Technologies
and IMS HEALTH will be separate publicly
traded companies and will not have any
other material contracts or other
arrangements between them other than
arrangements made on an arm's length
basis. See "Relationship Between New
Strategic Technologies and IMS HEALTH
After the Distribution".
Dividend Policy.................... The payment and level of cash dividends by
New Strategic Technologies after the
Distribution will be subject to the
discretion of the New Strategic Technologies
Board of Directors. New Strategic
Technologies currently intends to retain
future earnings for the development of its
business and does not anticipate paying any
cash dividends in the near future. Dividend
decisions will be based on, and affected by,
a number of factors, including the operating
results and financial requirements of New
Strategic Technologies on a stand-alone
basis as well as applicable legal and
contractual restrictions. See "Dividend
Policy".
Antitakeover Provisions........ At the time of the Distribution, the
Restated Certificate of Incorporation and
Amended and Restated By-Laws of New
Strategic Technologies will contain
provisions that may have the effect of
discouraging an acquisition or change in
control of New Strategic Technologies not
approved by its Board of Directors. Such
provisions may also have the effect of
discouraging third parties from making
proposals involving an acquisition or change
of control of New Strategic Technologies,
although such proposals, if made, might be
considered desirable by a majority of the
stockholders of New Strategic Technologies.
Such provisions could further have the
effect of making it more difficult for third
parties to cause the replacement of the
Board of Directors of New Strategic
Technologies. These provisions have been
designed to enable New Strategic
Technologies to develop its businesses and
foster its long-term growth without
disruptions caused by the threat of a
takeover not deemed by its Board of
Directors to be in the best interests of New
Strategic Technologies and its stockholders.
Certain provisions of the Distribution
Agreement to be entered into between New
Strategic Technologies and IMS HEALTH may
also have the effect of discouraging third
parties from making proposals involving an
acquisition or change in control of New
Strategic Technologies. See "Relationship
Between New Strategic Technologies and IMS
HEALTH After the Distribution--Distribution
Agreement".
At the time of the Distribution, New
Strategic Technologies will have a
stockholder rights plan. The stockholder
rights plan is designed to protect
stockholders in the event of an unsolicited
offer
7
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or other takeover tactics which, in the
opinion of the New Strategic Technologies
Board of Directors, could impair its ability
to represent stockholder interests. The
provisions of the stockholder rights plans
may render an unsolicited takeover of New
Strategic Technologies more difficult or
less likely to occur or might prevent such a
takeover. See "Description of New Strategic
Technologies Capital Stock--New Strategic
Technologies Rights Plan". New Strategic
Technologies will be subject to provisions
of Delaware corporate law which may restrict
certain business combination transactions.
See "Description of New Strategic
Technologies Capital Stock--Delaware General
Corporation Law". See also "Description of
New Strategic Technologies Capital
Stock--Provisions of New Strategic
Technologies Restated Certificate of
Incorporation and Amended and Restated
By-Laws Affecting Change in Control".
Risk Factors...................... Stockholders should carefully consider the
matters discussed under the section entitled
"Risk Factors" in this Information
Statement.
* * *
This Information Statement is being furnished by IMS HEALTH solely to
provide information to stockholders of IMS HEALTH who will receive New Strategic
Technologies Common Stock in the Distribution. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell any securities of
IMS HEALTH or New Strategic Technologies. The information contained in this
Information Statement is believed by IMS HEALTH and New Strategic Technologies
to be accurate with respect to IMS HEALTH and New Strategic Technologies as of
the date set forth on the cover. Changes may occur after that date, and IMS
HEALTH and New Strategic Technologies will not update the information except in
the normal course of their respective public disclosure practices.
8
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NEW STRATEGIC TECHNOLOGIES SUMMARY FINANCIAL DATA
The following data are qualified in their entirety by the combined
financial statements of New Strategic Technologies and other information
contained elsewhere in this Information Statement. The combined financial data
as of December 31, 1999 and November 30, 1998 and for the years ended December
31, 1999 and November 30, 1998 have been derived from the audited financial
statements of New Strategic Technologies contained elsewhere in this Information
Statement. The combined financial data as of December 31, 1998 and for the one
month period then ended and as of November 30, 1997 and for the year then ended
have been derived from financial statements of New Strategic Technologies that
have been audited, but such financial statements are not included in this
Information Statement. The financial data as of March 31, 2000 and 1999 and
November 30, 1996 and 1995, for the three months ended March 31, 2000 and 1999
and for the years ended November 30, 1996 and 1995, are unaudited. The
historical financial statements of New Strategic Technologies contained in this
Information Statement are presented as if New Strategic Technologies were a
separate entity for all periods presented. The following financial data should
be read in conjunction with, and is qualified in its entirety by, the
information set forth under "New Strategic Technologies Selected Financial Data"
and "New Strategic Technologies Management's Discussion and Analysis of
Financial Condition and Results of Operations" and New Strategic Technologies'
Combined Financial Statements and Notes thereto appearing elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AND AS OF YEAR ENDED MONTH ENDED
MARCH 31, AND AS OF AND AS OF YEARS ENDED AND AS OF NOVEMBER 30,
---------------- DECEMBER 31, DECEMBER 31, ----------------------------------
2000 1999 1999 1998 (1) 1998 (2) 1997 1996 1995
----- ------ -------- ---------- -------- ------- ------- -----
(UNAUDITED) (UNAUDITED)
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA:
Software Systems and
Services Revenue............ $46,188 $46,456 $200,557 $13,649 $149,005 $106,650 $79,144 $73,796
Net Income (Loss)............. ($1,038) $423 ($3,192) ($1,415) ($25,217) $5,380 ($1,219) ($5,351)
Pro Forma Unaudited Earnings
(Loss) Per Share of Common
Stock--Basic (3)............ ($0.07) $0.03 ($0.20) ($0.09) ($1.55) $0.33 -- --
Pro Forma Unaudited Earnings
(Loss) Per Share of Common
Stock--Diluted (3).......... ($0.07) $0.03 ($0.20) ($0.09) ($1.54) $0.33 -- --
BALANCE SHEET DATA:
Total Assets.................. $256,477 $280,740 $268,299 $290,686 $285,389 $85,021 $74,503 $81,792
</TABLE>
(1) Effective in 1999, the operating units of New Strategic Technologies
that had previously reported on a fiscal year ended November 30 revised their
reporting period to conform with IMS HEALTH's fiscal year end of December 31.
This revision of year end was made to reflect the results of operations and
financial position of operating units on a more timely basis, consistent with
business performance, and to increase operating efficiency for consolidations
and overall IMS HEALTH management purposes. The Company improved its internal
financial systems and work processes so that it could more rapidly collect,
consolidate and report worldwide information.
(2) On June 24, 1998, Cognizant Corporation, the predecessor of IMS HEALTH,
acquired Walsh International, Inc. ("Walsh"). The acquisition was accounted for
using the purchase method of accounting and, accordingly, operating results for
Walsh are included in the combined financial statements of New Strategic
Technologies from the date of acquisition.
(3) Pro forma basic earnings per share are calculated by dividing net
income (loss) by the weighted average common shares of IMS HEALTH, reflecting
the anticipated 1 for 20 distribution ratio. Pro forma diluted earnings per
share are calculated by dividing net income (loss) by dilutive potential common
shares. Dilutive potential common shares are calculated in accordance with the
treasury stock method, which assumes that proceeds from the exercise of all New
Strategic Technologies employee options are used to repurchase IMS HEALTH Common
Stock at market value. The amount of shares remaining after the proceeds are
exhausted represent the potentially dilutive effect of the options. Pro forma
diluted earnings per share does not reflect the potentially dilutive impact of
outstanding options converted into New Strategic Technologies options.
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FORWARD-LOOKING STATEMENTS
This Information Statement and other materials filed or to be filed by
IMS HEALTH or New Strategic Technologies with the Securities and Exchange
Commission (the "SEC"), as well as information included in oral statements or
other written statements made or to be made by IMS HEALTH and New Strategic
Technologies, contain statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements appear in a number of places in this document
and include, but are not limited to, all statements relating to plans for
future growth and other business development activities as well as capital
expenditures, financing sources and the effects of regulation and
competition, the terms of the Distribution and all other statements regarding
the intent, plans, beliefs or expectations of IMS HEALTH, New Strategic
Technologies or their respective directors or officers. Stockholders are
cautioned that such forward-looking statements are not assurances of future
performance or events and involve risks and uncertainties that could cause
actual results and developments to differ materially from those covered in
such forward-looking statements. These risks and uncertainties include, but
are not limited to, risks associated with operating on a global basis,
including fluctuations in the value of foreign currencies relative to the
U.S. dollar, and the ability to successfully hedge such risks or utilize cash
that may be dispersed geographically in locations that do not meet New
Strategic Technologies' cash needs; to the extent New Strategic Technologies
seeks growth through acquisitions, joint ventures and alliances, the ability
to identify and consummate acquisitions, joint ventures and alliances on
satisfactory terms; the ability to enhance or develop new or advanced
technologies and systems for their businesses on schedule and on a
cost-effective basis; the ability to successfully achieve estimated effective
tax rates and corporate overhead levels; competition, particularly in the
markets for pharmaceutical information, pharmaceutical relationship
management, and interactive marketing in the pharmaceutical industry;
regulatory, legislative and enforcement initiatives, particularly in the area
of medical privacy or those that would limit the ability to deliver
pharmaceutical prescription samples through the mail; the ability to obtain
future financing on satisfactory terms; deterioration in economic conditions,
particularly in the pharmaceutical, healthcare, or other industries in which
New Strategic Technologies' customers operate; consolidation in the
pharmaceutical industry and the other industries in which New Strategic
Technologies' customers operate; technological changes and new business
models that use the Internet or Internet-related products and services; and
the final allocation of assets and liabilities between New Strategic
Technologies and IMS HEALTH. Consequently, all the forward-looking statements
contained in this Information Statement are qualified by the information
contained or incorporated herein, including, but not limited to, the
information contained under this heading and in "Information Statement
Summary--The Distribution", "Risk Factors", "The Distribution", "New
Strategic Technologies Capitalization", "New Strategic Technologies
Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "New Strategic Technologies Business". Neither IMS HEALTH
nor New Strategic Technologies has any obligation to publicly release any
revision to any forward-looking statement contained or incorporated herein to
reflect any future events or occurrences.
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RISK FACTORS
In addition to the information contained elsewhere in this document, you
should carefully read the following risk factors related to New Strategic
Technologies and the Distribution.
DEPENDENCE ON PHARMACEUTICAL INDUSTRY
Most of New Strategic Technologies' sales force software products and
services and interactive marketing services are currently used in connection
with the marketing and sale of prescription-only drugs. This market is
undergoing a number of significant changes. These include:
- consolidations and mergers, which may reduce the number of New
Strategic Technologies' existing customers and the size of their
combined sales forces, and could also alter implementation or purchase
cycles;
- reclassification of formerly prescription-only drugs to permit their
over-the-counter sale;
- competitive pressures on New Strategic Technologies' pharmaceutical
customers resulting from the continuing shift to delivery of
healthcare through managed care organizations; and
- changes in law, such as government-mandated price reductions for
prescription-only drugs, that affect the healthcare systems in the
countries where New Strategic Technologies' customers and potential
customers are located.
There can be no guarantee that New Strategic Technologies will respond
effectively to any or all of these and other changes in the marketplace. Failure
to do so could have a material adverse effect on New Strategic Technologies'
business, operating results or financial condition.
TECHNOLOGY; COMPETITION
New Strategic Technologies competes in businesses that develop and market
sophisticated information systems, software and other technology. These systems,
software and other technology can be expected to be subject to refinements as
such systems and underlying technologies are upgraded and advanced, and there
can be no guarantee that as various systems and technologies become outdated,
New Strategic Technologies will be able to enhance or replace them, to enhance
or replace them as quickly as New Strategic Technologies' competition or to
develop and market new and better products and services in the future on
schedule and on a cost-effective basis.
There are other companies that sell sales force software products and
services and interactive marketing services that specifically target the
pharmaceutical industry. New Strategic Technologies believes that the sales
force software products and/or services offered by most of its competitors do
not address the variety of customer needs that New Strategic Technologies'
products and services address. However, these competing products may cost
less than New Strategic Technologies' products and services. New Strategic
Technologies also faces competition from many vendors that market and sell
sales force automation solutions in consumer packaged goods. In addition, New
Strategic Technologies competes with various companies that provide support
services and interactive marketing services similar to its services. New
Strategic Technologies believes that its ability to compete depends on many
factors, some of which are beyond its control, including: the number and
success of new market entrants supplying competing sales force products or
support and interactive marketing services; expansion of product lines by, or
consolidation among, existing competitors; and development and/or operation
of in-house sales force software products or services by its customers and
potential customers. Some of New Strategic Technologies' competitors and
potential competitors are part of large corporate groups and have longer
operating histories and significantly greater financial, sales and marketing,
technology and other resources than New Strategic Technologies. New Strategic
Technologies cannot assure you that it will be able to compete successfully
with these companies or that competition will not have a material adverse
effect on New Strategic Technologies' business, operating results or
financial condition.
IMS Health Strategic Technologies, Inc. ("ST") has grown its product
line from a base of niche products to products expanding into other
application areas within its customer base. Other companies that have
approached the generic Customer Relationship Management ("CRM") marketplace
with a broad-based suite of applications may enter the pharmaceutical
marketplace with a more extensive suite of products. They may also have
significant resources to apply to adapting their generic solutions into
pharmaceutical based products thereby gaining a competitive advantage.
New technologies and business models are currently being developed that
rely on the Internet and e-business technologies. Such technologies and business
models may target New Strategic Technologies' customers and may provide products
and services similar to those offered by New Strategic Technologies. Potential
competition resulting from companies that rely on the Internet may result in a
competitive shift in the marketplace and may have an adverse effect on the New
Strategic Technologies business, operating results or financial condition.
New Strategic Technologies may not be able to compete effectively in the
Internet-related products and services market. Additionally, the success of
New Strategic Technologies products may depend, in part, on New Strategic
Technologies' ability to develop products that are compatible with the
Internet. New Strategic Technologies cannot predict with any assurance
whether the Internet will be a viable commercial marketplace or whether the
demand for Internet-related products and services will increase or decrease
in the future. The increased commercial use of the Internet could require
substantial modification and customization of New Strategic Technologies
products and the introduction of new products.
Critical issues concerning the commercial use of the Internet, including
security/privacy, demand, reliability, cost, ease of use, accessibility, quality
of service and potential tax or other government regulation, remain unresolved
and may affect the use of the Internet as a medium to support the functionality
of New Strategic Technologies products and distribution of its software. If
these critical issues are not favorably resolved, it could have a material
adverse effect on New Strategic Technologies' business, operating results or
financial condition.
INABILITY TO INTRODUCE NEW PRODUCTS WILL SIGNIFICANTLY IMPACT RESULTS
New Strategic Technologies' future success will depend in part upon its
ability to: (i) continue to enhance and expand its core applications; (ii)
continue to provide best-in-class enterprise solutions; (iii) enter new markets;
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and (iv) develop and introduce new products that satisfy increasingly
sophisticated customer requirements, that keep pace with technological
developments (including, in particular, developments related to the Internet)
and that are accepted in the market. New Strategic Technologies is devoting
significant resources to the enhancement of its existing products and the
development of new product lines. While New Strategic Technologies believes that
these new products and product enhancements can create significant potential for
market growth, there can be no assurance that they will be developed or
introduced in a timely manner or that they will be successful in the market. The
failure of such new products and product enhancements to be developed and
introduced into the market, to be successful in the market or otherwise to
generate increased revenues could have a material adverse effect on New
Strategic Technologies' business, operating results or financial condition.
CAPITAL DEVELOPMENT; ACCESS TO CAPITAL AS AN INDEPENDENT COMPANY
New Strategic Technologies invests in research and development as well as
in capital projects to enhance existing products and services and develop new
products and services in response to technological and marketplace changes. New
Strategic Technologies will need to make significant capital expenditures over
the next several years, particularly in light of the rapid technological changes
affecting its business. Prior to the Distribution, New Strategic Technologies
has relied on IMS HEALTH for various financial and administrative services.
After the Distribution, New Strategic Technologies will be an independent entity
responsible for financing its own operations. To the extent that New Strategic
Technologies needs additional funding to finance its operations and capital
expenditures, no assurance can be given that New Strategic Technologies will be
able to access the capital markets or otherwise obtain necessary financing in
the future, or that any such financing can be obtained in a timely manner or on
commercially favorable terms.
EXPOSURE TO CERTAIN CONTINGENT LIABILITIES
New Strategic Technologies is subject to certain material contingent
liabilities. Under the terms of the Distribution Agreements relating to the 1996
spin-off of IMS HEALTH's predecessor, Cognizant Corporation ("Cognizant"), from
The Dun & Bradstreet Corporation ("D&B") and relating to the 1998 spin-off of
IMS HEALTH from Cognizant, as a condition to the Distribution, IMS HEALTH and
any company that it spins off, including New Strategic Technologies, are
required to undertake to be jointly and severally liable to D&B, ACNielsen
Corporation and Cognizant (which has since changed its name to Nielsen Media
Research, Inc.) for IMS HEALTH's obligations under the 1996 Distribution
Agreement and the 1998 Distribution Agreement, including with respect to certain
legal proceedings and potential tax liability that may arise in connection with
the aforementioned spin-offs. In addition, New Strategic Technologies is subject
to certain potential tax liability in connection with the Distribution. See
"--Potential Taxation". In the event that New Strategic Technologies were
obligated to fund a substantial portion of such liabilities, it would have a
material adverse effect on New Strategic Technologies' financial condition. See
"New Strategic Technologies Business -- Legal Proceedings and Contingencies"
and Note 10 to the combined financial statements of New Strategic Technologies
contained elsewhere in this Information Statement.
POTENTIAL TAXATION
IMS HEALTH believes that the Distribution should be tax-free to IMS HEALTH
and to IMS HEALTH stockholders for U.S. federal income tax purposes, except,
with respect to IMS HEALTH stockholders, to the extent that cash is received in
lieu of fractional share interests of New Strategic Technologies Common Stock.
In the opinion of McDermott, Will & Emery, special tax counsel to IMS HEALTH,
the foregoing treatment should prevail.
The opinion of McDermott, Will & Emery, is based on certain factual
representations made by IMS HEALTH. If such factual representations were
incorrect in a material respect, such opinion could become moot. IMS HEALTH is
not aware of any facts or circumstances that would cause such representations to
be incorrect in a material respect. IMS HEALTH and New Strategic Technologies
will agree in the Distribution Agreement to certain restrictions on future
actions to provide further assurances that Section 355 of the Internal Revenue
Code will apply to the Distribution. See "Relationship Between New Strategic
Technologies and IMS HEALTH After the Distribution".
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which would be substantial)
would be payable by the consolidated group, of which IMS HEALTH is the common
parent and New Strategic Technologies is a member. In addition, under the
consolidated return rules, each member of the consolidated group would be
jointly and severally liable for such tax liability. If the
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Distribution occurred and it were not to qualify under Section 355 of the
Internal Revenue Code, IMS HEALTH estimates that the aggregate tax liability in
this regard would be approximately $[100] million. In the event that New
Strategic Technologies were obligated to fund a substantial portion of such
liability, it would have a material adverse effect on New Strategic
Technologies' financial condition. See "The Distribution--Federal Income Tax
Consequences of the Distribution" and Note 10 to the combined financial
statements of New Strategic Technologies contained elsewhere in this Information
Statement.
Moreover, if the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, each IMS HEALTH stockholder receiving shares of New
Strategic Technologies Common Stock in the Distribution would be treated as if
such stockholder had received a taxable distribution in an amount equal to the
fair market value of the New Strategic Technologies Common Stock received. See
"The Distribution--Federal Income Tax Consequences of the Distribution".
DISTRIBUTION OF CONTROLLED SUBSTANCES THROUGH THE MAIL
New Strategic Technologies currently distributes controlled substances to
doctors offices through the mail as part of certain interactive marketing
programs it provides on behalf of pharmaceutical manufacturers. It is very
important to New Strategic Technologies that this practice of distributing
prescription-only drugs continue. Although New Strategic Technologies is not
aware of any legislation that significantly restricts this practice, there can
be no assurance that future legislation would not restrict its ability to
provide these types of services.
NON-UNITED STATES OPERATIONS
New Strategic Technologies operates globally, deriving 49% of its revenues
in 1999 from non-U.S. operations. As a result, fluctuations in the value of
foreign currencies relative to the U.S. dollar may increase the volatility of
U.S. dollar-denominated operating results. New Strategic Technologies'
geographic expansion in emerging markets such as Eastern Europe, Mexico, South
America and Asia Pacific is expected to continue. Emerging markets tend to be
considerably less stable than established markets which may further contribute
to volatility in operating results. In addition, New Strategic Technologies is
subject to the usual risks inherent in carrying on business in certain countries
outside the United States, including possible nationalization, expropriation,
price controls or other restrictive government actions. Management believes that
the risk of nationalization or expropriation is reduced because its basic
service is the development of software systems and the delivery of information,
rather than the production of products which require manufacturing facilities or
use of natural resources.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
New Strategic Technologies does not have any operating history as an
independent public company and has relied on IMS HEALTH for various financial,
administrative and managerial advice and services in conducting its operations.
Following the Distribution, New Strategic Technologies will maintain its own
credit and banking relationships, perform its own investor relations functions,
and negotiate all contracts, including those with IMS HEALTH, at arm's length.
While the New Strategic Technologies businesses have generated positive cash
flow for IMS HEALTH, there can be no assurance that as an independent company
free cash flow will continue at the same level. Additionally, there can be no
assurance that New Strategic Technologies will be able to put in place
successfully the financial, administrative and managerial structure necessary to
operate as an independent public company, or that the development of such
structure will not require a significant amount of management's time and other
resources.
CHANGES IN TRADING PRICES OF NEW STRATEGIC TECHNOLOGIES COMMON STOCK
There can be no assurance as to the prices at which the New Strategic
Technologies Common Stock will trade before, on or after the Distribution Date.
Until the New Strategic Technologies Common Stock is fully distributed and an
orderly market develops in the New Strategic Technologies Common Stock, the
price at which such stock trades may fluctuate significantly and may be lower or
higher than the price that would be expected for a fully distributed issue.
Prices for the New Strategic Technologies Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for New Strategic Technologies Common Stock, (ii)
developments affecting the businesses of New Strategic
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Technologies generally and the impact of those factors referred to below in
particular, (iii) investor perception of New Strategic Technologies and (iv)
general economic and market conditions. Management expects that the market will
characterize New Strategic Technologies Common Stock as a healthcare information
systems and services stock, which category of stock has historically experienced
relatively greater price volatility than broader market indices.
Moreover, based on its market capitalization immediately after the
Distribution, New Strategic Technologies will be considered a
micro-capitalization stock and a number of current stockholders of IMS HEALTH
may not be permitted, by law, contract or otherwise, to hold such
micro-capitalization stocks. Additionally, IMS HEALTH Common Stock is part of
the Standard and Poor's 500 Index (the "S&P 500"). New Strategic Technologies
will not be a component in the S&P 500. Accordingly, shareholders of IMS HEALTH
which are mutual funds that base their stock holdings on the S&P 500 or a
similar index will sell the New Strategic Technologies Common Stock that they
receive in the Distribution. Any selling activity related to the
micro-capitalization of New Strategic Technologies or due to funds being limited
to holding S&P 500 component stocks could create downward pressure on the value
of New Strategic Technologies Common Stock and lengthen the period before a
stable trading market in New Strategic Technologies Common Stock develops.
RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY ON A QUARTER TO QUARTER BASIS
New Strategic Technologies' results of operations may vary from quarter to
quarter due to lengthy sales and marketing cycles and lengthy and highly
technical implementation cycles for New Strategic Technologies products and
services. The selection of a sales force software product often entails an
extended decision-making process because of the strategic implications and
substantial costs associated with a customer's license of the software. Given
the importance of the decision, senior levels of management often are involved
and, in some instances, the board of directors may be involved in this process.
As a result, the decision-making process typically takes nine to eighteen
months, although in some cases it may take even longer. Accordingly, New
Strategic Technologies cannot control or predict the timing of New Strategic
Technologies' execution of contracts with customers. In addition, an
implementation process of three to six months is customary before the software
is rolled out to a customer's sales force. However, if a customer were to delay
or extend its implementation process, quarterly revenues may decline below
expected levels and could adversely affect New Strategic Technologies' annual
results of operations.
New Strategic Technologies has historically realized a greater percentage
of license fees and service revenues in the second half of the year than in the
first half because, among other things, customers typically spend more of their
annual budget authorization for New Strategic Technologies software products and
services in the second half of the year. However, the relationship between the
amounts spent in the first and second halves of a year may vary from year to
year and from customer to customer. In addition, changes in a customers' budget
authorizations may reduce the amount of revenues New Strategic Technologies
receives from the license of additional software or the provision of additional
services. As a result, operating results could be adversely affected.
New Strategic Technologies establishes expenditure levels for product
development, sales and marketing and other operating expenses based in large
part on expected future revenues and anticipated competitive conditions. In
particular, New Strategic Technologies frequently adds staff in advance of new
business to permit adequate time for training. If the new business is
subsequently delayed or canceled, New Strategic Technologies will incur expenses
without the associated revenues. In addition, New Strategic Technologies may
increase sales and marketing expenses if competitive pressures become greater
than it currently anticipates. Because only a small portion of expenses varies
directly with actual revenues, operating results and profitability are likely to
be adversely and disproportionately affected if revenues fall below
expectations.
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PROTECTION OF INTELLECTUAL PROPERTY
New Strategic Technologies relies on a combination of trade secret,
copyright and trademark laws, non-disclosure and other contractual agreements
and technical measures to protect its proprietary technology. New Strategic
Technologies cannot guarantee that the steps it takes will prevent
misappropriation of this technology. Further, protective actions it has taken or
will take in the future may not prevent competitors from developing products
with features similar to its products. In addition, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. New Strategic Technologies has, on occasion, in response to a request
by a customer, entered into agreements which require New Strategic Technologies
to place its source code in escrow to secure its service and maintenance
obligations.
Further, New Strategic Technologies believes that its products and
trademarks do not infringe upon the proprietary rights of third parties.
However, third parties may assert infringement claims against New Strategic
Technologies in the future that may result in the imposition of damages or
injunctive relief against New Strategic Technologies. In addition, any such
claims may require New Strategic Technologies to enter into royalty
arrangements. Any of these results could have a material adverse effect on New
Strategic Technologies' business, operating results or financial condition.
SOFTWARE ERRORS COULD IMPACT RESULTS
Software products frequently contain errors or failures, especially when
first introduced or when new versions or enhancements are released. Although New
Strategic Technologies conducts extensive product testing during product
development, it could be forced to delay the commercial release of products
until the correction of software problems. New Strategic Technologies could lose
revenues as a result of software errors or defects. New Strategic Technologies
products are intended for use in sales and marketing applications that may be
critical to a customer's business. As a result, New Strategic Technologies
expects that customers and potential customers will have a greater sensitivity
to product defects than the market for software products generally. Testing
errors may also be found in new products, enhancements or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, damage to New Strategic Technologies' reputation, or
increased service and warranty costs, any of which could have a material adverse
effect on New Strategic Technologies' business, operating results or financial
condition.
CERTAIN ANTITAKEOVER PROVISIONS
At the time of the Distribution, the Restated Certificate of Incorporation
and Amended and Restated By-Laws of New Strategic Technologies will contain
provisions that may have the effect of discouraging an acquisition of control of
New Strategic Technologies not approved by its Board of Directors. Such
provisions may also have the effect of discouraging third parties from making
proposals involving an acquisition or change of control of New Strategic
Technologies, although such proposals, if made, might be considered desirable by
a majority of the stockholders of New Strategic Technologies. Such provisions
could further have the effect of making it more difficult for third parties to
cause the replacement of the Board of Directors of New Strategic Technologies.
These provisions have been designed to enable New Strategic Technologies to
develop its businesses and foster its long-term growth without disruptions
caused by the threat of a takeover not deemed by its Board of Directors to be in
the best interests of New Strategic Technologies and its stockholders. Certain
provisions of the Distribution Agreement
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may also have the effect of discouraging third parties from making proposals
involving an acquisition or change of control of New Strategic Technologies. See
"Relationship Between New Strategic Technologies and IMS HEALTH After the
Distribution--Distribution Agreement".
