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EXHIBIT 99.1
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>
SUBJECT TO COMPLETION OR AMENDMENT, DATED AUGUST 25, 2000
INFORMATION STATEMENT RELATING TO THE SPIN-OFF OF
SYNAVANT INC.
FROM IMS HEALTH INCORPORATED
------------------------
SYNAVANT 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 "Synavant Common Stock"), of Synavant Inc. ("Synavant"), together
with the associated preferred share purchase rights. As of August 31, 2000,
Synavant, a wholly owned subsidiary of IMS HEALTH, will own all or substantially
all of those assets and businesses comprising the Synavant Business (as defined
on page 5 under "Businesses of Synavant"), which accounted for approximately 14%
of IMS HEALTH's revenues and 1% of its operating income in 1999. These
businesses were all historically managed as part of the core IMS segment of IMS
HEALTH. See "Synavant Business".
Shares of Synavant Common Stock will be distributed to holders of record of
IMS HEALTH Common Stock as of the close of business on July 28, 2000 (the
"Record Date"). Each such holder will receive one share of Synavant Common Stock
(together with the associated preferred share purchase right) 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 Synavant Common Stock. Share
certificates representing shares of Synavant Common Stock will be mailed as
promptly as practicable after the date of this Information Statement. No
consideration will be paid by holders of IMS HEALTH Common Stock for shares of
Synavant Common Stock. Prior to the date hereof, there has not been any
established trading market for the Synavant Common Stock, although a
"when-issued" market is expected to develop prior to the Distribution.
Application has been made for listing the shares of Synavant Common Stock on the
Nasdaq National Market System ("Nasdaq") under the symbol "SNVT". See "The
Distribution--Listing and Trading of Synavant Common Stock".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE [12] FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY RECIPIENTS OF SYNAVANT 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 Executive Vice President, Secretary and Chief Financial
Officer of Synavant at 404-846-3680.
The date of this Information Statement is August [ ], 2000.
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND RELATED
MATTERS................................................... 3
INFORMATION STATEMENT SUMMARY............................... 5
SYNAVANT SUMMARY FINANCIAL DATA............................. 10
FORWARD-LOOKING STATEMENTS.................................. 11
RISK FACTORS................................................ 12
THE DISTRIBUTION............................................ 19
RELATIONSHIP BETWEEN SYNAVANT AND IMS HEALTH AFTER THE
DISTRIBUTION.............................................. 22
DIVIDEND POLICY............................................. 28
SYNAVANT CAPITALIZATION..................................... 29
SYNAVANT SELECTED FINANCIAL DATA............................ 30
SYNAVANT UNAUDITED COMBINED PRO FORMA FINANCIAL
STATEMENTS................................................ 31
SYNAVANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 36
SYNAVANT BUSINESS........................................... 48
SYNAVANT MANAGEMENT AND EXECUTIVE COMPENSATION.............. 58
SYNAVANT SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 66
DESCRIPTION OF SYNAVANT CAPITAL STOCK....................... 69
AVAILABLE INFORMATION....................................... 76
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 76
REPORTS OF SYNAVANT......................................... 77
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
2
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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 Synavant 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 Synavant
into an independent publicly traded company. Pursuant to the Distribution,
IMS HEALTH will distribute to its stockholders as of the close of business
on July 28, 2000 in a dividend one share of Synavant Common Stock (together
with the associated preferred share purchase right) 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 SYNAVANT?
A: Synavant is a newly created Delaware corporation and a wholly owned
subsidiary of IMS HEALTH. Upon the conveyance of certain assets and stock
owned by IMS HEALTH, the businesses of Synavant 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, Inc. ("Clark-O'Neill"), another wholly owned subsidiary of
IMS HEALTH, as conducted prior to the aforementioned conveyance of assets
and stock owned by IMS HEALTH. These businesses were all historically
managed as part of the IMS segment of IMS HEALTH. In order to change the
state of incorporation of Clark-O'Neill from New Jersey to Delaware, prior
to the Distribution, Synavant will merge with Clark-O'Neill, with Synavant
as the survivor in the merger.
Q3: WHY IS IMS HEALTH EFFECTING THE DISTRIBUTION?
A: IMS HEALTH believes that separating Synavant from IMS HEALTH will enhance
the performance of both IMS HEALTH and Synavant 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 publicly traded equity
security in a single line of business company for use in its compensation
programs and to facilitate potential 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 ("Cognizant")
in July 1998. Cognizant was a spin-off from The Dun & Bradstreet Corporation
("D&B") 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: In the opinion of McDermott, Will & Emery, special tax counsel to IMS
HEALTH, the Distribution should be tax-free to IMS HEALTH and to IMS HEALTH
stockholders for U.S. federal income tax purposes, except for any tax
payable because of any cash IMS HEALTH stockholders may receive in lieu of
fractional shares of Synavant Common Stock. See "The
3
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Distribution--Federal Income Tax Consequences of the Distribution" for a
more detailed description of the federal income tax consequences of the
Distribution.
Q6: WHAT WILL IMS HEALTH STOCKHOLDERS RECEIVE IN THE DISTRIBUTION?
A: In the Distribution, IMS HEALTH stockholders will receive one share of
Synavant Common Stock, and the associated preferred share purchase right
under Synavant's Stockholder Rights Plan, for 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 Synavant Common Stock that
stockholders receive in the Distribution will represent their interests in
the Synavant 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 Synavant
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 Synavant 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
Executive Vice President, Secretary and Chief Financial Officer of Synavant,
at Synavant Inc., 3445 Peachtree Road NE, Atlanta, Georgia 30326,
404-846-3680.
4
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INFORMATION STATEMENT SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT. WHILE THIS SUMMARY PROVIDES AN ACCURATE DESCRIPTION OF
ALL MATERIAL INFORMATION INCLUDED IN THIS INFORMATION STATEMENT, IT IS QUALIFIED
IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
CONTAINED 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 July 28, 2000. Holders of record of IMS HEALTH Common Stock as
of the close of business on July 28, 2000 will be entitled to receive a pro rata
distribution of one share of Synavant (together with the associated preferred
share purchase right), 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 Synavant 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 Synavant's businesses, the future relationship
between Synavant 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 Synavant shares that you
will receive in the Distribution. You should be aware of certain risks relating
to the Distribution and Synavant's businesses, which are described in this
document beginning on page [12].
BUSINESSES OF SYNAVANT
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Synavant............................... Synavant is a newly created Delaware corporation and a
wholly owned subsidiary of IMS HEALTH. Upon the conveyance
of certain assets and stock owned by IMS HEALTH, the
businesses of Synavant (the "Synavant Business") will
include the pharmaceutical industry automated sales and
marketing support business of 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, another wholly
owned subsidiary of IMS HEALTH, as conducted prior to the
aforementioned conveyance of assets and stock owned by IMS
HEALTH. These businesses were all historically managed as
part of the IMS segment of IMS HEALTH. In order to change
the state of incorporation of Clark-O'Neill from New
Jersey to Delaware, prior to the Distribution, Synavant
will merge with Clark-O'Neill, with Synavant as the
survivor in the merger. 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 Chairman and Chief
Executive Officer of Synavant. 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 Executive Vice President, Secretary and Chief
Financial Officer of Synavant. Ronald D. Brown, currently
the Chief Executive Officer of ST,
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Loftus S. Lucas, currently the General Manager of
Clark-O'Neill, and Kevin B. Tarrant, currently the Vice
President--Global Human Resources of ST, will become the
President, Chief Operating Officer, and Vice President and
Chief Human Resources Officer of Synavant, respectively,
upon the date of the Distribution. In addition to Messrs.
Yetter, Kussman, Brown, Lucas, and Tarrant, additional
executive officers of Synavant may be drawn from the
current management of IMS HEALTH or its subsidiaries. See
"Synavant Management and Executive Compensation--Synavant
Executive Officers". While Synavant will initially have a
Board of Directors composed of five members, Synavant
expects to ultimately have a Board of Directors composed
of six members, including Mr. Yetter. See "Synavant
Management and Executive Compensation--Synavant Board of
Directors".
Siebel Alliance........................ On July 19, 2000, Synavant announced a strategic alliance
with Siebel Systems, Inc. ("Siebel"). Through the
alliance, the companies intend to jointly develop, market
and sell pharmaceutical and healthcare related versions of
Siebel's eBusiness software applications. Synavant and
Siebel share in the licensing and maintenance fees
generated from the licensing of the Siebel software. Under
certain circumstances, Synavant will be required to share
revenues relating to certain of its products with Siebel.
See "Synavant Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity
and Capital Resources--Siebel Alliance" and "Synavant
Business--Siebel Alliance".
THE DISTRIBUTION
Form of Transaction.................... The Distribution is the method by which IMS HEALTH will
spin off Synavant into a publicly traded company. In the
Distribution, IMS HEALTH will distribute to its
stockholders as of the close of business on July 28, 2000
shares of Synavant Common Stock, which will represent a
continuing interest in the Synavant 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 Synavant 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 Synavant Common Stock (together
with the associated preferred share purchase right) for
every 20 shares of IMS HEALTH Common Stock held. Based on
the shares of IMS HEALTH Common Stock outstanding as of
June 30, 2000,
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the Distribution would consist of 14,859,950 shares of
Synavant Common Stock.
The Board of Directors of Synavant will adopt a
stockholder rights plan (the "Synavant Rights Plan") prior
to the Distribution. Certificates evidencing shares of
Synavant Common Stock issued in the Distribution will
therefore represent the same number of preferred share
purchase rights ("Synavant Rights") issued under the
Synavant Rights Plan. See "Description of Synavant Capital
Stock--Synavant Rights Plan". Unless the context otherwise
requires, references herein to the Synavant Common Stock
include the related Synavant 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.
Record Date............................ The "Record Date" is July 28, 2000. To be entitled to
receive shares of Synavant 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 date of this Information Statement, 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......................... In the opinion of McDermott, Will & Emery, special tax
counsel to IMS HEALTH, the Distribution should qualify
under Section 355 of the Internal Revenue Code, and be
tax-free to IMS HEALTH and to IMS HEALTH stockholders for
U.S. federal income tax purposes, except for any tax
payable because of any cash IMS HEALTH stockholders may
receive in lieu of fractional shares of Synavant Common
Stock. See "The Distribution--Federal Income Tax
Consequences of the Distribution" for a more detailed
description of the federal income tax consequences of the
Distribution.
Stock Exchange Listing and Trading..... Prior to the date hereof, there has not been any
established trading market for the Synavant Common Stock.
Application has been made for listing the shares of
Synavant Common Stock on the Nasdaq under the symbol
"SNVT", and trading is expected to commence on a
"when-issued" basis prior to the Distribution
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Date. On the first Nasdaq trading day following the
Distribution Date, "when-issued" trading in respect of the
Synavant Common Stock will end and "regular-way" trading
will begin. 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 Synavant Common
Stock".
Relationship Between Synavant and IMS
HEALTH After the
Distribution......................... Prior to the Distribution, IMS HEALTH will enter into
agreements with Synavant to transfer to Synavant selected
assets and liabilities currently held by IMS HEALTH and
its subsidiaries related to the businesses that Synavant
is expected to operate, to make arrangements for the
Distribution and to define the ongoing relationships
between IMS HEALTH and Synavant. Synavant 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. Additionally, Synavant 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. IMS HEALTH will, if necessary, also
provide certain credit support to Synavant through one
year from the Distribution Date. In addition, there will
be individuals who will serve on the Board of Directors of
both companies. After the Distribution, Synavant 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 Synavant
and IMS HEALTH After the Distribution".
Dividend Policy........................ The payment and level of cash dividends by Synavant after
the Distribution will be subject to the discretion of the
Synavant Board of Directors. Synavant 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 Synavant on a
stand-alone basis as well as applicable legal and
contractual restrictions. See "Dividend Policy".
Antitakeover Provisions................ The Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws of Synavant contain
provisions that may have the effect of discouraging an
acquisition or change in control of Synavant 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
Synavant, although such proposals, if made, might
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be considered desirable by a majority of the stockholders
of Synavant. 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 Synavant. These
provisions have been designed to enable Synavant 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 Synavant and its stockholders. Certain
provisions of the Distribution Agreement to be entered
into between Synavant and IMS HEALTH may also have the
effect of discouraging third parties from making proposals
involving an acquisition or change in control of Synavant.
See "Relationship Between Synavant and IMS HEALTH After
the Distribution--Distribution Agreement".
At the time of the Distribution, Synavant will have a
stockholder rights plan. The stockholder rights plan is
designed to protect stockholders in the event of an
unsolicited offer or other takeover tactics which, in the
opinion of the Synavant Board of Directors, could impair
its ability to represent stockholder interests. The
provisions of the stockholder rights plans may render an
unsolicited takeover of Synavant more difficult or less
likely to occur or might prevent such a takeover, even
though such a takeover may offer Synavant's 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 Synavant. See "Description of Synavant
Capital Stock--Synavant Rights Plan". Synavant will be
subject to provisions of Delaware corporate law which may
restrict certain business combination transactions. See
"Description of Synavant Capital Stock--Delaware General
Corporation Law". See also "Description of Synavant
Capital Stock--Provisions of Synavant Amended and 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.
* * *
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This Information Statement is being furnished by IMS HEALTH solely to
provide information to stockholders of IMS HEALTH who will receive Synavant
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
Synavant. The information contained in this Information Statement is believed by
IMS HEALTH and Synavant to be accurate with respect to IMS HEALTH and Synavant
as of the date set forth on the cover. Changes may occur after that date, and
IMS HEALTH and Synavant will not update the information except in the normal
course of their respective public disclosure practices.
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SYNAVANT SUMMARY FINANCIAL DATA
The following data are qualified in their entirety by the combined financial
statements of Synavant 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 and 1997 and the one month period ended December 31, 1998 have been derived
from the audited financial statements of Synavant contained elsewhere in this
Information Statement. The combined financial data as of December 31, 1998 has
been derived from financial statements of Synavant that have been audited, but
such financial statements are not included in this Information Statement. The
financial data as of June 30, 2000 and 1999 and November 30, 1997, 1996 and
1995, for the six months ended June 30, 2000 and 1999 and for the years ended
November 30, 1997, 1996 and 1995, are unaudited. The historical financial
statements of Synavant contained in this Information Statement are presented as
if Synavant 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 "Synavant Selected Financial Data"
and "Synavant Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Synavant's Combined Financial Statements and Notes
thereto appearing elsewhere in this Information Statement.
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MONTH
SIX MONTHS YEAR ENDED ENDED
ENDED AND AS OF AND AS OF AND AS OF
JUNE 30, 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)
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INCOME STATEMENT DATA:
Total Revenue..................... $ 93,208 $ 95,463 $200,557 $ 13,649 $149,005 $106,650 $79,144 $73,796
Net Income (Loss)................. $(10,519) $ (386) $ (3,192) $ (1,415) $(25,217) $ 5,380 $(1,219) $(5,351)
Pro Forma Unaudited Earnings
(Loss) Per Share of Common
Stock--Basic (3)................ $ (0.70) $ (0.02) $ (0.20) $ (0.09) $ (1.55) $ 0.33 -- --
Pro Forma Unaudited Earnings
(Loss) Per Share of Common
Stock--Diluted (3).............. $ (0.70) $ (0.02) $ (0.20) $ (0.09) $ (1.55) $ 0.33 -- --
BALANCE SHEET DATA:
Total Assets...................... $259,144 $272,823 $268,299 $290,686 $285,389 $ 85,021 $74,503 $81,792
</TABLE>
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(1) Effective in 1999, the operating units of Synavant 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 accounting 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 Synavant 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 1
for 20 distribution ratio. Pro forma diluted earnings per share are
calculated by dividing net income by dilutive potential common shares and
weighted average common shares of IMS HEALTH reflecting the 1 for 20
distribution ratio. Dilutive potential common shares are calculated in
accordance with the treasury stock method, which assumes that proceeds from
the exercise of all Synavant 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. Where the Company has incurred a loss, dilutive potential common
shares are not included in the calculation of pro forma diluted loss per
share as to do so would be anti-dilutive. Pro forma diluted earnings per
share does not necessarily reflect the potentially dilutive impact of
outstanding options when converted into Synavant options as the exact
exchange ratio for outstanding options has not yet been determined.
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FORWARD-LOOKING STATEMENTS
This Information Statement and other materials filed or to be filed by IMS
HEALTH or Synavant 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 Synavant, contain statements which are
"forward-looking". 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, Synavant 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 Synavant's cash needs; technological changes and new business
models that use the Internet or Internet-related products and services; the
ability to successfully implement the business model changes related to the
Siebel alliance; the ability to enhance or develop new or advanced technologies
and systems for their businesses on schedule and on a cost-effective basis,
including but not limited to developing applications in connection with the
Siebel alliance; the ability to successfully achieve estimated effective tax
rates, corporate overhead levels or costs of operating as a stand-alone publicly
traded company; 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; to the
extent Synavant seeks growth through acquisitions, joint ventures and alliances,
such as the Siebel alliance, the ability to identify and consummate
acquisitions, joint ventures and alliances on satisfactory terms; deterioration
in economic conditions, particularly in the pharmaceutical, healthcare, or other
industries in which Synavant's customers operate; consolidation in the
pharmaceutical industry and the other industries in which Synavant's customers
operate; and the final allocation of assets and liabilities between Synavant and
IMS HEALTH.
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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 Synavant and the
Distribution.
DEPENDENCE ON PHARMACEUTICAL INDUSTRY
Most of Synavant's 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 Synavant's
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 Synavant's 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 Synavant's customers and potential customers are located.
The failure of Synavant to respond effectively to any or all of these and other
changes in the marketplace could have a material adverse effect on Synavant's
business, operating results or financial condition.
SIEBEL ALLIANCE
The following risk factors relating to the Siebel alliance should be noted:
- Synavant has no prior history of selling the Siebel products within the
markets it currently serves.
- Synavant may not be able to successfully implement the business model
changes related to the Siebel alliance.
- Existing and prospective customers may delay purchases of Synavant's
Cornerstone and Premiere products based upon the newly formed alliance.
Quarterly revenues may decline below expected levels and could adversely
affect Synavant's annual results of operations due to delayed purchase
decisions.
- While Synavant and Siebel will collaborate on future enhancements of
Siebel software applications tailored for the pharmaceutical industry,
such enhancements may not be developed or introduced in a timely manner
and/or may not be successful in the market.
- Software products frequently contain errors or failures, especially when
first introduced or when new versions or enhancements are released.
Synavant could be forced to delay the commercial release of products
compatible with Siebel until software problems have been corrected.
Synavant could lose revenues as a result of software errors or defects.
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, or increased service and warranty costs,
any of which could have a material adverse effect on Synavant's business,
operating results or financial condition.
See "Synavant Business--Siebel Alliance", "Synavant Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Siebel Alliance",
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and Note 14 to the audited financial statements of Synavant contained elsewhere
in this Information Statement for a more detailed discussion of the Siebel
alliance.
TECHNOLOGY; COMPETITION
Synavant 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. As various systems and
technologies become outdated, Synavant or its alliance partners, including
Siebel, may not be able to enhance or replace them, to enhance or replace them
as quickly as Synavant's competition, or to develop and market new and better
products and services in the future on schedule and on a cost-effective basis.
Synavant competes with other companies that sell sales force software
products and services and interactive marketing services that specifically
target the pharmaceutical industry. Synavant also faces competition from many
vendors that market and sell sales force automation solutions in consumer
packaged goods. In addition, Synavant competes with various companies that
provide support services and interactive marketing services similar to its
services. Synavant believes that its ability to compete depends on many factors,
some of which are beyond its control, including: the development and timing of
future releases of Siebel products, 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
Synavant's 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 Synavant. In the event
that Synavant is unable to compete successfully with these companies, it could
have a material adverse effect on Synavant's business, operating results or
financial condition.
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 Synavant products and distribution of its software. If these critical issues
are not favorably resolved, it could have a material adverse effect on
Synavant's business, operating results or financial condition.
INABILITY TO INTRODUCE NEW PRODUCTS WILL SIGNIFICANTLY IMPACT RESULTS
Synavant's future success will depend in part upon its ability to:
(i) continue to provide best-in-class enterprise solutions; (ii) enter new
markets; and (iii) develop and/or provide new solutions 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. Synavant is devoting
significant resources to the enhancement of its solutions offerings. These new
solutions offerings, such as those provided through the Siebel alliance, and
enhancements of existing solutions offerings may not be developed and/or
provided in a timely manner and/or be successful in the market. The failure of
such new solutions offerings to be developed and/or provided to the market, to
be successful in the market or otherwise to generate increased revenues could
have a material adverse effect on Synavant's business, operating results or
financial condition.
CAPITAL DEVELOPMENT; ACCESS TO CAPITAL AS AN INDEPENDENT COMPANY
Synavant 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. Synavant will need to make
significant capital expenditures over the next several
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years, particularly in light of the rapid technological changes affecting its
business. In addition, the strategic alliance with Siebel requires Synavant to
make significant investments during 2000 and 2001 to launch their joint
offering. Prior to the Distribution, Synavant has relied on IMS HEALTH for
various financial and administrative services. After the Distribution, Synavant
will be an independent entity responsible for financing its own operations,
except that, if necessary, IMS HEALTH will provide certain credit support to
Synavant for up to one year from the Distribution Date. To the extent that
Synavant needs additional funding in the future to finance its operations and
capital expenditures, Synavant may not be able to access the capital markets or
otherwise obtain necessary financing, or to obtain such financing in a timely
manner or on commercially favorable terms. In the event that Synavant satisfies
its financing needs through the issuance of additional equity securities, such
issuance would be dilutive to existing stockholders.
EXPOSURE TO CERTAIN CONTINGENT LIABILITIES
Synavant 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, 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 Synavant, 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 potential tax liability that
may arise in connection with the aforementioned spin-offs and certain global tax
planning initiatives by D&B, Cognizant and IMS HEALTH, and potential liability
relating to a legal proceeding (the "IRI Action") filed on July 29, 1996 in the
United States District Court for the Southern District of New York naming as
defendants D&B, A.C. Nielsen Company and I.M.S. International Inc. (a
predecessor of IMS HEALTH). The plaintiff in the IRI Action alleges various
violations of United States antitrust laws and tortious interference with a
contract and with a business relationship, and is seeking monetary damages in
excess of $350 million (which the plaintiff has asked to be trebled under the
antitrust laws) and unspecified punitive damages. The matter is still pending.
Pursuant to the Distribution Agreement, IMS HEALTH will agree to indemnify
Synavant for any liability Synavant incurs in connection with such contingent
liabilities in excess of $9 million. In the event that IMS HEALTH did not
fulfill its indemnification obligations and Synavant were obligated to fund a
substantial portion of such excess liabilities, it would have a material adverse
effect on Synavant's financial condition. For a more detailed discussion of such
contingent liabilities, including the IRI Action, see "Synavant Business--Legal
Proceedings and Contingencies" and Note 10 to the combined financial statements
of Synavant contained elsewhere in this Information Statement.
POTENTIAL TAXATION
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, IMS HEALTH estimates that the aggregate corporate tax liability
would be approximately $100 million. As a member of IMS HEALTH's consolidated
group, Synavant would be severally liable for such tax. In the event that
Synavant were obligated to fund a substantial portion of such liability, it
would have a material adverse effect on Synavant's financial condition.
Moreover, each IMS HEALTH stockholder receiving shares of Synavant 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 Synavant
Common Stock received. See "The Distribution--Federal Income Tax Consequences of
the Distribution" for a more detailed description of the federal income tax
consequences of the Distribution. See also "The Distribution--Relationship
between Synavant and IMS HEALTH After the Distribution--Distribution Agreement"
for a discussion of the indemnification obligations of IMS HEALTH and Synavant
with respect to tax liability that may arise in connection with the
Distribution.
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DISTRIBUTION OF CONTROLLED SUBSTANCES THROUGH THE MAIL
Synavant 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 Synavant that
this practice of distributing prescription-only drugs continues. Future
legislation may restrict Synavant's ability to provide these types of services.
NON-UNITED STATES OPERATIONS
Synavant 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-denominated operating results. Synavant's 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, Synavant 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.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Synavant 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, Synavant will maintain its own credit and banking relationships
(except that IMS HEALTH will, if necessary, provide certain credit support
through one year after the Distribution Date), perform its own investor
relations functions, and negotiate all contracts, including those with IMS
HEALTH, at arm's length. As an independent company, Synavant may not continue to
generate free cash flow at the same level as the Synavant businesses have
generated free cash flow as part of IMS HEALTH. Additionally, Synavant may not
be able to put in place successfully the financial, administrative and
managerial structure necessary to operate as an independent public company. In
addition, the development of such structure may require a significant amount of
management's time and other resources.
CHANGES IN TRADING PRICES OF SYNAVANT COMMON STOCK
Until the Synavant Common Stock is fully distributed and an orderly market
develops in the Synavant 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 Synavant 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 Synavant Common Stock,
(ii) developments affecting the businesses of Synavant generally and the impact
of those factors referred to below in particular, (iii) investor perception of
Synavant and (iv) general economic and market conditions. Management expects
that the market will characterize Synavant 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, Synavant 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"). Synavant 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 Synavant Common Stock that they
receive in the Distribution. Any selling activity related to the
micro-capitalization of Synavant or due to funds being limited to holding S&P
500 component stocks could create downward
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pressure on the value of Synavant Common Stock and lengthen the period before a
stable trading market in Synavant Common Stock develops.
RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY ON A QUARTER TO QUARTER BASIS
Synavant's results of operations may vary from quarter to quarter due to
lengthy sales and marketing cycles and lengthy and highly technical
implementation cycles for Synavant 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, Synavant cannot control or predict the timing of
Synavant's 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 Synavant's annual results of operations.
The Synavant businesses have 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 the Synavant businesses' 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 customer's budget
authorizations may reduce the amount of revenues Synavant receives from the
license of additional software or the provision of additional services. As a
result, operating results could be adversely affected.
Synavant 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, Synavant
frequently adds staff in advance of new business to permit adequate time for
training. If the new business is subsequently delayed or canceled, Synavant will
incur expenses without the associated revenues. In addition, Synavant 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.
PROTECTION OF INTELLECTUAL PROPERTY
Synavant 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. The steps Synavant has taken or will take in
the future may not prevent misappropriation of this technology. Further,
protective actions Synavant 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. Synavant has, on occasion, in response to
a request by a customer, entered into agreements which require Synavant to place
its source code in escrow to secure its service and maintenance obligations.
Further, third parties may assert infringement claims against Synavant in
the future that may result in the imposition of damages or injunctive relief
against Synavant. In addition, any such claims may require Synavant to enter
into royalty arrangements. With respect to Siebel products, such claims may
result in the imposition of injunctive relief, which could result in delays in
delivery of Siebel products. Any of these results could have a material adverse
effect on Synavant's business, operating results or financial condition.
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SOFTWARE ERRORS COULD IMPACT RESULTS
Software products frequently contain errors or failures, especially when
first introduced or when new versions or enhancements are released. Synavant
could be forced to delay the commercial release of products until software
problems have been corrected. Synavant could lose revenues as a result of
software errors or defects. Synavant products are intended for use in sales and
marketing applications that may be critical to a customer's business. As a
result, Synavant 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 Synavant's reputation, or
increased service and warranty costs, any of which could have a material adverse
effect on Synavant's business, operating results or financial condition. The
foregoing would also be applicable to Siebel products that Synavant intends to
redistribute. With respect to such products, Synavant would also be dependent on
Siebel for the correction of errors and the delivery of any required
modifications relating to such products.
CERTAIN ANTITAKEOVER PROVISIONS
The Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws of Synavant contain provisions that may have the effect of
discouraging an acquisition of control of Synavant 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
Synavant, although such proposals, if made, might be considered desirable by a
majority of the stockholders of Synavant. 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 Synavant. These provisions include (i) the
availability of capital stock for issuance from time to time at the discretion
of the Board of Directors, (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 have been designed to enable Synavant 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 Synavant and its stockholders. In addition, under the
Distribution Agreement, Synavant agrees that until two years after the
Distribution Date it will not, among other things, merge or consolidate with
another corporation, sell or transfer all or substantially all of its assets, or
take any other action which would result in one or more persons acquiring a 50
percent or greater interest in Synavant, unless, prior to taking such action, it
obtains a written opinion of a law firm or a ruling from the Internal Revenue
Service (the "IRS") that such action will not affect the tax-free treatment of
the Distribution. Such provisions may have the effect of discouraging third
parties from making proposals involving an acquisition or change of control of
Synavant. See "Relationship Between Synavant and IMS HEALTH After the
Distribution--Distribution Agreement".
At the time of the Distribution, Synavant 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 Synavant Board of Directors, could impair its ability to represent
stockholder interests. The provisions of the stockholder rights plan may render
an unsolicited takeover of Synavant more difficult or less likely to occur or
might prevent such a takeover. See "Description of Synavant Capital
Stock--Synavant Rights Plan".
Pursuant to the Distribution Agreement, Synavant and IMS HEALTH are each
subject to certain non-competition arrangements that restrict their respective
business activities for a specified period
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after the Distribution. Pursuant to the terms of the Distribution Agreement, the
restrictions would generally be binding on an entity that acquires Synavant or
is the survivor in a business combination with Synavant. Such restrictions may
have the effect of discouraging third parties from making proposals involving an
acquisition or change of control of Synavant. See "Relationship Between Synavant
and IMS HEALTH After the Distribution--Distribution Agreement".
Synavant will be subject to the provisions of Delaware corporate law, which
may restrict certain business combination transactions. See "Description of
Synavant Capital Stock--Delaware General Corporation Law".
ABSENCE OF PRIOR TRADING MARKET, LIQUIDITY AND VOLATILITY OF SYNAVANT COMMON
STOCK
Prior to the date hereof, there has not been any established trading market
for Synavant Common Stock. Application has been made to list the shares of
Synavant Common Stock on the Nasdaq under the symbol "SNVT", and trading is
expected to commence on a "when-issued" basis prior to the Distribution Date.
Investor interest in Synavant may not be sufficient to lead to the development
of an active, liquid trading market in the Synavant Common Stock. 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 Synavant will hold
options granted under its stock-based compensation plans to acquire shares of
Synavant Common Stock representing approximately 24% of the fully-diluted
Synavant Common Stock. These options have vesting periods from three to four
years and options representing 1,755,065 shares of Synavant Common Stock
(representing approximately 40% of such options) are currently exercisable.
Synavant plans to reserve an additional approximately 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 Synavant
Common Stock will become available for future sale in the public market. Sales
of substantial amounts of Synavant 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 Synavant Common Stock. Such
sales also might make it more difficult for Synavant 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 March 28, 2000, the Board of Directors of IMS HEALTH approved in
principle a plan to distribute Synavant Common Stock to all holders of
outstanding IMS HEALTH Common Stock. On July 18, 2000, the IMS HEALTH Board of
Directors formally approved the Distribution and declared a dividend payable to
each holder of record of IMS HEALTH Common Stock at the close of business on the
Record Date of one share of Synavant 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.
On or before the Distribution Date, IMS HEALTH will deliver all of the
outstanding shares of Synavant 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 Synavant 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 Synavant from IMS HEALTH will enhance
the performance of both IMS HEALTH and Synavant 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 publicly traded equity security in
a single line of business company for use in its compensation programs and to
facilitate potential 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 Synavant Common Stock, the ability of Synavant 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 Synavant 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 Synavant to design incentive compensation
programs that relate more directly to its own business characteristics and
performance and will provide each company with a publicly traded equity security
in a single line of business company for use in its compensation programs.
INVESTOR ASSESSMENT. Investors should be able to evaluate better the
financial performance of Synavant and its strategies, thereby enhancing the
likelihood that it will achieve appropriate market valuation.
FACILITATE GROWTH OF SYNAVANT. Synavant may pursue potential acquisition,
joint venture, alliance and growth opportunities in businesses similar to the
Synavant Business. See "Synavant Business".
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FORM OF TRANSACTION
The Distribution is the method by which IMS HEALTH will spin off Synavant
into an independent publicly traded company. In the Distribution, IMS HEALTH
will distribute to its stockholders shares of Synavant Common Stock, which will
represent a continuing interest in Synavant's 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 Synavant 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 297,199,007 shares of IMS HEALTH Common Stock outstanding as of June 30,
2000, the Distribution would consist of 14,859,950 shares of Synavant Common
Stock. Prior to the Distribution Date, IMS HEALTH will deliver all outstanding
shares of Synavant Common Stock to the Distribution Agent for distribution. The
Distribution Agent will mail, on or about the Distribution Date, certificates
representing the shares of Synavant 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 Synavant 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 Synavant Common Stock that such holder otherwise
would be entitled to receive. Such sale shall be made by the Distribution Agent
promptly following the Distribution Date.
Holders of IMS HEALTH Common Stock will not be required to pay for shares of
Synavant 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 Synavant 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 SYNAVANT 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 Synavant will adopt a stockholder rights plan
prior to the Distribution. Certificates evidencing shares of Synavant Common
Stock issued in the Distribution will therefore represent the same number of
Synavant Rights issued under the Synavant Rights Plan. See "Description of
Synavant Capital Stock--Synavant Rights Plan". Unless the context otherwise
requires, references herein to the Synavant Common Stock include the related
Synavant Rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
In the opinion of McDermott, Will & Emery, special tax counsel to IMS
HEALTH, the Distribution should qualify as a tax-free spin-off under
Section 355 of the Internal Revenue Code.
An opinion of counsel does not bind the IRS or the courts. No assurance can
be given that a contrary position will not be taken by the IRS or a court.
Qualifying for tax-free treatment under Section 355 of the Internal Revenue Code
requires satisfaction of numerous requirements, some of which are inherently
factual. The Distribution, along with the related restructuring required to
effect the Distribution, constitute a unique transaction that has not been the
subject of a decision or ruling by the courts or the IRS. McDermott, Will &
Emery, however, is of the opinion that, if the matter were litigated as a result
of an assertion by the IRS that the Distribution should be taxable, the taxpayer
should prevail.
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The opinion of McDermott, Will & Emery is based on certain factual
representations made by IMS HEALTH and Synavant. If such factual representations
were incorrect in a material respect, such opinion could become moot. Neither
IMS HEALTH nor Synavant is aware of any facts or circumstances that would cause
such representations to be incorrect in a material respect.
Provided that the Distribution qualifies as a tax-free spin-off under
Section 355 of the Internal Revenue Code, 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
Synavant 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
Synavant Common Stock (including fractional shares of Synavant Common Stock)
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 Synavant Common Stock held by such holder.
3. The holding period for the Synavant Common Stock (including
fractional shares of Synavant 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
Synavant by IMS HEALTH.
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 Synavant is a member, based on the difference between (x)
the fair market value of the Synavant Common Stock and (y) the adjusted basis of
such Synavant Common Stock. In addition, under the consolidated return rules,
each member of the consolidated group would be 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 Synavant were obligated
to fund a substantial portion of such liability, it would have a material
adverse effect on Synavant's financial condition. Pursuant to the Tax Allocation
Agreement, IMS HEALTH will be liable for the resulting corporate tax, except as
provided in the Distribution Agreement.
In the Distribution Agreement, IMS HEALTH and Synavant 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 Synavant and IMS HEALTH After the Distribution". If either IMS HEALTH or
Synavant fails to comply with such restrictions and such failure contributes to
the Distribution not qualifying under Section 355 of the Internal Revenue Code,
such noncompliant party will indemnify the other party and any IMS HEALTH or
Synavant stockholder for any tax resulting from such disqualification.
Furthermore, if the Distribution were not to qualify as a tax-free spin-off,
each IMS HEALTH stockholder receiving shares of Synavant 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 Synavant Common
Stock received, which would result in (i) a dividend to the extent of such
stockholder's pro
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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 Synavant 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.
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.
LISTING AND TRADING OF SYNAVANT COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for Synavant Common Stock. Application has been made to list the shares of
Synavant Common Stock on the Nasdaq under the symbol "SNVT". On the first Nasdaq
trading day following the Distribution Date, "when-issued" trading in respect of
the Synavant Common Stock will end and "regular-way" trading will begin. 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".
There can be no assurance as to the prices at which the Synavant Common
Stock will trade before, on or after the Distribution Date. Until the Synavant
Common Stock is fully distributed and an orderly market develops in the Synavant
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 Synavant 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 Synavant Common Stock, (ii) developments
affecting the businesses of Synavant generally including the impact of the
factors referred to in "Risk Factors" above, (iii) investor perception of
Synavant, and (iv) general economic and market conditions.
Shares of Synavant Common Stock distributed to IMS HEALTH stockholders will
be freely transferable, except for shares of Synavant Common Stock received by
persons who may be deemed to be "affiliates" of Synavant under the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of Synavant after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with,
Synavant, and may include certain officers and directors of Synavant, as well as
principal stockholders of Synavant. Persons who are affiliates of Synavant
following the Distribution will be permitted to sell their shares of Synavant
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 SYNAVANT
AND IMS HEALTH AFTER THE DISTRIBUTION
Synavant is wholly owned by IMS HEALTH. Prior to the Distribution, the
Synavant businesses have been under the common control of IMS HEALTH, and the
results of operations of the Synavant businesses and of entities that are or
will be subsidiaries of Synavant have been included in IMS HEALTH's consolidated
financial statements and results of operations and historically have been
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reported as part of the IMS segment of IMS HEALTH. After the Distribution,
except for shares of Synavant issued to IMS HEALTH in respect of shares of IMS
HEALTH purchased between two days prior to the Record Date and the Distribution
Date, which shares IMS HEALTH will dispose of immediately following the
Distribution Date, IMS HEALTH will not have any ownership interest in Synavant
or its subsidiaries, and Synavant will be an independent publicly traded
company. In addition, after the Distribution, Synavant 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
Synavant, on the other, will be terminated except for contracts specifically set
forth in a schedule to the Distribution Agreement, and except that, if
necessary, IMS HEALTH will provide certain credit support to Synavant for up to
one year after the Distribution Date.
For purposes of governing certain of the ongoing relationships between IMS
HEALTH and Synavant after the Distribution and to provide for an orderly
transition to the status of two independent companies, IMS HEALTH and Synavant
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 Synavant 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 Synavant in respect of the registration of the Synavant Common Stock under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The following description provides an accurate description of all material
terms of such agreements, but is qualified by reference to the texts of such
agreements, which are incorporated herein by reference.
DISTRIBUTION AGREEMENT
IMS HEALTH and Synavant 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 Synavant subsequent
to the Distribution.
In particular, the Distribution Agreement defines the assets, liabilities
and contractual relationships which are being allocated to and assumed by
Synavant and those which will remain with IMS HEALTH. The Distribution Agreement
also defines what constitutes the "Synavant 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 Synavant Business to Synavant. 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 Synavant to Synavant and (ii) all other liabilities to IMS HEALTH.
For a discussion of such businesses, see "Synavant 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 Synavant.
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.
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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 Synavant 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.
Synavant 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. Synavant
does not expect this limitation to inhibit its financing or other activities or
its ability to respond to unanticipated developments. Under the Distribution
Agreement, Synavant 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 Synavant, 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 Synavant 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. Synavant also agrees that, from and after the Distribution Date,
it will use its commercially reasonable best efforts to ensure that IMS HEALTH
will incur no liability under any Synavant bank or credit facilities supported
by IMS HEALTH. In addition, Synavant agrees that within three months after the
Distribution Date, it will take all commercially reasonable best efforts to
secure an independent line of credit, without any credit support from IMS
HEALTH, which satisfies its short term working capital requirements. 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, Synavant or the
stockholders of either of them, such party must indemnify the other party and
such stockholders from any taxes arising therefrom. Synavant must indemnify IMS
HEALTH and such stockholders from such taxes even if it delivered the opinion of
counsel or received the ruling described above.
Under the Distribution Agreement, each of IMS HEALTH and Synavant 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 Corporate Services Agreement
between such parties. The parties have also agreed to certain non-compete
arrangements that restrict business activity with certain clients and in certain
geographic locations, and restrict the other party from engaging in the retained
businesses of the other party. Additionally, both IMS HEALTH and Synavant have
agreed not to solicit for employment certain of the other party's employees for
a period of three years, without the other party's prior written approval.
The Distribution Agreement also provides that, except as otherwise set forth
therein or in any related agreement, all costs or expenses incurred in
connection with the Distribution will be charged to and paid by IMS HEALTH.
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DATA RIGHTS AGREEMENTS
IMS HEALTH and Synavant will enter into various Data Rights Agreements
licensing both from IMS HEALTH entities to Synavant entities, and from Synavant
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:
- Synavant 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 Synavant's
pharmaceutical clients. Pursuant to the Xponent Data License Agreement,
IMS HEALTH will grant to Synavant a non-transferable and non-exclusive
license to use such data solely for the purpose of (i) selecting a list of
doctors for its healthcare company clients to send proprietary materials
to, (ii) providing its single source sampling products to pharmaceutical
clients, (iii) providing data to publishers of journals or other media for
the purpose of determining advertising, and (iv) selecting doctors for its
pharmaceutical clients to send certain drug samples to.
- Synavant has developed and licenses Pharbase to third parties 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. Pursuant to the Pharbase Cross License
Agreement, Synavant will grant to IMS HEALTH a worldwide, perpetual,
non-transferable and non-exclusive license to use all Synavant data
(including Pharbase) in order to (i) update its prescriber databases,
(ii) update its sales, prescription and market research databases, and
(iii) create derivative works from such databases in connection with the
delivery of services to its clients. IMS HEALTH will grant to Synavant a
non-transferable and non-exclusive license to certain IMS HEALTH data to
be used solely to update its Pharbase database. Both parties agree not to
use certain data in products delivered to certain competitors of the other
party.
TAX ALLOCATION AGREEMENT
IMS HEALTH and Synavant 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 Synavant if they are attributable to the
Synavant 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),
Synavant and IMS HEALTH will be responsible for their own taxes.
EMPLOYEE BENEFITS AGREEMENT
IMS HEALTH and Synavant 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.
The Employee Benefits Agreement provides that IMS HEALTH will continue to
sponsor a defined benefit pension plan for the benefit of employees of the IMS
HEALTH business ("IMS HEALTH
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Employees") and former employees of the IMS HEALTH business who terminated
employment on or prior to the Distribution Date ("IMS HEALTH Retirees"). Active
participation of employees of Synavant ("Synavant Employees") in the IMS HEALTH
Retirement Plan shall cease immediately after the Distribution Date. In the
event that a partial termination within the meaning of Section 411(d)(3) of the
Internal Revenue Code shall occur with respect to the IMS HEALTH Retirement
Plan, affected Synavant Employees will be fully vested in their accrued benefits
under the IMS HEALTH Retirement Plan. IMS HEALTH will retain all liabilities
related to the IMS HEALTH Retirement Plan, and benefits accrued under the IMS
HEALTH Retirement Plan by Synavant Employees as of the Distribution Date shall
be paid in accordance with the terms and conditions of the IMS HEALTH Retirement
Plan.