At the time of the Distribution, New Strategic Technologies will have a
stockholder rights plan. The stockholder rights plan is designed to protect
stockholders in the event of an unsolicited offer and other takeover tactics
which, in the opinion of the New Strategic Technologies Board of Directors,
could impair its ability to represent stockholder interests. The provisions of
the stockholder rights plan may render an unsolicited takeover of New Strategic
Technologies more difficult or less likely to occur or might prevent such a
takeover. See "Description of New Strategic Technologies Capital Stock--New
Strategic Technologies Rights Plan".
New Strategic Technologies will be subject to the provisions of Delaware
corporate law, which may restrict certain business combination transactions. See
"Description of New Strategic Technologies Capital Stock--Delaware General
Corporation Law".
ABSENCE OF PRIOR TRADING MARKET, LIQUIDITY AND VOLATILITY OF THE NEW STRATEGIC
TECHNOLOGIES COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for New Strategic Technologies Common Stock. Application will be made to list
the shares of New Strategic Technologies Common Stock on the Nasdaq under the
symbol "[XXX]", and trading is expected to commence on a "when-issued" basis
prior to the Distribution Date. New Strategic Technologies cannot predict the
extent to which investor interest in the company will lead to the development of
an active, liquid trading market. Active trading markets generally result in
lower price volatility and more efficient execution of buy and sell orders for
investors.
SHARES ELIGIBLE FOR FUTURE SALE
After the Distribution, employees and directors of New Strategic
Technologies will hold options granted under its stock-based compensation plans
to acquire shares of New Strategic Technologies Common Stock representing
approximately 24% of the fully-diluted New Strategic Technologies Common Stock.
These options have vesting periods from three to four years and 1,755,065
(representing approximately 40% of such options) are currently exercisable. New
Strategic Technologies plans to reserve approximately an additional 11% of its
fully-diluted shares outstanding immediately after the Distribution for future
equity awards. Upon the vesting and exercise of these options, additional shares
of New Strategic Technologies Common Stock will become available for future sale
in the public market. Sales of substantial amounts of New Strategic Technologies
Common Stock in the public market following the Distribution, or the perception
that such sales will occur, could have a material adverse effect on the market
price of the New Strategic Technologies Common Stock. Such sales also might make
it more difficult for New Strategic Technologies to sell equity securities in
the future at a time and at a price that it deems appropriate.
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THE DISTRIBUTION
INTRODUCTION
On [___], 2000, the Board of Directors of IMS HEALTH approved in principle
a plan to distribute New Strategic Technologies Common Stock to all holders of
outstanding IMS HEALTH Common Stock on [______], 2000. On [____], 2000, the IMS
HEALTH Board of Directors formally approved the Distribution and declared a
dividend payable to each holder of record at the close of business on the Record
Date of one share of New Strategic Technologies Common Stock for every 20 shares
of IMS HEALTH Common Stock held by such holder as of the close of business on
the Record Date.
IMS HEALTH believes that the Distribution should be tax-free to IMS HEALTH
and to IMS HEALTH stockholders for U.S. federal income tax purposes, except,
with respect to IMS HEALTH stockholders, to the extent that cash is received in
lieu of fractional share interests of New Strategic Technologies Common Stock.
In the opinion of McDermott, Will & Emery, special tax counsel to IMS HEALTH,
the foregoing treatment should prevail. On or before the Distribution Date, IMS
HEALTH will deliver all of the outstanding shares of New Strategic Technologies
Common Stock to the Distribution Agent for transfer and distribution to the
holders of record of IMS HEALTH Common Stock as of the close of business on the
Record Date. The Distribution is expected to be made on or about [____], 2000.
Questions relating to the Distribution prior to the Distribution Date or
relating to transfers of New Strategic Technologies Common Stock after the
Distribution Date should be directed to: EquiServe Trust Company, Mail Suite
4694, P.O. Box 2536, Jersey City, New Jersey 06303-2536, 800-519-3111.
REASONS FOR THE DISTRIBUTION
IMS HEALTH believes that separating New Strategic Technologies from IMS
HEALTH will enhance the performance of both IMS HEALTH and New Strategic
Technologies by providing both companies with greater managerial, operational
and financial focus to respond to market conditions in their respective business
environments. In addition, the Distribution will provide each company with a
"pure play" publicly traded equity security for use in its compensation programs
and to facilitate acquisitions and alliances. The Distribution also should
enable investors to evaluate better the financial performance of each company,
thereby enhancing the likelihood of appropriate market valuation. The discussion
of the reasons for the Distribution set forth herein includes forward-looking
statements that are based on numerous assumptions with respect to the trading
characteristics of the New Strategic Technologies Common Stock, the ability of
New Strategic Technologies management to successfully take advantage of growth
and acquisition and alliance opportunities and to successfully operate as a
stand-alone company. Many of such factors are discussed above under the captions
"Forward-Looking Statements" and "Risk Factors".
STRATEGIC FOCUS ON SINGLE BUSINESS. The Distribution should be beneficial
to IMS HEALTH and New Strategic Technologies because it will enable the
management of each company to formulate strategies focused solely on the
respective customers and business requirements of each company and to develop
capital allocation and investment priorities designed to maximize financial
performance.
The Distribution will also permit New Strategic Technologies to design
incentive compensation programs that relate more directly to its own business
characteristics and performance and will provide each company with a "pure play"
publicly traded equity security for use in its compensation programs.
INVESTOR ASSESSMENT. Investors should be able to evaluate better the
financial performance of New Strategic Technologies and its strategies, thereby
enhancing the likelihood that it will achieve appropriate market valuation.
FACILITATE GROWTH OF NEW STRATEGIC TECHNOLOGIES. New Strategic Technologies
intends to pursue acquisition, joint venture, alliance and growth opportunities
in its business areas, as well as reseller arrangements. Such acquisitions,
joint ventures, alliances and growth may be pursuant to transactions in which
New Strategic Technologies Common Stock is offered in exchange for the stock of
the target, or may be pursuant to cash acquisitions financed through the sale of
capital stock of New Strategic Technologies or debt financing.
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FORM OF TRANSACTION
The Distribution is the method by which IMS HEALTH will spin off New
Strategic Technologies into an independent publicly traded company. In the
Distribution, IMS HEALTH will distribute to its stockholders shares of New
Strategic Technologies Common Stock, which will represent a continuing interest
in New Strategic Technologies' automated sales and marketing support
technologies business and interactive marketing businesses. After the
Distribution, IMS HEALTH's businesses will include all businesses of IMS HEALTH,
less the New Strategic Technologies businesses, and the shares of IMS HEALTH
Common Stock held by IMS HEALTH stockholders will represent a continuing
ownership interest in those businesses.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to holders of record
of IMS HEALTH Common Stock at the close of business on the Record Date. Based on
the [________] shares of IMS HEALTH Common Stock outstanding as of [______],
2000, the Distribution would consist of [_________] shares of New Strategic
Technologies Common Stock. Prior to the Distribution Date, IMS HEALTH will
deliver all outstanding shares of New Strategic Technologies Common Stock to the
Distribution Agent for distribution. The Distribution Agent will mail, on or
about the Distribution Date, certificates representing the shares of New
Strategic Technologies Common Stock to IMS HEALTH stockholders of record as of
the close of business on the Record Date. Holders of IMS HEALTH Common Stock
will not receive any fractional shares of New Strategic Technologies Common
Stock in connection with the Distribution. In lieu of any fractional shares to
which such holders would otherwise be entitled, each such holder will receive a
cash payment representing such holder's proportionate interest in the net
proceeds from the sale by the Distribution Agent on behalf of such holder of the
aggregate fractional shares of New Strategic Technologies Common Stock that such
holder otherwise would be entitled to receive. Such sale shall be made by the
Distribution Agent within [____] business days after the Distribution Date.
Holders of IMS HEALTH Common Stock will not be required to pay for shares
of New Strategic Technologies Common Stock received in the Distribution, or to
surrender or exchange certificates representing shares of IMS HEALTH Common
Stock in order to receive shares of New Strategic Technologies Common Stock. No
stockholder approval of the Distribution is required or sought. We are not
asking you for a proxy and you are requested NOT to send us a proxy.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF NEW STRATEGIC TECHNOLOGIES
COMMON STOCK IN THE DISTRIBUTION, IMS HEALTH STOCKHOLDERS MUST BE STOCKHOLDERS
AT THE CLOSE OF BUSINESS ON THE RECORD DATE.
The Board of Directors of New Strategic Technologies will adopt a
stockholder rights plan prior to the Distribution. Certificates evidencing
shares of New Strategic Technologies Common Stock issued in the Distribution
will therefore represent the same number of New Strategic Technologies Rights
issued under the New Strategic Technologies Rights Plan. See "Description of New
Strategic Technologies Capital Stock--New Strategic Technologies Rights Plan".
Unless the context otherwise requires, references herein to the New Strategic
Technologies Common Stock include the related New Strategic Technologies Rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
IMS HEALTH believes that the Distribution should qualify as a tax-free
spin-off under Section 355 of the Internal Revenue Code. In the opinion of
McDermott, Will & Emery, special tax counsel to IMS HEALTH, the foregoing
treatment should prevail. If the distribution does so qualify, in general:
1. Holders of IMS HEALTH Common Stock will not recognize any income,
gain or loss as a result of the Distribution, except that holders of IMS
HEALTH Common Stock that receive cash in lieu of fractional shares of New
Strategic Technologies Common Stock will recognize gain or loss equal to
the difference between such cash and the tax basis allocated to such
fractional shares. Any such gain or loss will constitute capital gain or
loss if such fractional shares are held as capital assets on the
Distribution Date.
2. Holders of IMS HEALTH Common Stock will apportion the tax basis of
their IMS HEALTH Common Stock between such IMS HEALTH Common Stock and the
New Strategic Technologies Common Stock (including fractional shares of New
Strategic Technologies Common Stock)
18
<PAGE>
received by such holders in the Distribution in proportion to the relative
fair market values of such stock on the Distribution Date. IMS HEALTH will
provide appropriate information as of the Distribution Date to each holder
of record of IMS HEALTH Common Stock as of the close of business on the
Record Date enabling such holder to determine the tax basis of IMS HEALTH
Common Stock and the tax basis of New Strategic Technologies Common Stock
held by such holder.
3. The holding period for the New Strategic Technologies Common Stock
(including fractional shares of New Strategic Technologies Common Stock)
received in the Distribution by holders of IMS HEALTH Common Stock will
include the period during which such holders held the IMS HEALTH Common
Stock with respect to which the Distribution was made, provided that such
IMS HEALTH Common Stock is held as a capital asset by such holders on the
Distribution Date.
4. The Distribution will not be treated as a taxable disposition of
New Strategic Technologies by IMS HEALTH.
The opinion of McDermott, Will & Emery is based on certain factual
representations made by IMS HEALTH. If such factual representations were
incorrect in a material respect, such opinion could become moot. IMS HEALTH is
not aware of any facts or circumstances that would cause such representations to
be incorrect in a material respect. In the Distribution Agreement, IMS HEALTH
and New Strategic Technologies will agree to certain restrictions on future
actions to provide further assurances that Section 355 of the Internal Revenue
Code will apply to the Distribution. See "Relationship Between New Strategic
Technologies and IMS HEALTH After the Distribution".
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which, as noted below, would be
substantial) would be payable by the consolidated group, of which IMS HEALTH is
the common parent and New Strategic Technologies is a member, based on the
difference between (x) the fair market value of the New Strategic Technologies
Common Stock and (y) the adjusted basis of such New Strategic Technologies
Common Stock. In addition, under the consolidated return rules, each member of
the consolidated group would be jointly and severally liable for such tax
liability. IMS HEALTH estimates that the aggregate tax liability in this regard
would be approximately $[100] million. In the event that New Strategic
Technologies were obligated to fund a substantial portion of such liability, it
would have a material adverse effect on New Strategic Technologies' financial
condition.
Furthermore, if the Distribution were not to qualify as a tax-free
spin-off, each IMS HEALTH stockholder receiving shares of New Strategic
Technologies Common Stock in the Distribution would be treated as if such
stockholder had received a taxable distribution in an amount equal to the fair
market value of New Strategic Technologies Common Stock received, which would
result in (i) a dividend to the extent of such stockholder's pro rata share of
IMS HEALTH's current and accumulated earnings and profits, (ii) a reduction in
such stockholder's basis in IMS HEALTH Common Stock to the extent the amount
received exceeds such stockholder's share of earnings and profits until such
basis equals zero and (iii) a gain to the extent the amount received exceeds the
sum of the amount treated as a dividend and the amount treated as a reduction of
the stockholder's basis in IMS HEALTH Common Stock. Any such gain will generally
be capital gain if the IMS HEALTH Common Stock is held as a capital asset on the
Distribution Date.
Current Treasury regulations require each holder of IMS HEALTH Common Stock
who receives New Strategic Technologies Common Stock pursuant to the
Distribution to attach to his or her federal income tax return for the year in
which the Distribution occurs a detailed statement setting forth such data as
may be appropriate in order to show the applicability of Section 355 of the
Internal Revenue Code to the Distribution. IMS HEALTH will convey the
appropriate information as of the Distribution Date to each holder of record of
IMS HEALTH Common Stock as of the close of business on the Record Date.
The foregoing summary of the anticipated federal income tax consequences of
the Distribution is for general information only. IMS HEALTH STOCKHOLDERS SHOULD
CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL
TAX LAWS.
19
<PAGE>
LISTING AND TRADING OF NEW STRATEGIC TECHNOLOGIES COMMON STOCK
Prior to the date hereof, there has not been any established trading
market for New Strategic Technologies Common Stock. Application will be made
to list the shares of New Strategic Technologies Common Stock on the Nasdaq
under the symbol "[XXX]". On the first Nasdaq trading day following the
Distribution Date, "when-issued" trading in respect of the New Strategic
Technologies Common Stock will end and "regular-way" trading will begin.
There can be no assurance as to the prices at which the New Strategic
Technologies Common Stock will trade before, on or after the Distribution
Date. Until the New Strategic Technologies Common Stock is fully distributed
and an orderly market develops in the New Strategic Technologies Common
Stock, the price at which it trades may fluctuate significantly and may be
lower or higher than the price that would be expected for a fully distributed
issue. Prices for the New Strategic Technologies Common Stock will be
determined in the marketplace and may be influenced by many factors,
including (i) the depth and liquidity of the market for shares of New
Strategic Technologies Common Stock, (ii) developments affecting the
businesses of New Strategic Technologies generally including the impact of
the factors referred to in "Risk Factors" above, (iii) investor perception of
New Strategic Technologies and (iv) general economic and market conditions.
Shares of New Strategic Technologies Common Stock distributed to IMS
HEALTH stockholders will be freely transferable, except for shares of New
Strategic Technologies Common Stock received by persons who may be deemed to
be "affiliates" of New Strategic Technologies under the Securities Act of
1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of New Strategic Technologies after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with, New Strategic Technologies, and may include certain
officers and directors of New Strategic Technologies, as well as principal
stockholders of New Strategic Technologies. Persons who are affiliates of New
Strategic Technologies following the Distribution will be permitted to sell
their shares of New Strategic Technologies Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the
exemption afforded by Section 4(1) of the Securities Act or Rule 144
thereunder.
RELATIONSHIP BETWEEN NEW STRATEGIC TECHNOLOGIES
AND IMS HEALTH AFTER THE DISTRIBUTION
New Strategic Technologies is wholly owned by IMS HEALTH. Prior to the
Distribution, the New Strategic Technologies businesses have been under the
common control of IMS HEALTH, and the results of operations of the New
Strategic Technologies businesses and of entities that are or will be
subsidiaries of New Strategic Technologies have been included in IMS HEALTH's
consolidated financial statements and results of operations and reported as
part of the core IMS segment of IMS HEALTH. After the Distribution, IMS
HEALTH will not have any ownership interest in New Strategic Technologies or
its subsidiaries, and New Strategic Technologies will be an independent
publicly traded company. In addition, after the Distribution, New Strategic
Technologies will not have any ownership interest in IMS HEALTH. Furthermore,
all contractual relationships existing prior to the Distribution between IMS
HEALTH, on the one hand, and New Strategic Technologies, on the other, will
be terminated except for contracts specifically set forth in a schedule to
the Distribution Agreement.
For purposes of governing certain of the ongoing relationships between
IMS HEALTH and New Strategic Technologies after the Distribution and to
provide for an orderly transition to the status of two independent companies,
IMS HEALTH and New Strategic Technologies have entered or will enter into the
agreements described in this section prior to the Distribution. The
agreements will govern the relationship between IMS HEALTH and New Strategic
Technologies subsequent to the Distribution and provide for the allocation of
tax, employee benefits and certain other liabilities and obligations arising
from periods prior to the Distribution. Copies of the forms of such
agreements are filed as exhibits to the Registration Statement on Form 10 of
New Strategic Technologies in respect of the registration of the New
Strategic Technologies Common Stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In addition, IMS HEALTH will file a
Current Report on Form 8-K in connection with the Distribution, and the
agreements will be filed as exhibits to the Form 8-K. Such agreements may be
amended by IMS HEALTH prior to the Distribution Date.
The following description summarizes the material terms of such
agreements, but is qualified by reference to the texts of such agreements,
which are incorporated herein by reference.
20
<PAGE>
DISTRIBUTION AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into the Distribution
Agreement providing for, among other things, certain corporate transactions
required to effect the Distribution and other arrangements between IMS HEALTH
and New Strategic Technologies subsequent to the Distribution.
In particular, the Distribution Agreement defines the assets, liabilities
and contractual relationships which are being allocated to and assumed by New
Strategic Technologies and those which will remain with IMS HEALTH. The
Distribution Agreement also defines what constitutes the "New Strategic
Technologies Business" and what constitutes the "IMS HEALTH Business".
Pursuant to the Distribution Agreement, IMS HEALTH is obligated to transfer
or cause to be transferred all its right, title and interest in the assets
comprising the New Strategic Technologies Business to New Strategic Technologies
and New Strategic Technologies is obligated to transfer or cause to be
transferred all its right, title and interest in the assets comprising the IMS
HEALTH Business to IMS HEALTH. All assets are being transferred without any
representation or warranty, "as is-where is", and the relevant transferee bears
the risk that any necessary consent to transfer is not obtained. Each party also
agrees to exercise its respective commercially reasonable efforts promptly to
obtain any necessary consents and approvals and to take such actions as may be
reasonably necessary or desirable to carry out the purposes of the Distribution
Agreement and the other agreements summarized below.
The Distribution Agreement provides for, among other things, assumptions of
actual or contingent liabilities and cross indemnities designed to allocate
generally, effective as of the Distribution Date, financial responsibility for
the liabilities arising out of or in connection with (i) the businesses
conducted by New Strategic Technologies to New Strategic Technologies and (ii)
all other liabilities to IMS HEALTH. For a discussion of such businesses, see
"New Strategic Technologies Business". The Distribution Agreement provides for
the allocation generally of the financial responsibility for the liabilities
arising out of or in connection with former businesses, including those formerly
conducted by or associated with IMS HEALTH or New Strategic Technologies.
The Distribution Agreement includes provisions governing the administration
of certain insurance programs and the procedures for making claims. The
Distribution Agreement also allocates the right to proceeds and the obligation
to satisfy deductibles under certain insurance policies.
In the event that any transfers contemplated by the Distribution Agreement
are not effected on or prior to the Distribution Date, the parties will be
required to cooperate to effect such transfers as promptly as practicable
following the Distribution Date, and pending any such transfers, to hold any
asset not so transferred in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto), and to retain any
liability not so transferred for the account of the party by whom such liability
is to be assumed.
The Distribution Agreement provides that IMS HEALTH and New Strategic
Technologies will comply with and otherwise not take action inconsistent with
each representation and statement made to McDermott, Will & Emery in connection
with IMS HEALTH's request for a legal opinion as to certain tax aspects of the
Distribution. New Strategic Technologies agrees to maintain its status as a
company engaged in the active conduct of a trade or business, as defined in
Section 355(b) of the Internal Revenue Code, until the second anniversary of the
Distribution Date. New Strategic Technologies does not expect this limitation to
inhibit its financing or other activities or its ability to respond to
unanticipated developments. Under the Distribution Agreement, New Strategic
Technologies agrees that until two years after the Distribution Date it will not
(i) merge or consolidate with another corporation, (ii) liquidate or partially
liquidate, (iii) sell or transfer all or substantially all of its assets, (iv)
redeem or repurchase its stock (except in certain limited circumstances), or (v)
take any other action which would result in one or more persons acquiring a 50
percent or greater interest in New Strategic Technologies, unless, prior to
taking such action, it obtains a written opinion of a law firm or a ruling from
the Internal Revenue Service that such action will not affect the tax-free
treatment of the Distribution. As a result of the representations in the request
for a legal opinion and the covenants in the Distribution Agreement, the
acquisition of control of New Strategic Technologies prior to the second
anniversary of the Distribution Date may be more difficult or less likely to
occur because of the potential substantial liability associated with a breach of
such representations or covenants. The Distribution Agreement provides that if a
party fails to comply with the obligations described above or takes or fails to
take any action and such failure, act or omission contributes to a determination
that the Distribution or any related transaction is not tax-free to IMS HEALTH,
New Strategic Technologies or their stockholders, such party must indemnify the
other party and its stockholders from any taxes arising therefrom.
21
<PAGE>
Under the Distribution Agreement, each of IMS HEALTH and New Strategic
Technologies agrees to provide to the other party, subject to certain
conditions, access to certain corporate records and information and to provide
or cause to be provided certain services on such terms as are set forth in a
Transition Services Agreement between such parties.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any related agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by IMS HEALTH. Except as set forth in the Distribution
Agreement or any related agreement, all costs and expenses incurred directly by
New Strategic Technologies after the Distribution Date in connection with the
Distribution will be charged to and paid by New Strategic Technologies. Except
as set forth in the Distribution Agreement or any related agreement, each party
shall bear its own costs and expenses incurred after the Distribution Date.
DATA RIGHTS AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into various Data
Rights Agreements licensing both from IMS HEALTH entities to New Strategic
Technologies entities and from New Strategic Technologies entities to IMS HEALTH
entities certain data rights so as to assure continued access to such data, most
of which is significant to the uninterrupted availability of certain products
and services. The shared data will be extensive, but can be summarized as
follows:
- New Strategic Technologies utilizes IMS HEALTH's individual-level
prescription data (Xponent) to target doctor interactive marketing
programs. The use of this data is very important to optimize
promotional spending of New Strategic Technologies' pharmaceutical
clients.
- New Strategic Technologies has developed and licenses to third
parties Pharbase in various European countries, Canada and the
Asia/Pacific region. Pharbase is a database that consists of doctor
names, addresses and other related information. The Pharbase data is
also used by IMS HEALTH to define the population of doctors in each
area (geographic and therapeutic) that are writing prescriptions.
This data is critical to IMS HEALTH's targeting and sales force
compensation products.
TAX ALLOCATION AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into a Tax Allocation
Agreement under which IMS HEALTH will generally pay any taxes, or receive any
refunds or credits of taxes, shown as due on a U.S. federal, state or local
income or franchise tax return for a taxable period beginning prior to the
Distribution Date (including the current taxable period to the extent such
taxes, refunds or credits are attributable to the portion of such taxable period
up to and including the Distribution Date).
All taxes other than U.S. federal, state and local income and franchise
taxes will be the responsibility of New Strategic Technologies if they are
attributable to the New Strategic Technologies Business and of IMS HEALTH if
they are attributable to all other businesses of IMS HEALTH.
For taxable periods beginning on or after the Distribution Date (and the
portion of the current taxable period beginning after the Distribution Date),
New Strategic Technologies and IMS HEALTH will be responsible for their own
taxes.
EMPLOYEE BENEFITS AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into an Employee
Benefits Agreement (the "Employee Benefits Agreement") which allocates
responsibility with respect to certain employee benefit plans and other
employment-related matters on and after the Distribution Date.
With respect to equity-based plans, the Employee Benefits Agreement
provides generally that equity-based awards will be adjusted or converted so
that IMS HEALTH Employees' awards will relate solely to IMS HEALTH stock and New
Strategic Technologies Employees' awards will relate solely to New Strategic
Technologies stock.
22
<PAGE>
The method by which equity-based awards will be adjusted or converted is
intended to preserve the value of the award to the employee without enlarging
the employee's rights.
Accordingly, unexercised stock options held by IMS HEALTH and New Strategic
Technologies Employees as of the Distribution Date will be adjusted or converted
to maintain the then existing intrinsic value of the options and maintain the
ratio of the then existing exercise price per share to the market value per
share in accordance with applicable accounting standards. An IMS HEALTH
Employee's option will be adjusted by reference to the ratio of market prices of
IMS HEALTH stock before and after the Distribution (the "IMS HEALTH Ratio"). The
remaining option term, vesting, and other terms of the adjusted option will be
unaffected by the adjustment.
New Strategic Technologies will adopt a stock option plan for the benefit
of New Strategic Technologies Employees. A New Strategic Technologies Employee's
unexercised option to purchase IMS HEALTH stock will be converted to an option
to purchase New Strategic Technologies stock. The terms of this conversion will
be determined by reference to and in consideration of the ratio of the market
price of IMS HEALTH stock and New Strategic Technologies stock immediately
before or after the Distribution (the "New Strategic Technologies Ratio"). The
objective will be to preserve the then intrinsic value of the existing stock
options and the conversion is not expected to result in a compensation charge to
either IMS HEALTH or New Strategic Technologies. Following these events, the
aggregate market value of the New Strategic Technologies stock purchasable under
the new option immediately after the Distribution should be approximately equal
to the aggregate market value of the IMS HEALTH stock that was purchasable under
the old option immediately before the Distribution, with the aggregate exercise
price of the new option being the same as the old option (except to the extent
the number of shares purchasable is rounded down to the nearest whole share).
The option term, vesting, and other terms of the new option will be the same as
the terms of the old option.
Restricted stock and restricted stock units generally will be adjusted or
converted so that, after the Distribution, IMS HEALTH Employees will hold awards
that relate solely to IMS HEALTH stock and New Strategic Technologies Employees
will hold awards that relate solely to New Strategic Technologies stock. Such
adjustment or conversion will be done such that the award immediately after the
Distribution will have the same aggregate market value as the award immediately
before the Distribution (subject to rounding down to the nearest whole number of
shares). Similarly, such awards held by New Strategic Technologies Employees
will be replaced, with reference to the New Strategic Technologies Ratio, so
that the aggregate market value of the new award immediately after the
Distribution will equal the aggregate market value of the old award immediately
before the Distribution (subject to rounding down to the nearest whole number of
shares). Vesting and other terms of adjusted awards will remain the same, and
vesting and other terms of new awards will be the same as the corresponding
terms of the old awards.
Stock options held by non-employee directors of IMS HEALTH will be adjusted
in a manner consistent with the manner in which IMS HEALTH Employees' awards are
adjusted. Restricted stock held by non-employee directors will be cancelled
prior to the distribution and reissued afterwards with a number of shares issued
adjusted based on the IMS HEALTH Ratio. Vesting and other terms of adjusted
awards will remain the same, and vesting and other terms of new awards will be
the same as the corresponding terms of the old awards.
The applicable purchase period under the IMS HEALTH Employee Stock Purchase
Plan will be truncated prior to the Distribution Date so that awards are made
prior to the Record Date for the Distribution. A new purchase period will
commence at the beginning of the month following the Distribution. From and
after the Distribution Date, IMS HEALTH will continue to sponsor an Employee
Stock Purchase Plan for the benefit of IMS HEALTH Employees and New Strategic
Technologies will adopt the New Strategic Technologies Employee Stock Purchase
Plan for the benefit of New Strategic Technologies Employees.
As of the Distribution Date, New Strategic Technologies Employees will
generally cease participation in IMS HEALTH's employee benefit plans, and New
Strategic Technologies will generally recognize, among other things, their
respective employees' past service with IMS HEALTH under their respective
employee benefit plans. Except as specifically provided therein, nothing in the
Employee Benefits Agreement restricts IMS HEALTH's or New Strategic
Technologies' ability to amend or terminate any of their respective employee
benefit plans after the Distribution Date.
IMS Health and New Strategic Technologies will continue to sponsor and
retain liability for any employee benefits plans maintained outside the United
States with respect to their respective employees.
23
<PAGE>
DATA PROCESSING AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into various Data
Processing Agreements pursuant to which IMS HEALTH shall provide to New
Strategic Technologies certain data processing services.
SUBLEASE ARRANGEMENTS
IMS HEALTH and New Strategic Technologies will enter into certain
subleasing arrangements whereby New Strategic Technologies will continue to use
certain properties and facilities and certain personal property that it had used
during the period prior to the Distribution Date. The terms of the subleases
will be negotiated based upon an arm's length transaction using prevailing
market conditions to determine the relationship between IMS HEALTH and New
Strategic Technologies going forward. Agreements for providing local
accommodation services such as receptionist and phone services may also be
entered into.
CORPORATE SERVICES AGREEMENT
IMS HEALTH and New Strategic Technologies will enter into a Corporate
Services Agreement pursuant to which IMS HEALTH will provide New Strategic
Technologies with certain administrative and support services.
SHARED TRANSACTION SERVICES AGREEMENTS
IMS HEALTH and New Strategic Technologies will enter into Shared
Transaction Services Agreements providing for the orderly continuation, for a
transitional period after the Distribution Date, of certain of the shared
transaction and other services currently being provided at one or more of IMS
HEALTH's shared transaction services centers. Agreements may also be entered
into on a country-by-country basis to the extent similar services are provided
locally.
DIVIDEND POLICY
The payment and level of cash dividends by New Strategic Technologies after
the Distribution will be subject to the discretion of the Board of Directors of
New Strategic Technologies. New Strategic Technologies currently intends to
retain future earnings for the development of its business and does not
anticipate paying cash dividends in the near future. Future dividend decisions
will be based on, and affected by, a number of factors, including the operating
results and financial requirements of New Strategic Technologies on a
stand-alone basis.
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<PAGE>
NEW STRATEGIC TECHNOLOGIES CAPITALIZATION
The following table sets forth the unaudited capitalization of New
Strategic Technologies at March 31, 2000 on a historical basis, and at March 31,
2000 on a pro forma basis as adjusted to give effect to the Distribution and the
transactions contemplated thereby. See "The Distribution--Form of Transaction".
The following data is qualified in its entirety by the combined financial
statements of New Strategic Technologies and other information contained
elsewhere in this Information Statement. See "Risk Factors".
<TABLE>
<CAPTION>
NEW STRATEGIC TECHNOLOGIES
AT MARCH 31, 2000
------------------------------
HISTORICAL PRO FORMA
------------------------------
($ AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Cash and Cash Equivalents.................................................... $2,391 [ * ]
------- -----
Long-Term Debt............................................................... - -
Minority Interests........................................................... $690 $690
Divisional/Shareholders' Equity
Divisional Equity...................................................... 217,572 -
Preferred Stock, par value $0.01 per share,
Authorized - [500,000] shares:
Outstanding - none.................................................. - -
Series Common Stock, par value $0.01 per share,
Authorized -[500,000] shares:
Outstanding - none.................................................. - -
Common Stock, par value $0.01 per share,
Authorized - [40,000,000] shares:
Issued - [_]shares (Historical) and
[_] (Pro Forma)..................................................... - [ * ]
Capital Surplus.............................................................. - [ * ]
Retained Earnings/Deficit.................................................... - [ * ]
Cumulative Translation Adjustment............................................ (949) [ * ]
--------
Total Equity........................................................... 216,623 [ * ]
-------- -----
Total Capitalization................................................... $216,623 [ * ]
======== =====
</TABLE>
SUMMARY OF SIGNIFICANT PRO FORMA CAPITALIZATION ASSUMPTIONS
The capitalization table presented above gives effect to the Distribution
Agreement and the transactions contemplated thereby. See "Relationship Between
New Strategic Technologies and IMS HEALTH After the Distribution--Distribution
Agreement". The Distribution Agreement is to be entered into by IMS HEALTH and
New Strategic Technologies prior to the Distribution and is subject to approval
by IMS HEALTH's Board of Directors. The assumptions upon which this
capitalization table is based therefore remain to be finalized and do not
necessarily reflect all the factors that may affect the capitalization of New
Strategic Technologies at the time of the Distribution.
(1) This adjustment reflects the recapitalization of New Strategic Technologies
in connection with the Distribution.
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<PAGE>
NEW STRATEGIC TECHNOLOGIES SELECTED FINANCIAL DATA
The following data are qualified in their entirety by the unaudited
financial statements of New Strategic Technologies and other information
contained elsewhere in this Information Statement. The unaudited financial data
as of December 31, 1999 and November 30, 1998 and for the years ended December
31, 1999 and November 30, 1998 have been derived from the audited financial
statements of New Strategic Technologies contained elsewhere in this Information
Statement. The combined financial data as of December 31, 1998 and for the one
month period then ended and as of November 30, 1997 and for the year then ended
have been derived from financial statements of New Strategic Technologies that
have been audited, but such financial statements are not included in this
Information Statement. The financial data as of March 31, 2000 and 1999 and
November 30, 1996 and 1995, for the three months ended March 31, 2000 and 1999
and for the years ended November 30, 1996 and 1995 are unaudited. The historical
financial information of New Strategic Technologies contained in this
Information Statement are presented as if New Strategic Technologies were a
separate entity for all periods presented. See "The Distribution--Form of
Transaction". The following financial data should also be read in conjunction
with, and is qualified in its entirety by, the information set forth under "New
Strategic Technologies Management's Discussion and Analysis of Financial
Condition and Results of Operations" and New Strategic Technologies' Combined
Financial Statements and Notes thereto appearing elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
YEAR ENDED AND MONTH ENDED AND
THREE MONTHS ENDED AS OF AS OF
AND AS OF MARCH 31, DECEMBER 31, DECEMBER 31, YEARS ENDED AND AS OF NOVEMBER 30,
------------------- -------------- --------------- ---------------------------------------
2000 1999 1999 1998 (1) 1998(2) 1997 1996 1995
--------- -------- -------------- --------------- ------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
($ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Software Systems and
Services Revenue......... $46,188 $46,456 $200,557 $13,649 $149,005 $106,650 $79,144 $73,796
Net Income (Loss).......... ($1,038) $423 ($3,192) ($1,415) ($25,217) $5,380 ($1,219) ($5,351)
Pro Forma Earnings (Loss)
Per Share of Common
Stock--Basic............ ($0.07) $0.03 ($0.20) ($0.09) ($1.55) $0.33 -- --
Pro Forma Earnings (Loss)
Per Share of Common
Stock--Diluted.......... ($0.07) $0.03 ($0.20) ($0.09) ($1.54) $0.33 -- --
BALANCE SHEET DATA:
Total Assets............... $256,477 $280,740 268,299 $290,686 $285,389 $85,021 $74,503 $81,792
Long-Term Debt............. -- -- -- -- -- -- -- --
</TABLE>
(1) Effective in 1999, the operating units of New Strategic Technologies
that had previously reported on a fiscal year ended November 30 revised their
reporting period to conform with IMS HEALTH's fiscal year end of December 31.
This revision of year end was made to reflect the results of operations and
financial position of operating units on a more timely basis, consistent with
business performance, and to increase operating efficiency for consolidations
and overall IMS HEALTH management purposes. The Company improved its internal
financial systems and work processes so that it could more rapidly collect,
consolidate and report worldwide information.
(2) On June 24, 1998, Cognizant Corporation, the predecessor of IMS HEALTH,
acquired Walsh International, Inc. ("Walsh"). The acquisition was accounted for
using the purchase method of accounting and, accordingly, operating results for
Walsh are included in the combined financial statements of New Strategic
Technologies from the date of acquisition.
(3) Pro forma basic earnings per share are calculated by dividing net
income (loss) by the weighted average common shares of IMS HEALTH, reflecting
the anticipated 1 for 20 distribution ratio. Pro forma diluted earnings per
share are calculated by dividing net income (loss) by dilutive potential common
shares. Dilutive potential common shares are calculated in accordance with the
treasury stock method, which assumes that proceeds from the exercise of all New
Strategic Technologies employee options are used to repurchase IMS HEALTH Common
Stock at market value. The amount of shares remaining after the proceeds are
exhausted represents the potentially dilutive effect of the options. Pro forma
diluted earnings per share does not reflect the potentially dilutive impact of
outstanding options converted into New Strategic Technologies options.
26
<PAGE>
NEW STRATEGIC TECHNOLOGIES MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
(Dollar Amounts in Thousands)
OVERVIEW
IMS Health Incorporated ("IMS HEALTH") recently announced a plan to spin
off its New Strategic Technologies business unit (the "Distribution"). IMS
HEALTH is the world's leading provider of information solutions to the
pharmaceutical and healthcare industries. In order to change the state of
incorporation of Clark-O'Neill, Inc. ("Clark-O'Neill"), a wholly owned
subsidiary of IMS HEALTH, from New Jersey to Delaware, prior to the
Distribution, ST Spin, Inc. ("New Strategic Technologies"), a newly created
Delaware coporation and another wholly owned subsidiary of IMS HEALTH, will
merge with Clark-O'Neill, with New Strategic Technologies as the survivor in
the merger, which will then be distributed to the shareholders of IMS HEALTH
(see Notes 1 and 13 to the Combined Financial Statements). This transaction
has been structured as a tax-free dividend to the stockholders of IMS HEALTH
who will receive one share of New Strategic Technologies Common Stock for
every 20 shares of IMS HEALTH Common Stock held as of the record date for the
Distribution.
This discussion and analysis relates to New Strategic Technologies and
should be read in conjunction with the accompanying combined financial
statements and related notes. In addition to the business of Clark-O'Neill,
upon the conveyance of certain assets and stock owned by IMS HEALTH, the
businesses of New Strategic Technologies will include the pharmaceutical
industry automated sales and marketing support business of IMS Health
Strategic Technologies, Inc., a wholly-owned subsidiary of IMS HEALTH
(incorporated in 1983), and certain other foreign subsidiaries of IMS HEALTH;
substantially all of IMS HEALTH's interactive and direct marketing business;
and a majority interest in a foreign joint venture (see Note 1).
Collectively, these entities are referred to herein as "New Strategic
Technologies" or "the Company". After the Distribution, these businesses will
be integrated to provide a full spectrum of products and services to the
pharmaceutical industry. Historically, these businesses were managed as part
of the core IMS segment of IMS HEALTH.
The combined financial statements have been prepared using IMS HEALTH's
historical basis in assets and liabilities and historical results of
operations related to New Strategic Technologies' business. The combined
financial statements generally reflect the financial position, results of
operations and cash flows of New Strategic Technologies as if it were a
separate entity for all periods presented. The combined financial statements
include allocations of certain IMS HEALTH corporate and other expenses
(including cash management, legal, accounting, tax, employee benefits,
insurance services, data services and other corporate overhead) relating to
New Strategic Technologies' business for the years ended December 31, 1999,
November 30, 1998 and 1997 (the "Respective Periods") and the one month ended
December 31, 1998. Management believes these allocations are reasonable. They
exclude allocations of revenues and costs for certain related-party
transactions with IMS HEALTH as they relate to licensing of data (see Note 9
to the Combined Financial Statements). The financial information included
herein may not necessarily reflect the combined financial position, results
of operations and cash flows of New Strategic Technologies in the future or
what they would have been if New Strategic Technologies had been a separate
entity during the periods presented.
ACQUISITION
On June 24, 1998, Cognizant (the predecessor company to IMS HEALTH)
acquired Walsh International, Inc. ("Walsh") for an original purchase price
of $193,748 consisting of $167,148 of Cognizant common stock, $9,521 of
Cognizant stock options and direct acquisition and integration costs in the
amount of $17,079. Shares issued in the acquisition were registered under the
Securities Act of 1933, as amended. The Walsh acquisition was accounted for
as a purchase and accordingly, Walsh's results of operations are included in
the results of operations of New Strategic Technologies from June 1998.
Walsh, formed in 1988, provided New Strategic Technologies with a strong
international market presence to serve its customers on a global scale. New
Strategic Technologies recognized approximately $152,267 of goodwill related
to the acquisition, which is being amortized on a straight-line basis over 15
years. The original estimate of direct acquisition and integration costs of
$17,079 consisted of severance ($4,876), lease terminations ($2,569) and
other direct acquisition and integration costs ($9,634). Other direct costs
include primarily the professional fees of investment bankers, attorneys and
accountants, and change in control and other transaction-related bonuses paid
to Walsh personnel. The direct acquisition and integration costs were
incremental and were incurred as a direct result of the acquisition and the
formal plan to exit certain activities as part of the overall integration
effort (such as severance costs related
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to Walsh employees) and certain contractual costs (such as Walsh leases that
were to be terminated). At December 31, 1999, the program of integrating Walsh
into New Strategic Technologies had been completed. In completing the program,
New Strategic Technologies incurred higher than anticipated severance costs,
related to the termination of 78 Walsh employees, and terminated acquired Walsh
leases at a cost lower than originally anticipated at the date of the
acquisition. In addition, a certain lease scheduled for termination was
subsequently retained by New Strategic Technologies. To reflect the net
reduction in direct integration costs, the original liability estimate, the
original purchase price and goodwill have been reduced by $890. The following
table provides the activities since the acquisition with respect to these
liabilities:
<TABLE>
<CAPTION>
ORIGINAL
LIABILITY EXPENDITURES TO RECLASSIFICATIONS/ DECEMBER 31, 1999
ESTIMATE DATE ADJUSTMENTS BALANCE
------------------------- ------------------ --------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Employee Separation $ 4,876 $ (6,154) $ 1,278 $ -
Lease Terminations 2,569 (401) (2,168) -
Other Direct Costs 9,634 (9,634) 0 -
------------------------- ------------------ --------------------- ----------------------- --------------------
Total $ 17,079 $ (16,189) $ (890) $ -
</TABLE>
PURCHASE PRICE ALLOCATION
The allocation of New Strategic Technologies' aggregate purchase price
to the tangible and identifiable intangible assets acquired and liabilities
assumed in connection with the Walsh acquisition, was based primarily on
estimates of fair values by an independent appraisal firm. The final purchase
price allocation is summarized below:
---------------------------------------------------------------------
In Process R&D Write-off $ 21,900
Net Liabilities Assumed (1,609)
Software/Core Technology 29,000
Deferred Taxes (8,700)
Goodwill 152,267
--------------------------------------------- -----------------------
Final Purchase Price $192,858
--------------------------------------------- -----------------------
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
New Strategic Technologies made allocations of the aggregate purchase
price to acquired in-process research and development ("IPR&D") amounting to
$21,900 in 1998 related to the Walsh acquisition.
The Securities and Exchange Commission issued revised guidance in 1998
with respect to allocations of IPR&D projects in connection with acquisitions.
In accordance with this guidance, the amount allocated to IPR&D reflects the
relative value and contribution of the acquired IPR&D. Consideration was given
to the projects' then stage of completion, the complexity of the work completed
to date, the difficulty of completing the remaining development, costs already
incurred and the projected costs to complete the projects.
At the date of the Walsh acquisition, the development of the IPR&D
projects had not yet reached technological feasibility and had no alternative
future use. Accordingly, these costs were expensed as of the acquisition date.
The projects identified as IPR&D at Walsh include enhancement of
Walsh's Windows-based sales management information system, enhancement of its
pharmaceutical marketing database, and development of a next-stage integrated
and enhanced sales management information system. These projects were identified
as underway at Walsh and, at the date of acquisition, would require additional
effort to establish technological feasibility. In addition, based on a third
party independent appraiser, New Strategic Technologies allocated $29,000 to
existing core technology representing computer software that is currently in
use, which is being amortized over 5 years.
The discount rates utilized to value the IPR&D projects ranged from 17%
to 25%. Such discount rates took into account the industry risk for the Walsh
business acquired (as evidenced by the calculated weighted average cost of
capital), technological development risk associated with completing the
in-process projects, and market and commercial risk associated with introducing
the new products/technology. The implied weighted average cost of capital for
the different Walsh projects was 15%.
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The degree of completion represents the extent to which the different
in-process projects are complete, as of the acquisition date. The completion
percentage ranged from 53% to 87% for projects at Walsh.
New Strategic Technologies believes that the assumptions used,
including the revenue forecasts and margin analysis, are reasonable. No
assurance can be given, however, that the underlying assumptions used to
estimate expected project sales, development costs or profitability, or the
events associated with such projects, will transpire as estimated. For these
reasons, actual results may vary from the projected results.
If none of these IPR&D projects are successfully developed, the sales
and profitability of New Strategic Technologies may be adversely affected in
future periods. The failure of any particular individual project in-process
would not materially impact New Strategic Technologies' financial condition,
results of operations or cash flows. Operating results are subject to uncertain
market events and risks, which are beyond New Strategic Technologies' control,
such as trends in technology, government regulations, market size and growth,
and product introduction or other actions by competitors.
Management currently supports the IPR&D efforts that were underway at
the time of the Walsh acquisition. New Strategic Technologies has begun to
realize the estimated benefits from these various projects through product
introductions during 1999 and 2000. There are currently no significant
variations from the underlying revenue projections and estimated net cash flows,
estimated costs to complete and completion date from those assumptions made at
the time of the original purchase price allocation.
OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999 (UNAUDITED).
Revenue was essentially flat at $46,188 compared with $46,456 in 1999.
Revenue for the three months ended March 31, 2000 benefited from increased
maintenance and services revenue associated with a growing installed base of
sales force automation systems users and volume growth in interactive marketing
services, notably telemarketing and sampling programs. First quarter growth in
2000 was adversely impacted by the timing of customer decisions for purchases of
sales force automation system licenses.
Operating costs for the first three months of 2000 were $36,707 compared
with $32,724 in 1999, an increase of 12.2%. The increase is primarily due to
higher service costs related to a larger installed customer base and production
costs associated with the growth in interactive marketing services discussed
above.
Selling, general and administrative costs for the first three months of
2000 decreased to $7,487 from $7,555 in the prior year. Year over year costs
have remained essentially flat as New Strategic Technologies has now realized
the synergy benefits from the Walsh acquisition.
During the three months ended March 31, 1999 New Strategic Technologies
incurred approximately $525 of Year 2000 remediation costs. There were none in
2000. These costs were expensed as incurred.
Depreciation and amortization increased to $6,616 in the three months
ended March 31, 2000 compared with $6,106 in the comparable period of 1999,
due primarily to increased capital expenditures for computers and other
office equipment in 1999.
Operating loss for the first three months of 2000 was $4,622 compared
with a loss of $454 in 1999, a decline of $4,168, due primarily to the change in
product mix discussed above, and to higher operating costs, as noted above.
Other expense for the period was $102 compared with $19 of income in
1999. These amounts reflect third party interest expense and income and realized
foreign exchange gains and losses.
New Strategic Technologies' consolidated tax provision, calculated on a
separate-company basis, was a benefit of $3,686 for the first three months of
2000, compared with a tax benefit of $858 for the comparable quarter of 1999.
The effective tax rate of New Strategic Technologies is higher than the U.S.
federal statutory tax rate, principally due to the goodwill amortization
resulting from the acquisition of Walsh, which is not deductible for tax
purposes. Excluding this nondeductible amortization, the current estimated
full year effective tax rate in 2000 is anticipated to be comparable to that
of 1999 and considers the Company's estimate of income for the year.
29
<PAGE>
The net loss for the first three months of 2000 was $1,038, compared
with net income of $423 in 1999, a decrease of $1,461 due primarily to the
after-tax impact of the operating losses discussed above.
RESULTS BY GEOGRAPHY:
UNITED STATES. Revenue for the three months ended March 31, 2000 was
$25,689 compared with $24,038 for the same period in 1999. The increase was
largely driven by higher volumes in the interactive marketing services,
partially offset by declines in license revenue from the sales force
automation products. Operating loss for the three months ended March 31, 2000
was $4,945 compared to a loss of $4,040 for the comparable period in 1999.
All goodwill amortization resulting from the Walsh acquisition is reflected
in the U.S. results.
EUROPE. Revenue for the three months ended March 31, 2000 was $15,011
compared with $15,736 for the comparable period in 1999. The decline was
largely driven by delays in customer purchase decisions for Premiere licenses as
well as by the impact of a stronger U.S. dollar. Operating income for the three
months ended March 31, 2000 declined to $1,975 from $4,314 in the prior period
due to the revenue declines and increased costs to support a larger installed
customer base.
REST OF WORLD. Revenue for the three months ended March 31, 2000
declined to $5,488 from $6,682 in the prior period, driven largely by emerging
market shortfalls due to unfavorable economic conditions. The operating loss for
the first quarter of 2000 was $527, compared with operating income of $397, due
to the revenue shortfalls.
MONTH ENDED DECEMBER 31, 1998
Effective in 1999, the operating units of New Strategic Technologies,
that had previously reported on a fiscal year ended November 30, revised their
reporting period to conform with IMS HEALTH's fiscal year end of December 31.
This revision of year end was made to reflect the results of operations and
financial position of operating units on a more timely basis, consistent with
business performance, and to increase operating efficiency for consolidations
and overall IMS HEALTH management purposes. The Company improved its internal
financial systems and work processes so that it could more rapidly collect,
consolidate and report worldwide information. As a result, New Strategic
Technologies presents separately the results of the month ended December 31,
1998. The month of December 31, 1998 reported revenues were $13,649 and the net
loss was $1,415. December 1998 revenue and operating results were in line with
management's expectations.
YEAR ENDED DECEMBER 31, 1999 (CALENDAR) COMPARED WITH THE YEAR ENDED
NOVEMBER 30, 1998 (FISCAL)
Revenue for the year ended December 31, 1999 increased by 34.6% to
$200,557 from $149,005 in 1998. Revenue growth in 1999 was principally due to
the full-year benefit of the Walsh acquisition, which was acquired in June
1998.
Operating costs for the year ended December 31, 1999 were $134,842
compared with $103,182 in the year ended November 30, 1998, an increase of
30.7%. The increase was primarily due to the full-year impact of the Walsh
acquisition, higher production costs associated with growth in interactive
marketing services and higher labor costs associated with new sales force
automation system users in Europe and the U.S.
Selling, general and administrative expenses for the year ended December
31, 1999 increased to $33,570 from $32,364. Costs associated with geographic
expansion in Europe and Latin America were offset by cost savings realized from
the integration of the Walsh acquisition.
Depreciation and amortization increased to $25,826 in the year ended
December 31, 1999 compared with $14,068 for the year ended November 30, 1998,
primarily due to the full year impact of goodwill and acquired intangible
amortization (computer software) associated with the Walsh acquisition.
During the year ended December 31, 1999 New Strategic Technologies
incurred approximately $2,769 of Year 2000 remediation costs (no corresponding
amount in 1998). These costs were expensed as incurred. No further costs are
anticipated.
Operating income for the year ended December 31, 1999 was $3,550
compared with an operating loss of $22,509 in 1998, an increase of $26,059. The
increase is primarily due to the 1998 write-off of IPR&D ($21,900)
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<PAGE>
costs and one-time charges related to the realignment of certain New Strategic
Technologies operations as a result of the Walsh acquisition.
Other expense for the period was $270 compared with other income of
$572 in 1998. These amounts reflect third party interest income and expense and
realized foreign exchange gains and losses.
New Strategic Technologies' consolidated tax provision, calculated on a
separate company basis, was $6,472 for 1999 compared with $3,280 for 1998.
The effective tax rate of New Strategic Technologies is higher than the U.S.
federal statutory tax rate, primarily because goodwill amortization arising
principally from the Walsh acquisition is not deductible for tax purposes.
The net loss for the year ended December 1999 was $3,192, compared with
a net loss of $25,217 in 1998. The decrease in the loss is primarily due to the
after-tax impact of the operating income improvements discussed above.
RESULTS BY GEOGRAPHY:
UNITED STATES. Revenue for the year ended December 31, 1999 declined to
$104,051 from $104,713 for the year ended November 30, 1998. The decline was
primarily driven by lower sales force automation system license revenues
partially offset by higher services revenue, principally interactive
marketing services. Operating loss for the year ended December 31, 1999
decreased by $16,555 from a loss of $25,827 in the year ended November 30,
1998 to a loss of $9,272 in the year ended 1999. The lower loss was primarily
due to the IPR&D charge in 1998 and one-time charges related to the
realignment of certain Strategic Technologies operations at the time of
acquisition. All goodwill amortization resulting from the Walsh acquisition
is reflected in the U.S. results.
EUROPE. Revenue for the year ended December 31, 1999 increased to
$67,321 from $28,827 for the year ended November 30, 1998. The increase in
1999 was principally from the inclusion of Walsh for a full year in 1999 and
also benefited from new sales force automation system license revenue.
Operating income for the year ended December 31, 1999 grew to $15,677 from
$5,450 in the year ended November 30, 1998, due to the revenue increases
partially offset by higher costs to support a larger installed customer base.
REST OF WORLD. Revenue for the year ended December 31, 1999 grew to
$29,185 from $15,465 for the year ended November 30, 1998, primarily due to the
inclusion of Walsh for a full year, partially offset by weak economic conditions
in emerging markets. Operating income for the year ended December 31, 1999 was
$1,645, compared with $924 in the year ended November 30, 1998 due to the
revenue increases.
YEAR ENDED NOVEMBER 30, 1998 (FISCAL) COMPARED WITH YEAR ENDED
NOVEMBER 30, 1997 (FISCAL)
Revenue increased by 39.7% to $149,005 from $106,650 in 1997. Revenue
growth in 1998 principally resulted from the partial year inclusion of the
results of Walsh, acquired in June 1998.
Operating costs for the year ended November 30, 1998 were $103,182
compared with $74,549 in the year ended November 30, 1997, an increase of
38.4%. The increase was primarily due to the partial year inclusion of the
results of Walsh in 1998, higher production costs associated with growth in
interactive marketing products and services, and higher labor costs
associated with new sales force automation system users in Europe and the U.S.
Selling, general and administrative expenses for the year ended November
30, 1998 increased to $32,364 from $15,766 in the previous year, primarily
due to the partial year inclusion of Walsh in 1998, and costs associated with
geographic expansion in Europe and Latin America.
Depreciation and amortization increased to $14,068 in 1998 from $6,268
in the previous year, primarily due to the inclusion of goodwill and acquired
intangible amortization (computer software) associated with the acquisition
of Walsh in June 1998.
The operating loss was $22,509 in 1998 compared with operating income of
$10,067 in the previous year. The decrease of $32,576 was primarily due to
the 1998 write-off of IPR&D costs, one-time charges related to the
realignment of certain New Strategic Technologies operations at the time of
the acquisition, and the increased costs discussed above offset by increased
revenue.
31
<PAGE>
Other income, net for the period was $572 compared with other expense,
net of $109 in 1997. The change was due to realized foreign exchange gains.
New Strategic Technologies' consolidated tax provision, calculated on a
separate company basis, was $3,280 in 1998 compared with $4,578 in 1997. The
effective tax rate of New Strategic Technologies is higher than the U.S.
federal statutory tax rate, primarily because goodwill amortization and IPR&D
charge from the Walsh acquisition are not deductible for tax purposes (see
Note 7 to the combined financial statements).
The net loss for 1998 was $25,217, compared with net income of $5,380
in 1997. The decrease is due to the after-tax impact of the items discussed
above.
RESULTS BY GEOGRAPHY:
UNITED STATES. Revenue for the year ended November 30, 1998 increased to
$104,713 from $91,287 for the year ended November 30, 1997. The increase was
primarily driven by increases in sales force automation system revenue as
well as higher interactive marketing services. Operating income for the year
ended November 30, 1998 decreased by $36,265 from income of $10,438 in the
year ended November 30, 1997 to a loss of $25,827 in the year ended 1998,
principally related to IPR&D charge and one-time charges related to the
realignment of certain New Strategic Technologies operations at the time of
the acquisition.
EUROPE. Revenue for the year ended November 30, 1998 grew to $28,827
from $8,544 for the year ended November 30, 1997. The increase was primarily
driven by the partial year inclusion of Walsh in 1998, and by new sales force
automation system revenue. Operating income for the year ended November 30, 1998
increased to $5,450 from $2,690 in the prior year due to the revenue growth,
partially offset by higher labor costs associated with new sales force
automation system users.
REST OF WORLD. Revenue for the year ended November 30, 1998 grew to
$15,465 from $6,819 for the year ended November 30, 1997 due to the partial year
inclusion of Walsh in 1998, and by new sales force automation system revenue.
Operating income was $924 for the partial year ended November 30, 1998, compared
with an operating loss of $61 in the prior year. The inclusion of Walsh
accounted for the operating income growth in 1998.
NON-U.S. OPERATING AND MONETARY ASSETS
New Strategic Technologies operates globally, deriving 48% of its
revenues in 1999 from non-U.S. operations. As a result, fluctuations in the
value of foreign currencies relative to the U.S. dollar may increase the
volatility of U.S. dollar operating results.
Non-U.S. monetary assets are maintained in currencies other than the
U.S. dollar, principally those of the Euro and the Australian dollar. Changes in
the value of these currencies relative to the U.S. dollar are charged or
credited to stockholders' equity. The effect of exchange rate changes during the
quarter ended March 31, 2000 decreased the U.S. dollar amount of cash and cash
equivalents by $58.