In addition, Synavant has agreed to maintain the Synavant Savings Plan under
which benefits will be provided for Synavant Employees and disabled Synavant
Employees who were participants in the IMS HEALTH Savings Plan immediately prior
to the Distribution Date (the "Synavant Transferred Savings Plan Employees"),
and IMS HEALTH will continue to sponsor its savings plan for the benefit of IMS
HEALTH Post-Distribution Employees, IMS HEALTH Retirees and Synavant Retirees
who, prior to the Distribution Date, were participants thereunder. Active
participation of Synavant Transferred Savings Plan Employees in the IMS HEALTH
Savings Plan shall cease immediately after the Distribution Date. The account
balances of Synavant Transferred Savings Plan Employees will be transferred to
the Synavant plan. Synavant shall assume all liabilities relating to the
participation of Synavant Transferred Savings Plan Employees. IMS HEALTH shall
retain all other Liabilities relating to the IMS HEALTH Savings Plan, including
liabilities relating to Synavant Retirees.
Synavant will adopt a new nonqualified savings plan for the benefit of
Synavant Employees who were participants in the IMS HEALTH nonqualified plan
immediately prior to the Distribution Date. Liabilities of the current IMS
HEALTH nonqualified plan that are attributable to Synavant Employees will be
transferred to the Synavant nonqualified plan. IMS HEALTH will retain the
liability for benefits under IMS HEALTH's nonqualified pension plans with
respect to IMS HEALTH Post-Distribution Employees and IMS HEALTH Retirees and
Synavant Retirees who, prior to the Distribution Date, were participants
thereunder.
The Employee Benefits Agreement also provides that IMS HEALTH will continue
to sponsor its welfare plans for IMS HEALTH Post-Distribution Employees, IMS
HEALTH Disabled Employees, IMS HEALTH Retirees and Synavant Retirees who, prior
to the Distribution Date, were receiving benefits under the IMS HEALTH retiree
medical plan (the "Synavant Retiree Medical Recipients"). As of the Distribution
Date, Synavant will adopt welfare plans for the benefit of Synavant Employees,
Synavant Disabled Employees and Synavant Retirees other than Synavant Retiree
Medical Recipients.
As of the Distribution Date, Synavant Employees will generally cease
participation in IMS HEALTH's employee benefit plans, and Synavant 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 Synavant's ability to amend or terminate any of their
respective employee benefit plans after the Distribution Date.
IMS HEALTH and Synavant will continue to sponsor and retain liability for
any employee benefits plans maintained outside the United States with respect to
their respective employees.
IMS HEALTH and Synavant (including Clark-O'Neill and other affiliates) will
retain liability for any employee benefit health and welfare claims with respect
to their employees which were incurred prior to the spin-off date, but which are
paid after the spin-off 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 Synavant
Employees' awards will relate solely to Synavant stock. The
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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 Synavant
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.
Synavant will adopt a stock option plan for the benefit of Synavant
Employees. A Synavant Employee's unexercised option to purchase IMS HEALTH stock
will be converted to an option to purchase Synavant 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 Synavant stock immediately before or
after the Distribution (the "Synavant 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 Synavant.
Following these events, the aggregate market value of the Synavant 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 Synavant Employees will hold awards
that relate solely to Synavant 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 Synavant Employees will be replaced, with reference to the Synavant
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 Synavant will
adopt the Synavant Employee Stock Purchase Plan for the benefit of Synavant
Employees.
DATA AND TELECOMMUNICATIONS SERVICES AGREEMENT
IMS HEALTH and Synavant will enter into a Data and Telecommunications
Services Agreement pursuant to which IMS HEALTH shall provide to Synavant
certain data processing and
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telecommunications services, in a manner and similar in scope to those provided
by IMS HEALTH prior to the Distribution.
SUBLEASE ARRANGEMENTS
IMS HEALTH and Synavant will enter into certain subleasing arrangements
whereby Synavant 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 Synavant 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 Synavant will enter into a Corporate Services Agreement
pursuant to which IMS HEALTH will provide Synavant with certain administrative
and support services. These services include tax advice and services, financial
advice and services, purchasing management services and, for an interim period,
support for the maintenance of corporate records and personnel administration
advice and services.
SHARED TRANSACTION SERVICES AGREEMENTS
IMS HEALTH and Synavant 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.
CREDIT SUPPORT ARRANGEMENTS
Pursuant to an agreement between IMS HEALTH and Synavant, IMS HEALTH will
provide credit support sufficient to meet the working capital needs of Synavant
for up to one year from the Distribution Date (the "Anniversary Date"), if
necessary. However, at such time as Synavant has secured an independent line of
credit during the one year post-Distribution period that matures beyond the
Anniversary Date without IMS HEALTH credit support and which satisfies certain
specified criteria, IMS HEALTH'S credit support commitment shall immediately
terminate. In addition, pursuant to an agreement between IMS HEALTH and
Synavant, IMS HEALTH will provide credit support for the benefit of Permail Pty
Limited, an Australian company that will be 51% owned by Synavant, for a letter
of credit in favor of the Australian post office. Synavant will reimburse IMS
HEALTH for any amounts paid by IMS HEALTH with respect to such letter of credit.
IMS HEALTH's credit support with respect to such letter of credit will terminate
on the earlier of one year after the Distribution Date or the transfer by
Synavant of any portion of its interest in Permail.
OVERLAPPING DIRECTORS
After the Distribution Date, there will be individuals on the Boards of
Directors of IMS HEALTH and Synavant who will also serve on the Board of
Directors of the other company. H. Eugene Lockhart and Robert J. Kamerschen will
serve on the Boards of Directors of both companies. See "Synavant Management and
Executive Compensation--Board of Directors".
DIVIDEND POLICY
The payment and level of cash dividends by Synavant after the Distribution
will be subject to the discretion of the Board of Directors of Synavant.
Synavant 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 Synavant
on a stand-alone basis.
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SYNAVANT CAPITALIZATION
The following table sets forth the unaudited capitalization of Synavant at
June 30, 2000 on a historical basis, and at June 30, 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". These assumptions do not
represent an all-inclusive list of those events or transactions expected to
occur prior to or at the Distribution, which will affect the capitalization of
Synavant. However, in the opinion of Synavant management, the included
assumptions and pro forma adjustments are the most significant. The following
data is qualified in its entirety by the combined financial statements of
Synavant and other information contained elsewhere in this Information
Statement. See "Risk Factors".
<TABLE>
<CAPTION>
SYNAVANT
AT JUNE 30, 2000
-------------------------------
PRO FORMA
HISTORICAL AFTER DISTRIBUTION
---------- ------------------
($ AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and Cash Equivalents.................................. $ 2,305 $ 12,200(1)
-------- --------
Other assets............................................... -- 6,500(2)
-------- --------
Other Liabilities.......................................... -- 1,500(3)
Minority Interests......................................... $ 681 $ 681
Divisional/Shareholders' Equity............................ --
Accumulated Other Comprehensive Loss..................... (836) (836)
Divisional Equity........................................ 215,305 --(4)
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--0 shares (Historical) and
14,859,950 (Pro Forma)................................. -- 149(4)
Capital Surplus.......................................... -- 231,551(1),(2),(3)
Total Equity............................................... $214,469 $230,864
-------- --------
Total Capitalization....................................... $215,150 $231,545
======== ========
</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
Synavant and IMS HEALTH After the Distribution--Distribution Agreement". The
Distribution Agreement is to be entered into by IMS HEALTH and Synavant prior to
the Distribution.
(1) Assumes a cash balance of $10,700 plus cash to fund the assumption of
certain specified obligations currently estimated at $1,500 (the "Funded
Liabilities"). IMS HEALTH and Synavant have agreed to transfer cash to achieve
these balances as of July 31, 2000. Any source and/or use of funds after
July 31 is the responsibility of Synavant.
(2) In connection with the Distribution, IMS HEALTH will contribute to
Synavant Gartner Group shares with a fair value of $4,000 and a note from a
third party with a carrying value of $2,500. The Gartner Group shares are
subject to certain contractual restrictions on transfer and voting that were
agreed to as part of the Gartner Group distribution.
(3) Reflects the Funded Liabilities.
(4) This adjustment reflects the capitalization of Synavant in connection
with the Distribution, and is based on 297,199,007 shares of IMS HEALTH
outstanding on June 30, 2000 and one share of Synavant distributed for every 20
IMS HEALTH shares.
29
<PAGE>
SYNAVANT SELECTED FINANCIAL DATA
The following data are qualified in their entirety by the audited financial
statements of Synavant and other information contained elsewhere in this
Information Statement. The financial data as of December 31, 1999 and
November 30, 1998 and for the years ended December 31, 1999 and November 30,
1998 and 1997 and the one month period ended December 31, 1998 have been derived
from the audited financial statements of Synavant contained elsewhere in this
Information Statement. The combined financial data as of December 31, 1998 has
been derived from financial statements of Synavant that have been audited, but
such financial statements are not included in this Information Statement. The
financial data as of June 30, 2000 and 1999 and November 30, 1997, 1996 and
1995, for the six months ended June 30, 2000 and 1999 and for the years ended
November 30, 1997, 1996 and 1995 are unaudited. The historical financial
information of Synavant contained in this Information Statement is presented as
if Synavant 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 "Synavant Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Synavant's Combined Financial
Statements and Notes thereto appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED AND MONTH ENDED AND
AND AS OF AS OF AS OF
JUNE 30, 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Revenue.............. $ 93,208 $ 95,463 $200,557 $ 13,649 $149,005 $106,650 $79,144 $73,796
Net Income (Loss).......... $(10,519) $ (386) $ (3,192) $ (1,415) $(25,217) $ 5,380 $(1,219) $(5,351)
Pro Forma Unaudited
Earnings (Loss) Per Share
of Common Stock--Basic
(3)...................... $ (0.70) $ (0.02) $ (0.20) $ (0.09) $ (1.55) $ 0.33 -- --
Pro Forma Unaudited
Earnings (Loss) Per Share
of Common Stock--Diluted
(3)...................... $ (0.70) $ (0.02) $ (0.20) $ (0.09) $ (1.55) $ 0.33 -- --
BALANCE SHEET DATA:
Total Assets............... $259,144 $272,823 $268,299 $290,686 $285,389 $ 85,021 $74,503 $81,792
Long-Term Debt............. -- -- -- -- -- -- -- --
</TABLE>
------------------------------
(1) Effective in 1999, the operating units of Synavant 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 accounting 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 Synavant 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 1
for 20 distribution ratio. Pro forma diluted earnings per share are
calculated by dividing net income by dilutive potential common shares and
weighted average common shares of IMS HEALTH, reflecting the 1 for 20
distribution ratio. Dilutive potential common shares are calculated in
accordance with the treasury stock method, which assumes that proceeds from
the exercise of all Synavant 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. Where the Company has recorded a loss, dilutive potential common
shares are not included in the calculation of pro forma dilutive loss per
share as to do so would be anti-dilutive. Pro forma diluted earnings per
share does not necessarily reflect the potentially dilutive impact of
outstanding options when converted into Synavant options as the exact
exchange ratio for outstanding options has not yet been determined.
30
<PAGE>
SYNAVANT UNAUDITED COMBINED
PRO FORMA FINANCIAL STATEMENTS
The historical Combined Statement of Operations for Synavant for the year
ended December 31, 1999 and the six month period ended June 30, 2000 have been
derived from the Combined Financial Statements of Synavant contained elsewhere
in this document. As mentioned in Note 1 to the Combined Financial Statements,
the results include allocations of certain IMS HEALTH corporate and other
expenses relating to the Company's business for the year ended December 31, 1999
and the six month period ended June 30, 2000. The combined financial statements
exclude allocations of revenues and costs for related party transactions with
IMS HEALTH as they relate to the licensing of certain data. In addition,
expected incremental costs to be incurred to operate as a stand-alone publicly
traded company are not reflected in the combined financial statements.
The Unaudited Combined Pro Forma Statement of Operations for Synavant for
the year ended December 31, 1999 and the six month period ended June 30, 2000
presents the results of operations of Synavant adjusted for material pro forma
adjustments necessary to reflect certain allocations of revenues and costs for
related party transactions with IMS HEALTH and incremental costs to operate as a
stand-alone publicly traded company. It is exclusive of the possible impact of
the Siebel alliance and non-recurring costs the Company may incur as a
consequence of becoming a stand-alone publicly traded company (as more fully
described in note 3 below).
The Unaudited Combined Pro Forma Statement of Operations of Synavant should
be read in conjunction with the historical combined financial statements of
Synavant contained elsewhere in this Information Statement. The pro forma data
are for informational purposes only and may not necessarily reflect future
results of operations and/or what the results of operations would have been had
Synavant been operated as a stand-alone publicly traded company.
The following tables set forth the Synavant historical Combined Statement of
Operations for the year ended December 31, 1999 and the six month period ended
June 30, 2000, giving effect to the impact of the Distribution as if it had
occurred prior to the periods presented.
31
<PAGE>
SYNAVANT UNAUDITED COMBINED
PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SYNAVANT ADJUSTMENTS SYNAVANT
---------- ----------- ----------
<S> <C> <C> <C>
Revenues
Software Fees...................................... $ 12,628 -- $ 12,628
Software Services, Maintenance & Other............. 91,308 $ 1,500 (2) 92,808
Interactive Marketing.............................. 96,621 -- 96,621
---------- ---------- ----------
Total Revenues....................................... 200,557 1,500 202,057
Operating Costs......................................
Software Fees...................................... 3,107 -- 3,107
Software Services, Maintenance & Other............. 39,258 -- 39,258
Interactive Marketing.............................. 79,304 1,500 (3) 80,804
---------- ---------- ----------
Total Operating Costs................................ 121,669 1,500 123,169
Research and Development............................. 13,173 -- 13,173
Selling and Administrative Expenses.................. 33,570 6,650 (4),(5) 40,220
Depreciation and Amortization........................ 25,826 -- 25,826
Year 2000 Costs...................................... 2,769 -- 2,769
---------- ---------- ----------
Operating Income (Loss).............................. 3,550 (6,650) (3,100)
Other Income (Expense)--Net.......................... (270) -- (270)
---------- ---------- ----------
Income (Loss) Before Provision for Income Taxes...... 3,280 (6,650) (3,370)
Income Tax (Provision) Benefit....................... (6,472) 2,793 (6) (3,679)
---------- ---------- ----------
Net Loss............................................. $ (3,192) $ (3,857) $ (7,049)
Pro Forma Unaudited Basic Earnings (Loss) Per Share
of Common Stock.................................... $ (0.20) $ (0.25) $ (0.45)
Pro Forma Unaudited Diluted Earnings (Loss) Per Share
of Common Stock.................................... $ (0.20) $ (0.25) $ (0.45)
Pro Forma Unaudited Weighted Average Number of Shares
Outstanding--Basic................................. 15,599,650 15,599,650 15,599,650
Dilutive Effect of Unexercised Outstanding Stock
Options as of Balance Sheet Date Under Stock Option
Plans.............................................. 28,300 28,300 28,300
Adjustment of Shares Applicable to Stock Options
Exercised During the Period........................ 46,950 46,950 46,950
---------- ---------- ----------
Pro Forma Unaudited Weighted Average Number of Shares
Outstanding--Diluted(1)............................ 15,674,900 15,674,900 15,674,900
</TABLE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED
DECEMBER 31, 1999
(1) Average Number of Shares Outstanding--Diluted for the year ended
December 31, includes the impact of the conversion of IMS HEALTH stock
options held by those persons expected to be Synavant employees at the time
of the Distribution into Synavant stock options, in accordance with the
methodology described under "Relationship Between Synavant and IMS HEALTH
After the
32
<PAGE>
Distribution--Employee Benefits Agreement". The calculation of unaudited pro
forma dilutive loss per share for the year ended December 31, 1999 has not
taken into account the dilutive effect of potential common shares, as to do
so would be anti-dilutive.
(2) The Pro Forma Adjustment to Revenues--Software Services, Maintenance and
Other reflects contractually obligated payments of $1,500 per annum from IMS
HEALTH to Synavant for use of the Company's Pharbase database as defined in
the Cross License Agreement. See Note 9 to the Combined Financial
Statements.
(3) The Pro Forma Adjustment to Operating Costs--Interactive Marketing reflects
contractually obligated payments totaling $1,500 per annum to IMS HEALTH for
use of IMS HEALTH's Xponent data, as defined in the Xponent Data License
Agreement. See Note 9 to the Combined Financial Statements.
(4) The Pro Forma Adjustment to Selling and Adminstrative Expenses includes:
(i) Costs for services to be provided by IMS HEALTH totaling $1,168 per
annum, as defined by agreements entered into between the Company and IMS
HEALTH (see Note 9 to the Combined Financial Statements). The specific
products and services to be provided to the Company by IMS HEALTH include
transaction processing for billings and collections, payroll, accounts
payable, and general ledger, as defined in the Shared Transaction
Services Agreements; and certain administrative services for tax,
treasury, and compensation and benefits (including stock option
administration), as defined in the Corporate Services Agreement.
(ii) Estimated incremental costs totaling $5,482 per annum related to the
operation of Synavant as a stand-alone, publicly-traded company. These
incremental costs include, but are not limited to, infrastructure costs
(primarily insurance), general management costs, employee benefit staff
and programs costs, independent professional services, board of directors
costs, investor relations and communications costs. The Company believes
these costs are factually supportable as a result of reliable, documented
evidence in the form of executed contracts, consummated transactions, or
adopted plans by the Company's management which have been assigned a
reasonable basis of cost. These costs are in addition to costs incurred
by IMS HEALTH which have been previously allocated to the Company and are
included in the historical carve-out combined financial statements.
(5) The Pro Forma Adjustments exclude:
(i) Non-recurring costs the Company is expected to incur as a stand-alone,
publicly-traded company. These non-recurring costs are expected to
include, but are not limited to, costs for the corporate name change and
trademark registrations, an initial communication program, employee
relocations and facility setup costs and global communications
infrastructure.
(ii) The potential one-time non-cash charge related to management's
assessment of the impact of the Siebel alliance on its computer software,
goodwill and other intangibles, as further discussed in Note 14 to the
Combined Financial Statements. In addition, the Pro Forma results do not
reflect costs that may be incurred with the implementation of the Siebel
agreement (including joint marketing programs, research and development,
training, and others) as further discussed in "Management's Discussion
and Analysis--Liquidity and Capital Resources" contained elsewhere in
this Information Statement.
(6) The Pro Forma tax benefit adjustment is calculated based on an effective
federal, state and local statutory tax rate of 42%.
33
<PAGE>
SYNAVANT UNAUDITED COMBINED
PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SYNAVANT ADJUSTMENTS SYNAVANT
---------- ----------- ----------
<S> <C> <C> <C>
Revenues
Software Fees.................................... $ 4,283 -- $ 4,283
Software Services, Maintenance & Other........... 43,395 $ 750 (2) 44,145
Interactive Marketing............................ 45,530 -- 45,530
---------- ---------- ----------
Total Revenues..................................... 93,208 750 93,958
Operating Costs
Software Fees.................................... 1,141 -- 1,141
Software Services, Maintenance & Other........... 27,888 -- 27,888
Interactive Marketing............................ 39,425 750 (3) 40,175
---------- ---------- ----------
Total Operating Costs.............................. 68,454 750 69,204
Research and Development........................... 6,799 -- 6,799
Selling and Administrative Expenses................ 15,940 3,325 (4),(5) 19,265
Depreciation and Amortization...................... 12,557 -- 12,557
---------- ---------- ----------
Operating Income (Loss)............................ (10,542) (3,325) (13,867)
Other Income (Expense)--Net........................ 104 - 104
---------- ---------- ----------
Income (Loss) Before Provision for Income Taxes.... (10,438) (3,325) (13,763)
Income Tax (Provision) Benefit..................... (81) 1,397 (6) 1,316
---------- ---------- ----------
Net Loss........................................... $ (10,519) $ (1,928) $ (12,447)
Pro Forma Unaudited Basic Earnings (Loss) Per Share
of Common Stock.................................. $ (0.70) $ (0.13) $ (0.83)
Pro Forma Unaudited Diluted Earnings (Loss) Per
Share of Common Stock............................ $ (0.70) $ (0.13) $ (0.83)
Pro Forma Unaudited Weighted Average Number of
Shares Outstanding--Basic........................ 14,928,800 -- 14,928,800
Dilutive Effect of Unexercised Outstanding Stock
Options as of Balance Sheet Date Under Stock
Option Plans..................................... 11,450 -- 11,450
Adjustment of Shares Applicable to Stock Options
Exercised During the Period...................... 11,300 -- 11,300
---------- ---------- ----------
Pro Forma Unaudited Weighted Average Number of
Shares Outstanding--Diluted(1)................... 14,951,550 -- 14,951,550
</TABLE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 2000
(1) Average Number of Shares Outstanding--Diluted for the six months ended
June 30, 2000, includes the impact of the conversion of IMS HEALTH stock
options held by those persons expected to be Synavant employees at the time
of the Distribution into Synavant stock options, in accordance with the
methodology described under "Relationship Between Synavant and IMS HEALTH
After the
34
<PAGE>
Distribution--Employee Benefits Agreement". The calculation of unaudited pro
forma dilutive loss per share for the six months ended June 30, 2000 has not
taken into account the dilutive effect of potential common shares, as to do
so would be anti-dilutive.
(2) The Pro Forma Adjustment to Revenues--Software Services, Maintenance and
Other reflects contractually obligated payments of $750 from IMS HEALTH to
Synavant for use of the Company's Pharbase database as defined in the Cross
License Agreement. See Note 9 to the Combined Financial Statements.