LIQUIDITY AND CAPITAL RESOURCES
New Strategic Technologies has been operating as an entity wholly owned
by IMS HEALTH and, as such, has been dependent on IMS HEALTH for cash
management, credit and financial resources on an as needed basis to fund
operations and to fund seasonal cash needs. In the opinion of management, New
Strategic Technologies' existing cash balances combined with cash generated
from operations and lines of credit or net assets that are expected to be in
place at the time of the Distribution are expected to be sufficient to meet
New Strategic Technologies' short-term annual financing requirements.
IMS HEALTH uses a centralized cash management system to finance its
operations. Cash deposits from most of New Strategic Technologies' businesses
are transferred to IMS HEALTH on a daily basis, while IMS HEALTH funds New
Strategic Technologies' disbursement bank accounts as required. No interest has
been charged on these transactions. Cash and cash equivalents in the
accompanying financial statements represent balances in Company accounts that
are not part of the IMS HEALTH cash management system.
Net cash provided by operating activities totaled $4,546 for the three
months ended March 31, 2000 compared with $5,578 for the comparable period in
1999. The decrease of $1,032 primarily reflects higher cash
32
<PAGE>
usage for accrued liabilities and accounts payable and a higher net loss, offset
by improved deferred revenues and accounts receivable.
Net cash used in investing activities totaled $2,602 for the three
months ended March 31, 2000 compared with $3,712 for the comparable period in
1999. The decrease in cash usage of $1,110 was primarily due to lower additions
to software and lower acquisition and integration payments.
Net cash used in financing activities totaled $2,959 for the three
months ended March 31, 2000 compared with $2,316 for the comparable period in
1999. The increase in cash usage was primarily due to increased net transfers to
IMS HEALTH.
At December 31, 1999 cash and cash equivalents totaled $3,464 compared
with $2,826 at November 30, 1998 (the previous fiscal year end). The increase in
cash of $638 was due to net cash flow of $1,058 for the twelve months ended
December 31, 1999, offset by cash usage of $420 for the month ended December
1998.
Net cash provided by operating activities was $10,022, $14,764 and
$13,521 for the years ended December 31, 1999 and November 30, 1998 and 1997,
respectively. The decrease of $4,742 in 1999 was due to lower deferred revenues
and accrued liabilities, partially offset by improved accounts receivable and
accounts payable.
Net cash used in investing activities was $15,762, $17,723 and $13,553
for the years ended December 31, 1999 and November 30, 1998 and 1997,
respectively. The decrease of $1,961 in 1999 was primarily due to lower
acquisition and integration payments related to the Walsh acquisition
($7,943), offset by higher software additions ($3,663) and capital
expenditures ($2,477). The increase of $4,170 in 1998 was due to acquisition
and integration payments related to the Walsh acquisition (for which there
was no corresponding amount in 1997), partially offset by lower capital
expenditures.
Net cash provided by (used in) financing activities was $6,855, $5,239
and ($555) for the years ended December 31, 1999 and November 30, 1998 and 1997,
respectively. The increases of $1,616 in 1999 and $5,794 in 1998 reflect higher
net transfers from IMS HEALTH.
For the month ended December 31, 1998, Net cash provided by operating
activities of $5,258, reflecting prebilling of annual and quarterly
contracts, was offset by cash used in investing activities, primarily the
purchase of Logix, Inc. ($4,000) and net transfers to IMS HEALTH ($1,156).
CHANGES IN FINANCIAL POSITION AT MARCH 31, 2000 (UNAUDITED) COMPARED TO
DECEMBER 31, 1999
Cash and cash equivalents were $2,391 as of March 31, 2000 compared
with $3,464 as of December 31, 1999. The decrease in cash and cash equivalents
of $1,073 was primarily due to cash outflows for investing activities including
software development, capital expenditures, acquisition and integration payments
and other investments ($2,602) and net transfers to IMS HEALTH of ($2,603),
which were only partially offset by cash from operations of $4,546.
Accounts Receivables - Net decreased to $40,909 at March 31, 2000 from
$46,591 at December 31, 1999 due to improved collections and the seasonality
of revenues.
Goodwill - Net decreased to $163,921 at March 31, 2000 from $167,363 at
December 31, 1999. The reduction was primarily the result of amortization of
$3,145.
Accrued and Other Current Liabilities decreased to $12,443 at March 31,
2000 from $18,913 at December 31, 1999. The decrease reflected seasonal
reductions in accruals for the prior year's bonuses and production-related
activities.
Divisional Equity decreased to $216,623 at March 31, 2000 from $220,844
at December 31, 1999. The reduction was the result of a net loss of $1,038,
net transfers to IMS HEALTH of $2,603 and the effect of a stronger U.S.
dollar on net assets in non-U.S. operations of $580.
CHANGE IN FINANCIAL POSITION AT DECEMBER 31, 1999 COMPARED TO NOVEMBER 30, 1998.
Cash and Cash Equivalents increased to $3,464 at December 31, 1999 from
$2,826 at November 30, 1998. The increase in Cash of $638 was from operations of
$10,022 and net cash transfers from IMS HEALTH of $7,433, partially offset by
software development of $6,130, capital expenditures of $5,371, and payments
related to the Walsh acquisition of $4,123 and the activity for the month of
December 1998 ($420).
Accounts Receivable - Net decreased to $46,591 at December 31, 1999
from $48,884 at November 30, 1998. The decrease was the result of improved
collection efforts.
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Property, Plant and Equipment - Net decreased to $15,633 at December
31, 1999 from $17,975 at November 30, 1998 as a result of depreciation and
amortization ($6,106), and reductions in capital leases ($1,626), partially
offset by capital expenditures ($5,371).
Computer Software - Net decreased to $30,429 at December 31, 1999 from
$32,885 at November 30, 1998 as a result of 1999 amortization of computer
software related to the Walsh acquisition ($6,668) and amortization of
capitalized software ($2,014), offset in part by 1999 Software Development
spending ($6,130).
Goodwill - Net decreased to $167,363 at December 31, 1999 from $178,624
at November 30, 1998. The reduction was primarily the result of 1999
amortization of $13,046.
Deferred Revenues decreased to $6,202 at December 31, 1999 from $9,715
at November 30, 1998 primarily as a result of the timing of product maintenance
billings and the timing of quarterly recognition of revenue.
Accrued and Other Current Liabilities decreased to $18,913 at December
31, 1999 from $30,409 at November 30, 1998. The decrease was primarily the
result of payments of direct acquisition costs related to Walsh accruals at the
time of acquisition.
Other Liabilities decreased to $910 at December 31, 1999 from $2,376 at
November 30, 1998 primarily as a result of the reduction of long-term debt
associated with capitalized leases.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN No. 44"). The
interpretation provides guidance for certain issues relating to stock
compensation, involving employees that arose in applying APB Opinion 25. The
provisions of FIN No. 44 are effective July 1, 2000. Management continues to
evaluate the effects of Fin No. 44 on the Company's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 is effective July 1, 2000. The Company
believes its revenue recognition policies are in compliance with the SEC staff's
views.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133-an amendment of FASB Statement No. 133". Citing concerns about companies'
ability to modify their information systems in time to apply SFAS 133, the FASB
delayed its effective date for one year, to fiscal years beginning after June
15, 2000 (January 1, 2001 for the Company). Management continues to evaluate the
effects of this pronouncement on the Company's financial statements and does not
believe that adoption of the statement will have a material impact on the
Company's financial statements.
34
<PAGE>
NEW STRATEGIC TECHNOLOGIES BUSINESS
ST Spin, Inc. ("New Strategic Technologies") is a newly created Delaware
corporation and a wholly owned subsidiary of IMS HEALTH. In order to change
the state of incorporation of Clark-O'Neill, Inc. ("Clark-O'Neill"), another
wholly owned subsidiary of IMS HEALTH, from New Jersey to Delaware, prior to
the Distribution, New Strategic Technologies will merge with Clark-O'Neill,
with New Strategic Technologies as the survivor in the merger. Upon the
conveyance of certain assets and stock owned by IMS HEALTH, the businesses of
New Strategic Technologies (the "New Strategic Technologies Business") will
include the pharmaceutical industry automated sales and marketing support
business of IMS Health Strategic Technologies, Inc. ("ST") and certain other
foreign subsidiaries of IMS HEALTH, and substantially all of IMS HEALTH's
interactive and direct marketing business, including the business of
Clark-O'Neill as conducted prior to the aforementioned conveyance of assets
and stock owned by IMS HEALTH. These businesses were all previously managed
as part of the core IMS segment of IMS HEALTH.
BUSINESS OVERVIEW:
PHARMACEUTICAL RELATIONSHIP MANAGEMENT
New Strategic Technologies offers sales and marketing effectiveness
solutions that can be integrated with all client-critical databases to
provide customer and business insights. New Strategic Technologies configures
solutions for clients' sales and marketing teams, supporting desktop, laptop,
handheld PC, and paper systems, linked to client companies' databases as
required. Over 40,000 pharmaceutical sales and marketing representatives and
executives worldwide rely on New Strategic Technologies' solutions to make
critical decisions on a daily basis. New Strategic Technologies products
increase pharmaceutical sales-force performance and productivity by providing
access to up-to-the-minute profiling, targeting, activity reporting, team
selling and sample management information.
New Strategic Technologies believes that it addresses the unique
characteristics of the biopharmaceutical industry that impose specific
demands on its customer relationship management ("CRM") systems. The major
differentiating characteristics of the biopharmaceutical industry are:
- Customers do not place orders directly. Instead the pharmaceutical
representative influences and educates the physician to affect
prescribing behavior.
- Product use and sample distribution is strictly controlled and
regulated.
- There are complex networks of influencers including managed care
organizations, payors and consumers.
- Customers can be difficult to see, since each physician has limited
time and numerous sales people compete for that time.
In response to these unique demands, New Strategic Technologies created
an advanced approach to CRM adapted specifically for the pharmaceutical
industry, which it calls Pharmaceutical Relationship Management ("PRM"). The
features of PRM that make it unique for ST's customers are:
- The principles of CRM applied with a pharmaceutical focus
- Data models that mirror the complex pharmaceutical marketplace
- Integration of multiple data sources
- Decision support capabilities specific to the pharmaceutical
industry
- Flexible systems technology to meet local needs internationally
- The ability to apply global standards and solutions
ST also offers an extensive suite of consulting, support, training, and
systems management services as part of the overall solution represented by
PRM. ST offers it customers total systems support and becomes, in effect, an
extension of its customers' own IT support services. These services include
help desk, educational, implementation, PC staging and delivery, repair,
telecommunications, and complete systems outsourcing services.
ST Professional Services serves as an adjunct to the customers' own
field support services for their business operations and provides project
management, new hire training, full field systems rollout, and analytical and
reporting services based on daily operational data to improve field force
operational efficiency and effectiveness. ST also provides full data
integration management, integrating data from sales and marketing, IMS
HEALTH, and client databases to provide advanced decision support and
reporting for its customers.
35
<PAGE>
PRODUCT AND SERVICES PORTFOLIO
Cornerstone is a flexible, Windows-based, PRM system used by
pharmaceutical field sales representatives, district managers and
headquarters executives to access mission-critical sales and marketing,
contact and territory information via desktop, laptop or handheld PC's.
Cornerstone's applications include managing business opportunities and
projects such as product launch programs and formulary placement
opportunities. Cornerstone can quickly generate standard and customized
reports, such as weekly activity summary reports, division reports and
product launch reports. It also provides fast updating of customer
activities. Cornerstone's MarketViews allows access to pharmaceutical
databases, which can be configured to deliver customized sales summaries by
territory, district and physicians.
Premiere-SM- is a Windows-based, PRM system similar to Cornerstone with a
substantial user base in Europe, Brazil, Canada and Asia/Pacific. Core data can
be drawn from various sources and tailored by country, region, department or
individual user. Its unique application generators and builders are used to
customize and modify the system to a company's specific requirements quickly and
without the need for re-programming. Sales and marketing professionals at every
level of an organization can use Premiere to develop marketing strategies,
allocate and coordinate sales and marketing resources, track competitive
activity, and plan, monitor and evaluate sales and marketing activity. Up-to-the
minute integration to pharmaceutical sales forces and marketing by Premiere
enables faster and better informed sales and marketing decisions, enhancing
return-on-investment in pharmaceutical relationship activities.
ST is a market leader in applications for a variety of hand-held PC
("HPC") devices that offer greater portability in developed markets and a
low-cost entry strategy into sales-force activity management in emerging
markets. Over 10,000 HPC device users are customers of ST's applications.
ST's latest HPC product, PhasTrak Standalone Handheld Solution, combines the
power and robustness of the Cornerstone backend system with the speed and
agility of a hand-held device. PhasTrak is a standalone solution that helps
sales representatives improve call quality. Its relational database
integrates sales information with call information, giving representatives a
clearer, more powerful view of each account at the point of contact. PhasTrak
also provides complete electronic sample signature capture as part of a total
PDMA compliance solution. PhasTrak is powered by Windows CE and is available
for HPC size units.
ST also provides services from Pharbase-SM-, the industry-leading
reference medical database used in pharmaceutical sales and marketing in the
following countries: United Kingdom, France, Italy, the Netherlands, Spain,
Canada, Belgium, Luxembourg, Austria, Australia, Germany and the Philippines.
Pharbase-SM- is a syndicated database which is updated and validated daily,
providing a level of accuracy that cannot be achieved by in-house databases.
The extensive customer and industry information within Pharbase underpins all
sales and marketing activities and can be integrated with other internal,
external or third-party information to create an information solution
tailored to the individual needs of each customer. Insights from such
information help improve sales and marketing productivity by enhancing sales
and marketing targeting and customer relationship management activities. The
Pharbase data is also used by IMS HEALTH to define the population of doctors
in each area (geographic and therapeutic) that are writing prescriptions.
This data is critical to IMS HEALTH's targeting and sales force compensation
products. See "Relationship Between New Strategic Technologies and IMS HEALTH
after the Distribution--Data Rights Agreements".
ST provides advanced Business Intelligence solutions, Analyzer and
PharmaLyst, that work with integrated PRM databases and prescriber-level data to
give field and head office managers new, actionable insights into their
business. Through the use of these systems, customers can identify trends and
exceptions in call activity, benchmark sales and marketing performance by
product, market, or physician specialty, compare territory performance, track
call activity and sales and marketing by prescriber segment, and measure the
impact of promotions, sample activities, or other initiatives.
INTERACTIVE MARKETING SERVICES
New Strategic Technologies will engage in the interactive marketing
businesses for the pharmaceutical and healthcare industries in Europe, Australia
and in the United States. Clark-O'Neill represents the core of New Strategic
Technologies' interactive marketing business. Clark-O'Neill's services include
prescription and OTC sample distribution to physicians, pharmaceutical field
sales force support services, publication circulation
36
<PAGE>
management, direct mail, telemarketing projects utilizing its staff of
physicians and other healthcare professionals, product recall and return goods
services and other customized promotion programs. In support of its Single
Source Sampling services, Clark-O'Neill maintains a 180,000 square foot facility
that meets the strict requirements of the FDA for storage and repackaging of
prescription drugs. Clark-O'Neill maintains licenses and registrations where
required and distributes patient starter samples to physicians throughout the
United States. Within ST, direct mail marketing services are provided across
Europe and in Canada and Australia. In the United States, Clark-O'Neill has been
designated as a database licensee by the American Medical Association ("AMA")
for use and sublicensing of the AMA's physician database.
Through an arrangement with IMS HEALTH (which will continue after the
Distribution), Clark-O'Neill has instant access into the industry "Gold
Standard" physician prescribing database, Xponent-TM-. This access enables
Clark-O'Neill to provide unique services to its clients that sets the standard
for targeting of marketing programs to the physician's community.
The major product groups of Clark-O'Neill are outlined below:
DIRECT MARKETING. Clark-O'Neill provides its customers with a complete
range of customized Direct Marketing Services in each of its operating markets,
which support the brand manager throughout the life-cycle of a product. Based on
a belief that the most effective targeting can only be executed at the
micro-level, the business provides services that utilize the Xponent database,
to enable effective targeting of the appropriate physicians for a clients'
direct marketing campaign. Through its unique First-Rx-TM- service, physicians
can be targeted based on changes in prescribing behavior picked up in the
Xponent database just 10 days earlier. Clark-O'Neill has unparalleled experience
in delivering solutions to help customers deal with crisis management situations
such as the need to undertake a product recall, or to rapidly distribute a "Dear
Doctor" letter.
SAMPLING SUPPORT SERVICES. Clark-O'Neill provides a comprehensive range of
sample distribution capabilities, in fully licensed facilities. Services include
a multi-manufacturer sampling service called Single Source Sampling, as well as
client specific programs. Clark-O'Neill runs a compassionate care program for a
number of manufacturers from the on-site Mail Order Pharmacy, under the
supervision of a fully licensed pharmacist.
PUBLICATIONS/CONTINUING MEDICAL EDUCATION ("CME") SUPPORT. Clark-O'Neill
provides support services for publishers of medical journals. The business
provides journal circulation services for over 40 major medical publishers
who together represent 80% of the U.S. medical journal market. These services
help the company maintain a comprehensive listing of physicians available in
the U.S. This core competency in acquiring and maintaining an up to date and
accurate physician mailing list facilitates the support for the
pharmaceutical industries CME programs to the physician community, and other
indirect marketing programs.
MANAGED CARE SERVICES. Clark-O'Neill's subsidiary EMRON provides what
management believes is the recognized industry leading services in managed
health care education, training, marketing and communications.
SALES FORCE SUPPORT. Through the Reinforce-TM- services, Clark-O'Neill
provides the pharmaceutical industry with services that reinforce the work of
the representative in building brand loyalty. Cost-effective programs enable
product management to follow a representative's visit with messaging targeted
at the individual prescriber. Fully integrated with the client's sales force
automation tool, this service provides timely message delivery. The company's
OpRx-TM- service provides a cost-effective capability for sample
accountability with full Prescription Drug Marketing Act compliance.
TELECOMMUNICATIONS SERVICES. Through its telecommunications programs,
Clark-O'Neill provides a direct and responsive means of maintaining
interactive communications with a target audience. This capability provides
both in-bound and out-bound capabilities to healthcare professionals, sales
representatives, and consumers alike. Its unique and highly successful
Medical Dialogue-TM-service facilitates interactive promotional discussions
between physicians via telephone. Clark-O'Neill's own staff of physicians
call a client's targeted physicians to promote products, services or
educational opportunities using a peer influence approach.
FOREIGN OPERATIONS
As indicated above, New Strategic Technologies and its subsidiaries engage
in a significant portion of their business outside of the United States. New
Strategic Technologies' foreign operations are subject to the usual risks
inherent in carrying on business outside of the United States, including
fluctuation in relative currency values,
37
<PAGE>
possible nationalization, expropriation, price controls and other restrictive
government actions. New Strategic Technologies believes that the risk of
nationalization or expropriation is reduced because its products are software,
services and information, rather than the production of products that require
manufacturing facilities or the use of natural resources.
INTELLECTUAL PROPERTY
New Strategic Technologies owns and controls a number of trade secrets,
confidential information, trademarks, trade names, copyrights, and other
intellectual property rights which, in the aggregate, are of material
importance to its business. Management believes that the "New Strategic
Technologies" name and related names, marks and logos are of material
importance to New Strategic Technologies. New Strategic Technologies is
licensed to use certain technology and other intellectual property rights
owned and controlled by others, and similarly, other companies are licensed
to use certain technology and other intellectual property rights owned and
controlled by New Strategic Technologies. The technology and other
intellectual property rights licensed by New Strategic Technologies are of
importance to its business, although management of New Strategic Technologies
believes that New Strategic Technologies' business, as a whole, is not
dependent upon any one intellectual property or group of such properties. The
names of New Strategic Technologies' and its subsidiaries' products and
services referred to herein are trademarks, service marks, registered
trademarks or registered service marks owned by or licensed to New Strategic
Technologies or one of its subsidiaries.
CUSTOMERS
Sales to the pharmaceutical industry accounted for substantially all of New
Strategic Technologies' revenue in 1999. Substantially all major pharmaceutical
companies are customers of New Strategic Technologies, and many of the companies
use New Strategic Technologies' products and subscribe to its services in
several countries. New Strategic Technologies' customer base is broad in scope
and enables it to avoid dependence on any single customer. None of New Strategic
Technologies' customers accounted for more than 10% of its gross revenues in
1999, 1998 or 1997.
COMPETITION
New Strategic Technologies has competition from other automated sales
support technology companies that offer sales force automation solutions and
enterprise-wide solutions in some of the countries in which it operates, as well
as competition from the in-house capabilities of its customers. New Strategic
Technologies also faces competition from many vendors that market and sell sales
force automation solutions in consumer packaged goods. In addition, New
Strategic Technologies competes with various companies that provide support
services similar to its services. Generally, competition has arisen on a
country-by-country basis. For example, in the United States, certain New
Strategic Technologies products and services, including its Cornerstone product,
compete with the products and services of Dendrite International Inc., and in
Europe, certain New Strategic Technologies products and services, including its
Premier product, compete with the products and services of Cegedim. Quality,
completeness and speed of delivery of information services and products are the
principal methods of competition in New Strategic Technologies' market.
EMPLOYEES
As of March 31, 2000, New Strategic Technologies had approximately 1,400
employees in approximately 20 countries. Of these, approximately 600 are located
in the United States, and none of these are represented by labor unions. In the
Netherlands, Italy, Belgium and Germany, New Strategic Technologies has Workers'
Councils, which are a legal requirement in those countries. New Strategic
Technologies has also established a European Workers' Council as required under
European Union regulations. New Strategic Technologies believes that, generally,
relations with its employees are good and have been maintained in a normal and
customary manner.
PROPERTIES
New Strategic Technologies' real property is geographically distributed to
meet sales and operating requirements worldwide. Most of New Strategic
Technologies' properties are leased from third parties. New
38
<PAGE>
Strategic Technologies' properties are generally considered to be both suitable
and adequate to meet current operating requirements and virtually all space is
being utilized.
NEW STRATEGIC TECHNOLOGIES BUSINESS OPPORTUNITY
Going forward, pharmaceutical firms will be looking to improve their
selling and marketing skills to succeed in a much more competitive environment.
They will be striving to be more rigorous in segmenting the target healthcare
consumer population as well as varying their level of investment and marketing
strategies depending on consumer needs. They will be evaluating methods to
determine the return they receive from their various sales and marketing
efforts. For example, they will want to be able to fine-tune Direct-To-Consumer
(DTC) marketing expenditures and to determine whether more money should be
invested in incremental sampling verses detailing. As pharmaceutical companies
look for ways to succeed in such an environment, they will be seeking business
partners to help them increase sales force effectiveness in concert with
marketing and promotion effectiveness.
NEW STRATEGIC TECHNOLOGIES MISSION
In response to the current and projected business environment, New
Strategic Technologies created the following mission:
TO PROVIDE KNOWLEDGE-BASED SOLUTIONS THROUGH INTEGRATED TECHNOLOGIES
TO THE BIOPHARMACEUTICAL INDUSTRY AND HEALTHCARE SYSTEM THAT OPTIMIZE THE
DEVELOPMENT, PROMOTION AND DELIVERY OF HEALTHCARE PRODUCTS AND SERVICES.
SYNERGIES
While ST concentrates on enabling pharmaceutical sales forces to promote to
prescribers, Clark-O'Neill primarily provides the means for non-personal
promotion to those same prescribers. Only about 15% of Clark-O'Neill activity is
sales force related.
A relatively small number of prescribers, perhaps one hundred and
twenty-five thousand of more than seven hundred thousand physicians, control
the application of healthcare in the United States. The international
situation is comparable. Information on prescription writing activity enables
Clark-O'Neill to identify those high activity prescribers, but their
importance goes beyond their pharmaceutical prescribing profile. These
prescribers are influential because they see the largest number of patients.
Because of this, the relationship that any healthcare providing entity has
with these key prescribers is a critical success factor. While ST maintains
records on most of them, Clark-O'Neill regularly interacts or enables clients
to interact with all of them. For many in the pharmaceutical, publishing,
research, and managed care industries, Clark-O'Neill maintains databases
related to the AMA physician master file. For some clients, Clark-O'Neill has
developed relational databases to optimize promotional activity.
This creates three relatively short-term synergistic opportunities:
1. Immediately initiate cross selling activities in those pharmaceutical
companies where ST and Clark-O'Neill do not both have a presence.
2. Migrate the services of Clark-O'Neill that are related to sales management
into a seamless Cornerstone interface. These include sample accountability,
representative triggered mail, vacant territory management, and other sales
team directed support activities.
3. Deploy Clark-O'Neill developed products and services into the strong
interactive marketing group within the ST international organization.
LEGAL PROCEEDINGS AND CONTINGENCIES
New Strategic Technologies has from time to time been involved in legal
proceedings and litigation arising in the ordinary course of business. In the
opinion of management, the outcome of all current proceedings, claims and
litigation, if decided adversely, could have a material effect on quarterly or
annual operating results or cash flows
39
<PAGE>
when resolved in a future period. However, in the opinion of management, these
matters will not materially affect New Strategic Technologies' consolidated
financial position.
Under the terms of the Distribution Agreements relating to the 1996
spin-off of IMS HEALTH's predecessor, Cognizant Corporation ("Cognizant"), from
The Dun & Bradstreet Corporation ("D&B") and relating to the 1998 spin-off of
IMS HEALTH from Cognizant, as a condition to the Distribution, IMS HEALTH and
any company that it spins off, including New Strategic Technologies, are
required to undertake to be jointly and severally liable to D&B, AC Nielsen
Company and Cognizant (which has since changed its name to Nielsen Media
Research, Inc.) for IMS HEALTH's obligations under the 1996 Distribution
Agreement and the 1998 Distribution Agreement. For a description of certain of
such contingencies, see Note 10 to the combined financial statements of New
Strategic Technologies contained elsewhere in this Information Statement. In the
event that New Strategic Technologies were obligated to fund a substantial
portion of such liabilities, it would have a material adverse effect on New
Strategic Technologies' financial condition.
40
<PAGE>
NEW STRATEGIC TECHNOLOGIES MANAGEMENT AND EXECUTIVE COMPENSATION
Wayne P. Yetter is currently the Chief Operating Officer of IMS HEALTH. Mr.
Yetter will resign from such position effective upon the date of the
Distribution and will be the Chief Executive Officer of New Strategic
Technologies. Craig S. Kussman is currently the Senior Vice President -
Corporate Development of IMS HEALTH. Mr. Kussman will resign from such position
effective upon the date of the Distribution and will be the Chief Financial
Officer of New Strategic Technologies. Ronald D. Brown, currently the Chief
Executive Officer of IMS Health Strategic Technologies, Inc., Loftus S. Lucas,
currently the General Manager of Clark-O'Neill, and Kevin B. Tarrant, currently
the Vice President - Global Human Resources of IMS Health Strategic
Technologies, Inc., will become the President, Chief Operating Officer, and Vice
President and Chief Human Resources Officer of New Strategic Technologies,
respectively, upon the date of the Distribution. In addition to Messrs. Yetter,
Kussman, Brown, Lucas, and Tarrant, additional executive officers of New
Strategic Technologies may be drawn from the current management of IMS HEALTH or
its subsidiaries. New Strategic Technologies expects to have a Board of
Directors composed of 6 members, including Mr. Yetter. See "--New Strategic
Technologies Board of Directors" and "--New Strategic Technologies Executive
Officers".
NEW STRATEGIC TECHNOLOGIES BOARD OF DIRECTORS
Immediately after the Distribution, New Strategic Technologies expects to
have a Board of Directors composed of 6 members.
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of New
Strategic Technologies following the Distribution, including information as to
service with IMS HEALTH, if applicable.
<TABLE>
<CAPTION>
POSITIONS
WITH IMS PRINCIPAL OCCUPATIONS
NAME HEALTH DURING LAST FIVE YEARS AGE* OTHER DIRECTORSHIPS
-------------------- --------- ----------------------------- ----- --------------------
<S> <C> <C> <C> <C>
Wayne P. Yetter Chief Chief Operating Officer, 54 Transkaryotic
Operating IMS HEALTH (10/99 to present); Therapies, Inc.
Officer President and Chief
Executive Officer, Novartis
Pharmaceuticals (01/97 to
07/99); President and Chief
Executive Officer, Astra
Merck, Inc. (11/94 to 01/97)
-------------------- --------- ----------------------------- ----- --------------------
*As of May 26, 2000
</TABLE>
DIRECTORS' COMPENSATION
The Board of Directors of IMS HEALTH has approved a director compensation
program for the New Strategic Technologies. It is anticipated that the Board of
Directors of the New Strategic Technologies will adopt and implement such
programs as described below prior to the Distribution Date.