(3) The Pro Forma Adjustment to Operating Costs--Interactive Marketing reflects
contractually obligated payments totaling $750 to IMS HEALTH for use of IMS
HEALTH's Xponent data, as defined in the Xponent Data License Agreement. See
Note 9 to the Combined Financial Statements.
(4) The Pro Forma Adjustment to Selling and Adminstrative Expenses includes:
(i) Costs for services to be provided by IMS HEALTH totaling $584, as
defined by agreements entered into between the Company and IMS HEALTH
(see Note 9 to the Combined Financial Statements). The specific products
and services to be provided to the Company by IMS HEALTH include
transaction processing for billings and collections, payroll, accounts
payable, and general ledger, as defined in the Shared Transaction
Services Agreements; and certain administrative services for tax,
treasury, and compensation and benefits (including stock option
administration), as defined in the Corporate Services Agreement.
(ii) Estimated incremental costs totaling $2,741 related to the operation of
Synavant as a stand-alone, publicly-traded company. These incremental
costs include, but are not limited to, infrastructure costs (primarily
insurance), general management costs, employee benefit staff and programs
costs, independent professional services, board of directors costs,
investor relations and communications costs. The Company believes these
costs are factually supportable as a result of reliable, documented
evidence in the form of executed contracts, consummated transactions, or
adopted plans by the Company's management which have been assigned a
reasonable basis of cost. These costs are in addition to costs incurred
by IMS HEALTH which have been previously allocated to the Company and are
included in the historical carve-out combined financial statements.
(5) The Pro Forma Adjustments exclude:
(i) Non-recurring costs the Company is expected to incur as a stand-alone,
publicly-traded company. These non-recurring costs are expected to
include, but are not limited to, costs for the corporate name change and
trademark registrations, an initial communication program, employee
relocations and facility setup costs and global communications
infrastructure.
(ii) The potential one-time non-cash charge related to management's
assessment of the impact of the Siebel alliance on its computer software,
goodwill and other intangibles, as further discussed in Note 14 to the
Combined Financial Statements. In addition, the Pro Forma results do not
reflect costs that may be incurred with the implementation of the Siebel
agreement (including joint marketing programs, research and development,
training, and others) as further discussed in "Management's Discussion
and Analysis--Liquidity and Capital Resources" contained elsewhere in
this Information Statement.
(6) The Pro Forma tax benefit adjustment is calculated based on an effective
federal, state and local statutory tax rate of 42%.
35
<PAGE>
SYNAVANT 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 Synavant business unit (the "Distribution"). IMS HEALTH is a leading
provider of information solutions to the pharmaceutical and healthcare
industries, operating in over 100 countries with virtually every major
international and national pharmaceutical company as a customer. The Synavant
business serves the pharmaceutical industry by developing and selling
pharmaceutical relationship management solutions that support sales and
marketing decision making. Prior to the Distribution, IMS HEALTH will convey the
assets and stock of entities that compose the Synavant business into Synavant
Inc., a newly formed Delaware corporation and a wholly-owned subsidiary of IMS
HEALTH. The Synavant business is composed of 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, including
Clark-O'Neill, Inc. ("Clark-O'Neill"), a wholly-owned subsidiary of IMS HEALTH;
and a majority interest in a foreign joint venture (see Note 1 to the Combined
Financial Statements). Collectively, these businesses are referred to herein as
"Synavant" or "the Company". In order to change the state of incorporation of
Clark-O'Neill from New Jersey to Delaware, prior to the Distribution, Synavant
Inc. will merge with Clark-O'Neill, with Synavant Inc. as the survivor in the
merger. The shares of Synavant Inc. 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 Synavant Common Stock (together with
the associated preferred share purchase right) for every 20 shares of IMS HEALTH
Common Stock held as of the record date for the Distribution. After the
Distribution, these businesses will be more fully integrated to provide a full
spectrum of products and services to the pharmaceutical industry. Historically,
these businesses and products were managed as part of the core IMS segment of
IMS HEALTH.
As discussed elsewhere herein, Synavant and Siebel, the world's leading
provider of eBusiness application software, announced on July 19, 2000 a
strategic alliance to jointly develop, market, and sell an integrated eBusiness
software and service solution featuring Siebel ePharma, a pharmaceutical version
of Siebel eBusiness Applications, and the global implementation and support
capabilities of Synavant. Through the alliance, Synavant and Siebel will deliver
eBusiness solutions to customers worldwide in the pharmaceutical, biotechnology
and healthcare industries (see Note 14 to the Combined Financial Statements).
This discussion and analysis relates to Synavant and should be read in
conjunction with the accompanying combined financial statements and related
notes.
The combined financial statements have been prepared using IMS HEALTH's
historical basis in assets and liabilities and historical results of operations
related to Synavant's business. The combined financial statements generally
reflect the financial position, results of operations and cash flows of Synavant
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 Synavant's 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 the methods used to allocate these costs
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
36
<PAGE>
included herein will not necessarily reflect the combined financial position,
results of operations and cash flows of Synavant in the future or what they
would have been if Synavant had been a separate public entity during the periods
presented. Further, the Company will incur additional costs to operate as a
stand-alone public company. These increased costs are expected to be
significant.
ACQUISITION
On June 24, 1998, Cognizant (the accounting 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 Synavant from June 1998. Walsh, formed in 1988,
provided Synavant with a strong international market presence to serve its
customers on a global scale. Synavant 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 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 Synavant had been completed. In completing the
program, Synavant 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
Synavant. 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 Synavant's 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:
<TABLE>
<S> <C>
Acquired 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
========
</TABLE>
37
<PAGE>
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
Synavant 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 at the date of acquisition (and
the resulting charge) included enhancement of Walsh's Windows-based sales
management information system ($4,000), enhancement of its pharmaceutical
marketing database ($3,800), and development of a next-stage integrated and
enhanced sales management information system ($14,100). These projects were
identified as underway at Walsh and, at the date of acquisition, would require
additional effort to establish technological feasibility.
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%.
The degree of completion represented the extent to which the different
in-process projects were complete, as of the acquisition date. The completion
percentage ranged from 53% to 87% for projects at Walsh.
Since the acquisition date, both the enhancement of the Windows-based sales
management information system and the enhancement of its pharmaceutical
marketing database products reached technological feasibility at the level of
costs anticipated in the original valuations. The enhancement of the
Windows-based sales management information system was released to customers in
January 1999 and the enhancement of the pharmaceutical marketing database
products was released to customers in November 1999. Revenues and profitability
of these products subsequent to their release have been in line with the
original expectations incorporated within the calculation of the IPR&D charges.
The development of the next-stage integrated and enhanced sales management
information system is still underway. The Company believes that this product has
reached technological feasibility. These costs are within the original
projections used for the valuation of the IPR&D and the projected revenues and
profitability of these products are within the original projections.
In connection with the Siebel agreement, the Company is also currently
evaluating the status of all development projects currently in progress,
including the acquired in process technology in connection with the Walsh
acquisition (see Note 3 to the Combined Financial Statements). While no
definitive decision has been made to discontinue any development project, it is
likely that, as direct result of the Siebel transaction, certain projects,
including the one remaining Walsh project, may now be discontinued or
significantly curtailed.
In addition, based on a third party independent appraiser, Synavant
allocated $29,000 to existing core technology representing computer software
that is currently in use, which is being amortized over 5 years.
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OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED).
Revenue for the six months ended June 30, 2000 declined by 2% to $93,208
from $95,463 for the comparable period in 1999. Software fee revenues decreased
by $2,031 or 32% due to lower sales force automation license sales as a result
of postponed customer purchasing decisions in the U.S., as well as decreased
legacy system sales. The Company expected that several customer decisions to
acquire products and services would be made in the first half of 2000. These
postponed customer decisions resulted in a decline in revenues in the first six
months of 2000. Although such customer decisions are still pending, the Company
continues to expect these decisions to be concluded by the end of 2000. Software
services revenues decreased 3% to $43,395 in 2000 due to reduced installation
fees arising from the lower license sales, partially offset by increased
maintenance revenues associated with a growing installed base of sales force
automation system users. Interactive marketing revenues increased by 2% due to
volume growth, notably from telemarketing and sampling programs.
Operating costs for the first six months of 2000 were $68,454 compared with
$58,915 in 1999, an increase of 16%. Operating costs associated with software
fees grew $624 to $1,141. Software services operating costs increased 35% to
$27,888 due to higher maintenance and other services to support a larger
installed customer base. Interactive marketing operating costs were $39,425, an
increase of 5% to support the revenue growth.
Research and development costs increased $927 to $6,799 in the first half of
2000, reflecting the development of the Company's New Generation software
product.
Selling, general and administrative costs for the first six months of 2000
decreased to $15,940 from $17,172 in the prior year. Year over year costs have
decreased as Synavant has realized certain synergies from its integration of the
Walsh acquisition.
During the six months ended June 30, 1999 Synavant incurred approximately
$1,176 of Year 2000 remediation costs. There were none in 2000. These costs were
expensed as incurred.
Depreciation and amortization increased to $12,557 in the six months ended
June 30, 2000 compared with $11,945 in the comparable period in 1999, due
primarily to increases in capital expenditures for purchases of computers and
other office equipment in 1999.
Operating loss for the first six months of 2000 was $10,542 compared with
income of $383 in 1999, a decline of $10,925 due primarily to lower overall
revenues, changes in product mix discussed above, and higher operating costs
associated with a growing installed base of software users.
Other income for the first six months was $104 compared with $15 of income
in 1999. These amounts reflect third party interest expense and income and
realized foreign exchange gains and losses.
Synavant's consolidated tax provision, calculated on a separate-company
basis, was an expense of $81 for the first six months of 2000, compared with an
expense of $784 for the comparable period in 1999. The effective tax rate of
Synavant is different 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. Because of incremental operating costs that may
be incurred as a result of Synavant operating as a stand-alone public entity
(such costs will generally not be incurred until after consummation of the
Distribution) and the uncertainties surrounding the ability to estimate future
results due to potential changes in Synavant's business, the Company's current
estimated effective tax rate for the six months ended June 30, 2000 may not be
indicative of its effective tax rate for the year ending December 31, 2000. (See
Note 13 to the Combined Financial Statements.)
The net loss for the six months of 2000 was $10,519 compared with a net loss
of $386 in 1999, an increase of $10,133 due primarily to the operating losses
discussed above.
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RESULTS BY GEOGRAPHIC SEGMENT:
THE AMERICAS. Revenue for the six months ended June 30, 2000 was $54,046
compared with $52,458 for the same period in 1999. The decrease was largely
driven by lower sales force automation license sales, partially offset by an
increase in interactive marketing services. Operating loss for the six months
ended June 30, 2000 was $13,906 compared to a loss of $6,956 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 six months ended June 30, 2000 was $29,829 compared
with $33,139 for the comparable period in 1999. The decline was largely driven
by postponed customer purchase decisions for Premiere licenses as well as the
impact of a stronger U.S. dollar. Operating income for the six months ended
June 30, 2000 declined to $2,808 from $6,972 in the prior period due to the
decrease in revenue and increased costs to support a larger installed customer
base.
ASIA PACIFIC. Revenue for the six months ended June 30, 2000, decreased to
$9,333 compared to $9,866 for the comparable period in 1999. The operating
income increased to $556 from $367 in 1999, primarily due to cost containment
actions in the region.
MONTH ENDED DECEMBER 31, 1998
Effective in 1999, the operating units of Synavant, 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, Synavant presents separately the results of
the month ended December 31, 1998. The month of December 31, 1998 reported
revenues were $13,649 (split as 2% software fees, 53% software services and the
remaining 45% as interactive marketing revenues). 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)
Total revenues for the year ended December 31, 1999 increased by 35% to
$200,557 from $149,005 in 1998. Revenue growth in 1999 was principally due to
the full-year benefit of the acquisition of Walsh in June 1998. Software fees
were $12,628 in 1999, an increase of 48% compared with the prior year, due to
increased European software licenses. Software service revenues grew 34% to
$91,308 in 1999, primarily due to the full-year benefit of the Walsh
acquisition. Interactive marketing revenues grew 34% to $96,621, driven by the
full-year benefit of the Walsh acquisition.
Operating costs for the year ended December 31, 1999 were $121,669 compared
with $96,391 in the year ended November 30, 1998, an increase of 26%. 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. Operating costs associated with software fees were $3,107
in 1999, down from $3,695 in the prior year due to lower amortization expense
arising from certain software assets completing amortization. Software services
operating costs grew 37% to $39,258 due to the full-year impact of the Walsh
acquisition and higher labor costs associated with new sales force automation
system users in Europe and the U.S. Interactive marketing operating costs of
$79,304 were up 24% due to the full-year impact of the Walsh acquisition.
Reseach and development costs were $13,173, up from $6,791 in the prior year
due primarily to the full-year impact of a European development center acquired
as part of Walsh in June 1998.
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Selling and administrative expenses for the year ended December 31, 1999
increased to $33,570 from $32,364 for the year ended November 30, 1998. 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 Synavant 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) costs and one-time
charges related to the realignment of certain Synavant 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.
Synavant's 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 Synavant 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 31, 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 GEOGRAPHIC SEGMENT:
THE AMERICAS. Revenue for the year ended December 31, 1999 increased to
$111,522 ($104,051 in the U.S.) from $107,052 ($104,713 in the U.S.) for the
year ended November 30, 1998. The increase was primarily driven by higher
services revenue, principally interactive marketing services, partially offset
by lower sales force automation system license revenues. Operating loss for the
year ended December 31, 1999 decreased by $14,475 from a loss of $27,675 for the
year ended November 30, 1998 to a loss of $13,200 for 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 Synavant 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
($28,670 in the U.K.) from $29,792 ($12,605 in the U.K.) 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 $15,799 from $5,340 in the year ended November 30, 1998, due to the
revenue increases partially offset by higher costs to support a larger installed
customer base.
ASIA PACIFIC. Revenue for the year ended December 31, 1999 grew to $21,714
($20,669 in Australia) from $12,161 ($11,642 in Australia) 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 $951, compared with a loss of
$174 for the year ended November 30, 1998 due to the revenue increases.
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YEAR ENDED NOVEMBER 30, 1998 (FISCAL) COMPARED WITH YEAR ENDED NOVEMBER 30, 1997
(FISCAL)
Revenue increased by 40% to $149,005 from $106,650 in 1997. Revenue growth
in 1998 principally resulted from the partial year benefit of the acquisition of
Walsh in June 1998. Software fees revenues decreased 31% to $8,556 due to lower
client sales of Cornerstone in the U.S. Software services revenues were $68,332,
an increase of 48% over the prior year, due to the partial-year benefit of the
Walsh acquisition. Interactive marketing revenue grew 50% to $72,117 primarily
due to the partial-year benefit of the Walsh acquisition.
Operating costs for the year ended November 30, 1998 were $96,391 compared
with $71,216 for the year ended November 30, 1997, an increase of 35%. Operating
costs associated with software fees declined to $3,695 in 1998, compared with
$5,361 in the prior year, due to lower amortization expense resulting from
certain software products completing amortization in 1997. Software services
operating costs grew 37% to $28,708 due to the partial-year impact of the Walsh
acquisition and higher labor costs associated with new sales force automation
system users. Interactive marketing operating costs grew 42% to $63,988 in 1998,
as a result of the growth in interactive marketing services primarily from the
acquisition of Walsh.
Research and development costs were $6,791 in 1998, compared with $3,333 in
1997 due primarily to the partial-year impact of a European development center
acquired as part of the Walsh acquisition.
Selling 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 Synavant operations at the time of the acquisition, and the increased
costs discussed above offset by increased revenue.
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.
Synavant's 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 Synavant 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 GEOGRAPHIC SEGMENT:
THE AMERICAS. Revenue for the year ended November 30, 1998 increased to
$107,052 from $91,272 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. U.S. revenue increased to $104,713 in
1998 from $91,272 in 1997. Operating income for the year ended November 30, 1998
decreased by $35,072 from income of $7,397 in the year ended November 30, 1997
to a loss of $27,675 in the year ended 1998, principally related to IPR&D charge
and one-time charges related to the realignment of certain Synavant operations
at the time of the acquisition.
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EUROPE. Revenue for the year ended November 30, 1998 grew to $29,792 from
$8,559 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. Revenue in the U.K. was $12,605, up from $3,145 in
the prior year. Operating income for the year ended November 30, 1998 increased
to $5,340 from $2,731 in the prior year due to the revenue growth, partially
offset by higher labor costs associated with new sales force automation system
users.
ASIA PACIFIC. Revenue for the year ended November 30, 1998 grew to $12,161
(Australia $11,642) from $6,819 (all in Australia) 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 loss was $174 for the partial
year ended November 30, 1998, compared with an operating loss of $61 in the
prior year.
NON-U.S. OPERATING AND MONETARY ASSETS
Synavant 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 six months
ended June 30, 2000 decreased the U.S. dollar amount of cash and cash
equivalents by $71.
MARKET RISK
Synavant's primary market risk is the impact of foreign exchange
fluctuations on non-functional currency assets and liabilities.
Commencing in fiscal 1999, Synavant employed established practices and
procedures to manage its exposure to fluctuations in the value of foreign
currencies using a variety of financial instruments.
Synavant's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business activities. Accordingly, the Company, through IMS HEALTH, enters
into various contracts which change in value as foreign exchange rates change to
protect the value of non-functional currency assets and liabilities. The
principal currencies hedged are the Euro and the Pound Sterling. By policy,
hedge coverage is maintained between minimum and maximum percentages of foreign
exchange exposures over the next year. The gains and losses on these hedges
offset changes in the value of the related exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent necessary to meet its objectives as stated above. Foreign currency
transactions are not entered into for investment or speculative purposes.
The fair value of IMS HEALTH's hedging instruments related to Synavant was
$4,800 at December 31, 1999, and is subject to change as a result of potential
changes in foreign exchange rates. The Company assesses its market risk based on
changes in foreign exchange rates utilizing a sensitivity analysis. The
sensitivity analysis measures the potential loss in fair values based on a
hypothetical 10% change in currency rates. The potential loss in fair value for
foreign exchange rate-sensitive instruments, all of which were forward foreign
currency contracts, based on a hypothetical 10% decrease in the value of the
U.S. dollar or, in the case of nondollar-related instruments, the currency being
purchased, was $221 at December 31, 1999. The estimated fair values of the
foreign exchange risk management contracts were determined based on quoted
market prices.
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LIQUIDITY AND CAPITAL RESOURCES
Synavant 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, Synavant'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 Synavant's short-term annual financing requirements.
IMS HEALTH uses a centralized cash management system to finance its
operations. Cash deposits from most of Synavant's businesses are transferred to
IMS HEALTH on a daily basis, while IMS HEALTH funds Synavant's 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.
As indicated in Note 1 to the Combined Financial Statements, heretofore the
Company has been operating under IMS HEALTH and has been receiving financing
from IMS HEALTH, when required, for its operating cash flow needs. The Company
has obtained a $20 million line of credit from a major bank. This line of credit
is guaranteed by IMS HEALTH and matures 90 days from the Distribution Date. IMS
HEALTH will continue to provide credit support to Synavant for up to one year
from the Distribution Date which, along with existing cash, financial resources
and the working capital adjustment on the Distribution Date, is expected to
provide sufficient resources for the Company to execute its operations and short
term business plan.
SIEBEL ALLIANCE
Synavant and Siebel announced a five-year strategic alliance on July 19,
2000. The alliance is expected to generate incremental revenue from new products
and services and expanded market opportunities. As part of the alliance,
Synavant and Siebel have agreed to a revenue-sharing agreement for certain new
client contracts that incorporate the Synavant and Siebel joint solution
offering as well as for certain new client contracts based on Synavant's
existing Cornerstone and Premier offerings.
Under the terms of the alliance, Synavant is contractually obligated to
discontinue the future enhancement and development of the Cornerstone and
Premiere products, but will continue to support users of these products under
current and future contracts. Management anticipates that these products will
eventually be phased out and replaced by a new generation of joint solution
offerings incorporating Siebel technology.
The alliance is expected to negatively impact profitability and cash flow in
2000 as a result of increased expenditures for training and product development
and other related cash expenditures, as well as non-cash charges. In addition to
the impact of revenue sharing, 2000 operating results may also be adversely
affected as new clients may defer installation of Synavant software until the
Synavant and Siebel joint solution offering has been evaluated by customers.
As a result of this transaction, the Company believes all or a significant
portion of its computer software (including acquired technology), and a portion
of its goodwill may not be recoverable (see Note 11 to the Combined Financial
Statements), and amortization periods of these intangible assets may be reduced.
The Company has begun to assess the financial impact of this transaction with
respect to determining the amount of any impairment loss and possible change in
intangible asset lives. The Company will account for any impairment loss in the
quarter ended September 30, 2000. Any change to the amortization period of
intangible assets will be accounted for prospectively.
In connection with the Siebel agreement, the Company is also currently
evaluating the status of all development projects currently in progress,
including the acquired in-process technology in connection with the Walsh
acquisition (see Note 3 to the Combined Financial Statements). While no
definitive
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decision has been made to discontinue any development project, it is likely
that, as a direct result of the Siebel transaction, certain projects, including
the one remaining Walsh project, may be discontinued or significantly curtailed.
CASH FLOWS
Net cash used in operating activities totaled $955 for the six months ended
June 30, 2000 compared with net cash provided by operating activities of $9,334
for the comparable period in 1999. The decrease of $10,289 primarily reflects a
higher net loss and higher accounts receivable, partially offset by increased
deferred revenues and accounts payable.
Net cash used in investing activities totaled $4,758 for the six months
ended June 30, 2000 compared with $5,310 for the comparable period in 1999. The
decrease in cash usage of $552 was primarily due to lower capital expenditures.
Net cash provided by financing activities totaled $4,625 for the six months
ended June 30, 2000 compared with net cash usage of $6,420 for the comparable
period in 1999. The favorable variance was primarily due to increased net
transfers from 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 JUNE 30, 2000 (UNAUDITED) COMPARED TO DECEMBER
31, 1999
Cash and cash equivalents were $2,305 as of June 30, 2000 compared with
$3,464 as of December 31, 1999. The decrease in cash and cash equivalents of
$1,159 was primarily due to cash outflows for investing activities including
software development, capital expenditures, acquisition and integration payments
and other investments and net transfers to IMS HEALTH, which were only partially
offset by cash from operations.
ACCOUNTS RECEIVABLES--Net increased to $47,255 at June 30, 2000 from $46,591
at December 31, 1999 due to decreased collections and the seasonality of
revenues.
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GOODWILL--Net decreased to $159,564 at June 30, 2000 from $167,363 at
December 31, 1999. The reduction was primarily the result of amortization of
$6,624.
Accrued and Other Current Liabilities decreased to $11,749 at June 30, 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 $214,469 at June 30, 2000 from $220,844 at
December 31, 1999. The reduction was the result of a net loss of $5,616, net
transfers from IMS HEALTH of $77 and the effect of a stronger U.S. dollar on net
assets in non-U.S. operations of $836.
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.
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. Adoption of FIN 44 will
have no effect 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
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revenue recognition in financial statements. On June 26, 2000, the SEC staff
issued SAB No. 101-B to provide registrants with additional time to implement
guidance contained in SAB 101. SAB 101-B delays the implementation date of
SAB No. 101 until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. The Company believes its revenue recognition
polices are compliant with the Staff Accounting Bulletin.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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 No. 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.
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SYNAVANT BUSINESS
Synavant 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, another wholly owned subsidiary of IMS HEALTH, from New Jersey to
Delaware, prior to the Distribution, Synavant will merge with Clark-O'Neill,
with Synavant as the survivor in the merger. Upon the conveyance of certain
assets and stock owned by IMS HEALTH, the Synavant Business will include the
pharmaceutical industry automated sales and marketing support business of 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 historically managed as
part of the core IMS segment of IMS HEALTH.
PHARMACEUTICAL RELATIONSHIP MANAGEMENT
Synavant offers sales and marketing effectiveness solutions that can be
integrated with all client-critical databases to provide customer and business
insights. Synavant 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 Synavant's solutions to make
critical decisions on a daily basis. Synavant's solutions 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.
Synavant 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, Synavant 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.
Through its strategic alliance with Siebel, Synavant will offer the Siebel
products as part of the PRM solution offering. While the sale and support of
Cornerstone, Premiere and Phastrak products
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will continue to be offered (see below), it is the intent of Synavant to migrate
its current customer base to Siebel products as appropriate to customer needs.
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.
SIEBEL ALLIANCE
On July 19, 2000, Synavant announced a strategic alliance with Siebel, a
leading provider of eBusiness application software. Through the alliance, the
companies intend to jointly develop, market and sell pharmaceutical and
healthcare related versions of Siebel's eBusiness software applications.
As part of the strategic alliance, Synavant and Siebel entered into (1) a
Value Added Industry Remarketer Agreement (the "Reseller Agreement"), (2) a
Siebel Alliance Program Master Agreement (the "Alliance Agreement"), and (3) a
license of certain Siebel software for Synavant's internal use. Pursuant to the
Reseller Agreement, Siebel appointed Synavant as a non-exclusive distributor of
certain Siebel licensed software. Under the agreement, Synavant has the right to
distribute and sublicense Siebel software products to companies in the life
sciences industry worldwide in conjunction with Synavant's own proprietary
software and services. Synavant may not market the Siebel products without some
value-added feature contributed by it. As part of the arrangement, Siebel and
Synavant share in the sublicensing fees generated from the licensing of the
Siebel software.
Additionally, the Reseller Agreement limits the extent to which Synavant may
develop, integrate, market, license or distribute products that are directly
competitive with those packaged and promoted in connection with the alliance.
Synavant may, however, continue to license and support its existing Cornerstone
and Premiere customers. Under certain circumstances, Synavant will be required
to share revenues relating to its Cornerstone and Premiere products with Siebel.
The Reseller Agreement contemplates a five year term for the alliance, however,
the parties may extend the agreement for an additional two years on the same
terms as the existing agreement.
The Alliance Agreement complements the Reseller Agreement and establishes a
framework for the joint marketing efforts by Synavant and Siebel to such life
sciences companies. Under this agreement, Synavant will be a Siebel Strategic
Software Partner throughout the world to serve the life sciences market.
Synavant will be permitted to use the Siebel logos and marks as part of the
joint marketing effort in its promotional materials.
The Alliance Agreement is intended to facilitate the Reseller Agreement and
as long as the Reseller Agreement is in effect, Siebel shall waive any annual
fees that may normally be payable by a Siebel Strategic Software Partner. Upon
expiration of the Reseller Agreement, Synavant becomes responsible for the
applicable annual fee. The initial term of the Alliance Agreement is one year,
renewable for one year terms at the discretion of the parties.
This alliance will enable Synavant to sell Siebel's ePharma product as the
eBusiness part of Synavant's total solution offering to the health care market
place around the world. Synavant will have significant input to the direction
and development of Siebel's ePharma product going forward.
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As a strategic alliance partner, Siebel provides Synavant with:
- eBusiness software applications and technology.
- An ongoing commitment to significant technology investment and frequent
technical innovation.
- A full suite of integrated product offerings, as well as Internet
integration and capabilities.
- The ability to leverage Siebel's other strategic alliances to provide
customized solutions to our customers.
This alliance is consistent with and helps implement Synavant's stated
vision and mission.
Through this strategic alliance, Synavant will be able to deliver new and
integrated web-based applications within the entire healthcare sector. Synavant
will meet the specific requirements of its customers on the design, development,
delivery, and support of value-added applications, services, and solutions based
upon Siebel's products. Synavant believes this alliance differentiates it from
its competitors. By concentrating investment funding in the total solution area,
Synavant will further extend its suite of value added, full service offerings
that support its total solution strategy. Synavant has recognized the uniqueness
of the biopharmaceutical marketplace and in its selling model, and has tailored
the traditional CRM approach to a solutions-based customer service offering
known as Pharmaceutical Relationship Management (PRM). Through this alliance,
Synavant reaffirms its strategy to customer intimacy and to service and solution
excellence in the health care market place.
See "Synavant Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Siebel Alliance".
PRODUCTS 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.
Based upon the number of world-wide installations referenced below, 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
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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.
If contracted by the customer, ST will sell the HPC device as part of the total
customer solution.
ST also provides services from Pharbase(SM), the industry-leading (based
upon number of licensed customers) 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 Synavant 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.
Research and development expense totaled $13,173, $6,791 and $3,333 (each
amount in thousands) for the years ended December 31, 1999, November 30, 1998
and November 30, 1997, respectively. See Note 2 to the Combined Financial
Statements of Synavant contained elsewhere in this Information Statement.
INTERACTIVE MARKETING SERVICES
Synavant 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 Synavant's interactive marketing
business. Clark-O'Neill's services include prescription and OTC sample
distribution to physicians, pharmaceutical field sales force support services,
publication circulation 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 providing
this service, Clark-O'Neill does not take title to the prescription drug samples
supplied by its customers. 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" (based on the number of sales representatives that use it as a
targeting tool) physician prescribing database, Xponent-TM-. This access
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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. As
part of IMS HEALTH, Clark-O'Neill has had faster access to the Xponent database
than that offered to its competitors. While the "access time" currently provided
to Clark-O'Neill will not decrease once it becomes part of Synavant, access time
granted to other IMS HEALTH clients will be determined solely by IMS HEALTH.
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 client's
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 (i.e., a mass distributed communication targeted to
client-directed audiences containing client-provided content).
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 its
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.
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FOREIGN OPERATIONS
As indicated above, Synavant and its subsidiaries engage in a significant
portion of their business outside of the United States. Synavant's foreign
operations are subject to the usual risks inherent in carrying on business
outside of the United States, including fluctuation in relative currency values,
possible nationalization, expropriation, price controls and other restrictive
government actions. Synavant 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
Synavant 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 "Synavant" name and related names, marks
and logos are of material importance to Synavant. Synavant 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 Synavant. The
names of Synavant's and its subsidiaries' products and services referred to
herein are trademarks, service marks, registered trademarks or registered
service marks owned by or licensed to Synavant or one of its subsidiaries.
CUSTOMERS
Sales to the pharmaceutical industry accounted for substantially all of
Synavant's revenue in 1999. Substantially all major pharmaceutical companies are
customers of Synavant, and many of the companies use Synavant's products and
subscribe to its services in several countries. Synavant's customer base is
broad in scope and enables it to avoid dependence on any single customer. None
of Synavant's customers accounted for more than 10% of its gross revenues in
1999, 1998 or 1997.
COMPETITION
Synavant 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. Synavant also faces competition
from many vendors that market and sell sales force automation solutions in
consumer packaged goods. In addition, Synavant 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 Synavant products and services, including its Cornerstone product, and
Siebel products compete with the products and services of Dendrite International
Inc., and in Europe, certain Synavant products and services, including its
Premiere product, and Siebel products 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 Synavant's market.
EMPLOYEES
As of June 30, 2000, Synavant 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, Synavant has Workers' Councils, which
are a legal requirement in those countries. Synavant has also established a
European Workers' Council as required under European Union regulations. Synavant
believes that, generally, relations with its employees are good and have been
maintained in a normal and customary manner.
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PROPERTIES
Synavant's real property is geographically distributed to meet sales and
operating requirements worldwide. Most of Synavant's properties are leased from
third parties. Synavant also subleases certain properties from IMS HEALTH.
Synavant owns only one piece of real property, which represents less than 2% of
the aggregate space utilized by Synavant. Synavant's properties are generally
considered to be both suitable and adequate to meet current operating
requirements and virtually all space is being utilized.
Set forth below is a summary of the properties that Synavant leases from
third parties:
<TABLE>
<CAPTION>
APPROX. AREA
LOCATION (IN SQ. FEET) USE EXPIRATION DATE
-------- ------------- ----------------------------- ---------------
<S> <C> <C> <C>
Atlanta, Georgia 75,484 Corporate Headquarters/ 6/24/07
Distribution/Sales/
Support/Development
New South Wales, 15,000 Sales/Support 1/31/01
Australia
Waterloo, Belgium 6,598 Development 6/30/09
Sao Paulo, Brazil 6,000 Sales/Support 10/31/00
Toronto, Ontario, 27,364 Sales/Support 6/30/02
Canada
Ismaning, Germany 9,567 Sales/Support 2/28/02
Athens, Greece 4,138 Sales/Support 3/14/03
Naarden, Netherlands 11,377 Sales/Support 6/30/03
Singapore 700 Sales/Support 7/14/02
Madrid, Spain 8,022 Sales/Support 5/2/01
Barcelona, Spain 4,029 Sales/Support 8/15/05
Basle, Switzerland 3,115 Sales/Support 6/30/01
Leatherhead, Surrey, 7,100 Sales/Support 5/12/02
United Kingdom
Rugby, Warwickshire, 30,000 Sales/Support 11/30/02
United Kingdom
Norcross, Georgia 65,451 Sales/Support 2/29/08
Fairview, New Jersey 195,184 Sales/Support/Distribution 4/30/03
Totowa, New Jersey 41,600 Distribution 1/31/01
</TABLE>
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Set forth below is a summary of the properties that Synavant subleases from
IMS HEALTH:
<TABLE>
<CAPTION>
APPROX. AREA
LOCATION (IN SQ. FEET) USE EXPIRATION DATE
-------- ------------- ------------- ---------------
<S> <C> <C> <C>
Wein, Austria 2,492 Sales/Support 6 months' notice
Brussels, Belgium 3,694 Sales/Support 6/30/01
Brussels, Belgium 4,457 Sales/Support 6/30/01
Cedex, France 8,460 Sales/Support 10/2/00
Frankfurt, Germany 1,634 Sales/Support 3/31/02
Milan, Italy 12,164 Sales/Support 5/31/05
Arrendamento Urbano, Italy 3,267 Sales/Support 10/15/00
Totowa, New Jersey 11,160 Sales/Support 7/30/05
Bannockburn, Illinois 300 Sales/Support 7/30/03
</TABLE>
SYNAVANT BUSINESS OPPORTUNITY
A more competitive environment has been created within the pharmaceutical
industry based upon merger and acquisition activity, regulatory requirements
(including, but not limited to, price controls) and accelerated FDA approval
process. Going forward, pharmaceutical firms will be looking to improve their
selling and marketing skills to succeed in such an 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.
SYNAVANT MISSION
In response to the current and projected business environment, Synavant
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, are
responsible for a very high percentage of pharmaceutical prescriptions 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
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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
Synavant 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 will
not materially affect Synavant's consolidated financial position.
In addition, Synavant is subject to certain other contingencies which are
discussed below. As discussed below, Synavant is jointly and severally liable
with IMS HEALTH with respect to such contingencies. However, under the
Distribution Agreement, IMS HEALTH and Synavant have agreed that Synavant's
share of such liabilities will not exceed $9 million, and IMS HEALTH has agreed
to indemnify Synavant for any liability it incurs in connection with such
contingent liabilities in excess of such amount. In the event that IMS HEALTH
did not fulfill such indemnification obligations, Synavant could be liable for
an amount in excess of $9 million in connection with such contingent
liabilities. While it is highly unlikely, in the event that Synavant were
obligated to fund a substantial portion of such liabilities, it would have a
material adverse effect on Synavant's financial condition and results of
operations. In addition, under the Distribution Agreement, Synavant and IMS
HEALTH have agreed that Synavant will not be required to make any payment in
connection with such commitments until at least January 1, 2003.
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 Synavant, 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. Such obligations include potential tax
liability relating to the aforementioned spin-offs and relating to certain
global tax planning initiatives entered into by Cognizant, D&B and IMS HEALTH,
and potential liability relating to the IRI Action.
Set forth below is a description of the IRI Action:
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and I.M.S. International Inc. (a
predecessor of IMS HEALTH) (the "IRI Action"). The complaint alleges various
violations of the United States antitrust laws, including alleged violations of
Sections 1 and 2 of the Sherman Act. The complaint also alleges a claim of
tortious interference with a contract and a claim of tortious interference with
a prospective business relationship. These latter claims relate to the
acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges
that SRG violated an alleged agreement with IRI when it agreed to be acquired by
defendants and that the defendants induced SRG to breach that agreement. IRI's
complaint alleges damages in excess of $350 million, 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
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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. On December 22, 1999, defendants filed a
motion for partial summary judgement seeking to dismiss IRI's non-U.S. antitrust
claims. On July 12, 2000, the court granted the motion dismissing claims of
injury suffered from activities in foreign markets where IRI operated through
subsidiaries or companies owned by joint ventures or "relationships" with local
companies. 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 (the "1996 Spin-Off"), 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 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 million. Management of IMS HEALTH
and Synavant are unable to predict at this time the final outcome of this
matter.
57
<PAGE>
SYNAVANT 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 Chairman and Chief Executive Officer of Synavant.
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 Executive Vice President, Secretary and
Chief Financial Officer of Synavant. Ronald D. Brown, currently the Chief
Executive Officer of ST, Loftus S. Lucas, currently the General Manager of
Clark-O'Neill, and Kevin B. Tarrant, currently the Vice President--Global Human
Resources of ST, will become the President, Chief Operating Officer, and Vice
President and Chief Human Resources Officer of Synavant, respectively, upon the
date of the Distribution. In addition to Messrs. Yetter, Kussman, Brown, Lucas,
and Tarrant, additional executive officers of Synavant may be drawn from the
current management of IMS HEALTH or its subsidiaries. While Synavant's Board of
Directors will initially be composed of five members, Synavant expects to
ultimately have a Board of Directors composed of six members, including
Mr. Yetter. See "--Synavant Board of Directors" and "--Synavant Executive
Officers".
SYNAVANT BOARD OF DIRECTORS
Immediately after the Distribution, Synavant will have a Board of Directors
composed of five members.
The following table sets forth the names, in alphabetical order, and
information as to the persons who will serve as directors of Synavant following
the Distribution, including information as to service with IMS HEALTH, if
applicable.
<TABLE>
<CAPTION>
POSITIONS DIRECTOR PRINCIPAL OCCUPATIONS
NAME WITH SYNAVANT SINCE DURING THE LAST 5 YEARS AGE OTHER DIRECTORSHIPS
---- ----------------- -------- ------------------------------- -------- --------------------
<S> <C> <C> <C> <C> <C>
Wayne P. Yetter Chairman, Chief 2000 Chief Operating Officer, IMS 54 Transkaryotic
Executive Officer HEALTH, 10/99-present; Therapies, Inc.
and Director President and Chief Executive
Officer, Novartis
Pharmaceuticals Corp.
(pharmaceutical company),
1/97-7/99; Chief Executive
Officer, Astra Merck Inc.
(pharmaceutical company),
11/94-1/97
Peter Fuchs Director 2000 Chairman and Chief Executive 58
Officer, The Brain Technologies
Corporation (publishing,
training, consulting and direct
mail marketing), 5/00-present;
Partner, Andersen Consulting
(management consulting),
2/65-4/00
Robert J. Kamerschen Director 2000 Chairman and Chief Executive 64 IMS HEALTH;
Officer, DIMAC Marketing Micrografx, Inc.;
Corporation* (direct mail R.H. Donnelley
marketing), Chairman and Senior Corp.; Radio Shack
Executive Consultant, ADVO, Corp.; Cool
Inc. (direct mail marketing Savings.com
services), 7/99-10/99;
Chairman, ADVO, Inc.,
11/88-7/99, and Chairman and
Chief Executive Officer, ADVO,
Inc., 11/88-1/99
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
POSITIONS DIRECTOR PRINCIPAL OCCUPATIONS
NAME WITH SYNAVANT SINCE DURING THE LAST 5 YEARS AGE OTHER DIRECTORSHIPS
---- ----------------- -------- ------------------------------- -------- --------------------
<S> <C> <C> <C> <C> <C>
H. Eugene Lockhart Director 2000 President and Chief Executive 50 IMS HEALTH; Nabisco
Officer, The New Power Company Group Holdings
(energy service provider), Corp.; First
5/00-Present; Republic Bank; TNPC,
President-Consumer Services, Inc.; Z-University;
AT&T Corp. yclip.com
(telecommunications),
7/99-2/00; Executive Vice
President and Chief Marketing
Officer, AT&T Corp., 2/99-6/99;
President, Global Retail Bank,
Bank of America Corporation
(financial services),
4/97-10/98; President and Chief
Executive Officer, MasterCard
International Inc. (credit card
company), 3/94-4/97
Barry L. Williams Director 2000 President, Williams Pacific 56 Pacific Gas &
Ventures, Inc., 1987-present Electric Company;
Northwestern Mutual
Life Insurance
Company; Newhall
Land & Farming
Company, Simpson
Manufacturing
Company, Inc.; CH2M
Hill, Inc.; USA
Group, Inc.; R.H.
Donnelly Corp.
</TABLE>
------------------------------
* On April 6, 2000, DIMAC Marketing Corporation filed for Chapter 11
bankruptcy protection in the United States Bankruptcy Court in Wilmington,
Delaware.
DIRECTORS' COMPENSATION
The Board of Directors of IMS HEALTH has approved a director compensation
program for Synavant. It is anticipated that the Board of Directors of Synavant
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 Synavant 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 Synavant 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 SYNAVANT BOARD OF DIRECTORS
Prior to the Distribution, the Synavant Board of Directors will establish an
Audit Committee and a Compensation and Benefits Committee and designate specific
functions and areas of oversight as to
59
<PAGE>
such committees. No final determination has yet been made as to the memberships
of such standing committees.
AUDIT COMMITTEE
The primary function of the Audit Committee will be to assist the Board of
Directors in fulfilling its oversight responsibilities to Synavant's
stockholders, potential stockholders, the investment community and others. The
Audit Committee will review the independence and performance of Synavant's
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 Synavant's stockholders. The Audit Committee will monitor
the activities of Synavant's internal and external auditors, including the audit
scope, and the integrity of Synavant's financial reporting processes, both
internal and external. The Audit Committee also will review changes in
accounting principles as applied in Synavant's financial reporting and the
independent auditors' judgments about the quality and appropriateness of those
principles. In addition, the Audit Committee will oversee Synavant's internal
compliance programs. Synavant intends that, from and after 90 days after the
Distribution Date, 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 Synavant,
establish and review Synavant's 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 Synavant's compensation philosophy and policies.
60
<PAGE>
SYNAVANT 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 SYNAVANT AND AGE* BIOGRAPHICAL DATA
------------------------------------- ---------------------------------------------
<S> <C>
Wayne P. Yetter, Chairman and Chief Executive Chief Operating Officer, IMS HEALTH (10/99 to
Officer, 54 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, ST (5/98 to
present); President, Sales Technologies (7/95
to 5/98)
Loftus S. Lucas, Chief Operating Officer, 52 Vice President, General Manager, ST Clark-
O'Neill (5/94 to present)
Craig S. Kussman, Executive Vice President, Senior Vice President--Corporate Development,
Secretary and Chief Financial Officer, 42 IMS HEALTH (7/98 to present); Vice President,
Cognizant (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 Vice President, Global Human Resources, ST
Human Resources Officer, 43 (9/98 to present); Vice President, Global
Compensation & Benefits, Cognizant and IMS
HEALTH (1/98 to 12/98); Vice President, Human
Resources, IMS HEALTH America (1/94 to 9/98)
</TABLE>
------------------------
* As of July 15, 2000
COMPENSATION OF SYNAVANT EXECUTIVE OFFICERS
The following table discloses the compensation paid or accrued by IMS HEALTH
for services rendered for the fiscal years indicated by Synavant's 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 Synavant
following the distribution.