If such program is adopted and implemented, each non-employee director will
receive an initial retainer of $5,000 for calendar year 2000; thereafter, the
retainer will be paid at an annual rate of $10,000. Directors who are employed
by New Strategic Technologies will not receive retainers or any incremental
compensation. In addition, each non-employee member of the Board of Directors
shall be granted annual non-qualified stock options to purchase 7,500 shares of
the New Strategic Technologies Common Stock. Each non-employee director who
joins the Board of Directors will receive a one time stock grant of $50,000
(based on market price on the grant date) worth of deferred stock units which
will vest one-fifth per year.
Each non-employee director may elect to have all or a specified part of the
retainer and fees deferred until he or she ceases to be a director. Non-employee
directors will also have the option to convert the retainer to stock. The amount
of stock will be based on Fair Market Value on the day the retainer is received
which will be the first business day in January and July.
COMMITTEES OF THE NEW STRATEGIC TECHNOLOGIES BOARD OF DIRECTORS
Prior to the Distribution, the New Strategic Technologies Board of
Directors will establish an Audit Committee and a Compensation and Benefits
Committee and designate specific functions and areas of oversight as to such
committees. No final determination has yet been made as to the memberships of
such standing committees.
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<PAGE>
Audit Committee
The primary function of the Audit Committee will be to assist the Board
of Directors in fulfilling its oversight responsibilities to New Strategic
Technologies' stockholders, potential stockholders, the investment community
and others. The Audit Committee will review the independence and performance
of New Strategic Technologies' independent auditors and annually recommend to
the Board of Directors the appointment of the independent auditors or approve
any discharge of such auditors when circumstances warrant. In addition, the
Audit Committee will approve the fees and other compensation to be paid to
the independent auditors who are ultimately accountable to the Board of
Directors and the Audit Committee as representatives of New Strategic
Technologies' stockholders. The Audit Committee will monitor the activities
of New Strategic Technologies' internal and external auditors, including the
audit scope, and the integrity of New Strategic Technologies' financial
reporting processes, both internal and external. The Audit Committee also
will review changes in accounting principles as applied in New Strategic
Technologies' financial reporting and the independent auditors' judgments
about the quality and appropriateness of those principles. In addition, the
Audit Committee will oversee New Strategic Technologies' internal compliance
programs. New Strategic Technologies intends that the composition of the
Audit Committee, the attributes of its members and the responsibilities of
the Audit Committee as reflected in its charter will be in compliance with
the rules of the Securities and Exchange Commission and the Nasdaq listing
requirements adopted in December 1999 with regard to corporate Audit
Committees.
Compensation Committee
The primary functions of the Compensation Committee will be to establish
and review significant compensation arrangements for executive officers of New
Strategic Technologies, establish and review New Strategic Technologies'
executive and employee benefit policies, and administer its executive and
employee compensation and benefit plans. The Compensation Committee will report
to the Board of Directors and confer with the board regarding New Strategic
Technologies' compensation philosophy and policies.
NEW STRATEGIC TECHNOLOGIES EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH NEW STRATEGIC TECHNOLOGIES AND AGE* BIOGRAPHICAL DATA
--------------------------------------------------------------- ----------------------------------------------
<S> <C>
Wayne P. Yetter, Chief Executive Officer, 54 Chief Operating Officer, IMS HEALTH (10/99 to
present); President and Chief Executive
Officer, Novartis Pharmaceuticals (01/97 to
07/99); President and Chief Executive
Officer, Astra Merck, Inc. (11/94 to 01/97)
--------------------------------------------------------------- ----------------------------------------------
Ronald D. Brown, President, 46 Chief Executive Officer, IMS Health Strategic
Technologies, Inc. (5/98 to present);
President, Sales Technologies (7/95 to 5/98)
--------------------------------------------------------------- ----------------------------------------------
Loftus S. Lucas, Chief Operating Officer, 52 Vice President, General Manager, IMS HEALTH
Clark-O'Neill (5/94 to present)
--------------------------------------------------------------- ----------------------------------------------
Craig S. Kussman, Executive Vice President and Chief Senior Vice President - Corporate
Financial Officer, 41 Development, IMS HEALTH (7/98 to present);
Vice President, Cognizant Corporation (10/97
to 7/98); Vice President - Mergers and
Acquisitions (11/96 to 10/97); Assistant Vice
President - Financial Planning, The Dun &
Bradstreet Corporation (5/91 to 10/96)
--------------------------------------------------------------- ----------------------------------------------
Kevin B. Tarrant, Vice President and Chief Human Resources Vice President, Global Human Resources, IMS
Officer, 43 Health Strategic Technologies (9/98 to
present); Vice President, Global Compensation
& Benefits, Cognizant Corporation and IMS
HEALTH (1/98 to 12/98); Vice President, Human
Resources, IMS HEALTH America (1/94 to 9/98)
--------------------------------------------------------------- ----------------------------------------------
</TABLE>
42
<PAGE>
--------------------
* As of May 26, 2000
43
<PAGE>
COMPENSATION OF NEW STRATEGIC TECHNOLOGIES EXECUTIVE OFFICERS
The following table discloses the compensation paid or accrued by IMS
HEALTH for services rendered for the fiscal years indicated by New Strategic
Technologies' named Chief Executive Officer and to each of the persons who are
currently anticipated to be one of the four other most highly compensated
executive officers of New Strategic Technologies following the distribution.
During 1999, IMS HEALTH had a two-for-one-split and distributed the
majority of its equity interest in Gartner Group, Inc. in a tax-free spin-off.
This split and spin-off required all outstanding equity awards to be adjusted in
order to preserve the then existing intrinsic economic value of the awards at
the time of the split and the spin-off. All 1999 and prior year awards have been
restated to reflect these two transactions.
Four of the named executives were employees when IMS HEALTH was spun-off
from Cognizant in 1998. The Summary Compensation Table reflects compensation
earned at both Cognizant and IMS HEALTH during that calendar year. All 1997
compensation was paid by Cognizant.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH IMS HEALTH
ANNUAL COMPENSATION
----------------------- ------------------------------------------------
(A)
NAME AND PRINCIPAL (C) (D) (E)
POSITION WITH NEW (B) SALARY BONUS(1) OTHER ANNUAL
STRATEGIC TECHNOLOGIES YEAR ($) ($) COMPENSATION(2)($)
----------------------- ---- ------ ------- ------------------
<S> <C> <C> <C> <C>
Wayne P. Yetter (6) 1999 112,292 68,408 0
Chief Executive
Officer
-------------------------- ----- ------- ------- ------------------
Ronald D. Brown 1999 219,300 115,298 0
President
1998 207,821 130,168 0
1997 172,484 120,726 0
-------------------------- ----- ------- ------- ------------------
Loftus S. Lucas 1999 199,755 98,705 0
Chief Operating
Officer 1998 191,153 109,754 0
1997 185,585 18,543 0
-------------------------- ----- ------- ------- ------------------
Craig S. Kussman 1999 254,100 141,850 0
Executive Vice
President & 1998 242,000 151,126 0
Chief Financial
Officer 1997 219,500 114,102 0
-------------------------- -------- ---------- ---------- ------------------
Kevin B. Tarrant 1999 172,817 61,798 23,921
Vice President &
Chief 1998 165,375 99,912 0
Human Resources
Officer 1997 157,500 90,430 0
-------------------------- -------- ---------- ---------- ----------------- ---
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------------------
AWARDS PAYOUTS
----------- --------------------------------------------
-----------------------
(G)
(F) SECURITIES (H)
(A) RESTRICTED UNDERLYING LONG-TERM (I)
NAME AND PRINCIPAL STOCK OPTIONS/ INCENTIVE ALL OTHER
POSITION WITH NEW AWARD(S)(3) SARS(4) PAYOUTS COMPENSATION(5)
STRATEGIC TECHNOLOGIES ($) (#) ($) ($)
----------------------- ------------ ------------- --------- ---------------
<S> <C> <C> <C> <C>
Wayne P. Yetter (6) 0 100,000 0 0
Chief Executive
Officer
-------------------------- ------------ ------------- ---------- ---------------
Ronald D. Brown 0 44,707 (a) 0 4,800
President
130,168 155,751 (a) 0 4,800
0 0 0 4,750
-------------------------- ------------ ------------- ---------- ---------------
Loftus S. Lucas 0 44,707 (a) 0 10,089
Chief Operating
Officer 0 10,573 (a) 0 7,092
0 0 0 6,741
-------------------------- ------------ ------------- ---------- ---------------
Craig S. Kussman 0 67,061 (a) 0 12,499
Executive Vice
President & 124,500 19,872 (a) 0 11,008
Chief Financial
Officer 0 0 0 2,719
-------------------------- ------------- -------------- ---------- ---------------
Kevin B. Tarrant 0 33,530 (a) 0 8,339
Vice President &
Chief 0 10,573 (a) 0 7,833
Human Resources
Officer 0 0 0 5,207
-------------------------- ------------- -------------- ---------- ---------------
</TABLE>
---------------------------------
(a) Options have been restated to reflect the IMS HEALTH two-for-one stock
split on January 15, 1999 and the Gartner Group spin-off on July 26, 1999.
44
<PAGE>
(1) The 1999 bonus award was earned in 1999 and paid in 2000.
(2) The value of certain personal benefits is not included since it does not
exceed the lesser of 10% of salary and bonus or $50,000 for Messrs. Yetter,
Brown, Lucas and Kussman. The amount shown for Mr. Tarrant reflects cost of
living and auto allowance expenses associated with his Atlanta assignment.
(3) Mr. Yetter earned 2,669 performance-based restricted stock units ("PERS")
based on 1999 financial performance. PERS are subject to a risk of
forfeiture upon termination of employment in certain circumstances for a
period of two years, measured from the date of grant in 2000. PERS are
credited with dividend equivalents equal to dividends on IMS HEALTH Common
Stock. At December 31, 1999, Mr. Brown had 4,153 PERS which vest in
January, 2001.
(4) Each executive received a new option grant in 1999. These options were
awarded in February, vest at 33.33% per annum and have a 10-year term.
(5) The amounts shown for 1999 include aggregate annual Company contributions
for the account of the following named executive under the IMS HEALTH
Incorporated Savings Plan and IMS HEALTH Incorporated Savings Equalization
Plan, Mr. Lucas $9,494; Mr. Kussman, $12,499; and Mr. Tarrant $8,339.
Aggregate annual Company contributions for 1999 in the amount of $4,800
were made to Mr. Brown under the IMS Health Strategic Technologies, Inc.
401(k) Retirement Savings Plan. The amount for Mr. Lucas also includes
imputed income resulting from premiums paid for life insurance in the
amount of $595.
(6) Mr. Yetter's salary and prorated bonus amount are based on his October 19,
1999 start date. His 1999 full year salary would have been $550,000 with a
target bonus of $330,000.
45
<PAGE>
OPTION GRANTS ON IMS HEALTH COMMON STOCK TO NEW STRATEGIC TECHNOLOGIES
EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on calendar year 1999 grants of
stock options to the named New Strategic Technologies executive officers to
purchase shares of IMS HEALTH Common Stock. Options to acquire IMS HEALTH Common
Stock become options to purchase New Strategic Technologies Common Stock. The
options were granted at fair market value, vest over a three year period and
expire 10 years after grant.
OPTION/SAR GRANTS IN LAST YEAR FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------------------------------------------------
Number of
Securities
Underlying % of Total
Options/ Options/SAR's Exercise
SAR's Granted to or Base Grant Date
Granted (1) Employees in Price (1) Expiration Present Value(3)
Name (#) Fiscal Year(2) ($/Share) Date ($)
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Wayne P. Yetter Stock Options 100,000 1.0 23.5000 10/19/09 570,059
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
Ronald D. Brown Stock Options 44,707 0.5 31.1467 1/14/09 337,784
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
Loftus S. Lucas Stock Options 44,707 0.5 31.1467 1/14/09 337,784
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
Craig S. Kussman Stock Options 67,061 0.7 31.1467 1/14/09 506,680
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
Kevin B. Tarrant Stock Options 33,530 0.3 31.1467 1/14/09 253,336
----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
</TABLE>
(1) Stock options held by IMS HEALTH employees were adjusted to reflect the
two-for-one stock split and the spin-off of most of the Company's equity
ownership of Gartner Group. The adjustment formula took into account the
July 26 closing price of IMS HEALTH stock on an ex-dividend "when issued"
basis and the July 26 closing price of IMS HEALTH stock on a "regular way"
basis in accordance with applicable accounting rules. The formula was
applied to preserve the economic value of the options at the time of the
spin-off.
(2) Represents percentage of total IMS HEALTH options granted.
(3) Grant date present value is based on the Black-Scholes Option Pricing Model
and assumes an expected stock-price volatility factor of 35%, a risk-free
rate of return of 4.8%, an average annual dividend yield of .30%, an
assumed time of exercise of 3 years from grant date and a reduction to
reflect the probability of forfeiture due to termination prior to vesting
of 16.11%. These assumptions may or may not be fulfilled, and the amounts
shown cannot be considered predictions of future value. Options will have
value at the exercise date only to the extent the stock price exceeds the
option exercise price.
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information as to option exercises by each of
the named executive officers of New Strategic Technologies during 1999 and the
value of such executive's unexercised options to acquire IMS HEALTH Common Stock
at year-end. All amounts represented have been adjusted to reflect the two-for-
one stock split and subsequent Gartner Group Spin-off.
46
<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(E)
VALUE OF
(D) UNEXERCISED,
NUMBER OF SECURITIES IN-THE-MONEY IMS HEALTH
(B) UNDERLYING UNEXERCISED IMS OPTIONS/SARS AT
SHARES (C) HEALTH OPTIONS/SARS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR-END(1)(#) YEAR-END(2) ($)
NAME EXERCISE REALIZED ---------------------------- -------------------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------- ----------------- ----------- -------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Wayne P. Yetter 0 0 0 100,000 0 368,750
Ronald D. Brown 0 0 72,065 247,211 415,742 1,086,517
Loftus S. Lucas 0 0 103,431 136,326 1,146,924 965,592
Craig S. Kussman 38,465 463,703 167,299 215,301 1,845,190 1,541,678
Kevin B. Tarrant 0 0 93,390 125,149 1,024,984 965,592
</TABLE>
--------------------
(1) Represents options to purchase shares of IMS HEALTH Common stock.
(2) The values shown equal the difference between the exercise price of the
exercisable and unexercisable options and the market price of the
underlying common stock at the close of business on December 31, 1999 of
$27.1875.
47
<PAGE>
AGGREGATE IMS HEALTH OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL
YEAR-END IMS HEALTH OPTION VALUES
The following table provides information on option exercises in 2000 by the
named executives of New Strategic Technologies and the value of each such
executive's unexercised in-the-money options to acquire IMS HEALTH Common Stock
at [______], 2000. See also "Relationship Between New Strategic Technologies and
IMS HEALTH After the Distribution--Employee Benefits Agreement".
IMS HEALTH RETIREMENT BENEFITS
Retirement benefits for Messers. Lucas, Kussman and Tarrant are determined
under the IMS HEALTH Incorporated Retirement Plan and the Retirement Excess
Plan. Under these plans, IMS HEALTH contributes 6% of the participant's monthly
compensation to the participant's retirement account in the plan. The retirement
account earns monthly investment credits based on the yield on 30-year Treasury
bonds which is adjusted periodically. These benefits vest after 5 years of
service. The estimated annual retirement benefit at retirement age 65 based upon
service to December 31, 1999 for Messers. Lucas, Kussman and Tarrant are
$14,056, $65,828 and $24,411, respectively. These benefits are calculated on a
straight-life annuity basis. In 1999, Mr. Yetter was not eligible to participate
in the IMS HEALTH Retirement Plan or the Retirement Excess Plan.
Compensation, for the purpose of determining retirement benefits, consists
of base salary, annual bonuses, commissions and overtime pay. Severance pay,
income derived from equity-based awards, contingent payments and other forms of
special remuneration are excluded.
IMS Health Strategic Technologies Inc., Mr. Brown's employer, did not
sponsor a defined benefit pension plan in 1999.
CHANGE IN CONTROL AGREEMENTS
New Strategic Technologies has entered into Change-in-Control Agreements
with certain of its executives. These provide for severance and other benefits
if, following a change-in-control of New Strategic Technologies, the executive's
employment terminates in a way adverse to the executive. These agreements cover
all executive officers as well as certain other officers and selected key
employees.
In the event of a change-in-control, unvested options held by executives
with Change-in-Control Agreements will accelerate.
Under the Change-in-Control Agreement, an executive commits to remain
employed for 180 days following an event that represents a potential
change-in-control to maintain stable operations while a change-in-control
proceeds. If a named executive officer's employment ends within two years
following a change-in-control either because the Company terminates him or her
without cause or because the executive resigns under circumstances constituting
"good reason," the executive will be entitled to:
- payment of target bonus for the year, prorated to reflect the part of
the year he or she worked,
- payment of a lump sum of three times his or her base salary plus
annual target bonus for the year; if no target bonus has been
determined for the year, the annual bonus actually earned in the
preceding year will be used,
- vesting and deemed achievement of target performance and payment for
outstanding long-term performance awards,
- payment of an allowance for outplacement expenses,
- life and health insurance benefits for 36 months after termination,
and
- certain retiree medical and life benefits commencing at age 55.
If payments trigger the "golden parachute" excise tax imposed by the U.S.
Internal Revenue Code, the Company will pay an additional "gross-up" amount so
that his or her after-tax benefits are the same as though no excise tax had
applied, and we will reimburse an executive for expenses incurred in enforcing
the agreement unless incurred in bad faith.
48
<PAGE>
Under the agreement, "good reason" means an adverse change in employment
status, compensation or benefits, or a required move to a new work location not
otherwise specified in the agreement.
A "change-in-control" is defined in the agreement to occur if a person
or group becomes a beneficial owner of 20% or more of the combined voting
power of New Strategic Technologies securities, if a majority of the Board
changes in a 24-month period without the specified approval of incumbent
directors, if New Strategic Technologies merges with another entity (other
than where the outstanding voting securities of New Strategic Technologies
immediately prior to such merger continues to represent more than 66 2/3% of
the combined voting power of the surviving entity) in a way that
substantially changes the ownership of existing stockholders, if we sell
substantially all assets or liquidate New Strategic Technologies, or if the
Board of Directors otherwise determines that a change in control has
occurred. If a potential change-in-control occurs, New Strategic Technologies
must deposit funds into a "rabbi" trust to fund potential obligations under
the agreements.
49
<PAGE>
NEW STRATEGIC TECHNOLOGIES SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of New Strategic Technologies Common Stock are
currently held by IMS HEALTH. The following table sets forth the number of
shares of IMS HEALTH Common Stock that are beneficially owned by each of the New
Strategic Technologies directors, by each of the executive officers named in the
New Strategic Technologies Summary Compensation Table above, by all such
directors and executive officers as a group and by each person known by New
Strategic Technologies to beneficially own more than 5% of the outstanding
shares of IMS HEALTH Common Stock at May 31, 2000 ("5% Owners"). Stock ownership
information is based on (i) the number of shares of IMS HEALTH Common Stock held
by directors and executive officers as of [______], 2000, and (ii) the number of
shares held by 5% Owners, based upon a Schedule 13G filed with the SEC by such
5% Owners. See "The Distribution" and "New Strategic Technologies Management and
Executive Compensation--Compensation of New Strategic Technologies Executive
Officers". Information regarding shares subject to options reflects shares of
IMS HEALTH Common Stock subject to options as of [_______], 2000 and exercisable
within 60 days thereafter. Unexercised IMS HEALTH stock options held by New
Strategic Technologies employees as of the Distribution Date will be converted
into options that are exercisable into shares of New Strategic Technologies
Common Stock based upon a conversion formula to be calculated after the
Distribution Date. See "Relationship Between New Strategic Technologies and IMS
HEALTH After the Distribution--Employee Benefits Agreement". All directors and
executive officers as a group beneficially owned less than [one] percent of the
outstanding shares of IMS HEALTH Common Stock outstanding on [________], 2000
and are expected to own less than [five] percent of the shares of New Strategic
Technologies Common Stock outstanding as of the Distribution Date. The mailing
address for each of the New Strategic Technologies directors and executive
officers listed herein is c/o ST Spin, Inc., 3445 Peachtree Rd. NE, Suite 1400,
Atlanta, Georgia 30326.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES AND NATURE OF OWNERSHIP (1)
---- --------------------------------------------
<S> <C> <C>
Wayne P. Yetter 10,050 Direct
2,672 (2) Restricted Stock Grant (3)
-----
12,722
Ronald D. Brown 18,726 Direct
4,166 (2) Restricted Stock Grant (4)
157,442 Right to Acquire Within 60 Days by Exercise of Options
-------
180,334
Loftus S. Lucas 4,305 Direct
160,618 Right to Acquire Within 60 Days by Exercise of Options
-------
164,923
Craig S. Kussman 6,504 Direct
257,147 Right to Acquire Within 60 Days by Exercise of Options
-------
263,651
Kevin B. Tarrant 3,088 Direct
146,851 Right to Acquire Within 60 Days by Exercise of Options
-------
149,939
Mutuelles AXA, AXA 33,987,961 (5) (6)
and AXA Financial
--------------
FMR Corp.
82 Devonshire Street
Boston, MA 02109 15,128,189 (7) (8)
</TABLE>
50
<PAGE>
(1) Amounts effective as of April 30, 2000. Effective January 3, 2000, options
which previously had a six-year vesting period were accelerated to the
extent necessary to vest equally over four-years from the original date of
grant.
(2) Amounts include fractional restricted stock units accumulated as a result
of dividend equivalents paid during 1999 and 2000. All numbers have been
rounded to the nearest whole share for purposes of reporting.
(3) Represents restricted stock units granted under the 1998 IMS HEALTH
Incorporated Employees' Stock Incentive Plan which are scheduled to vest on
January 3, 2002.
(4) Represents restricted stock units granted under the 1998 IMS HEALTH
Incorporated Employees' Stock Incentive Plan which are scheduled to vest on
January 1, 2001.
(5) Represents 11.44% of the total outstanding Common Stock on April 30, 2000.
(6) AXA Conseil Vie Assurance Mutuelle ("Conseil"), AXA Assurances I.A.R.D.
Mutuelle ("IARD"), and AXA Courtage Assurance Mutuelle ("Courtage"), as a
group (collectively, the "Mutuelles AXA"), together with AXA and with AXA
Financial, Inc. (p.k.a. The Equitable Companies Incorporated) ("AXA
Financial"), filed a joint Amendment No. 2 to Schedule 13G with the SEC on
May 10, 2000. The Schedule 13G/A shows that Mutuelles AXA, AXA, and AXA
Financial together may be deemed to beneficially own the number of shares
reported in the table above, including sole power to vote 8,039,531 shares,
shared power to vote 19,390,036 shares, sole power to dispose of 33,935,446
shares, and shared power to dispose of 27,215 shares. All of the shares are
beneficially owned through subsidiaries of AXA Financial. AXA owns a
majority interest in AXA Financial, and Mutuelles AXA as a group controls
AXA. Addresses of these entities are as follows: Conseil, 100-101 Terrasse
Boieldieu, 92042 Paris La Defense France; IARD, 21, rue de Chateaudun,
75009 Paris France; Courtage, 26, rue Louis le Grand, 75002 Paris France;
AXA, 9 Place Vendome, 75001 Paris France, and AXA Financial, 1290 Avenue of
the Americas, New York, New York 10104.
(7) Represents 5.09% of the total outstanding Common Stock on April 30, 2000.
(8) FMR Corp., its wholly owned subsidiary, Fidelity Management & Research
Company ("Fidelity"), Fidelity Growth & Income Fund, Edward C. Johnson,
3rd, Chairman of FMR Corp., and Abigail P. Johnson, jointly filed an
Amendment No. 3 to Schedule 13G with the SEC on April 10, 2000. This
Schedule 13G/A shows that as of March 31, 2000, Fidelity, a registered
investment advisor, beneficially owned 13,738,280 shares of Common Stock,
as a result of acting as investment adviser to various registered
investment companies (the "Funds"). Mr. Johnson, FMR Corp. and the Funds
each has sole dispositive power (but no voting power) over the shares
beneficially owned by Fidelity. Voting power with respect to such shares
resides with the respective Boards of Trustees of each of the Funds. In
addition, Mr. Johnson and FMR Corp., through its control of Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank
as defined under the Securities Exchange Act of 1934, as amended, each has
sole dispositive power over 1,316,629 shares and sole power to vote or to
direct the voting of 957,629 of such shares, and no power to vote or to
direct the voting of 359,000 such shares. Fidelity International Limited, a
partnership controlled by Mr. Johnson and members of his family, is the
beneficial owner of 73,280 shares of Common Stock.
51
<PAGE>
DESCRIPTION OF NEW STRATEGIC TECHNOLOGIES CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that New Strategic
Technologies has authority to issue under its Restated Certificate of
Incorporation is [41,000,000] shares of which [40,000,000] shares represent
shares of New Strategic Technologies Common Stock, [500,000] shares represent
shares of Preferred Stock (the "New Strategic Technologies Preferred Stock") and
[500,000] shares represent shares of Series Common Stock (the "New Strategic
Technologies Series Common Stock"). Based on shares of IMS HEALTH Common Stock
outstanding as of [__________], 2000, and a distribution ratio of one share of
New Strategic Technologies Common Stock for every 20 shares of IMS HEALTH Common
Stock, [________] shares of New Strategic Technologies Common Stock would be
distributed to holders of IMS HEALTH Common Stock on the Distribution Date.
NEW STRATEGIC TECHNOLOGIES COMMON STOCK
Subject to any preferential rights of any New Strategic Technologies
Preferred Stock or New Strategic Technologies Series Common Stock created by
the Board of Directors of New Strategic Technologies, each outstanding share
of New Strategic Technologies Common Stock will be entitled to such
dividends, if any, as may be declared from time to time by the Board of
Directors of New Strategic Technologies. See "Dividend Policy". Each
outstanding share is entitled to one vote on all matters submitted to a vote
of stockholders. In the event of liquidation, dissolution or winding up of
New Strategic Technologies, holders of New Strategic Technologies Common
Stock are entitled to receive on a pro rata basis any assets remaining after
provision for payment of creditors and after payment of any liquidation
preferences to holders of New Strategic Technologies Preferred Stock and New
Strategic Technologies Series Common Stock.
NEW STRATEGIC TECHNOLOGIES PREFERRED STOCK AND NEW STRATEGIC TECHNOLOGIES SERIES
COMMON STOCK
Each of the authorized New Strategic Technologies Preferred Stock and the
authorized New Strategic Technologies Series Common Stock is available for
issuance from time to time in one or more series at the discretion of the New
Strategic Technologies Board of Directors without stockholder approval. The New
Strategic Technologies Board of Directors has the authority to prescribe for
each series of New Strategic Technologies Preferred Stock or New Strategic
Technologies Series Common Stock it establishes the number of shares in that
series, the voting rights (if any) to which such shares in that series are
entitled, the consideration for such shares in that series and the designation,
powers, preference and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions of the shares in
that series. Depending upon the rights of such New Strategic Technologies
Preferred Stock or New Strategic Technologies Series Common Stock, as
applicable, the issuance of New Strategic Technologies Preferred Stock or New
Strategic Technologies Series Common Stock, as applicable, could have an adverse
effect on holders of New Strategic Technologies Common Stock by delaying or
preventing a change in control of New Strategic Technologies, making removal of
the present management of New Strategic Technologies more difficult or resulting
in restrictions upon the payment of dividends and other distributions to the
holders of New Strategic Technologies Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the Nasdaq, which would
apply so long as the New Strategic Technologies Common Stock remained listed on
the Nasdaq, require stockholder approval of certain issuances equal to or
exceeding 20% of the then outstanding voting power or then outstanding number of
shares of New Strategic Technologies Common Stock. These additional shares may
be used for a variety of corporate purposes, including future public offerings
to raise additional capital or to facilitate corporate acquisitions. See,
however, "Risk Factors--Risks Relating to New Strategic
Technologies--Acquisitions and Alliances".
One of the effects of the existence of unissued and unreserved New
Strategic Technologies Common Stock, New Strategic Technologies Preferred Stock
and New Strategic Technologies Series Common Stock may be to enable the Board of
Directors of New Strategic Technologies to issue shares to persons friendly to
current management, which issuance could render more difficult or discourage an
attempt to obtain control of New Strategic Technologies by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
52
<PAGE>
New Strategic Technologies' management and possibly deprive the stockholders of
opportunities to sell their shares of New Strategic Technologies Common Stock at
prices higher than prevailing market prices. Such additional shares also could
be used to dilute the stock ownership of persons seeking to obtain control of
New Strategic Technologies pursuant to the operation of the New Strategic
Technologies Rights Plan, which is discussed below.