During 1999, IMS HEALTH had a two-for-one stock 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.
61
<PAGE>
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH IMS HEALTH
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------
(A) SALARY BONUS (1) OTHER ANNUAL
NAME AND PRINCIPAL POSITION WITH SYNAVANT YEAR ($) ($) COMPENSATION (2)($)
----------------------------------------- -------- -------- --------- -------------------
<S> <C> <C> <C> <C>
Wayne P. Yetter (6)............................... 1999 112,292 68,408 0
Chairman and 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, Secretary and Chief 1998 242,000 151,126 0
Financial Officer 1997 219,500 114,102 0
Kevin B. Tarrant.................................. 1999 172,817 61,798 23,921
Vice President and Chief Human Resources Officer 1998 165,375 99,912 0
1997 157,500 90,430 0
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------------------
AWARDS PAYOUTS
------------------------- ----------------------------
SECURITIES
RESTRICTED UNDERLYING LONG-TERM
STOCK OPTIONS/ INCENTIVE ALL OTHER
(A) AWARD(S) (3) SARS (4) PAYOUTS COMPENSATION (5)
NAME AND PRINCIPAL POSITION WITH SYNAVANT ($) (#) ($) ($)
----------------------------------------- ------------ ---------- --------- ----------------
<S> <C> <C> <C> <C>
Wayne P. Yetter (6).......................... 0 100,000 0 0
Chairman and 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, Secretary and 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 and Chief Human Resources 0 10,573(a) 0 7,833
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.
(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
62
<PAGE>
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 executives 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 $330,000.
OPTION GRANTS ON IMS HEALTH COMMON STOCK TO SYNAVANT EXECUTIVES IN LAST FISCAL
YEAR
The following table provides information on calendar year 1999 grants of
stock options to the named Synavant executive officers to purchase shares of IMS
HEALTH Common Stock. Options to acquire IMS HEALTH Common Stock become options
to purchase Synavant Common Stock. The options were granted at fair market
value, vest over a three year period and expire 10 years after grant.
OPTION/SAR GRANTS IN LAST YEAR FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SAR'S EXERCISE
OPTIONS/ GRANTED TO OR BASE GRANT DATE
SAR'S EMPLOYEES IN PRICE (1) PRESENT VALUE
GRANTED (1) FISCAL YEAR ($/ EXPIRATION (3)
NAME (#) (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.
63
<PAGE>
(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 Synavant during 1999 and the value of such
executives' 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.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED, IN-
IMS HEALTH OPTIONS/ THE-MONEY IMS HEALTH
SHARES SARS AT FISCAL YEAR-END OPTIONS/SARS AT FISCAL
ACQUIRED ON VALUE (1)(#) YEAR-END (2) ($)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) 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.
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 benefits 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.
ST, Mr. Brown's employer, did not sponsor a defined benefit pension plan in
1999.
64
<PAGE>
CHANGE IN CONTROL AGREEMENTS
Synavant 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 Synavant, 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.
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 potential change-in-control occurs, Synavant must deposit funds
into a "rabbi" trust to fund potential obligations under the agreements. 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 severance payment of two to 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, pro rated to reflect the part of
the performance period he or she worked,
- 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 the executive's after-tax benefits are the same as though no excise tax had
applied, except that, if reducing the lump-sum severance payment by up to 15%
would avoid the excise tax, Synavant will instead reduce the severance payment
by the amount just sufficient to avoid the tax. Synavant will reimburse an
executive for expenses incurred in enforcing the agreement unless incurred in
bad faith.
Under the agreement, "good reason" means an adverse change in an executive's
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
Synavant securities, if a majority of the Board changes in a 24-month period
without the specified approval of incumbent directors, if Synavant merges with
another entity (other than where the outstanding voting securities of Synavant
immediately prior to such merger continue 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, or if we sell substantially all
assets or liquidate Synavant. In addition, the Board of Directors retains
discretion to determine that other events, for example, events that have the
effect of changing or influencing the control of Synavant but which do not
trigger a change in control under the fixed definition, will be treated as a
change in control under the agreements. The agreements contain no limitations on
how the Board can exercise this discretion. The Board intends that this
discretion will be exercised, consistent with the general purposes of the
agreements, to encourage executives to continue to serve Synavant at times when
changes in ownership might appear to them to pose a threat to their continued
employment.
65
<PAGE>
Under Synavant's stock option plans, unvested stock options held by
executives and other employees will accelerate and become vested upon a change
in control. For this purpose, a "change in control" means the same thing as
under the Change-in-Control Agreements.
SYNAVANT SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of Synavant 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 Synavant directors, by
each of the executive officers named in the Synavant Summary Compensation Table
above, by all such directors and executive officers as a group and by each
person known by Synavant to beneficially own more than 5% of the outstanding
shares of IMS HEALTH Common Stock at June 30, 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 June 30, 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 "Synavant Management
and Executive Compensation--Compensation of Synavant Executive Officers".
Information regarding shares subject to options reflects shares of IMS HEALTH
Common Stock subject to options as of June 30, 2000 and exercisable within 60
days thereafter. Unexercised IMS HEALTH stock options held by Synavant employees
as of the Distribution Date will be converted into options that are exercisable
into shares of Synavant Common Stock based upon a conversion formula to be
calculated after the Distribution Date. See "Relationship Between Synavant 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 June 30, 2000
and are expected to own less than six percent of the shares of Synavant Common
Stock outstanding as of the Distribution Date. The mailing address for each of
the Synavant directors and executive officers listed herein is c/o Synavant,
Inc., 3445 Peachtree Rd. NE, Suite 1400, Atlanta, Georgia 30326.
<TABLE>
<CAPTION>
AMOUNT & NATURE
NAME OF BENEFICIAL OWNERSHIP(1)
OF BENEFICIAL --------------------------- PERCENT OF
OWNER SOLE SHARED CLASS
---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Wayne P. Yetter 12,675(2)(3) 50 *
Ronald D. Brown 185,748(4)(3) *
Loftus S. Lucas 168,453(5) *
Craig S. Kussman 270,280(6)(3) *
Kevin B. Tarrant 153,770(7) *
Peter Fuchs -- *
Robert J. Kamerschen 46,528(8) *
H. Eugene Lockhart 23,720(9)(3) *
Barry L. Williams -- *
All Current Directors and Executive
Officers as a Group (9 in number) 861,174(10) *
FMR Corp. 15,129,189(11) 5.09%
82 Devonshire Street
Boston, MA 02109
Mutuelles AXA, AXA and AXA Financial 33,997,411(12) 11.44%
</TABLE>
------------------------
* Ownership represents less than 1% of the total outstanding Common Stock on
June 30, 2000.
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(1) Amounts effective as of June 30, 2000. Effective January 3, 2000, options
which previously vested over a six-year period were accelerated to vest over
four years from the original grant date.
(2) Does not include 50 shares in which there are shared investment and/or
voting rights. Amounts include restricted stock units granted under the 1998
IMS Health Incorporated Employees' Stock Incentive Plan which are scheduled
to vest on January 3, 2002.
(3) 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.
(4) Includes all shares beneficially owned and all rights to acquire 162,851
shares within 60 days. Amounts include restricted stock units granted under
the 1998 IMS Health Incorporated Employees' Stock Incentive Plan which are
scheduled to vest on January 1, 2001.
(5) Includes all shares beneficially owned and all rights to acquire 164,142
shares within 60 days.
(6) Includes all shares beneficially owned and all rights to acquire 263,771
shares within 60 days.
(7) Includes all shares beneficially owned and all rights to acquire 150,375
shares within 60 days.
(8) Includes all shares beneficially owned and all rights to acquire 14,644
shares within 60 days. Amounts include restricted shares granted under the
1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan.
Effective after the Distribution Date, Robert J. Kamerschen will serve on
the Boards of Directors of both IMS HEALTH and Synavant.
(9) Includes all shares beneficially owned and all rights to acquire 14,644
shares within 60 days. Amounts include restricted shares granted under the
1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan
and restricted stock units deferred under the IMS Health Incorporated
Non-Employee Directors' Deferred Compensation Plan. Effective after the
Distribution Date, H. Eugene Lockhart will serve on the Boards of Directors
of both IMS HEALTH and Synavant.
(10) Includes all shares beneficially owned, regardless of nature of ownership,
and all rights to acquire shares within 60 days.
(11) 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.
(12) 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
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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 Terasse
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.
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DESCRIPTION OF SYNAVANT CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that Synavant has
authority to issue under its Amended and Restated Certificate of Incorporation
is 41,000,000 shares, of which 40,000,000 shares represent shares of Synavant
Common Stock, 500,000 shares represent shares of Preferred Stock (the "Synavant
Preferred Stock") and 500,000 shares represent shares of Series Common Stock
(the "Synavant Series Common Stock"). Based on shares of IMS HEALTH Common Stock
outstanding as of June 30, 2000, and a distribution ratio of one share of
Synavant Common Stock for every 20 shares of IMS HEALTH Common Stock, 14,859,950
shares of Synavant Common Stock would be distributed to holders of IMS HEALTH
Common Stock on the Distribution Date.
SYNAVANT COMMON STOCK
Subject to any preferential rights of any Synavant Preferred Stock or
Synavant Series Common Stock created by the Board of Directors of Synavant, each
outstanding share of Synavant Common Stock will be entitled to such dividends,
if any, as may be declared from time to time by the Board of Directors of
Synavant. 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 Synavant, holders of Synavant 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 Synavant Preferred Stock and Synavant Series Common Stock.
SYNAVANT PREFERRED STOCK AND SYNAVANT SERIES COMMON STOCK
Each of the authorized Synavant Preferred Stock and the authorized Synavant
Series Common Stock is available for issuance from time to time in one or more
series at the discretion of the Synavant Board of Directors without stockholder
approval. The Synavant Board of Directors has the authority to prescribe for
each series of Synavant Preferred Stock or Synavant 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 Synavant Preferred Stock or Synavant Series Common Stock, as
applicable, the issuance of Synavant Preferred Stock or Synavant Series Common
Stock, as applicable, could have an adverse effect on holders of Synavant Common
Stock by delaying or preventing a change in control of Synavant, making removal
of the present management of Synavant more difficult or resulting in
restrictions upon the payment of dividends and other distributions to the
holders of Synavant Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the marketplace rules of the Nasdaq, which would
apply so long as the Synavant Common Stock remained listed on the Nasdaq,
require stockholder approval of certain issuances of common stock equal to or
exceeding 20% of the then outstanding voting power or then outstanding number of
shares of Synavant Common Stock, including in connection with (i) a change of
control of Synavant, the acquisition of the stock or assets of another company,
or (iii) the sale or issuance of common stock below the book or market value
price of such 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 Synavant--Acquisitions and Alliances".
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One of the effects of the existence of unissued and unreserved Synavant
Common Stock, Synavant Preferred Stock and Synavant Series Common Stock may be
to enable the Board of Directors of Synavant to issue shares to persons friendly
to current management, which issuance could render more difficult or discourage
an attempt to obtain control of Synavant by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of Synavant's
management and possibly deprive the stockholders of opportunities to sell their
shares of Synavant 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 Synavant pursuant to the operation of the
Synavant Rights Plan, which is discussed below.
SYNAVANT RIGHTS PLAN
Prior to the Distribution Date, the Board of Directors of Synavant will
declare a dividend of one preferred share purchase right (a "Synavant Right")
for each outstanding share of Synavant Common Stock. Each share of Synavant
Common Stock has attached to it one Synavant Right. Each Synavant Right entitles
the registered holder to purchase from Synavant one one-thousandth of a share of
Series A Junior Participating Synavant Preferred Stock, par value $0.01 per
share (the "Synavant Participating Preferred Stock"), of Synavant at a price of
$100 per one one-thousandth of a share of Synavant Participating Preferred Stock
(as the same may be adjusted, hereinafter referred to as the "Synavant
Participating Preferred Stock Purchase Price"), subject to adjustment. The
description and terms of the Synavant Rights are set forth in a Rights Agreement
dated as of August [ ], 2000, as the same may be amended from time to time (the
"Synavant Rights Agreement"), between Synavant and EquiServe Trust Company, as
Rights Agent (the "Synavant 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 Synavant Rights, a
"Synavant Acquiring Person") has acquired beneficial ownership of 15% or more
(20% or more in the case of an "Institutional Investor" as defined in the
Synavant Rights Agreement) of the outstanding shares of Synavant 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 Synavant 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 Synavant Common Stock (the
earlier of such dates hereinafter referred to in this description of Synavant
Rights as the "Synavant Rights Distribution Date"), the Synavant Rights will be
evidenced by the certificates representing Synavant Common Stock.
The Synavant Rights Agreement provides that, until the Synavant Rights
Distribution Date (or earlier redemption or expiration of the Synavant Rights),
the Synavant Rights will be transferred with and only with the Synavant Common
Stock. Until the Synavant Rights Distribution Date (or earlier redemption or
expiration of the Synavant Rights), Synavant Common Stock certificates will
contain a notation incorporating the Synavant Rights Agreement by reference.
Until the Synavant Rights Distribution Date (or earlier redemption or expiration
of the Synavant Rights), the surrender for transfer of any certificates for
shares of Synavant Common Stock will also constitute the transfer of the
Synavant Rights associated with the shares of Synavant Common Stock represented
by such certificate. As soon as practicable following the Synavant Rights
Distribution Date, separate certificates evidencing the Synavant Rights
("Synavant Rights Certificates") will be mailed to holders of record of the
Synavant Common Stock as of the close of business on the Synavant Rights
Distribution Date and such separate Synavant Rights Certificates alone will
evidence the Synavant Rights.
The Synavant Rights are not exercisable until the Synavant Rights
Distribution Date. The Synavant Rights will expire on [ ], 2010
(hereinafter referred to in this description of Synavant Rights as the "Synavant
Final Expiration Date"), unless the Synavant Final Expiration Date is advanced
or
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extended or unless the Synavant Rights are earlier redeemed or exchanged by
Synavant, in each case as described below.
The Synavant Participating Preferred Stock Purchase Price payable, and the
number of shares of Synavant Participating Preferred Stock or other securities
or property issuable, upon exercise of the Synavant 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 Synavant
Participating Preferred Stock, (ii) upon the grant to holders of the Synavant
Participating Preferred Stock of certain rights or warrants to subscribe for or
purchase Synavant Participating Preferred Stock at a price, or securities
convertible into Synavant Participating Preferred Stock with a conversion price,
less than the then-current market price of the Synavant Participating Preferred
Stock or (iii) upon the distribution to holders of the Synavant Participating
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends or dividends payable in Synavant Participating Preferred
Stock) or of subscription rights or warrants (other than those referred to
above).
The Synavant Rights are also subject to adjustment in the event of a stock
dividend on the Synavant Common Stock payable in shares of Synavant Common Stock
or subdivisions, consolidations or combinations of the Synavant Common Stock
occurring, in any such case, prior to the Synavant Rights Distribution Date.
Shares of Synavant Participating Preferred Stock purchasable upon exercise
of the Synavant Rights will not be redeemable. Each share of Synavant
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 Synavant Common Stock. In the event of liquidation, dissolution or winding up
of Synavant, the holders of the Synavant 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 Synavant Common Stock. Each share
of Synavant Participating Preferred Stock will have 1,000 votes, voting together
with the Synavant Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Synavant Common Stock are
converted or exchanged, each share of Synavant Participating Preferred Stock
will be entitled to receive 1,000 times the amount received per share of
Synavant Common Stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the Synavant Participating Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of Synavant Participating Preferred Stock purchasable upon
exercise of each Synavant Right should approximate the value of one share of
Synavant Common Stock.
In the event that any person or group of affiliated or associated persons
becomes a Synavant Acquiring Person, each holder of a Synavant Right, other than
Synavant Rights beneficially owned by the Synavant Acquiring Person (which will
thereupon become void), will thereafter have the right to receive upon exercise
of a Synavant Right and payment of the Synavant Participating Preferred Stock
Purchase Price, that number of shares of Synavant Common Stock having a market
value of two times the Synavant Participating Preferred Stock Purchase Price.
In the event that, after a person or group has become a Synavant Acquiring
Person, Synavant 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 Synavant Right (other
than Synavant Rights beneficially owned by a Synavant 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
Synavant 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 Synavant Participating Preferred Stock Purchase Price.
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At any time after any person or group becomes a Synavant Acquiring Person
and prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Synavant Common Stock or the occurrence of an event
described in the prior paragraph, the Board of Directors of Synavant may
exchange the Synavant Rights (other than Synavant 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 Synavant Common Stock, or a fractional share of Synavant
Participating Preferred Stock of equivalent value (or of a share of a class or
series of Synavant's Preferred Stock having similar rights, preferences and
privileges), per Synavant Right (subject to adjustment).
With certain exceptions, no adjustment in the Synavant Participating
Preferred Stock Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Synavant Participating Preferred
Stock Purchase Price. No fractional shares of Synavant Participating Preferred
Stock will be issued (other than fractions which are integral multiples of one
one-thousandth of a share of Synavant Participating Preferred Stock, which may,
at the election of Synavant, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Synavant Participating Preferred Stock on the last trading period to the date of
exercise.
At any time prior to the time a Synavant Acquiring Person becomes such, the
Board of Directors of Synavant may redeem the Synavant Rights in whole, but not
in part, at a price of $.01 per Synavant Right (hereinafter referred to in this
description of Synavant Rights as the "Synavant Right Redemption Price"). The
redemption of the Synavant 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 Synavant Rights, the right
to exercise the Synavant Rights will terminate and the only right of the holders
of Synavant Rights will be to receive the Synavant Right Redemption Price.
For so long as the Synavant Rights are then redeemable, Synavant may, except
with respect to the Synavant Right Redemption Price, amend the Synavant Rights
in any manner. After the Synavant Rights are no longer redeemable, Synavant may,
except with respect to the Synavant Right Redemption Price, amend the Synavant
Rights in any manner that does not adversely affect the interests of holders of
the Synavant Rights.
Until a Synavant Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Synavant, including, without limitation, the right
to vote or to receive dividends.
A copy of the form of Synavant Rights Agreement will be filed as an exhibit
to the Registration Statement on Form 10 of Synavant in respect of the
registration of the Synavant Common Stock under the Exchange Act. A copy of the
Synavant Rights Agreement is available free of charge from Synavant. Although
the summary description of the Synavant Rights set forth above is an accurate
description of the material terms of the Synavant Rights Agreement, it is
qualified in its entirety by reference to the Synavant Rights Agreement, as the
same may be amended from time to time, which is hereby incorporated herein by
reference.
CERTAIN EFFECTS OF THE SYNAVANT RIGHTS AGREEMENT
The Synavant Rights Agreement is designed to protect stockholders of
Synavant in the event of unsolicited offers to acquire Synavant and other
coercive takeover tactics which, in the opinion of the Board of Directors of
Synavant, could impair its ability to represent stockholder interests. The
provisions of the Synavant Rights Agreement may render an unsolicited takeover
of Synavant more difficult or less likely to occur or might prevent such a
takeover, even though such takeover may offer Synavant's 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 Synavant.
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NO PREEMPTIVE RIGHTS
No holder of any class of stock of Synavant authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
Synavant of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the General Corporation Law of the State of
Delaware (the "DGCL") apply to Synavant 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. Synavant's Amended and Restated Certificate of
Incorporation does not exclude Synavant 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 Synavant to
negotiate in advance with Synavant's 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 Synavant. 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 SYNAVANT AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
AMENDED AND RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the Synavant Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws may delay or make more difficult
unsolicited acquisitions or changes of control of Synavant. It is believed that
such provisions will enable Synavant 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
Synavant 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 Synavant, although such proposals, if made,
might be
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considered desirable by a majority of Synavant's 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 Synavant. 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 Amended and Restated
Certificate of Incorporation or Amended and Restated By-Laws of IMS HEALTH.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Synavant Amended and 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 Synavant Amended and 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 Synavant or by
a vote of the majority of the Board of Directors. Furthermore, the By-Laws of
Synavant 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 Synavant 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 Synavant who is entitled to vote at the
meeting who has given to the Secretary of Synavant 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 Synavant.
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 Synavant at the principal
executive offices of Synavant 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 Synavant at
the principal executive offices of Synavant 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.
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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 Synavant 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 Synavant 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 Synavant Amended and 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 Synavant 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 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 Synavant 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 Synavant entitled to vote generally in the election of directors,
voting as a single class.
CLASSIFIED BOARD OF DIRECTORS
The Synavant Amended and Restated Certificate of Incorporation provides for
Synavant's Board of Directors to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one third of
Synavant Board of Directors will be elected each year. See "Synavant Management
and Executive Compensation--Synavant Board of Directors".
Synavant 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
Synavant. This provision should also help to ensure that Synavant's Board of
Directors, if confronted with an unsolicited proposal from a third party that
has acquired a block of Synavant's 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 Synavant's 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 Synavant and could thus increase the likelihood
that incumbent directors will retain their positions.
AMENDMENTS TO THE AMENDED AND RESTATED BY-LAWS
The Synavant Amended and Restated Certificate of Incorporation provides that
the affirmative vote of the holders of at least 80% in voting power of all the
shares of Synavant entitled to vote
75
<PAGE>
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 Amended and 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 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Synavant Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 80% in voting power of all the
shares of Synavant entitled to vote generally in the election of directors,
voting together as a single class, to alter, amend or repeal provisions of the
Amended and Restated Certificate of Incorporation relating to (i) the amendment
of the Amended and 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 Synavant Amended and Restated Certificate of Incorporation provides that
Synavant shall indemnify directors and officers to the fullest extent permitted
by the laws of the State of Delaware. The Synavant Amended and Restated
Certificate of Incorporation also provides that a director of Synavant 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.
The indemnification rights conferred by the Amended and Restated Certificate
of Incorporation of Synavant are not exclusive of any other right to which a
person seeking indemnification may otherwise be entitled. Synavant 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.
AVAILABLE INFORMATION
Synavant has filed with the SEC a Registration Statement on Form 10 with
respect to the shares of Synavant 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. 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
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
76
<PAGE>
information statement, except as so modified, and any statement so superseded
will not be deemed to constitute a part of this information statement. Synavant
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 Synavant Inc.,
3445 Peachtree Rd. NE, Suite 1400, Atlanta, Georgia 30326, Attention: Chief
Financial Officer (Telephone: 404-841-4000).
REPORTS OF SYNAVANT
After the Distribution, Synavant 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. 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. Additionally, Synavant will be required to provide annual
reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SYNAVANT
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 six months ended
June 30, 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 June 30,
2000 (unaudited), December 31, 1999 and November 30,
1998...................................................... F-4
Combined Statements of Cash Flows for the six months ended
June 30, 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 six months
ended June 30, 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-33
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-34
</TABLE>
SYNAVANT INC.
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-35
Statement of Financial Position as of June 30, 2000......... F-36
Notes to Statement of Financial Position.................... F-37
</TABLE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Consolidated Statements of Operations for the nine months
ended March 31, 1998 and 1997 (unaudited)................. F-39
Consolidated Balance Sheet as of March 31, 1998
(unaudited)............................................... F-40
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1998 and 1997 (unaudited)................. F-41
Notes to Consolidated Financial Statements (unaudited)...... F-42
Report of Independent Accountants........................... F-46
Financial Statements:
Consolidated Balance Sheets as at June 30, 1996 and 1997.... F-47
Consolidated Statements of Operations for the years ended
June 30, 1995, 1996 and 1997.............................. F-48
Consolidated Statements of Stockholders' Equity
(Deficit)................................................. F-49
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997.............................. F-50
Notes to Consolidated Financial Statements.................. F-51
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Synavant, 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
Synavant, 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>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF OPERATIONS
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED MONTH ENDED
------------------------------------------- DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998
-------------------- -------------------- ------------ -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Software Fees................... 4,283 6,314 12,628 206
Software Services............... 43,395 44,596 91,308 7,280
Interactive Marketing........... 45,530 44,553 96,621 6,163
-------------------- -------------------- ----------- -----------
Total Revenues.................... $ 93,208 $ 95,463 $ 200,557 $ 13,649
-------------------- -------------------- ----------- -----------
Operating Costs
Software Fees................... 1,141 517 3,107 182
Software Services............... 27,888 20,674 39,258 4,394
Interactive Marketing........... 39,425 37,724 79,304 5,635
-------------------- -------------------- ----------- -----------
Total Operating Costs............. 68,454 58,915 121,669 10,211
Research and Development.......... 6,799 5,872 13,173 1,587
Selling and Administrative
Expenses........................ 15,940 17,172 33,570 2,371
Depreciation and Amortization..... 12,557 11,945 25,826 1,977
Year 2000 Costs................... -- 1,176 2,769 --
Acquired In Process Research and
Development..................... -- -- -- --
-------------------- -------------------- ----------- -----------
Operating Income (Loss)........... (10,542) 383 3,550 (2,497)
-------------------- -------------------- ----------- -----------
Other Income (Expense)--Net....... 104 15 (270) (122)
-------------------- -------------------- ----------- -----------
Income (Loss) Before Provision for
Income Taxes.................... (10,438) 398 3,280 (2,619)
Income Tax (Provision) Benefit.... (81) (784) (6,472) 1,204
-------------------- -------------------- ----------- -----------
Net Income (Loss)................. $ (10,519) $ (386) $ (3,192) $ (1,415)
==================== ==================== =========== ===========
Pro Forma Unaudited Earnings Per
Share (Note 1)
Pro Forma Unaudited Basic Earnings
(Loss) Per Share of Common
Stock........................... $ (0.70) $ (0.02) $ (0.20) $ (0.09)
==================== ==================== =========== ===========
Pro Forma Unaudited Diluted
Earnings (Loss) Per Share of
Common Stock.................... $ (0.70) $ (0.02) $ (0.20) $ (0.09)
==================== ==================== =========== ===========
Pro Forma Unaudited Weighted
Average Number of Shares
Outstanding--Basic.............. 14,928,800 15,803,100 15,599,650 15,570,500
Dilutive Effect of Unexercised
Outstanding Stock Options as
of Balance Sheet Date Under
Stock Option Plans............ 11,450 37,200 28,300 45,100
Adjustment of Shares Applicable
to Stock Options Exercised
during the Period............. 11,300 11,400 46,950 7,900
-------------------- -------------------- ----------- -----------
Pro Forma Unaudited Weighted
Average Number of Shares
Outstanding--Diluted............ 14,951,550 15,851,700 15,674,900 15,623,500
==================== ==================== =========== ===========
<CAPTION>
YEARS ENDED
NOVEMBER 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Software Fees................... 8,556 12,324
Software Services............... 68,332 46,098
Interactive Marketing........... 72,117 48,228
----------- -----------
Total Revenues.................... $ 149,005 $ 106,650
----------- -----------
Operating Costs
Software Fees................... 3,695 5,361
Software Services............... 28,708 20,917
Interactive Marketing........... 63,988 44,938
----------- -----------
Total Operating Costs............. 96,391 71,216
Research and Development.......... 6,791 3,333
Selling and Administrative
Expenses........................ 32,364 15,766
Depreciation and Amortization..... 14,068 6,268
Year 2000 Costs................... -- --
Acquired In Process Research and
Development..................... 21,900 --
----------- -----------
Operating Income (Loss)........... (22,509) 10,067
----------- -----------
Other Income (Expense)--Net....... 572 (109)
----------- -----------
Income (Loss) Before Provision for
Income Taxes.................... (21,937) 9,958
Income Tax (Provision) Benefit.... (3,280) (4,578)
----------- -----------
Net Income (Loss)................. $ (25,217) $ 5,380
=========== ===========
Pro Forma Unaudited Earnings Per
Share (Note 1)
Pro Forma Unaudited Basic Earnings
(Loss) Per Share of Common
Stock........................... $ (1.55) $ 0.33
=========== ===========
Pro Forma Unaudited Diluted
Earnings (Loss) Per Share of
Common Stock.................... $ (1.55) $ 0.33
=========== ===========
Pro Forma Unaudited Weighted
Average Number of Shares
Outstanding--Basic.............. 16,287,950 16,524,200
Dilutive Effect of Unexercised
Outstanding Stock Options as
of Balance Sheet Date Under
Stock Option Plans............ 31,950 6,050
Adjustment of Shares Applicable
to Stock Options Exercised
during the Period............. 8,200 1,300
----------- -----------
Pro Forma Unaudited Weighted
Average Number of Shares
Outstanding--Diluted............ 16,328,100 16,531,550
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF FINANCIAL POSITION
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JUNE 30, DECEMBER 31, NOVEMBER 30,
2000 1999 1998
-------------------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents............................... $ 2,305 $ 3,464 $ 2,826
Accounts Receivable--Net................................ 47,255 46,591 48,884
Other Current Assets.................................... 5,168 3,664 3,157
-------------------------- -------- --------
Total Current Assets.................................. 54,728 53,719 54,867
-------------------------- -------- --------
PROPERTY AND EQUIPMENT--NET............................. 14,234 15,633 17,975
COMPUTER SOFTWARE--NET.................................. 29,461 30,429 32,885
GOODWILL--NET........................................... 159,564 167,363 178,624
OTHER ASSETS............................................ 1,157 1,155 1,038
-------------------------- -------- --------
TOTAL ASSETS............................................ $ 259,144 $268,299 $285,389
========================== ======== ========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts Payable........................................ $ 11,767 $ 8,596 $ 9,230
Accrued Income Taxes.................................... 4,540 4,158 3,857
Deferred Revenues....................................... 9,063 6,202 9,715
Accrued And Other Current Liabilities................... 11,749 18,913 30,409
-------------------------- -------- --------
Total Current Liabilities............................. 37,119 37,869 53,211
-------------------------- -------- --------
DEFERRED INCOME TAXES................................... 6,662 7,986 9,147
OTHER LIABILITIES....................................... 213 910 2,376
-------------------------- -------- --------
TOTAL LIABILITIES....................................... 43,994 46,765 64,734
-------------------------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
MINORITY INTEREST....................................... 681 690 131
DIVISIONAL EQUITY
Divisional Equity..................................... 215,305 221,800 220,130
Accumulated Other Comprehensive Income (Loss)......... (836) (956) 394
-------------------------- -------- --------
TOTAL DIVISIONAL EQUITY........................... 214,469 220,844 220,524
-------------------------- -------- --------
TOTAL LIABILITIES AND DIVISIONAL EQUITY................. $ 259,144 $268,299 $285,389
========================== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR MONTH
SIX MONTHS ENDED ENDED ENDED YEARS ENDED
JUNE 30, 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)................................... ($10,519) ($ 386) ($ 3,192) ($1,415) ($25,217) $ 5,380
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation And Amortization..................... 12,557 11,945 25,826 1,977 14,068 6,268
Amortization of Capitalized Computer Software..... 998 1,260 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............................. (6,712) (4,605) (5,484) 29 8,358 1,174
Deferred Revenues............................... 2,940 (6,042) (12,920) 9,529 (778) 1,290
Accounts Receivable............................. (1,307) 6,785 4,031 (3,598) (2,467) (7,939)
Accounts Payable................................ 3,395 575 266 (594) (6,425) 4,775
Accrued Income Taxes............................ 716 816 512 (103) 3,394 (546)
Deferred Income Taxes........................... (2,057) 185 (870) (217) (491) (561)
Other............................................. (966) (1,199) (161) (527) 11 972
-------- ------- -------- ------- -------- -------
Net Cash Provided By (Used in) Operating
Activities........................................ (955) 9,334 10,022 5,258 14,764 13,521
-------- ------- -------- ------- -------- -------
Cash Flows From Investing Activities:
Capital Expenditures................................ (1,682) (2,469) (5,371) (278) (2,894) (11,292)
Additions To Computer Software...................... (3,059) (2,981) (6,130) (128) (2,467) (2,636)
Payments for Acquisition of Business, Net of Cash
Acquired.......................................... -- -- (312) (4,000) -- --
Acquisition and Integration Payments................ -- -- (4,123) -- (12,066) --
Other............................................... (17) 140 174 50 (296) 375
-------- ------- -------- ------- -------- -------
Cash Used In Investing Activities................... (4,758) (5,310) (15,762) (4,356) (17,723) (13,553)
-------- ------- -------- ------- -------- -------
Cash Flows From Financing Activities:
Payments Under Lease Obligations.................... (355) (377) (578) (151) (1,305) (428)
Net Transfers (To) From IMS HEALTH.................. 4,980 (6,043) 7,433 (1,156) 6,544 (127)
-------- ------- -------- ------- -------- -------
Net Cash Provided By (Used In) Financing
Activities........................................ 4,625 (6,420) 6,855 (1,307) 5,239 (555)
-------- ------- -------- ------- -------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents....................................... (71) (10) (57) (15) 86 (123)
-------- ------- -------- ------- -------- -------
Increase/(Decrease) In Cash and Cash Equivalents.... (1,159) (2,406) 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............ $ 2,305 $ 0 $ 3,464 $ 2,406 $ 2,826 $ 460
======== ======= ======== ======= ======== =======
</TABLE>
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.
F-5
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
COMBINED STATEMENTS OF DIVISIONAL EQUITY
DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE TOTAL
DIVISIONAL INCOME COMPREHENSIVE DIVISIONAL
EQUITY (LOSS) INCOME (LOSS) EQUITY
---------- ----------------- ------------- ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 1, 1996.................. $ 56,881 $ 716 -- $ 57,597
Net Income................................. 5,380 -- $ 5,380 5,380
Effect of Foreign Currency Translation..... -- (690) (690) (690)
Net Transfer to IMS Health................. (127) -- -- (127)
--------
Total Comprehensive Income................. -- -- 4,690 --
-------- ------- ------- --------
BALANCE, NOVEMBER 30, 1997................. 62,134 26 -- 62,160
-------- ------- ------- --------
Net Loss................................... (25,217) -- (25,217) (25,217)
Effect of Foreign Currency Translation..... -- 368 368 368
Cognizant Equity Issued for Acquisition.... 176,669 -- -- 176,669
Net Transfer from IMS Health............... 6,544 -- -- 6,544
--------
Total Comprehensive Loss................... -- -- (24,849) --
-------- ------- ------- --------
BALANCE, NOVEMBER 30, 1998................. 220,130 394 -- 220,524
-------- ------- ------- --------
Net Loss................................... (1,415) -- (1,415) (1,415)
Effect of Foreign Currency Translation.....
-- 327 327 327
Net Transfer to IMS Health................. (1,156) -- -- (1,156)
--------
Total Comprehensive Loss................... -- -- (1,088) --
-------- ------- ------- --------
BALANCE, DECEMBER 31, 1998................. 217,559 721 -- 218,280
-------- ------- ------- --------
Net Loss................................... (3,192) -- (3,192) (3,192)
Effect of Foreign Currency Translation..... -- (1,677) (1,677) (1,677)
Net Transfer from IMS Health............... 7,433 -- -- 7,433
--------
Total Comprehensive Loss................... -- -- (4,869) --
-------- ------- ------- --------
BALANCE, DECEMBER 31, 1999................. 221,800 (956) -- 220,844
-------- ------- ------- --------
Net Loss................................... (10,519) -- (10,519) (10,519)
Effect of Foreign Currency Translation..... -- (836) (836) (836)
Net Transfer from IMS Health............... 4,980 -- -- 4,980
--------
Total Comprehensive Loss................... -- -- (11,355) --
-------- ------- ------- --------
BALANCE, JUNE 30, 2000 (UNAUDITED)......... $216,261 $(1,792) $ -- $214,469
======== ======= ======= ========
</TABLE>
F-6
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
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 Synavant business unit (the "Distribution"). IMS HEALTH is a leading
provider of information solutions to the pharmaceutical and healthcare
industries. The Synavant business serves the pharmaceutical industry by
developing and selling pharmaceutical relationship management solutions that
support sales and marketing decision making. Prior to the Distribution, IMS
HEALTH will convey the assets and stock of entities that compose the Synavant
business into Synavant Inc., a newly formed Delaware corporation and a wholly
owned subsidiary of IMS HEALTH. The Synavant business is composed of the
pharmaceutical industry automated sales and marketing support business of IMS
Health Strategic Technologies, Inc., a wholly-owned subsidiary of IMS HEALTH
(formed in 1983) ("ST"); certain other foreign subsidiaries of IMS HEALTH;
substantially all of IMS HEALTH's interactive and direct marketing business,
including the business of Clark-O'Neill, Inc. ("Clark O'Neill"), a wholly owned
subsidiary of IMS HEALTH; and Permail Pty., Ltd., in which IMS HEALTH owns 51%.
As used in the accompanying combined financial statements, the term "Synavant"
or the "Company" refers to the Synavant business. In order to change the state
of incorporation of Clark-O'Neill from New Jersey to Delaware, prior to the
Distribution, Synavant Inc. will merge with Clark-O'Neill, with Synavant Inc. as
the survivor in the merger. The shares of Synavant Inc. will then be distributed
to the shareholders of IMS HEALTH. These businesses have historically been
managed within and reported as a part of the IMS core operating segment in IMS
HEALTH's consolidated financial statements. See Note 13--The Distribution.
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 Corporation ("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., was merged with ST
subsequent to its acquisition.
In July 1998, 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 a premier global provider
of information solutions to the pharmaceutical and healthcare industries, and
Nielsen Media Research, a 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.
F-7
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Effective in 1999, the operating units of Synavant 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, 1998 and 1997 (the "Respective Periods"). Management believes
the methods used to allocate these costs 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. Further, the Company will incur
additional costs to operate as a separate stand-alone public company. These
incremental costs are expected to be significant to the results of operations.
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, the IMS HEALTH supported line of
credit and the net assets that will be in place at the time of the Distribution
will be sufficient to meet the Company's short-term annual financing
requirements. In addition, IMS HEALTH will, if necessary, also provide certain
credit support to Synavant up to the one year anniversary of the Distribution
Date. See Note 13--The Distribution.
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, Synavant.
UNAUDITED INTERIM FINANCIAL INFORMATION. The accompanying interim combined
statement of financial position as of June 30, 2000 and the combined statements
of operations and cash flows for the six months ended June 30, 2000 and
June 30, 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 results of operations and cash flows for the
periods. Results for the six months ended June 30, 2000 and June 30, 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.
F-8
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT. Buildings 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. Research and development expense totaled
$13,173, $6,791 and $3,333 in the Respective Periods, respectively.
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 impairment loss, if
applicable, is then calculated based on the sum of the discounted cash flows
compared to the carrying value. 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 when the sum of undiscounted expected future cash flow is less than the
carrying amount of such assets. The impairment loss, if applicable, is then
calculated based on the sum of the discounted cash flows compared to the
carrying value. 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" ("SOP 97-2"). The Company generally sells its software licenses
under multiple element arrangements together with services. These arrangements
include instances where services are essential to the functionality of the
software and instances where they are not. In cases where services to be
provided are not essential to the functionality of the software, the Company has
sufficient vendor specific objective evidence of fair value ("VSOE") of the
elements to recognize the revenue separately. The Company has determined the
VSOE of its software license fee based on the consistent per user license fee
charged to its customers.
F-9
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The VSOE of the software service element is based on the price of the software
services when sold separately. The Company accounts for the maintenance and
support element separately using VSOE which is determined based on the customer
renewal fees for such services. The Company recognizes the software license fees
under these type arrangements 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 does not recognize any license fees unless the product has been
delivered, persuasive evidence of an arrangement exists, the license fee amount
is fixed and determinable and collectability is probable. Where services are
considered essential to the functionality of the software, the Company
recognizes software license fee and services revenue over the service period
using the percentage of completion method based on labor inputs. The service
period commences subsequent to execution of a license agreement and ends when
the product configuration is complete and implemented in the field. Costs of
software license fees consist primarily of production costs and third-party
royalties.
Revenues from software services, maintenance and other including the
Pharbase products, are recognized as the services are performed. The Company
provides certain consulting and post-implementation customization services which
are under short term arrangements. Revenues related to fixed fee consulting
arrangements are recognized as the service is performed using the percentage of
completion method of accounting based on labor input measures. The Company's
customers typically purchase maintenance and support services concurrently with
software. Revenues from customer maintenance, support services, and data server
rental agreements are recognized on a straight line basis over the term of the
agreement. In the event that hardware is part of the customer solution, the
Company configures the hardware by installing its application and recognizes the
related hardware revenue and costs upon delivery to the customer; amounts are
not significant and are included in software services, maintenance and other.
The Company also 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 with annual renewal provisions. Revenue recognized under these
arrangements does not exceed amounts billed and due within one year. Costs of
software services, maintenance and other consists primarily of salaries,
benefits and allocated overhead costs related to implementation, training, and
customer support personnel.
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. Interactive marketing revenues and operating costs include
revenue and costs from postage, handling and other third party costs totaling
$28,030, $21,918 and $8,971 in the Respective Periods, respectively.
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.
F-10
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
Synavant 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, "Accounting for Income Taxes". 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.
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 1-for-20 distribution ratio (see
Note 13). Pro forma diluted earnings per share are calculated by dividing net
income by dilutive potential common shares and weighted average common shares of
IMS
F-11
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
HEALTH, reflecting the 1 for 20 distribution ratio. Dilutive potential common
shares are calculated in accordance with the treasury stock method, which
assumes that proceeds from the exercise of all Synavant 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. Where the Company has recorded a loss, dilutive potential
common shares are not included in the calculation of pro forma diluted loss as
to do so would be antidilutive. Pro forma diluted earnings per share does not
necessarily reflect the potentially dilutive impact of outstanding options when
converted into Synavant options as the exact exchange ratio for outstanding
options has not yet been determined.
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. Adoption of
FIN No. 44 will have no effect 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 in fiscal 2000. The Company
believes its revenue recognition policies are compliant with the Staff
Accounting Bulletin.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. In July 1999, 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 No. 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-12
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. ACQUISITIONS (CONTINUED)
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 relating to three projects. 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. The Company completed two of the three
IPR&D projects and released the related products in 1999. The efforts are
continuing on the third project. Management believes the estimates used in
determining the nature and timing of the efforts and projected costs to complete
such projects have remained reasonably consistent with actual results.
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>
<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
F-13
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. ACQUISITIONS (CONTINUED)
would have occurred had the entities constituted a single entity during such
periods and is exclusive of the IPR&D charge.
<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
F-14
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4. FINANCIAL INSTRUMENTS (CONTINUED)
approximated carrying values due to the short-term nature of these instruments.
At December 31, 1999, the notional amounts, which approximates the fair value,
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 for the Company for 10 years after
attaining age 45. The Company accounts for the plans as 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.
F-15
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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. Restricted stock units are granted upon achievement of specific
performance goals and the fair market value of such restricted stock units is
calculated at the time of the grant and amortized over the vesting period of the
award. 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.
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 stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
F-16
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. EMPLOYEE STOCK PLANS (CONTINUED)
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) $ (1.65) $ 0.28
Diluted
As reported............................................. $ (0.20) $ (1.55) $ 0.33
Pro forma............................................... $ (0.48) $ (1.65) $ 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 1 for 20 distribution ratio.
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 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
Synavant 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-17
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. EMPLOYEE STOCK PLANS (CONTINUED)
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 1 for 20 distribution ratio.
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).
F-18
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. EMPLOYEE STOCK PLANS (CONTINUED)
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.
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
DECEMBER 31, 1999 ---------------------------------------
----------------------------- REMAINING OPTION EXERCISE PRICES
NUMBER NUMBER CONTRACTUAL -------------------------
RANGE OF EXERCISE 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:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S............................................. $(14,475) $(23,405) $7,696
Non-U.S......................................... 17,755 1,468 2,262
-------- -------- ------
$ 3,280 $(21,937) $9,958
======== ======== ======
</TABLE>
Income tax provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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
======= ====== ======
</TABLE>
F-19
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. INCOME TAXES (CONTINUED)
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.
F-20
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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
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.
On December 10, 1999, the Company sold its 49% interest in Permail Pty
Limited ("Permail") for its approximate net book value. Prior to this
transaction, the Company owned a 100% interest in Permail. Subsequent to the
transaction, the Company continues to maintain a majority voting interest and
control in Permail. Under the terms of the shareholders' deed entered into as
part of the sale, the Company and the minority interest holder are committed to
seek a buyer of Permail under certain circumstances in five years. This
commitment does not prohibit the Company from retaining its ownership stake in
Permail and buying the shares held by the minority shareholder. As of December
31, 1999, Permail's net assets totaled $3,498 and revenues for the year ended
December 31, 1999 totaled $11,210.
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.
F-21
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. RELATIONSHIPS WITH IMS HEALTH (CONTINUED)
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>
MONTH
YEAR ENDED 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>
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. The Company and IMS HEALTH will enter into an
agreement prior to the Distribution whereby each of the companies are expected
to charge one another an annual negotiated fee for the use of the databases. See
Note 13--The Distribution.
NOTE 10. CONTINGENCIES
Synavant 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 will
not materially affect Synavant's consolidated financial position.
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 Synavant, are required to
undertake to be jointly and severally liable to D&B, A.C. Nielsen Company and
Cognizant for IMS HEALTH obligations under the 1996 Distribution Agreement and
the 1998 Distribution Agreement. In the event that Synavant were obligated to
fund a substantial portion of such liabilities, it would have a material adverse
effect on Synavant's financial condition and results of operations. Certain of
such liabilities are discussed below:
F-22
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. CONTINGENCIES (CONTINUED)
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 (the "1996 Spin-Off"), 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 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.
F-23
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. CONTINGENCIES (CONTINUED)
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. Management of IMS HEALTH and
Synavant 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 Synavant.
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 (the "May
2000 Payment"). 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. See Note 13--The Distribution.
As required under the Distribution Agreements for the 1996 and 1998
Spin-Offs, in connection with the Distribution, the Company will be jointly and
severally liable to the other parties to these Distribution Agreements for the
above liabilities as well as liabilities relating to the IRI Action.
F-24
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11. SUPPLEMENTAL FINANCIAL DATA
ACCOUNTS RECEIVABLE--NET:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
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>
F-25
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11. SUPPLEMENTAL FINANCIAL DATA (CONTINUED)
COMPUTER SOFTWARE AND GOODWILL-NET:
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE GOODWILL
-------- --------
<S> <C> <C>
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
------- --------
</TABLE>
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. Amortization expense of acquired software is
included in depreciation and amortization in the statements of operations.
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.
ACCRUED AND OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
F-26
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12. OPERATIONS BY GEOGRAPHIC SEGMENT
The Company delivers pharmaceutical relationship management solutions
globally in approximately 20 countries. Heretofore, the Synavant businesses, as
defined in Note 1, were managed as part of the IMS segment of IMS HEALTH. The
Company's chief operating decision-makers evaluate the business on a global
basis with consideration of resource allocation on a geographic basis. The
Americas Segment principally consists of operations for the United States, the
Company's country of domicile. The Europe Segment includes the operations of the
United Kingdom, which is the largest country in this segment. The Asia Pacific
Segment consists principally of the operations of Australia. For further
information on material individual countries see the additional disclosure in
the second table of this note.
<TABLE>
<CAPTION>
ASIA
AMERICAS (1) EUROPE PACIFIC TOTAL
----------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
YEAR-ENDED DECEMBER 31, 1999
Operating Revenues................................... $ 111,522 $ 67,321 $ 21,714 $200,557
Year 2000 Costs...................................... 2,769 0 0 2,769
Segment Operating Income (Loss)...................... (13,200) 15,799 951 3,550
Non-Operating Income (Loss).......................... 23 (308) 15 (270)
Income before Income Taxes........................... 3,280
Provision for Income Taxes........................... (6,472)
Net Loss............................................. (3,192)
Segment Depreciation and Amortization of Capitalized
Software........................................... 25,763 1,275 802 27,840
Segment Capital Expenditures......................... 2,732 2,129 510 5,371
Identifiable Assets At December 31, 1999............. 227,291 32,916 8,092 268,299
================= ================ ================ ========
MONTH-ENDED DECEMBER 31, 1998
Operating Revenues................................... 8,307 4,135 1,207 13,649
Segment Operating Loss............................... (2,207) (169) (121) (2,497)
Non-Operating Income (Loss).......................... (134) 30 (18) (122)
Loss before Income Taxes............................. (2,619)
Benefit from Income Taxes............................ 1,204
Net Loss............................................. (1,415)
Segment Depreciation and Amortization of Capitalized
Software........................................... 1,980 97 77 2,154
Segment Capital Expenditures......................... 250 20 8 278
Identifiable Assets At December 31, 1998............. 251,819 27,954 10,913 290,686
================= ================ ================ ========
</TABLE>
F-27
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12. OPERATIONS BY GEOGRAPHIC SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
ASIA
AMERICAS (1) EUROPE PACIFIC TOTAL
----------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
YEAR-ENDED NOVEMBER 30, 1998
Operating Revenues................................... 107,052 29,792 12,161 149,005
Acquired In-Process Research and Development 21,900 0 0 21,900
Segment Operating Income (Loss)...................... (27,675) 5,340 (174) (22,509)
Non-Operating Income (Expense)....................... 787 (115) (100) 572
Loss before Income Taxes............................. (21,937)
Provision for Income Taxes........................... (3,280)
Net Loss............................................. (25,217)
Segment Depreciation and Amortization of Capitalized
Software........................................... 15,044 667 768 16,479
Segment Capital Expenditures......................... 2,397 283 214 2,894
Identifiable Assets At November 30, 1998............. $ 247,210 $ 26,733 $ 11,446 $285,389
================= ================ ================ ========
YEAR ENDED NOVEMBER 30, 1997
Operating Revenues................................... $ 91,272 $ 8,559 $ 6,819 $106,650
Segment Operating Income (Loss)...................... 7,397 2,731 (61) 10,067
Non-Operating Income (Expense)....................... 3 0 (112) (109)
Income before Income Taxes........................... 9,958
Provision for Income Taxes........................... (4,578)
Net Income........................................... 5,380
Segment Depreciation and Amortization of Capitalized
Software........................................... 7,886 302 788 8,976
Segment Capital Expenditures......................... 10,537 0 755 11,292
Identifiable Assets At November 30, 1997............. 70,255 9,158 5,608 85,021
================= ================ ================ ========
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
Operating Revenues................................... 54,046 29,829 9,333 93,208
Segment Operating Income (Loss)...................... (13,906) 2,808 556 (10,542)
Non-Operating Income (Expense)....................... 195 (32) (59) 104
Loss before Income Taxes............................. (10,438)
Provision for Income Taxes........................... (81)
Net Loss............................................. (10,519)
Segment Depreciation and Amortization of Capitalized
Software........................................... 12,440 736 379 13,555
Segment Capital Expenditures......................... 1,046 495 141 1,682
Identifiable Assets At June 30, 2000................. 221,232 31,633 6,279 259,144
================= ================ ================ ========
</TABLE>
F-28
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12. OPERATIONS BY GEOGRAPHIC SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
ASIA
AMERICAS (1) EUROPE PACIFIC TOTAL
----------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Operating Revenues................................... 52,458 33,139 9,866 95,463
Segment Operating Income (Loss)...................... (6,956) 6,972 367 383
Non-Operating Income (Expense)....................... 281 (382) 116 15
Income before Income Taxes........................... 398
Provision for Income Taxes........................... (784)
Net loss............................................. (386)
Segment Depreciation and Amortization of Capitalized
Software........................................... 12,201 594 414 13,209
Segment Capital Expenditures......................... 1,025 1,262 182 2,469
Identifiable Assets At June 30, 1999................. $ 239,498 $ 25,447 $ 7,878 $272,823
================= ================ ================ ========
</TABLE>
Information about the Company's operations and long-lived assets by
geography are as follows:
<TABLE>
<CAPTION>
US UK AUSTRALIA REST OF WORLD (3) TOTAL
-------- -------- --------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Operating Revenue (2).................. $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 (2).................. $ 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 (2).................. $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 (2).................. $ 91,272 $ 3,145 $ 6,819 $ 5,414 $106,650
Long-Lived Assets...................... $ 42,047 $ 9,275 $ 2,272 $ -- $ 53,594
-------- ------- ------- ------- --------
</TABLE>
------------------------
(1) Long-lived assets in the U.S. are comprised predominantly of goodwill
associated with the acquisition of Walsh International Inc. in June 1998
(see Note 3). 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.
(3) Rest of World is primarily comprised of operations in Europe.
NOTE 13: THE DISTRIBUTION (UNAUDITED)
The Distribution is structured as a tax-free dividend to the shareholders of
IMS HEALTH who will receive one share of Synavant Common Stock for every 20
shares of IMS HEALTH common stock held as of the record date of July 28, 2000.
At the distribution date, IMS HEALTH and Synavant 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 Synavant subsequent to the Distribution. In particular, the
Distribution Agreement will define the assets, liabilities and contractual
F-29
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13: THE DISTRIBUTION (UNAUDITED) (CONTINUED)
relationships which are being allocated to and assumed by Synavant and those
which will remain with IMS HEALTH. This includes IMS HEALTH's agreement to
indemnify the Company with respect to certain contingent liabilities, including
those discussed in Note 10 and, under certain circumstances, the contingent tax
liability related to the structure of the Distribution discussed below. This
agreement states that IMS HEALTH and the Company each will bear 50% of
IMS HEALTH's share of certain of these liabilities (net of the liability borne
by NMR) up to a limit of $9,000 for the Company. The Distribution Agreement also
states that IMS HEALTH will bear any tax liabilities if the Distribution fails
to qualify for tax-free treatment unless Synavant is responsible for
disqualifying the tax-free nature of the Distribution. The Distribution
Agreement also will define what constitutes the "Synavant 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 agreements
including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits
Agreement, sublease arrangements, Corporate Services Agreement, Shared
Transaction Services Agreements, and a Data and Telecommunication Services
Agreement. In addition, the Company and IMS HEALTH will enter into certain data
rights agreements related to the Xponent and Pharbase information databases.
Under the Data Rights Agreements, there will be charges going forward for the
use of such data by IMS HEALTH of Pharbase and of the Company for its use of
Xponent (see Note 9). Among other things, the agreements are expected to set
forth principles to be applied in allocating certain Distribution-related costs
and a working capital and other assets and liabilities that will be distributed
to the Company. 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 (see Note 9). 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. Further, the Company will incur additional costs, to operate as a
stand alone public Company. These incremental costs are expected to be
significant to the results of operations.
As indicated in Note 1, heretofore the Company has been operating under IMS
HEALTH and has been receiving financing from IMS HEALTH, where required, for its
operating cash flow needs. The Company plans to obtain a line of credit from a
major bank or financial institution which will be in place on the effective date
of the Form 10. This line of credit will be supported by IMS HEALTH as part of
the Distribution Agreement and, along with existing cash, financial resources
and the working capital adjustment on the Distribution Date, will be sufficient
resources for the Company to execute its operations and short term business
plan. Pursuant to an agreement between IMS HEALTH and the Company, IMS HEALTH
will ensure that Synavant will have a line of credit from a major bank or
financial institution in place on the Distribution Date. This line of credit
will be supported by IMS HEALTH in connection with the Distribution in an amount
not to exceed $30 million and, along with existing cash, financial resources and
the working capital adjustment on the Distribution Date, will be sufficient for
Synavant to execute its operations and short term business plan. Subject to the
foregoing, IMS HEALTH will provide credit support sufficient to meet the working
capital needs of Synavant for up to one year from the Distribution Date (the
"Anniversary Date") if necessary, provided however, that at such time as
Synavant has secured an independent line of credit during the one year
post-Distribution period that matures beyond the Anniversary Date without
IMS HEALTH's credit support and which satisfies the foregoing criteria,
IMS HEALTH's credit support commitment shall
F-30
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13: THE DISTRIBUTION (UNAUDITED) (CONTINUED)
immediately terminate. Following the Distribution, IMS Health will continue to
guarantee certain commitments of the Company.
In the opinion of McDermott, Will & Emery, special tax counsel to IMS
HEALTH, the Distribution should qualify under Section 355 of the Internal
Revenue Code, and be tax-free to IMS HEALTH and to IMS HEALTH stockholders for
U.S. federal income tax purposes, except for any tax payable because of any cash
IMS HEALTH stockholders may receive in lieu of a fractional share of Synavant
Common Stock.
The opinion of special tax counsel is based on certain factual
representations made by IMS HEALTH and Synavant. If such factual representations
were incorrect in a material respect, such opinion could become moot. Neither
IMS HEALTH nor Synavant is aware of any facts or circumstances that would cause
such representations to be incorrect in a material respect. IMS HEALTH and
Synavant 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 Synavant is a member. In addition, under the consolidated return
rules, each member of the consolidated group would be 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 $100,000. In the
event that Synavant were obligated to fund a substantial portion of such
liabilities, it would have a material adverse effect on Synavant's 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 Synavant
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 Synavant Common Stock received.
NOTE 14: SUBSEQUENT EVENTS (UNAUDITED)
On July 14, 2000, ST entered into a strategic alliance with Siebel
Systems, Inc. ("Siebel"), a leading provider of eBusiness application software.
Through the alliance, the companies intend to jointly develop, market and sell
pharmaceutical and healthcare related versions of Siebel's eBusiness software
applications.
As part of the strategic alliance, Synavant and Siebel entered into (1) a
Value Added Industry Remarketer Agreement (the "Reseller Agreement"), (2) a
Siebel Alliance Program Master Agreement (the "Alliance Agreement"), and (3) a
license of certain Siebel software for Synavant's internal use. Pursuant to the
Reseller Agreement, Siebel appointed Synavant as a non-exclusive distributor of
certain Siebel licensed software. Under this arrangement, Synavant has the right
to distribute and sublicense Siebel software products to companies in the life
sciences industry worldwide in conjunction with Synavant's own proprietary
software and services. As part of the arrangement, Siebel and Synavant share in
the sublicensing and maintenance fees generated from the licensing of the Siebel
software. Under the terms of the agreement, Synavant will pay Siebel a license
fee of $2.5 million.
Additionally, the Reseller Agreement limits the extent to which Synavant may
independently develop, integrate, market, license or distribute products that
are directly competitive with those
F-31
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14: SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
packaged and promoted by Siebel. Synavant may, however, continue to license and
support its existing Cornerstone and Premiere customers. The Reseller Agreement
contemplates a five year term for the alliance, however the parties may, under
certain circumstances, extend the agreement for an additional two years on the
same terms as the existing agreement. It also contains certain provisions that
would allow for early termination in the event certain contractual requirements
are not met.
The Alliance Agreement complements the Reseller Agreement and establishes a
framework for the joint marketing efforts by Synavant and Siebel to such life
sciences companies. Under this arrangement, Synavant will be a Siebel Strategic
Software Partner throughout the world to serve the life sciences market.
Synavant will be permitted to use the Siebel logos and marks as part of the
joint marketing effort in its promotional materials.
In connection with the Siebel alliance, the Company has agreed that it will
suspend the future enhancement and development of its current sales force
automation software products (subject to existing customer contractual
obligations) and to share revenues from the licensing of such products to
certain new customers after a specified time period, ranging from the date of
the arrangement to six months. As a result of this transaction, the Company
believes all or a significant portion of its computer software (including
acquired technology), and a portion of its goodwill and other intangible assets
may not be recoverable (Note 11) and amortization periods of these intangible
assets may be reduced. The Company has begun to assess the financial impact of
this transaction with respect to determining the amount of any impairment loss
and possible change in intangible asset lives. The Company will account for any
impairment loss in the quarter ended September 30, 2000. Any change to the
amortization period of intangible assets will be accounted for prospectively.
In connection with the Siebel agreement, the Company is also currently
evaluating the status of all development projects currently in progress,
including the acquired in process technology in connection with the Walsh
acquisition (see Note 3). While no definitive decision has been made to
discontinue any development project, it is likely that, as a direct result of
the Siebel transaction, certain projects, including the one remaining Walsh
project, may now be discontinued or significantly curtailed.
On August 11, 2000 the Company obtained a revolving line of credit from
SunTrust Bank (the "Bank") for working capital purposes. Under the terms of the
Credit Agreement with the Bank (the "Agreement"), the maximum available loan
commitment is $20,000. Interest is payable at LIBOR plus 0.75%. At August 18 the
Company had no outstanding borrowings under this agreement and had the full
amount available for working capital purposes. The agreement contains certain
net worth and conduct of business covenants and provides certain restrictions on
the Company's ability to borrow, incur liens and sell assets. The Company
incurred a one-time facility fee of $150 and will pay a monthly commitment fee
of 0.5% on the daily unused portion of the credit facility. This line of credit
is guaranteed by IMS Health and terminates the earlier of December 31, 2000 or
90 days from the Distribution Date.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Synavant, a Business Unit of IMS Health Incorporated:
Our report on the combined financial statements of Synavant, a Business Unit
of IMS Health Incorporated, 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-34 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/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
June 8, 2000
F-33
<PAGE>
SYNAVANT
A BUSINESS UNIT OF IMS HEALTH INCORPORATED
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-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Synavant Inc., a wholly owned subsidiary of IMS Health
Incorporated:
In our opinion, the accompanying statement of financial position presents
fairly, in all material respects, the financial position of Synavant Inc., a
wholly owned subsidiary of IMS Health Incorporated, at June 30, 2000 in
conformity with accounting principles generally accepted in the United States.
This financial statement is the responsibility of the Company's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this statement 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
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, GA
July 24, 2000
F-35
<PAGE>
SYNAVANT INC.
STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $1.00
-----
Total Assets................................................ $1.00
=====
SHAREHOLDER EQUITY
Common Stock, par value $0.01 per share; authorized-100
shares; issued
and outstanding--100 shares............................... $1.00
Total Shareholder Equity.................................... $1.00
=====
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-36
<PAGE>
SYNAVANT INC.
NOTES TO STATEMENT OF FINANCIAL POSITION
NOTE 1. ORGANIZATION
On June 5, 2000, Synavant Inc. (the "Company") was incorporated under the
General Corporation Law of the State of Delaware. The Company has the authority
under its Certificate of Incorporation to issue 100 shares of common stock, par
value $0.01 per share (the "Common Stock"), all of which were issued to IMS
Health Incorporated ("IMS HEALTH") in exchange for $1.00 in cash on June 5,
2000. The Company has no assets other than cash and has not commenced
operations. The Company's activities to date have been solely related to its
incorporation.
NOTE 2. PROPOSED REORGANIZATION
On March 28, 2000, the Board of Directors of IMS HEALTH approved in
principle a plan to distribute the shares of the Company to all holders of
outstanding shares of common stock of IMS HEALTH (the "Distribution"). On
July 18, 2000, IMS HEALTH's Board of Directors established a record date of
July 28, 2000 for the Distribution subject to the Form 10 of the Company being
declared effective by the Securities and Exchange Commission and receipt of an
opinion of counsel with respect to the tax-free treatment of the transaction.
One share of Common Stock (together with the associated preferred share purchase
right described below) will be distributed for each 20 shares of IMS HEALTH
Common Stock outstanding as of the record date. Prior to the Distribution, IMS
HEALTH will convey certain of its businesses, assets and stock into Synavant
Inc. that will constitute the operations of the Company post-Distribution. The
Company will then operate as an independent company that will focus on the
pharmaceutical industry automated sales and marketing support business and the
interactive and direct marketing business. Upon distribution, the Company's
principal businesses will include the pharmaceutical industry automated sales
and marketing support business of IMS Health Strategic Technologies, Inc., a
wholly owned subsidiary of IMS HEALTH, 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, Inc., a wholly
owned subsidiary of IMS HEALTH, as conducted prior to the aforementioned
conveyance of assets and stock owned by IMS HEALTH. In connection with the
Distribution, application has been made by the Company to list its Common Stock
on the Nasdaq National Market.
NOTE 3. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (UNAUDITED)
Prior to the date of the Distribution, the Company intends to file an
Amended and Restated Certificate of