NEW STRATEGIC TECHNOLOGIES RIGHTS PLAN
On [_____], 2000 the Board of Directors of New Strategic Technologies
declared a dividend of one preferred share purchase right (an "New Strategic
Technologies Right") for each outstanding share of New Strategic Technologies
Common Stock. The dividend will be payable on [______], 2000 (the "New Strategic
Technologies Record Date") to IMS HEALTH, which will be the sole stockholder of
record on the New Strategic Technologies Record Date. Each New Strategic
Technologies Right entitles the registered holder to purchase from New Strategic
Technologies one one-thousandth of a share of Series A Junior Participating New
Strategic Technologies Preferred Stock, par value $0.01 per share (the "New
Strategic Technologies Participating Preferred Stock"), of New Strategic
Technologies at a price of $ [____] per one one-thousandth of a share of New
Strategic Technologies Participating Preferred Stock (as the same may be
adjusted, hereinafter referred to as the "New Strategic Technologies
Participating Preferred Stock Purchase Price"), subject to adjustment. The
description and terms of the New Strategic Technologies Rights are set forth in
a New Strategic Technologies Rights Agreement dated as of [_______], 2000, as
the same may be amended from time to time (the "New Strategic Technologies
Rights Agreement"), between New Strategic Technologies and EquiServe Trust
Company, as the New Strategic Technologies Rights Agent (the "New Strategic
Technologies Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of New Strategic
Technologies Rights, an "New Strategic Technologies Acquiring Person") have
acquired beneficial ownership of 15% or more (20% or more in the case of an
"Institutional Investor" as defined in the New Strategic Technologies Rights
Plan") of the outstanding shares of New Strategic Technologies Common Stock or
(ii) 10 business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person or group of affiliated
persons becomes a New Strategic Technologies Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding shares of New
Strategic Technologies Common Stock (the earlier of such dates hereinafter
referred to in this description of New Strategic Technologies Rights as the "New
Strategic Technologies Rights Distribution Date"), the New Strategic
Technologies Rights will be evidenced by the certificates representing New
Strategic Technologies Common Stock.
The New Strategic Technologies Rights Agreement provides that, until the
New Strategic Technologies Rights Distribution Date (or earlier redemption or
expiration of the New Strategic Technologies Rights), the New Strategic
Technologies Rights will be transferred with and only with the New Strategic
Technologies Common Stock. Until the New Strategic Technologies Rights
Distribution Date (or earlier redemption or expiration of the New Strategic
Technologies Rights), New Strategic Technologies Common Stock certificates will
contain a notation incorporating the New Strategic Technologies Rights Agreement
by reference. Until the New Strategic Technologies Rights Distribution Date (or
earlier redemption or expiration of the New Strategic Technologies Rights), the
surrender for transfer of any certificates for shares of New Strategic
Technologies Common Stock will also constitute the transfer of the New Strategic
Technologies Rights associated with the shares of New Strategic Technologies
Common Stock represented by such certificate. As soon as practicable following
the New Strategic Technologies Rights Distribution Date, separate certificates
evidencing the New Strategic Technologies Rights ("New Strategic Technologies
Rights Certificates") will be mailed to holders of record of the New Strategic
Technologies Common Stock as of the close of business on the New Strategic
Technologies Rights Distribution Date and such separate New Strategic
Technologies Rights Certificates alone will evidence the New Strategic
Technologies Rights.
The New Strategic Technologies Rights are not exercisable until the New
Strategic Technologies Rights Distribution Date. The New Strategic Technologies
Rights will expire on [_____], 2010 (hereinafter referred to in this description
of New Strategic Technologies Rights as the "New Strategic Technologies Final
Expiration Date"), unless the New Strategic Technologies Final Expiration Date
is advanced or extended or unless the New Strategic Technologies Rights are
earlier redeemed or exchanged by New Strategic Technologies , in each case as
described below.
53
<PAGE>
The New Strategic Technologies Participating Preferred Stock Purchase Price
payable, and the number of shares of New Strategic Technologies Participating
Preferred Stock or other securities or property issuable, upon exercise of the
New Strategic Technologies Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the New Strategic Technologies Participating
Preferred Stock, (ii) upon the grant to holders of the New Strategic
Technologies Participating Preferred Stock of certain rights or warrants to
subscribe for or purchase New Strategic Technologies Participating Preferred
Stock at a price, or securities convertible into New Strategic Technologies
Participating Preferred Stock with a conversion price, less than the
then-current market price of the New Strategic Technologies Participating
Preferred Stock or (iii) upon the distribution to holders of the New Strategic
Technologies Participating Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in New
Strategic Technologies Participating Preferred Stock) or of subscription rights
or warrants (other than those referred to above).
The New Strategic Technologies Rights are also subject to adjustment in the
event of a stock dividend on the New Strategic Technologies Common Stock payable
in shares of New Strategic Technologies Common Stock or subdivisions,
consolidations or combinations of the New Strategic Technologies Common Stock
occurring, in any such case, prior to the New Strategic Technologies Rights
Distribution Date.
Shares of New Strategic Technologies Participating Preferred Stock
purchasable upon exercise of the New Strategic Technologies Rights will not be
redeemable. Each share of New Strategic Technologies Participating Preferred
Stock will be entitled, when, as and if declared, to a minimum preferential
quarterly dividend payment of $10 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of New Strategic
Technologies Common Stock. In the event of liquidation, dissolution or winding
up of New Strategic Technologies, the holders of the New Strategic Technologies
Participating Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share (plus any accrued but unpaid dividends)
but will be entitled to an aggregate payment of 1,000 times the payment made per
share of New Strategic Technologies Common Stock. Each share of New Strategic
Technologies Participating Preferred Stock will have 1,000 votes, voting
together with the New Strategic Technologies Common Stock. Finally, in the event
of any merger, consolidation or other transaction in which shares of New
Strategic Technologies Common Stock are converted or exchanged, each share of
New Strategic Technologies Participating Preferred Stock will be entitled to
receive 1,000 times the amount received per share of New Strategic Technologies
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the New Strategic Technologies Participating
Preferred Stock's dividend, liquidation and voting rights, the value of the one
one-thousandth interest in a share of New Strategic Technologies Participating
Preferred Stock purchasable upon exercise of each New Strategic Technologies
Right should approximate the value of one share of New Strategic Technologies
Common Stock.
In the event that any person or group of affiliated or associated persons
becomes a New Strategic Technologies Acquiring Person, each holder of a New
Strategic Technologies Right, other than New Strategic Technologies Rights
beneficially owned by the New Strategic Technologies Acquiring Person (which
will thereupon become void), will thereafter have the right to receive upon
exercise of a New Strategic Technologies Right and payment of the New Strategic
Technologies Participating Preferred Stock Purchase Price, that number of shares
of New Strategic Technologies Common Stock having a market value of two times
the New Strategic Technologies Participating Preferred Stock Purchase Price.
In the event that, after a person or group has become a New Strategic
Technologies Acquiring Person, New Strategic Technologies is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a New Strategic Technologies Right (other than New Strategic
Technologies Rights beneficially owned by a New Strategic Technologies Acquiring
Person which will have become void) will thereafter have the right to receive,
upon the exercise thereof, that number of shares of common stock of the person
with whom New Strategic Technologies has engaged in the foregoing transaction
(or its parent), which number of shares at the time of such transaction will
have a market value of two times the New Strategic Technologies Participating
Preferred Stock Purchase Price.
At any time after any person or group becomes a New Strategic Technologies
Acquiring Person and prior to the acquisition by such person or group of 50% or
more of the outstanding shares of New Strategic Technologies Common Stock or the
occurrence of an event described in the prior paragraph, the Board of Directors
of New Strategic Technologies may exchange the New Strategic Technologies Rights
(other than New Strategic
54
<PAGE>
Technologies Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one share of New Strategic
Technologies Common Stock, or a fractional share of New Strategic Technologies
Participating Preferred Stock of equivalent value (or of a share of a class or
series of New Strategic Technologies' Preferred Stock having similar rights,
preferences and privileges), per New Strategic Technologies Right (subject to
adjustment).
With certain exceptions, no adjustment in the New Strategic Technologies
Participating Preferred Stock Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such New Strategic
Technologies Participating Preferred Stock Purchase Price. No fractional shares
of New Strategic Technologies Participating Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of New Strategic Technologies Participating Preferred Stock, which may, at
the election of New Strategic Technologies, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the New Strategic Technologies Participating Preferred Stock on the
last trading period to the date of exercise.
At any time prior to the time a New Strategic Technologies Acquiring Person
becomes such, the Board of Directors of New Strategic Technologies may redeem
the New Strategic Technologies Rights in whole, but not in part, at a price of
$.01 per New Strategic Technologies Right (hereinafter referred to in this
description of New Strategic Technologies Rights as the "New Strategic
Technologies Right Redemption Price"). The redemption of the New Strategic
Technologies Rights may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the New Strategic Technologies Rights, the
right to exercise the New Strategic Technologies Rights will terminate and the
only right of the holders of New Strategic Technologies Rights will be to
receive the New Strategic Technologies Right Redemption Price.
For so long as the New Strategic Technologies Rights are then redeemable,
New Strategic Technologies may, except with respect to the New Strategic
Technologies Right Redemption Price, amend the New Strategic Technologies Rights
in any manner. After the New Strategic Technologies Rights are no longer
redeemable, New Strategic Technologies may, except with respect to the New
Strategic Technologies Right Redemption Price, amend the New Strategic
Technologies Rights in any manner that does not adversely affect the interests
of holders of the New Strategic Technologies Rights.
Until a New Strategic Technologies Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of New Strategic Technologies,
including, without limitation, the right to vote or to receive dividends.
A copy of the form of New Strategic Technologies Rights Agreement will
be filed as an exhibit to the Registration Statement on Form 10 of New
Strategic Technologies in respect of the registration of the New Strategic
Technologies Common Stock under the Exchange Act. A copy of the New Strategic
Technologies Rights Agreement is available free of charge from New Strategic
Technologies. The summary description of the New Strategic Technologies
Rights set forth above does not purport to be complete and is qualified in
its entirety by reference to the New Strategic Technologies Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference.
CERTAIN EFFECTS OF THE NEW STRATEGIC TECHNOLOGIES RIGHTS AGREEMENT
The New Strategic Technologies Rights Agreement is designed to protect
stockholders of New Strategic Technologies in the event of unsolicited offers to
acquire New Strategic Technologies and other coercive takeover tactics which, in
the opinion of the Board of Directors of New Strategic Technologies, could
impair its ability to represent stockholder interests. The provisions of the New
Strategic Technologies Rights Agreement may render an unsolicited takeover of
New Strategic Technologies more difficult or less likely to occur or might
prevent such a takeover, even though such takeover may offer New Strategic
Technologies' stockholders the opportunity to sell their stock at a price above
the prevailing market rate and may be favored by a majority of the stockholders
of New Strategic Technologies.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of New Strategic Technologies authorized at
the time of the Distribution will have any preemptive right to subscribe to any
securities of New Strategic Technologies of any kind or class.
55
<PAGE>
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the General Corporation Law of the State of
Delaware (the "DGCL") apply to New Strategic Technologies since it is a Delaware
corporation. Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage 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 time that such person became
an interested stockholder unless (a) the transaction that results in the
person's becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the stockholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans or
(c) on or after the time the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
stockholders. Under Section 203, an "interested stockholder" is defined as any
person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation or (b) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding shares, but such stockholder action does not become effective for 12
months following its adoption and would not apply to persons who were already
interested stockholders at the time of the amendment. New Strategic
Technologies' Restated Certificate of Incorporation does not exclude New
Strategic Technologies from the restrictions imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring New Strategic
Technologies to negotiate in advance with New Strategic Technologies Board of
Directors, because the stockholder approval requirement would be avoided if the
Board of Directors approves either the business combination or the transaction
which results in the stockholder becoming an interested stockholder. Such
provisions also may have the effect of preventing changes in the Board of
Directors of New Strategic Technologies. It is further possible that such
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
PROVISIONS OF NEW STRATEGIC TECHNOLOGIES RESTATED CERTIFICATE OF INCORPORATION
AND AMENDED AND RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the New Strategic Technologies Restated Certificate
of Incorporation and Amended and Restated By-Laws may delay or make more
difficult unsolicited acquisitions or changes of control of New Strategic
Technologies. It is believed that such provisions will enable New Strategic
Technologies to develop its business in a manner that will foster its long-term
growth without disruption caused by the threat of a takeover not deemed by its
Board of Directors to be in the best interests of New Strategic Technologies and
its stockholders. Such provisions could have the effect of discouraging third
parties from making proposals involving an unsolicited acquisition or change of
control of New Strategic Technologies, although such proposals, if made, might
be considered desirable by a majority of New Strategic Technologies'
stockholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current Board of
Directors of New Strategic Technologies. These provisions include (i) the
availability of capital stock for issuance from time to time at the discretion
of the Board of Directors (see "--Authorized but Unissued Capital Stock"), (ii)
prohibitions against stockholders calling a special meeting of stockholders or
acting by written consent in lieu of a meeting, (iii) requirements for advance
notice for raising business or making nominations at stockholders' meetings,
(iv) the ability of the Board of Directors to increase the size of the board and
to appoint directors to newly created directorships, (v) a classified Board of
Directors and (vi) higher than majority requirements to make certain amendments
to the By-Laws and Certificate of Incorporation. These provisions are present in
the Restated Certificate of Incorporation or Amended and Restated By-Laws of IMS
HEALTH.
56
<PAGE>
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The New Strategic Technologies Restated Certificate of Incorporation and
Amended and Restated By-Laws provide that stockholder action can be taken only
at an annual or special meeting and cannot be taken by written consent in lieu
of a meeting. The New Strategic Technologies Restated Certificate of
Incorporation and Amended and Restated By-Laws also provide that special
meetings of the stockholders can be called only by the Chief Executive Officer
of New Strategic Technologies or by a vote of the majority of the Board of
Directors. Furthermore, the By-Laws of New Strategic Technologies provide that
only such business as is specified in the notice of any such special meeting of
stockholders may come before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By-Laws of New Strategic Technologies establish an advance notice
procedure for stockholder proposals to be brought before an annual meeting of
stockholders and for nominations by stockholders of candidates for election as
directors at an annual or special meeting at which directors are to be elected.
Only such business may be conducted at an annual meeting of stockholders as has
been brought before the meeting by, or at the direction of, the Chairman of the
Board of Directors, or by a stockholder of New Strategic Technologies who is
entitled to vote at the meeting who has given to the Secretary of New Strategic
Technologies timely written notice, in proper form, of the stockholder's
intention to bring that business before the meeting. The chairman of such
meeting has the authority to make such determinations. Only persons who are
nominated by, or at the direction of, the Chairman of the Board of Directors, or
who are nominated by a stockholder who has given timely written notice, in
proper form, to the Secretary prior to a meeting at which directors are to be
elected will be eligible for election as directors of New Strategic
Technologies.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of New Strategic Technologies
at the principal executive offices of New Strategic Technologies not less than
70 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 20 days, or delayed by more than 70
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of New Strategic
Technologies at the principal executive offices of New Strategic Technologies
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of New Strategic
Technologies held by, the stockholder who intends to make the nomination and the
beneficial owner, if any, on whose behalf the nomination is being made; the name
and address of the person or persons to be nominated; a representation that the
stockholder is a holder of record of stock of New Strategic Technologies
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC had each nominee been nominated, or
intended to be nominated, by the Board of Directors; and the consent of each
nominee to serve as a director if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES; REMOVAL
The New Strategic Technologies Restated Certificate of Incorporation
and Amended and Restated By-Laws provide that newly created directorships
resulting from an increase in the authorized number of directors (or any
vacancy) may be filled by a vote of a majority of directors then in office.
Accordingly, the Board of Directors of New Strategic Technologies may be able to
prevent any stockholder from obtaining majority representation on the Board of
Directors by increasing the size of the board and filling the newly created
directorships with its own
57
<PAGE>
nominees. If any applicable provision of the DGCL expressly confers power on
stockholders to fill such a directorship at a special meeting of stockholders,
such a directorship may be filled at such meeting only by the affirmative vote
of at least 80% in voting power of all shares of New Strategic Technologies
entitled to vote generally in the election of directors, voting as a single
class. Directors may be removed only for cause, and only by the affirmative vote
of at least 80% in voting power of all shares of New Strategic Technologies
entitled to vote generally in the election of directors, voting as a single
class.
CLASSIFIED BOARD OF DIRECTORS
The New Strategic Technologies Restated Certificate of Incorporation
provides for New Strategic Technologies' Board of Directors to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one third of New Strategic Technologies Board of Directors will be
elected each year. See "New Strategic Technologies Management and Executive
Compensation--New Strategic Technologies Board of Directors".
New Strategic Technologies believes that a classified board will help to
assure the continuity and stability of its Board of Directors, and its business
strategies and policies as determined by its Board of Directors, because a
majority of the directors at any given time will have prior experiences as
directors of New Strategic Technologies. This provision should also help to
ensure that New Strategic Technologies' Board of Directors, if confronted with
an unsolicited proposal from a third party that has acquired a block of New
Strategic Technologies' voting stock, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result for
all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of New Strategic
Technologies' Board of Directors until the second annual stockholders meeting
following the date the acquiror obtains the controlling stock interest, could
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of New Strategic Technologies and
could thus increase the likelihood that incumbent directors will retain their
positions.
AMENDMENTS TO THE AMENDED AND RESTATED BY-LAWS
The New Strategic Technologies Restated Certificate of Incorporation
provides that the affirmative vote of the holders of at least 80% in voting
power of all the shares of New Strategic Technologies entitled to vote generally
in the election of directors, voting together as a single class, shall be
required in order for the stockholders to alter, amend or repeal any provision
of the Amended and Restated By-Laws which is to the same effect as provisions
contained in the Restated Certificate of Incorporation relating to (i) the
amendment of the Amended and Restated By-Laws, (ii) the classified Board of
Directors and the filling of director vacancies and (iii) calling and taking
actions at meetings of stockholders and prohibiting stockholders from taking
action by written consent.
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION
The New Strategic Technologies Restated Certificate of Incorporation
requires the affirmative vote of the holders of at least 80% in voting power of
all the shares of New Strategic Technologies entitled to vote generally in the
election of directors, voting together as a single class, to alter, amend or
repeal provisions of the Restated Certificate of Incorporation relating to (i)
the amendment of the Restated Certificate of Incorporation and/or the Amended
and Restated By-Laws, (ii) the classified Board of Directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The New Strategic Technologies Restated Certificate of Incorporation
provides that New Strategic Technologies shall indemnify directors and officers
to the fullest extent permitted by the laws of the State of Delaware. The New
Strategic Technologies Restated Certificate of Incorporation also provides that
a director of New Strategic Technologies shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may hereafter be
amended.
58
<PAGE>
The indemnification rights conferred by the Restated Certificate of
Incorporation of New Strategic Technologies are not exclusive of any other right
to which a person seeking indemnification may otherwise be entitled. New
Strategic Technologies will also provide liability insurance for the directors
and officers for certain losses arising from claims or charges made against
them, while acting in their capacities as directors or officers.
59
<PAGE>
AVAILABLE INFORMATION
New Strategic Technologies has filed with the SEC a Registration Statement
on Form 10 with respect to the shares of New Strategic Technologies Common Stock
to be received by the stockholders of IMS HEALTH in the Distribution. This
Information Statement does not contain all of the information set forth in the
Form 10 Registration Statement and the exhibits thereof, to which reference is
hereby made. Statements made in this Information Statement as to the contents of
any contract, agreement or other documents referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
documents filed as an exhibit to the Form 10 Registration Statement, reference
is made to such exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Form 10 Registration Statement and the exhibits thereto may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the SEC at Seven World Trade Center, Suite 1300, New York, New York
10048 and in the Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60662. In addition, copies of the Form 10 Registration Statement and
related documents may be obtained through the SEC Internet address at
HTTP://WWW.SEC.GOV.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In June 1998, Cognizant acquired Walsh International, Inc. ("Walsh"), a
significant business as defined by Rule 1-02(w) of Regulation S-X. In
accordance with Rule 3-05 of Regulation S-X, the consolidated financial
statements (including the notes thereto) of Walsh as of June 30, 1997 and
1996 and for the years ended June 30, 1997, 1996 and 1995 included in Walsh's
Annual Report on Form 10-K for the year ended June 30, 1997 (File No.
0-28202) and the unaudited consolidated financial statements (including the
notes thereto) of Walsh as of March 31, 1998 and 1997 and for the three-month
and nine-month periods then ended included in Walsh Quarterly Report on Form
10-Q for the three-month period ended March 31, 1998 are incorporated herein
by reference. Any statement contained in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this information
statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified will not be deemed to constitute a part of this information
statement, except as so modified, and any statement so superseded will not be
deemed to constitute a part of this information statement. New Strategic
Technologies will provide without charge to each person to whom a copy of
this information statement is delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be directed to ST Spin, Inc., 3445 Peachtree Rd. NE, Suite 1400, Atlanta,
Georgia 30326, Attention: Chief Financial Officer (Telephone: 404-841-4000).
REPORTS OF NEW STRATEGIC TECHNOLOGIES
After the Distribution, New Strategic Technologies will be required to
comply with the reporting requirements of the Exchange Act and, in accordance
therewith, to file reports, proxy statements and other information with the SEC.
After the Distribution, such reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the SEC listed above and obtained by mail from the SEC as described above.
Application will be made for listing the shares of New Strategic Technologies
Common Stock on the Nasdaq and, when such shares of New Strategic Technologies
Common Stock commence trading on the Nasdaq, such reports, proxy statements and
other information will be available for inspection at the offices of the Nasdaq.
Additionally, New Strategic Technologies will be required to provide annual
reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
<TABLE>
<S> <C>
Report of Independent Accountants.................................................................... F-2
Financial Statements and Schedule:
Combined Statements of Operations for the three months ended March 31, 2000 and 1999 (unaudited),
the year ended December 31, 1999, the month ended December 31, 1998 and the years ended
November 30, 1998 and 1997...................................................................... F-3
Combined Statements of Financial Position as of March 31, 2000 (unaudited), December 31, 1999 and
November 30, 1998............................................................................... F-4
Combined Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited),
the year ended December 31, 1999, the month ended December 31, 1998 and the years ended
November 30, 1998 and 1997...................................................................... F-5
Combined Statements of Divisional Equity for the three months ended March 31, 2000 (unaudited), the
year ended December 31, 1999, the month ended December 31, 1998 and the years ended November
30, 1998 and 1997. ............................................................................. F-6
Notes to Combined Financial Statements............................................................... F-7
Report of Independent Accountants.................................................................... F-24
Schedule II - Valuation and Qualifying Accounts for the year ended December 31, 1999, the month
ended December 31, 1998 and the years ended November 30, 1998 and 1997.......................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of New Strategic Technologies, a Business Unit of IMS Health
Incorporated:
In our opinion, the accompanying combined statements of financial position
and the related combined statements of operations, divisional equity and cash
flows present fairly, in all material respects, the financial position of New
Strategic Technologies, a Business Unit of IMS Health Incorporated, at
December 31, 1999 and November 30, 1998, and the results of its operations
and its cash flows for the years ended December 31, 1999, November 30, 1998
and November 30, 1997 and for the month ended December 31, 1998 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
June 8, 2000
F-2
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF OPERATIONS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED MONTH ENDED YEARS ENDED NOVEMBER 30,
---------------------------- DECEMBER 31, DECEMBER 31, ---------------------------
2000 1999 1999 1998 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Software Systems and Services Revenues. $ 46,188 $ 46,456 $ 200,557 $ 13,649 $ 149,005 $ 106,650
------------ ------------ ------------ ------------ ------------ ------------
Operating costs ....................... 36,707 32,724 134,842 11,798 103,182 74,549
Selling and Administrative
Expenses............................. 7,487 7,555 33,570 2,371 32,364 15,766
Depreciation and Amortization ......... 6,616 6,106 25,826 1,977 14,068 6,268
Year 2000 Costs ....................... - 525 2,769 - - -
Acquired In Process Research and
Development ....................... - - - - 21,900 -
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (Loss) ............... (4,622) (454) 3,550 (2,497) (22,509) 10,067
------------ ------------ ------------ ------------ ------------ ------------
Other Income (Expense) - Net .......... (102) 19 (270) (122) 572 (109)
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) Before Provision
for Income Taxes .................... (4,724) (435) 3,280 (2,619) (21,937) 9,958
Income Tax (Provision) Benefit ........ 3,686 858 (6,472) 1,204 (3,280) (4,578)
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) ..................... ($1,038) $ 423 ($3,192) ($1,415) ($25,217) $ 5,380
============ ============ ============ ============ ============ ============
Pro Forma Earnings Per Share (Note 1)
Pro Forma Unaudited Basic Earnings
(Loss) Per Share of Common Stock .... ($0.07) $ 0.03 ($0.20) ($0.09) ($1.55) $ 0.33
============ ============ ============ ============ ============ ============
Pro Forma Unaudited Diluted Earnings
(Loss) Per Share of Common Stock .... ($0.07) $ 0.03 ($0.20) ($0.09) ($1.54) $ 0.33
============ ============ ============ ============ ============ ============
Pro Forma Unaudited Weighted Average
Number of Shares Outstanding--
Basic ............................... 14,995,800 15,893,200 15,599,650 15,570,500 16,287,950 16,524,200
Dilutive Effect of Unexercised
Outstanding Stock Options as of
Balance Sheet Date
Under Stock Option Plans ............ 19,400 36,050 28,300 45,100 31,950 6,050
Adjustment of Shares Applicable to
Stock Options Exercised
during the Period.................... 2,400 2,700 46,950 7,900 8,200 1,300
------------ ------------ ------------ ------------ ------------ ------------
Pro Forma Unaudited Weighted
Average Number of Shares Outstanding--
Diluted ............................. 15,017,600 15,931,950 15,674,900 15,623,500 16,328,100 16,531,550
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-3
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF FINANCIAL POSITION
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AS OF AS OF AS OF
MARCH 31, DECEMBER 31, NOVEMBER 30,
2000 1999 1998
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ................... $ 2,391 $ 3,464 $ 2,826
Accounts Receivable--Net .................... 40,909 46,591 48,884
Other Current Assets ........................ 4,047 3,664 3,157
--------- ---------- -----------
Total Current Assets ................... 47,347 53,719 54,867
--------- ---------- -----------
PROPERTY, PLANT AND EQUIPMENT - NET ......... 14,467 15,633 17,975
COMPUTER SOFTWARE - NET ..................... 29,629 30,429 32,885
GOODWILL - NET .............................. 163,921 167,363 178,624
OTHER ASSETS ................................ 1,113 1,155 1,038
--------- ---------- -----------
TOTAL ASSETS ................................ $ 256,477 $ 268,299 $285,389
========= ========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts Payable ............................ $ 7,351 $ 8,596 $ 9,230
Accrued Income Taxes ........................ 3,645 4,158 3,857
Deferred Revenues ........................... 8,528 6,202 9,715
Accrued And Other Current Liabilities ....... 12,443 18,913 30,409
--------- ---------- -----------
Total Current Liabilities .............. 31,967 37,869 53,211
--------- ---------- -----------
DEFERRED INCOME TAXES ....................... 6,867 7,986 9,147
OTHER LIABILITIES ........................... 330 910 2,376
--------- ---------- -----------
TOTAL LIABILITIES ........................... 39,164 46,765 64,734
--------- ---------- -----------
COMMITMENT AND CONTINGENCIES (NOTES 8 AND 10)
MINORITY INTEREST ........................... 690 690 131
DIVISIONAL EQUITY
Divisional Equity ...................... 217,572 221,579 219,033
Cumulative Translation Adjustment ...... (949) (735) 1,491
--------- ---------- -----------
TOTAL DIVISIONAL EQUITY ....... 216,623 220,844 220,524
--------- ---------- -----------
Total Liabilities and Divisional Equity ..... $ 256,477 $ 268,299 $285,389
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-4
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR MONTH
THREE MONTHS ENDED ENDED ENDED YEARS ENDED
MARCH 31, DECEMBER DECEMBER NOVEMBER 30,
------------------ 31, 31, --------------------
2000 1999 1999 1998 1998 1997
------- ------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) .......................................... ($1,038) $ 423 ($ 3,192) ($1,415) ($25,217) $ 5,380
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation And Amortization ........................... 6,616 6,106 25,826 1,977 14,068 6,268
Amortization of Capitalized Computer Software ........... 493 778 2,014 177 2,411 2,708
Write-Off Of Acquired In-Process Research and
Development ............................................. -- -- -- -- 21,900 --
Changes in Operating Assets and Liabilities:
Accrued Liabilities ................................. (6,155) (731) (5,484) 29 8,358 1,174
Deferred Revenues ................................... 2,350 (4,225) (12,920) 9,529 (778) 1,290
Accounts Receivable ................................. 5,333 4,170 4,031 (3,598) (2,467) (7,939)
Accounts Payable .................................... (1,152) 861 266 (594) (6,425) 4,775
Accrued Income Taxes ................................ (365) (1,217) 512 (103) 3,394 (546)
Deferred Income Taxes ............................... (1,554) (437) (870) (217) (491) (561)
Other ................................................... 18 (150) (161) (527) 11 972
------- ------- -------- ------- -------- --------
Net Cash Provided By Operating Activities .................. 4,546 5,578 10,022 5,258 14,764 13,521
------- ------- -------- ------- -------- --------
Cash Flows From Investing Activities:
Capital Expenditures ....................................... (760) (921) (5,371) (278) (2,894) (11,292)
Additions To Computer Software ............................. (1,408) (1,916) (6,130) (128) (2,467) (2,636)
Payments for Acquisition of Business, Net of Cash
Acquired ................................................... -- -- (312) (4,000) -- --
Acquisition and Integration Payments ....................... -- (700) (4,123) -- (12,066) --
Other ...................................................... (434) (175) 174 50 (296) 375
------- ------- -------- ------- -------- --------
Cash Used In Investing Activities .......................... (2,602) (3,712) (15,762) (4,356) (17,723) (13,553)
------- ------- -------- ------- -------- --------
Cash Flows From Financing Activities:
Payments Under Lease Obligations ........................... (356) (142) (578) (151) (1,305) (428)
Net Transfers (To) From IMS HEALTH ......................... (2,603) (2,174) 7,433 (1,156) 6,544 (127)
------- ------- -------- ------- -------- --------
Net Cash Provided By (Used In) Financing Activities ........ (2,959) (2,316) 6,855 (1,307) 5,239 (555)
------- ------- -------- ------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents ................................................ (58) 1 (57) (15) 86 (123)
------- ------- -------- ------- -------- --------
Increase/(Decrease) In Cash and Cash Equivalents............ (1,073) (449) 1,058 (420) 2,366 (710)
Cash and Cash Equivalents, Beginning of Period ............. 3,464 2,406 2,406 2,826 460 1,170
------- ------- -------- ------- -------- --------
Cash and Cash Equivalents, End of Period.................... 2,391 $ 1,957 $ 3,464 $ 2,406 $ 2,826 $ 460
======= ======= ======== ======= ======== ========
Supplemental Disclosure of Cash Flow Information:
Non-cash investing activities include the acquisition of Walsh
International, Inc. for Cognizant common stock and options (See
Note 3 to the combined financial statements).
Cash payments for foreign, state and local income taxes were
$4,725, $300 and $42 in the Respective Periods, respectively.
The accompanying notes are an integral part of the combined
financial statements.
</TABLE>
F-5
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF DIVISIONAL EQUITY
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONTH
THREE MONTHS YEAR ENDED ENDED
ENDED MARCH DECEMBER DECEMBER YEARS ENDED NOVEMBER 30,
31, 31, 31, ------------------------
2000 1999 1998 1998 1997
------------ ---------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, Beginning Of Period ............ $ 220,844 $ 218,280 $ 220,524 $ 62,160 $ 57,597
Net Income (Loss) ....................... (1,038) (3,192) (1,415) (25,217) 5,380
Other Comprehensive Income (Loss):
Effect of Foreign Currency Translation .. (580) (1,677) 327 368 (690)
------------------------------------------------------------
Total Comprehensive Income (Loss) (1,618) (4,869) (1,088) (24,849) 4,690
Cognizant Equity Issued for Acquisition . -- -- -- 176,669 --
Net Transfers (to) from IMS HEALTH ...... (2,603) 7,433 (1,156) 6,544 (127)
------------------------------------------------------------
Balance, End Of Period .................. $ 216,623 $ 220,844 $ 218,280 $ 220,524 $ 62,160
========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-6
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
IMS Health Incorporated ("IMS HEALTH") recently announced a plan to
spin off its New Strategic Technologies business unit (the "Distribution").
IMS HEALTH is the world's leading provider of information solutions to the
pharmaceutical and healthcare industries. In order to change the state of
incorporation of Clark-O'Neill, Inc. ("Clark-O'Neill"), a wholly owned
subsidiary of IMS HEALTH, from New Jersey to Delaware, prior to the
Distribution, ST Spin, Inc. ("New Strategic Technologies"), a newly created
Delaware corporation and another wholly owned subsidiary of IMS HEALTH, will
merge with Clark-O'Neill with New Strategic Technologies as the survivor in
the merger, which will then be distributed to the shareholders of IMS HEALTH.
See Note 13 - The Distribution.
New Strategic Technologies serves the pharmaceutical industry by
developing and selling pharmaceutical relationship management solutions that
support sales and marketing decision making. Upon the conveyance by IMS HEALTH
of certain assets and stock to New Strategic Technologies, it will include the
pharmaceutical industry sales and marketing support businesses of IMS Health
Strategic Technologies, Inc., a wholly-owned subsidiary of IMS HEALTH (formed in
1983); certain other foreign subsidiaries of IMS HEALTH; and substantially all
of IMS HEALTH's interactive and direct marketing businesses, including the
business of Clark-O'Neill; and Permail Pty., Ltd., in which IMS HEALTH owns 51%.
As used in the accompanying combined financial statements, the term "New
Strategic Technologies" or the "Company" refers to the New Strategic
Technologies business. These businesses have heretofore been managed within and
reported as a part of the IMS HEALTH core operating segment in IMS HEALTH's
consolidated financial statements.
IMS HEALTH became a separate public company through the series of
transactions discussed below.
On November 1, 1996 (the "D&B Distribution Date"), The Dun & Bradstreet
Corporation ("D&B") distributed to its shareholders all of the outstanding
shares of common stock of Cognizant, then a wholly-owned subsidiary of D&B (the
"D&B Distribution"). In the D&B Distribution, holders of D&B common stock
received one share of Cognizant common stock for every share of D&B common stock
held.
On June 24, 1998, Cognizant acquired Walsh International, Inc.
("Walsh") (Note 3). Walsh, a software services and direct marketing company
whose operations are predominantly conducted outside the U.S. and was merged
into IMS Health Strategic Technologies, Inc. subsequent to its acquisition.
In July 1998, Cognizant Corporation ("Cognizant") separated into two
independent, publicly traded companies---Nielsen Media Research, Inc. ("Nielsen
Media Research"), and IMS HEALTH (the "Cognizant Distribution"). The transaction
was structured as a tax-free dividend of one share of IMS HEALTH common stock
for each share of Cognizant common stock. Concurrent with the transaction,
Cognizant changed its name to Nielsen Media Research, Inc.
The Cognizant Distribution created IMS HEALTH as the premier global
provider of information solutions to the pharmaceutical and healthcare
industries, and Nielsen Media Research, the leader in television audience
measurement services.
The combined financial statements have been prepared using IMS HEALTH's
historical basis in the assets and liabilities and historical results of
operations related to the Company's business, which are all under the common
control of IMS HEALTH. The combined financial statements generally reflect the
financial position, results of operations, and cash flows of the Company as if
it were a separate entity for all periods presented.
Effective in 1999, the operating units of New Strategic Technologies
that had previously reported on a fiscal year ended November 30 revised their
reporting period to conform with IMS HEALTH's fiscal year end of December 31.
This revision of year end was made to reflect the results of operations and
financial position of operating units on a more timely basis, consistent with
business performance, and to increase operating efficiency for consolidations
and overall IMS HEALTH management purposes. The Company improved its internal
financial systems and work processes so that it could more rapidly collect,
consolidate and report worldwide information.
The combined financial statements include allocations of certain IMS
HEALTH corporate and other expenses (including cash management, legal,
accounting, tax, employee benefits, insurance services, data services and
other corporate overhead) relating to the Company's business for the years
ended December 31, 1999, November 30,
F-7
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1998 and 1997 (the "Respective Periods"). Management believes these
allocations are reasonable. The combined financial statements exclude
allocations of revenues and costs for related party transactions with IMS
HEALTH as it relates to the licensing of data (See Note 9). The financial
information included herein may not necessarily reflect the combined
financial position, results of operations, and cash flows of the Company in
the future or what they would have been if the Company had been a separate
entity during the periods presented. The Company has been operating as a
business unit of IMS HEALTH and, as such, has been dependent on IMS HEALTH
for cash management, credit and financial resources on an as needed basis to
fund operations and to fund seasonal cash needs. In the opinion of
management, the Company's existing cash balances combined with cash generated
from operations and lines of credit or net assets that are expected to be in
place at the time of the Distribution are expected to be sufficient to meet
the Company's short-term annual financing requirements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION AND CONSOLIDATION. The combined financial statements of the
Company include the accounts of the Company, after elimination of all material
intercompany accounts and transactions within the combined group, New Strategic
Technologies.
UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying interim
combined statement of financial position as of March 31, 2000 and the combined
statements of operations and cash flows for the three months ended March 31,
2000 and March 31, 1999 together with the related disclosures and amounts set
forth in the notes are unaudited, but in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, which the Company
considers necessary to present fairly, in all material respects, its combined
statement of financial position, combined statements results of operations and
cash flows for the periods. Results for the three months ended March 31, 2000
and March 31, 1999 are not necessarily indicative of results for the entire
year.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with a maturity of 90 days or less at the time of purchase to be
cash equivalents.
PROPERTY, PLANT AND EQUIPMENT. Buildings, and machinery and equipment
are depreciated over their estimated useful lives of 40 and 3 to 5 years,
respectively, using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the lease or
the estimated useful life of the improvement. Maintenance and repairs are
charged to expense as incurred. Upon retirement or sale, the costs of the assets
disposed and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the determination of operating
results.
COMPUTER SOFTWARE. Direct costs incurred in the development of
computer software are capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed". Research and development
costs incurred to establish technological feasibility of a computer software
product are expensed in the periods in which they are incurred and are
included in Operating Costs in the Combined Statements of Operations.
Capitalization ceases and amortization starts when the product is available
for general release to customers. Computer Software costs for developed
software are being amortized, on a product by product basis, over three
years. Annual amortization is equal to capitalized computer software costs
times the greater of (a) the ratio of a product's current gross revenues to
the total of current and expected gross revenues or (b) one-third. Also see
Note 3 with regard to acquired software.
GOODWILL. Goodwill represents the excess of purchase price over the
fair value of identifiable net assets of businesses acquired and is amortized on
a straight-line basis over five to forty years. At each balance sheet date, the
Company reviews the recoverability of goodwill, not identified with impaired
long-lived assets, based on estimated undiscounted future cash flows from
operating activities compared with the carrying value of goodwill and recognizes
any impairment on the basis of such comparison. The recognition and measurement
of goodwill impairment is assessed at the business unit level.
OTHER LONG-LIVED ASSETS. In accordance with the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of", the Company reviews long-lived assets and certain
identifiable intangibles held and used for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In general, this statement requires recognition of an impairment
loss
F-8
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
when the sum of undiscounted expected future cash flow is less than the carrying
amount of such assets. Accordingly, the Company recognizes impairment losses on
long-lived assets as a result of its review. The measurement for such impairment
loss is then based on the fair value of the asset.
REVENUE RECOGNITION. The Company recognizes software license fee
revenue in accordance with AICPA Statement of Position No. 97-2 "Software
Revenue Recognition". The Company recognizes software license fee revenue over
the implementation period of its software products when services are considered
essential to the functionality of the software. In cases where services to be
provided are not essential to the functionality of the software, the Company
recognizes the software license fees from those products upon delivery.
Additionally, software license revenue is recognized upon delivery when a
customer purchases additional licenses and the Company's system has been
installed at the customer's site. The Company sells certain software under term
license arrangements (primarily outside the U.S.) combined with post contract
support and related data server/network management and other services. The
Company recognizes all fees for these arrangements ratably over the term of the
agreement, typically three years. The Company does not recognize any license
fees unless persuasive evidence of an arrangement exists, the license fee amount
is fixed and determinable and collectability is probable. Revenues from
services, including the Pharbase products, are recognized as the services are
performed. Revenues from customer maintenance, support and data server rental
agreements are recognized ratably over the term of the agreements.
Revenue from interactive marketing services is recognized on delivery
of the product or when the services are rendered. In connection with the
Company's interactive marketing services, the Company recognizes postage,
handling and other direct third party costs separately charged to its customers
as revenue with the related expenses included in operating costs in the
accompanying financial statements.
Deferred revenues arise primarily as a result of annual billings of
software maintenance fees at the beginning of maintenance terms and billings
of software license fees in accordance with contractual terms that may not
correlate directly with the delivery of product or services. The amount of
deferred revenue will increase and decrease based on the timing of billings
and related recognition of software license revenues. Unbilled accounts
receivable arise as a result of revenues earned under contractual
arrangements for products delivered prior to the related billings to the
customer. The Company generally bills the customer for these amounts within a
quarter.
FOREIGN CURRENCY TRANSLATION. The Company has significant operations in
non-U.S. countries. Therefore, changes in the value of foreign currencies affect
the Company's combined financial statements when translated into U.S. dollars.
For all operations outside the United States where the Company has
designated the local currency as the functional currency, assets and liabilities
are translated using end-of-period exchange rates; revenues and expenses are
translated using average rates of exchanges. For these countries, currency
translation adjustments are accumulated in a separate component of divisional
equity whereas realized transaction gains and losses are recognized in other
income (expense) - net. For operations in countries that are considered to be
highly inflationary or where the U.S. dollar is designated as the functional
currency, monetary assets and liabilities are translated using end-of-period
exchange rates, whereas non-monetary accounts are translated using historical
exchange rates, and all translation and transaction adjustments are recognized
in other (expense) - net.
INCOME TAXES. The results of the Company have been included in the
consolidated Federal and certain state and non-U.S. income tax returns of IMS
HEALTH and Cognizant for the Respective Periods. The provision for income taxes
in the Company's combined financial statements has been determined as if New
Strategic Technologies was a separate company during the Respective Periods.
Income taxes deemed paid on behalf of the Company by IMS HEALTH and Cognizant
for the Respective Periods are included in Divisional Equity. Effective after
the Distribution, the Company will file separate income tax returns.
Income taxes are provided using the asset and liability method in
accordance with SFAS No. 109. Deferred tax assets and liabilities are recognized
based on the estimated realizable differences between the book and tax bases of
assets and liabilities using presently enacted tax rates. The provision for
income taxes is the sum of the amount of income tax paid or payable for the year
as determined by applying the provisions of enacted tax laws to taxable income
for that year and the net changes during the year in the Company's deferred tax
assets and liabilities.
F-9
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
DIVISIONAL EQUITY. Divisional Equity includes historical loans and
advances to/from IMS HEALTH, including net transfers to/from IMS HEALTH,
third-party liabilities paid by IMS HEALTH on behalf of the Company and amounts
due to/from IMS HEALTH for services and other charges, current period net income
(loss) and foreign currency translation adjustments through the Respective
Periods.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates. Estimates are used for, but
not limited to, the accounting for: allowance for uncollectible accounts
receivable, depreciation and amortization periods, capitalized software costs,
employee benefit plans, income taxes, acquired in-process research and
development, purchase price allocations, and allocation of IMS HEALTH corporate
and other costs.
PRO FORMA EARNINGS PER SHARE (UNAUDITED). Pro forma basic earnings per
share are calculated by dividing net income (loss) by the weighted average
common shares of IMS HEALTH, reflecting the anticipated 1 for 20 distribution
ratio (see Note 13). Pro forma diluted earnings per share are calculated by
dividing net income (loss) by dilutive potential common shares. Dilutive
potential common shares are calculated in accordance with the treasury stock
method, which assumes that proceeds from the exercise of all New Strategic
Technologies employee options are used to repurchase IMS HEALTH common stock at
market value. The amount of shares remaining after the proceeds are exhausted
represent the potentially dilutive effect of the options. Pro forma diluted
earnings per share does not reflect the potentially dilutive impact of
outstanding options converted into New Strategic Technologies options.
RECENTLY ISSUED ACCOUNTING STANDARDS. In March 2000, the Financial
Accounting Standards Board issued Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25" ("FIN No. 44"). The interpretation provides guidance for certain issues
relating to stock compensation, involving employees that arose in applying APB
Opinion 25. The provisions of FIN No. 44 are effective July 1, 2000. Management
continues to evaluate the possible effects of FIN No. 44 on the Company's
financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 is effective July 1, 2000. The Company
believes its revenue recognition policies are in compliance with the SEC staff's
views.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133-an amendment of FASB Statement No. 133". Citing concerns about companies'
ability to modify their information systems in time to apply SFAS 133, the FASB
delayed its effective date for one year, to fiscal years beginning after June
15, 2000 (January 1, 2001 for the Company). Management continues to evaluate the
effects of this pronouncement on the Company's financial statements and does not
believe that adoption of the statement will have a material impact on the
Company's financial statements.
NOTE 3. ACQUISITIONS
WALSH INTERNATIONAL, INC.
On June 24, 1998, Cognizant acquired Walsh. The original purchase price
was $193,748, including $167,148 of Cognizant common stock, $9,521 for Cognizant
stock options issued and $17,079 of direct acquisition and integration costs.
Under the terms of the Walsh acquisition agreement, Walsh shareholders
received 6,454,600 shares of Cognizant common stock (on a post- 2 for 1 split
basis), issued from Cognizant treasury stock, for a total consideration of
approximately $167,148 based on a Cognizant share price of $25.896. The original
estimate of direct acquisition and integration costs of $17,079 consisted of
severance ($4,876), lease terminations ($2,569) and other direct acquisition and
integration costs ($9,634). These direct acquisition and integration costs were
incremental and were incurred as a direct result of the
F-10
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
acquisition and the formal plan to exit certain activities as part of the
overall integration effort (such as severance costs related to Walsh
employees) and certain contractual costs (such as Walsh leases that were to
be terminated). Direct acquisition and integration costs primarily include
the professional fees of investment bankers, attorneys and accountants, and
change in control and other transaction-related bonuses paid to Walsh
personnel. At December 31, 1999, the program for integrating Walsh had been
completed. In completing the program, the Company incurred
higher-than-anticipated severance costs for Walsh employees, and terminated
acquired Walsh leases at a cost lower than originally anticipated. In
addition, a certain lease scheduled for termination was subsequently retained
by the Company. As a result, the remaining liability for direct acquisition
and integration costs, and goodwill were reduced by $890.
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired and liabilities assumed in
connection with the acquisition was based primarily on estimates of fair values
by an independent appraisal firm.
In connection with the Walsh acquisition, the Company allocated a
portion of the purchase price to acquired in-process research and development
costs ("IPR&D") amounting to $21,900 in 1998. At the date of acquisition, the
development of the IPR&D projects had not reached technological feasibility and
had no alternative future uses. Accordingly, these costs were expensed as of the
acquisition date. In accordance with the Securities and Exchange Commission
guidance issued in 1998 with respect to the allocation of purchase price to
IPR&D in connection with an acquisition, the amounts allocated to IPR&D reflect
the relative value and contribution of the acquired IPR&D. Consideration was
given to the projects' then stage of completion, the complexity of the work
completed to date, the difficulty of completing the remaining development, the
costs already incurred and the projected costs to complete the projects.
In addition, the Company allocated $29,000 to existing core technology,
representing software that, at the date of acquisition, was currently in use and
available for sale. These software products are being amortized on a
straight-line basis over 5 years. The final purchase price allocation is as
follows.
<TABLE>
<CAPTION>
<S> <C>
IPR&D charge .................... $ 21,900
Net liabilities assumed ......... (1,609)
Computer Software/Core Technology 29,000
Deferred taxes .................. (8,700)
Goodwill ........................ 152,267
---------------------------------------------------------
Final Purchase Price ............ $ 192,858
</TABLE>
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Walsh as if the acquisition
had occurred as of the beginning of 1997, after giving effect to certain
adjustments, including amortization of goodwill and related income tax effects.
The pro forma financial information does not necessarily reflect the results of
operations that would have occurred had the entities constituted a single entity
during such periods and is exclusive of the IPR&D charge.
F-11
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Revenues $180,163 $163,901
Net Loss ($7,032) ($3,009)
</TABLE>
LOGIX, INC.
In December 1998, the Company acquired Logix, Inc. ("Logix") for $4,312
in cash. The acquisition was accounted for as a purchase. The Company
allocated $500 to existing core technology, which is being amortized on a
straight-line basis over three years and the remainder, $3,812, to goodwill,
which is being amortized over five years. The impact of the Logix acquisition on
the results of operations had the acquisition occurred on January 1, 1998 or
1997 would not have been material.
NOTE 4. FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE RISK MANAGEMENT
The Company transacts business in many countries and is subject to
risks associated with changing foreign exchange rates. The Company's
objective is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on
its core business activities. Accordingly, through IMS HEALTH, the Company
enters into various contracts which change in value as foreign exchange rates
change to protect the value of non-functional currency assets and
liabilities. IMS HEALTH allocates contracts to the Company relating to
specific balance sheet exposures at each balance sheet date. The Company's
policy is to maintain hedge coverage between minimum and maximum percentages
of its anticipated foreign exchange exposures over the next year. The gains
and losses on these hedges offset changes in the value of the related
exposures. Total foreign exchange gains (losses), including gains (losses) on
these hedges, were ($161), $596 and ($40) in the Respective Periods,
respectively. Gains and losses on contracts hedging non-functional currency
assets and liabilities are included in operatings results in other income
(expense).
It is the Company's policy to enter into foreign currency transactions
only to the extent necessary to meet its objectives as stated above. The Company
does not enter into foreign currency transactions for investment or speculative
purposes.
The Company uses forward contracts to hedge non-functional currency
assets and liabilities. At December 31, 1999, the Company had approximately
$4,800 in foreign exchange forward contracts outstanding with various expiration
dates through January 2000 hedging non-functional currency assets and
liabilities. The estimated fair values of the foreign exchange risk management
contracts were determined based on quoted market prices.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1999, the Company's financial instruments included
cash, cash equivalents, accounts receivable, accounts payable, and foreign
exchange risk management contracts. At December 31, 1999, the fair values of
cash, cash equivalents, accounts receivable and accounts payable approximated
carrying values due to the short-term nature of these
F-12
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
instruments. At December 31, 1999, the notional amounts of the Company's foreign
exchange risk management contracts were $4,800 and all contracts mature in 2000.
CREDIT CONCENTRATIONS
The Company continually monitors its positions with, and the credit
quality of, the financial institutions which are counterparties to its financial
instruments and does not anticipate non-performance by the counterparties. The
Company would not realize a material loss as of December 31, 1999 in the event
of non-performance by any one counterparty. The Company enters into transactions
only with financial institution counterparties which have a credit rating of A
or better. In addition, the Company limits the amounts of credit exposure with
any one institution.
The Company maintains accounts receivable balances principally from
customers in the pharmaceutical industry. The Company's trade receivables do not
represent significant concentrations of credit risk at December 31, 1999 due to
the high quality of its customers and their dispersion across many geographic
areas. These receivable balances are unsecured. The company believes its
allowance for uncollectible accounts is sufficient to provide for any risk of
credit losses.
NOTE 5. EMPLOYEE BENEFIT PLANS
U.S. BENEFIT PLANS
Certain domestic employees of the Company participate in IMS HEALTH's
defined benefit pension plan. The plan is a cash balance pension plan under
which 6% of creditable compensation plus interest is credited to eligible
employee's retirement accounts on a monthly basis. At the time of retirement,
the vested employee's account balance is actuarially converted into an annuity.
The Company accounts for the plan as a multi-employer plan. The Company has
recorded pension expense related to its employees participation in the IMS
HEALTH plan, as allocated in the Respective Periods, totaling $490, $420, and
$359, respectively.
Certain U.S. based employees of the Company are eligible to
participate in IMS HEALTH's various healthcare and life insurance plans for
retired employees. Employees based in the United States become eligible for
benefits or participation under these plans if they work 10 years after
attaining age 45 for the Company. The Company accounts for the plans as a
multi-employer plans. Accordingly, the cost of the post-retirement benefit
plans as allocated by IMS HEALTH during the Respective Periods was $247, $215
and $175, respectively.
Substantially all U.S. based employees are eligible to participate in
IMS HEALTH-sponsored defined contribution plans during the Respective Periods.
In the plans, the sponsoring employer makes a matching contribution of up to 50%
of the employee's contribution based on specified limits of the employee's
salary. The Company's expense related to these plans was $770, $750, and $541
for the Respective Periods, respectively.
NON-U.S. BENEFIT PLANS
The Company's foreign operations provide for retirement benefits in
line with local statutory requirements.
NOTE 6. EMPLOYEE STOCK PLANS
IMS HEALTH has an Employee Stock Incentive Plan, which provides for the
grant of stock options, restricted stock and restricted stock units to eligible
employees. Pursuant to the restricted stock units plan, the Company recognized
compensation expense of $185, $58 and $0 in the Respective Periods,
respectively. In addition it provides an opportunity for the purchase of stock
options with a prepayment equal to ten percent of the exercise price, with the
remaining payment due when the options are exercised. Options have a life of ten
years, vest proportionally over three to four years, except as noted below, and
have an exercise price equal to the fair market value of the common stock on the
grant date.
On January 3, 2000, IMS HEALTH reduced the vesting period on
substantially all options previously granted with a six-year vesting period to
four years. As a result 373,064 previously unvested options with exercise prices
ranging from $15.79 to $27.15 became exercisable at January 3, 2000.
F-13
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
IMS HEALTH adopted an Employee Stock Purchase Plan in 1998 which allows
eligible employees to purchase a limited amount of common stock at the end of
each quarter at a price equal to the lesser of 90% of fair market value on (a)
the first trading day of the quarter, or (b) the last trading day of the
quarter. Fair market value is defined as the average of the high and low prices
of the shares on the relevant day. There is no compensation cost associated with
this plan.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires that
companies with stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue to apply the
existing accounting rules and disclose pro forma net income and earnings per
share assuming the fair value method had been applied. The Company has chosen to
continue applying Accounting Principles Board Opinion No. 25 ("APB No.25") and
related interpretations in accounting for its plans. No compensation cost has
been recognized for the fixed stock option plans in the Respective Periods. Had
compensation cost for the IMS HEALTH's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, consistent with the method of SFAS No. 123, the Company's net income and
Pro Forma earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
Dec. 31, Nov. 30, Nov. 30,
1999 1998 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss)
As reported ($3,192) ($25,217) $5,380
Pro forma ($7,476) ($26,797) $4,619
Pro Forma Unaudited Earnings (Loss) Per Share:
Basic
As reported ($ 0.20) ($ 1.55) $ 0.33
Pro forma ($ 0.48) ($ 1.68) $ 0.28
Diluted
As reported ($ 0.20) ($ 1.54) $ 0.33
Pro forma ($ 0.48) ($ 1.64) $ 0.28
-------------------------------------------------------------------------------
</TABLE>
Note: The pro forma disclosures above may not be representative of the effects
on net income and earnings per share in future years. In addition, the pro forma
disclosures shown above reflect the anticipated 1 for 20 distribution ratio
discussed in Note 1.
The impact of the change in vesting mentioned above will accelerate the
pro forma fair value charge for previously vested options reflected in the pro
forma EPS disclosures required by SFAS No.123, thereby significantly increasing
the 2000 pro forma SFAS No. 123 earnings charge when compared to the actual
reported amount in prior periods. Under APB No.25, there is no charge to the
Combined Statement of Operations for this change.
The fair value of the IMS HEALTH's stock options used to compute pro
forma net income and earnings per share disclosures is the estimated present
value at grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for 1999: dividend yield of 0.3%;
expected volatility of 35%; a risk-free interest rate of 4.8%; and an expected
term of 3 years. The following weighted average assumptions were used for 1998:
dividend yield of 0.3%; expected volatility of 25%; a risk-free interest rate of
5.4%; and an expected term of 3.7 years. The following weighted-average
assumptions were used for 1997: dividend yield of 0.3%; expected volatility of
25%; risk-free interest 5.75%; and an expected term of 4.5 years. The weighted
average fair value (per stock option), of the IMS HEALTH's stock options granted
in the Respective Periods are $9.68, $8.55 and $6.82, respectively. These
assumptions are based on circumstances and factors associated with IMS HEALTH,
particularly expected volatility. They may not be indicative of those which New
Strategic Technologies may have as an independent company.
Immediately following the spin-off of Nielsen Media by IMS HEALTH in
July 1998, outstanding awards under the Cognizant's Key Employees Stock
Incentive Plan and other option plans were adjusted to maintain the intrinsic
value of the then existing awards.
F-14
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
As a result of the Gartner Spin-Off by IMS HEALTH in 1999, outstanding
stock option awards under the IMS HEALTH's Employee Stock Incentive Plan and
other option and equity plans were adjusted to maintain the intrinsic value of
the then existing awards.
At December 31, 1999, outstanding options for IMS HEALTH common stock
held by Company employees, including the substitute awards mentioned above,
totaled 3,532,448, of which 1,024,226 had vested and were exercisable. The
option exercise prices range from $9.89 to $31.15 per IMS HEALTH share and are
exercisable over periods ending no later than 2009. At December 31, 1998,
outstanding options for IMS HEALTH common stock (pre-Gartner conversion) held by
Company employees totaled 3,232,712, of which 1,009,450 had vested and were
exercisable. The option exercise prices ranged from $3.69 to $34.25 per IMS
HEALTH share. Unless otherwise noted, the disclosure above and described in the
tables below are reflected as IMS HEALTH shares and have not been restated to
reflect the anticipated 1 for 20 distribution ratio described in Note 1.
Immediately following the spin-off of the Company, outstanding awards
under IMS HEALTH's Key Employees Stock Incentive Plan and other option plans
related to employees of the Company will be cancelled and replaced by substitute
awards under new Company option plans.
Option activity related to Company employees follows:
<TABLE>
<CAPTION>
WEIGHTED
IMS AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
IMS Options Outstanding,
December 31, 1996 1,741,468 $16.55
Granted 259,000 $22.22
Exercised (49,032) $14.88
Expired (2,000) $16.69
--------------------------------------------------------
IMS Options Outstanding,
December 31, 1997 1,949,436 $17.34
--------------------------------------------------------
Conversion Adjustment (169,866) -----
Granted (1) 1,844,302 $23.84
Exercised (271,948) $16.73
Expired/Terminated (119,212) $29.91
--------------------------------------------------------
IMS Options Outstanding,
December 31, 1998 3,232,712 $21.55
--------------------------------------------------------
Conversion Adjustment 473,932 ------
Granted 1,274,696 $33.58
Exercised (330,485) $15.18
Expired (1,118,407) $24.72
--------------------------------------------------------
IMS Options Outstanding,
December 31, 1999 3,532,448 $22.59
--------------------------------------------------------
</TABLE>
(1) Includes 1,292,024 options granted in connection with the Walsh
acquisition (see Note 3).
The table above presents the option activity on a calendar year basis for all
years as the information was derived from IMS HEALTH's records.
F-15
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
DECEMBER 31, 1999 -----------------------------------------------------
RANGE OF -------------------------------- REMAINING OPTION EXERCISE PRICES
EXERCISE NUMBER NUMBER CONTRACTUAL -------------------------------
PRICES OUTSTANDING EXERCISABLE (1) LIFE OUTSTANDING EXERCISABLE
============================================================================================================================
<S> <C> <C> <C> <C> <C>
$ 9.89 - $14.15 124,943 116,642 5.2 years $12.92 $12.91
$15.79 - $16.70 1,448,725 683,657 6.8 years $15.83 $15.88
$17.69 - $23.50 401,494 123,715 8.3 years $21.36 $19.91
$25.48 - $27.57 410,798 81,896 8.6 years $26.73 $26.72
$30.64 - $31.15 1,146,488 18,316 9.0 years $31.12 $30.64
---------------------------------------------------------------------------------------------------------------------------
3,532,448 1,024,226
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exclusive of the 373,064 previously unvested options that became
exercisable as of January 3, 2000.
NOTE 7. INCOME TAXES
Income (Loss) before provision for income taxes consisted of:
1999 1998 1997
-------- -------- --------
U.S........................... ($14,475) ($23,405) $ 7,696
Non U.S....................... 17,755 1,468 2,262
-------- -------- --------
$ 3,280 ($21,937) $ 9,958
======== ======== ========
Income tax provision (benefit) for income taxes consisted of:
1999 1998 1997
-------- ------- -------
U. S. Federal and State
Current....................... $ (2,036) $ 2,196 $ 4,391
Deferred...................... 1,576 (265) (682)
-------- ------- -------
($ 460) $ 1,931 $ 3,709
-------- ------- -------
Non-U.S.:
Current....................... $ 6,885 $ 1,424 $ 911
Deferred...................... 47 (75) (42)
-------- ------- -------
6,932 1,349 869
-------- ------- -------
Total......................... $ 6,472 $ 3,280 $ 4,578
======== ======= =======
F-16
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The following table summarizes the significant differences between
applying the U.S. Federal statutory income tax rate to the Company's income
(loss) before provision for income taxes and the Company's reported provision
for income taxes.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Tax Provision Applying the Federal Statutory Rate............ $1,148 ($7,678) $3,485
State and Local Income Taxes, net of Federal Tax Benefit..... (33) 192 302
Impact of Non-U.S. Tax Rates and Credits..................... 717 835 77
Non-Deductible IPR&D......................................... - 7,665 -
Non-Deductible Goodwill Amortization......................... 4,445 2,131 609
Other, net................................................... 195 135 105
------ ------- ------
Provision for Income Taxes................................... $6,472 $3,280 $4,578
====== ======= ======
</TABLE>
The Company's deferred tax assets (liabilities) are comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred Tax Assets:
Operating Losses ........................... $ 4,147 $ 3,724
Accrued Liabilities......................... 876 1,139
Depreciation................................ 321 274
Bad Debt Reserve............................ 288 260
------- -------
5,632 5,397
Valuation Allowance on Operating Losses (4,147) (3,724)
------- -------
1,485 1,673
------- -------
Deferred Tax Liabilities:
Computer Software........................... (9,325) (10,516)
Other....................................... (146) (206)
------- -------
(9,471) (10,722)
------- -------
Net Deferred Tax Liability.................. ($7,986) ($9,049)
======= =======
</TABLE>
The Company has established a valuation allowance attributable to
deferred tax assets, primarily net operating losses, in certain U.S. state and
non-U.S. tax jurisdictions where, based on available evidence, it is more likely
than not that such assets will not be realized. If realized, utilization of
Walsh pre-acquisition net operating losses, in the amount of approximately
$2,400, will be reflected as a reduction of the associated goodwill and not as a
tax benefit in the Combined Statement of Operations.
Undistributed earnings of non-U.S. subsidiaries aggregated
approximately $16,200 at December 31, 1999. Deferred tax liabilities have not
been recognized for these undistributed earnings because the Company considers
these earnings to be indefinitely reinvested. If such earnings are repatriated
in the future, or are no longer deemed to be indefinitely reinvested, applicable
taxes will be provided for such amounts. It is not currently practicable to
determine the amount of such taxes.
NOTE 8. COMMITMENTS
Certain of the Company's operations are conducted from leased
facilities under operating leases. Rental expense under real estate operating
leases for the Respective Periods was $5,418, $4,501, and $3,614, respectively.
The minimum
F-17
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
annual rental expense for real estate operating leases that have initial or
remaining noncancelable lease terms in excess of one year, at December 31, 1999
was: 2000 -$4,954 ; 2001 - $4,366; 2002 - $3,356; 2003 - $2,965; 2004 - $2,981;
and an aggregate of $9,272 thereafter.
The Company also leases or participates in leases of certain
computer and other equipment under operating leases. These leases are
frequently renegotiated or otherwise changed as advancements in computer
technology produce opportunities to lower costs and improve performance.
Rental expense under computer and other equipment leases was $3,006, $2,895,
and $2,707 for the Respective Periods, respectively. At December 31, 1999,
the minimum annual rental expense for computer and other equipment under
operating leases that have remaining noncancelable lease terms in excess of
one year was: 2000 -- $2,913; 2001 -- $2,549; 2002 -- $2,107; 2003 -- $1,060;
2004 - $249; and none thereafter.
New Strategic Technologies is contractually obligated to sell its
51% interest in Permail Pty., Ltd. (together with the 49% minority interest)
in 2004 at estimated fair market value, regardless of the outcome of
operations from the Permail business and the revenue generated by Permail. As
of December 31, 1999, Permail's net assets are approximately $3,000 and 1999
revenues were approximately $11,000.
NOTE 9. RELATIONSHIPS WITH IMS HEALTH
IMS HEALTH uses a centralized cash management system to finance its
operations. Cash deposits from most of the Company's businesses are transferred
to IMS HEALTH on a daily basis. IMS HEALTH funds the Company's disbursement bank
accounts as required. No interest cost has been charged on these transactions.
Cash and cash equivalents in the accompanying combined financial statements
represent balances in Company accounts that are not part of the IMS HEALTH cash
management system.
IMS HEALTH provides certain centralized services to the Company.
Expenses related to these services were allocated to the Company based on
utilization of specific services or, where not estimable, based on revenue of
the Company in proportion to IMS HEALTH's consolidated revenue. Management
believes these allocation methods are reasonable. These allocations were $8,378,
$5,332 and $5,523 for the Respective Periods, respectively, and are included in
operating costs and selling and administrative expenses in the Combined
Statements of Operations. Amounts due to IMS HEALTH for these allocated expenses
have been contributed by IMS HEALTH to the Company and are included in
Divisional Equity.
The Company contracts for information technology consulting services
from Cognizant Technology Solutions ("CTS"), a subsidiary of IMS HEALTH. Expense
recognized for services rendered by CTS was $2,225, $151 and $64 in the
Respective Periods, respectively.
Net transfers to or from IMS HEALTH included in Divisional Equity,
include advances and loans from affiliates, net cash transfers to or from IMS
HEALTH, third-party liabilities paid by IMS HEALTH on behalf of the Company,
amounts due to or from IMS HEALTH for services and other charges, and U.S.
income taxes paid on behalf of the Company by IMS HEALTH during the Respective
Periods. No interest cost has been charged on these transactions or the net
balance.
The activity in the net transfers to IMS HEALTH account for all
presented in Divisional Equity in the Combined Statements of Divisional Equity
is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEARS ENDED NOVEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
IMS HEALTH Services and Other Charges $ 8,378 $ 434 $ 5,332 $ 5,523
Loans and Advances--Net ............. 2,613 58 (2,483) (619)
U.S. Income Taxes ................... 460 -- 1,931 3,709
Cash Transfers -Net ................. (4,018) (1,648) 1,764 (8,740)
------- ------- ------- -------
Net Transfers (to) from IMS HEALTH .. $ 7,433 ($1,156) $ 6,544 ($ 127)
======= ======= ======= =======
</TABLE>
F-18
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The Company and IMS HEALTH share the use of certain information
databases. The databases Xponent (owned by IMS HEALTH) and Pharbase (owned by
the Company) contain information related to prescription drug trends and
physicians, respectively. The companies sell information from these databases
to their customers. The Company and IMS HEALTH have historically not charged
one another for the use of these databases and accordingly, the accompanying
combined financial statements do not include revenues or costs associated
with this related party relationship.
NOTE 10. CONTINGENCIES
IMS HEALTH and the Company are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings and litigation, if
decided adversely, could have a material adverse effect on quarterly or annual
operating results or cash flows when resolved in a future period.
In addition, the Company is subject to certain other contingencies
which are discussed below.
DUN & BRADSTREET SPIN-OFF
Under the terms of the distribution agreements relating to the 1996
spin-off of IMS HEALTH's predecessor, Cognizant, from D&B and relating to the
1998 spin-off of IMS HEALTH from Cognizant, as a condition to the distribution,
IMS HEALTH and any company that it spins off, including New Strategic
Technologies, are required to undertake to be jointly and severally liable to
D&B, A.C. Nielsen Company and Cognizant for IMS HEALTH's obligations under the
1996 Distribution Agreement and the 1998 Distribution Agreement. In the event
that New Strategic Technologies were obligated to fund a substantial portion of
such liabilities, it would have a material adverse effect on New Strategic
Technologies' financial condition. Certain of such liabilities are discussed
below:
INFORMATION RESOURCES LITIGATION
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint
in the United States District Court for the Southern District of New York,
naming as defendants D&B, A.C. Nielsen and I.M.S. International Inc. (a
predecessor of IMS HEALTH) (the "IRI Action"). The complaint alleges various
violations of the United States antitrust laws, including alleged violations of
Sections 1 and 2 of the Sherman Act. The complaint also alleges a claim of
tortious interference with a contract and a claim of tortious interference with
a prospective business relationship. These latter claims relate to the
acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges
that SRG violated an alleged agreement with IRI when it agreed to be acquired by
defendants and that the defendants induced SRG to breach that agreement. IRI's
complaint alleges damages in excess of $350,000,which amount IRI has asked to be
trebled under the antitrust laws. IRI also seeks punitive damages in an
unspecified amount. On October 15, 1996, defendants moved for an order
dismissing all claims in the complaint. On May 6, 1997, the United States
District Court for the Southern District of New York issued a decision
dismissing IRI's claim of attempted monopolization in the United States, with
leave to replead within sixty days. The Court denied defendants' motion with
respect to the remaining claims in the complaint. On June 3, 1997, defendants
filed an answer denying the material allegations in IRI's complaint, and A.C.
Nielsen Company filed a counterclaim alleging that IRI has made false and
misleading statements about its services and commercial activities. On July 7,
1997, IRI filed an amended and restated complaint repleading its alleged claim
of attempted monopolization in the United States and realleging its other
claims. On August 18, 1997, defendants moved for an order dismissing the amended
claims. On December 1, 1997, the court denied the motion and, on December 16,
1997, defendants filed a supplemental answer denying the remaining material
allegations of the amended complaint. Discovery is continuing in this matter.
In light of the potentially significant liabilities which could arise
from the IRI Action and in order to facilitate the distribution by D&B of shares
of Cognizant and A.C. Nielsen Company in 1996, D&B, AC Nielsen (the parent
company of A.C. Nielsen Company) and Cognizant entered into an Indemnity and
Joint Defense Agreement pursuant to which they agreed (i) to certain
arrangements allocating liabilities that may arise out of or in connection with
the IRI Action, and (ii) to conduct a joint defense of such action. In
particular, the Indemnity and Joint Defense Agreement provides that AC Nielsen
will assume exclusive liability for liabilities up to a maximum amount to be
calculated at the time such liabilities, if any, become payable (the "ACN
Maximum Amount") and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which AC Nielsen
will be able to pay after giving effect to (i) any plan submitted by such
investment
F-19
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
bank which is designed to maximize the claims paying ability of AC Nielsen
without impairing the investment banking firm's ability to deliver a viability
opinion (but which will not require any action requiring shareholder approval),
and (ii) payment of related fees and expenses. For these purposes, financial
viability means the ability of AC Nielsen, after giving effect to such plan, the
payment of related fees and expenses and the payment of the ACN Maximum Amount,
to pay its debts as they become due and to finance the current and anticipated
operating and capital requirements of its business, as reconstituted by such
plan, for two years from the date any such plan is expected to be implemented.
In 1998, IMS HEALTH was spun-off from Cognizant (the "1998 Spin-Off")
which then changed its name to Nielsen Media Research, Inc. ("NMR"). IMS HEALTH
and NMR are jointly and severally liable to D&B and AC Nielsen for Cognizant's
obligations under the terms of the Distribution Agreement dated October 28, 1996
among D&B, Cognizant and AC Nielsen (the "1996 Distribution Agreement"). In
connection with the 1998 Spin-Off, IMS HEALTH and NMR agreed that, as between
themselves, IMS HEALTH will assume 75%, and NMR will assume 25%, of any payments
to be made in respect of the IRI Action under the Indemnity and Joint Defense
Agreement or otherwise, including any legal fees and expenses related thereto
incurred in 1999 or thereafter. IMS HEALTH has agreed to be fully responsible
for any legal fees and expenses incurred during 1998. NMR's aggregate liability
to IMS HEALTH for payments in respect of the IRI Action and certain other
contingent liabilities shall not exceed $125,000,000. Management of IMS HEALTH
and New Strategic Technologies are unable to predict at this time the final
outcome of this matter.
OTHER CONTINGENCIES
IMS HEALTH, Cognizant and D&B have entered, and IMS HEALTH continues to
enter, into global tax planning initiatives in the normal course of their
business. These activities are subject to review by tax authorities. As a result
of the review process, uncertainties exist and it is possible that some of these
matters could be resolved adversely to IMS HEALTH, Cognizant, D&B or New
Strategic Technologies.
IMS HEALTH has been informed by D&B that the IRS is currently reviewing
D&B's utilization of certain capital losses during 1989 and 1990. D&B has
advised IMS HEALTH that during the second quarter of 2000 it has filed an
amended tax return for these periods which reflects $561,600 of tax and interest
due. Under the terms of the 1996 Distribution Agreement, IMS HEALTH is liable to
pay half of such taxes and interest owed to the IRS to the extent that D&B total
liabilities exceed $137,000. D&B paid approximately $349,300 of this amount in
early May 2000, and IMS HEALTH paid approximately $212,300 in May, 2000. A
portion of IMS HEALTH's liability will in turn be shared with NMR under the
Distribution Agreement between those companies dated June 30, 1998 (the "1998
Distribution Agreement"). NMR is not obligated to pay its share to IMS HEALTH
until January 2, 2001. The payments are being made to the IRS to stop further
interest from accruing. D&B expects a formal assessment for the additional tax
to be issued by the IRS during the second quarter of 2000. D&B has advised IMS
HEALTH that, notwithstanding the filing and payment, it intends to contest the
assessment of additional tax. IMS HEALTH estimates that its share of the
liability, were the IRS to prevail, would be approximately $140,000 net of
income tax benefit on interest (approximately $31,300) and NMR's contribution
obligations (approximately $41,000). Although the Company is jointly and
severally liable for this obligation, it is not currently estimable what portion
of this obligation, if any, will be borne by the Company. As a result, the
Company's financial statements do not reflect a provision or liability for this
contingency. It is expected that this tax matter will be addressed in the
Distribution Agreement.
NOTE 11. SUPPLEMENTAL FINANCIAL DATA
ACCOUNTS RECEIVABLE -- NET:
1999 1998
-------- --------
Trade ............................... $ 41,380 $ 44,042
Unbilled Receivables ................ 5,658 5,284
Other ............................... 565 852
Less: Allowance for Doubtful Accounts (1,012) (1,294)
-------- --------
$ 46,591 $ 48,884
======== ========
F-20
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Inventory ............................................... $ 1,454 $ 1,384
Prepaid Expenses ........................................ 2,210 1,675
Deferred Taxes .......................................... -- 98
-------- --------
$ 3,664 $ 3,157
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT-NET:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Property ................................................ $ 850 $ 815
Plant and Equipment ..................................... 43,870 42,546
Less: Accumulated Depreciation ......................... (32,502) (30,125)
Leasehold Improvements, less: Accumulated Amortization of
$3,256 and $2,636 ....................................... 3,415 4,739
-------- --------
$ 15,633 $ 17,975
======== ========
</TABLE>
COMPUTER SOFTWARE AND GOODWILL-NET:
Computer
Software Goodwill
-------- --------
December 1, 1997 ..................... $ 6,947 $ 31,929
Additions at Cost .................... 2,467 --
Amortization ......................... (4,828) (6,468)
Acquisition (Note 3) ................. 29,000 153,157
Other Deductions and Reclassifications (701) 6
--------- ---------
November 30, 1998 .................... 32,885 178,624
Additions at Cost .................... 128 --
Acquisitions (Note 3) ................ -- 4,000
Amortization ......................... (658) (1,054)
Other Deductions and Reclassifications 105 (205)
--------- ---------
December 31, 1998 .................... 32,460 181,365
Additions at Cost .................... 6,130 --
Acquisitions (Note 3) ................ 500 (188)
Amortization ......................... (7,983) (13,046)
Other Deductions and Reclassifications (678) (768)
--------- ---------
December 31, 1999 .................... $ 30,429 $ 167,363
--------- ---------
Included in amortization of Computer Software is amortization
related to acquired software (Note 3) of $2,417, $481 and $5,969 for the year
ended November 30, 1998, the month ended December 31, 1998 and the year ended
December 31, 1999, respectively.
Accumulated amortization of computer software was $27,525 and
$15,857 at December 31, 1999 and November 30, 1998, respectively. Accumulated
amortization of goodwill was $34,535 and $20,430 at December 31, 1999 and
November 30, 1998, respectively. Research and development costs were $11,332,
$6,257 and $3,333 in the Respective Periods, respectively.
F-21
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
ACCRUED AND OTHER CURRENT LIABILITIES:
1999 1998
------- -------
Salaries, Wages, Bonuses and Other Compensation $ 6,045 $ 3,708
Direct Acquisition and Integration Costs ...... -- 5,013
Other ......................................... 12,868 21,688
------- -------
$18,913 $30,409
======= =======
NOTE 12. OPERATIONS BY GEOGRAPHIC LOCATION
The Company delivers pharmaceutical relationship management solutions
globally in approximately 20 countries. Heretofore, the New Strategic
Technologies businesses were managed as part of the core IMS segment of IMS
HEALTH. The Company's chief operating decision-makers intend to evaluate the
business on a global basis with consideration of resource allocation on a
geographic basis.
Information about the Company's operations and long-lived assets by
geography are as follows:
<TABLE>
<CAPTION>
US UK AUSTRALIA REST OF WORLD TOTAL
(2)(3)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Operating Revenue $104,051 $ 28,670 $ 20,669 $ 47,167 $200,557
Long-Lived Assets (1) $199,439 $ 10,154 $ 1,531 $ 2,301 $213,425
---------------------------------------------------------------------------------------------------------------------
Month Ended December 31, 1998
Operating Revenue $ 7,749 $ 1,634 $ 1,077 $ 3,189 $ 13,649
Long-Lived Assets (1) $214,222 $ 9,996 $ 5,049 $ 2,418 $231,685
---------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1998
Operating Revenue $104,713 $ 12,605 $ 11,642 $ 20,045 $149,005
Long-Lived Assets (1) $211,932 $ 10,148 $ 5,247 $ 2,157 $229,484
---------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1997
Operating Revenue $ 91,287 $ 3,145 $ 6,819 $ 5,399 $106,650
Long-Lived Assets $ 42,047 $ 9,275 $ 2,272 $ -- $ 53,594
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Long-lived assets in the U.S. are comprised predominately of
goodwill associated with the acquisition of Walsh International Inc.
in June 1998 (see Note 3 to the combined financial statements). This
goodwill and related amortization, although predominately related to
Walsh's foreign operations, was allocated to the parent company in
the U.S. and has not been allocated on a country by country basis.
(2) Operations outside the U.S. are primarily related to Walsh.
F-22
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(3) Rest of World is primarily comprised of operations in Europe.
NOTE 13: THE DISTRIBUTION (UNAUDITED)
The Distribution is expected to be structured as a tax-free dividend
to the shareholders of IMS HEALTH who are expected to receive one share of
New Strategic Technologies common stock for every 20 shares of IMS HEALTH
common stock held as of the record date. The Distribution is subject to final
approval by the IMS HEALTH Board of Directors.
At the distribution date, IMS HEALTH and New Strategic Technologies
plan to enter into the Distribution Agreement providing for, among other
things, certain corporate transactions required to effect the Distribution
and other arrangements between IMS HEALTH and New Strategic Technologies
subsequent to the Distribution. In particular, the Distribution Agreement
will define the assets, liabilities and contractual relationships which are
being allocated to and assumed by New Strategic Technologies and those which
will remain with IMS HEALTH. This includes agreement as to the amount, if
any, IMS HEALTH agrees to indemnify the Company with respect to certain
contingent liabilities, including those discussed in Note 10 and the
contingent tax liability related to the structure of the Distribution
discussed below. The Distribution Agreement also will define what constitutes
the "New Strategic Technologies Business" and what constitutes the "IMS
HEALTH Business".
For purposes of governing certain of the ongoing relationships
between the Company and IMS HEALTH after the Distribution and to provide for
an orderly transition, the Company and IMS HEALTH plan to enter into various
other agreements including a Tax Allocation Agreement, Employee Benefits
Agreement, Intellectual Property Agreement, Shared Transaction Services
Agreement, Data Services Agreement and Transition Services Agreement. In
addition, the Company and IMS HEALTH will enter into cross-licenses of the
Xponent and Pharbase information databases for which there will be charges
going forward. Among other things, the agreements are expected to set forth
principles to be applied in allocating certain Distribution-related costs. In
the opinion of management, the costs of services negotiated under these
arrangements may differ substantially from costs allocated to the Company
during the Respective Periods. In addition, the costs of services received
from IMS HEALTH may be substantially different from the amount the Company
may be required to pay third parties once the IMS HEALTH agreements terminate.
IMS HEALTH believes that the Distribution should be tax-free to IMS
HEALTH and to IMS HEALTH stockholders for U.S. federal income tax purposes,
except, with respect to IMS HEALTH stockholders, to the extent that cash is
received in lieu of fractional share interests of New Strategic Technologies
Common Stock. In the opinion of special tax counsel to IMS HEALTH, the
foregoing treatment should prevail.
The opinion of special tax counsel is based on certain factual
representations made by IMS HEALTH. If such factual representations were
incorrect in a material respect, such opinion could become moot. IMS HEALTH is
not aware of any facts or circumstances that would cause such representations to
be incorrect in a material respect. IMS HEALTH and New Strategic Technologies
will agree in the Distribution Agreement to certain restrictions on future
actions to provide further assurances that Section 355 of the Internal Revenue
Code will apply to the Distribution.
If the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, then, in general, a corporate tax (which would be
substantial) would be payable by the consolidated group, of which IMS HEALTH is
the common parent and New Strategic Technologies is a member. In addition, under
the consolidated return rules, each member of the consolidated group would be
jointly and severally liable for such tax liability. If the Distribution
occurred and it were not to qualify under Section 355 of the Internal Revenue
Code, IMS HEALTH estimates that the aggregate tax liability in this regard would
be approximately $100 million. In the event that New Strategic Technologies were
obligated to fund a substantial portion of such liabilities, it would have a
material adverse effect on New Strategic Technologies' financial condition.
Moreover, if the Distribution were not to qualify under Section 355 of
the Internal Revenue Code, each IMS HEALTH stockholder receiving shares of New
Strategic Technologies Common Stock in the Distribution would be treated as if
such stockholder had received a taxable distribution in an amount equal to the
fair market value of the New Strategic Technologies Common Stock received.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of New Strategic Technologies, a Business Unit of IMS
Health Incorporated:
Our report on the combined financial statements of New Strategic
Technologies, a Business Unit of IMS HEALTH, as of December 31, 1999 and
November 30, 1998 and for the years ended December 31, 1999, November 30,
1998 and November 30, 1997 and for the month ended December 31, 1998 is
included in this Form 10 on page F-2 of the Information Statement. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule set forth on page F-25 of this
Form 10.
In our opinion, the 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.
/S/ PRICEWATERHOUSE COOPERS LLP
Atlanta, Georgia
June 8, 2000
F-24
<PAGE>
NEW STRATEGIC TECHNOLOGIES
A BUSINESS UNIT OF IMS HEALTH
SCHEDULE II --VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999; NOVEMBER 30, 1998 AND 1997;
AND THE MONTH ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
--------------------------------------------- ------------ ------------------------ ---------- ----------
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1999 $1,587 $ 108 $ 92 $ 775 $1,012
====== ====== ======= ======== ======
For the Month Ended December 31, 1998 $1,294 $ 225 $ 68 $ -- $1,587
====== ====== ======= ======== ======
For the Year Ended November 30, 1998 $ 490 $ 257 $ 547(1) $ -- $1,294
====== ====== ======= ======== ======
For the Year Ended November 30, 1997 $ 483 $ 0 $ 7 $ -- $ 490
====== ====== ======= ======== ======
TAX VALUATION ALLOWANCES:
For the Year Ended December 31, 1999 $3,756 $ 941 $ 0 $ 550 $4,147
====== ====== ======= ======== ======
For the Month Ended December 31, 1998 $3,724 $ 112 $ 0 $ 80 $3,756
====== ====== ======= ======== ======
For the Year Ended November 30, 1998 $3,554 $ 42 $ 2,381(2) $ 2,253 $3,724
====== ====== ======= ======== ======
For the Year Ended November 30, 1997 $4,801 $ 0 $ 0 $ 1,247 $3,554
====== ====== ======= ======== ======
</TABLE>
(1) Primarily arising from the Walsh acquisition.
(2) Primarily relating to net operating losses acquired in the Walsh
acquisition.
F-25
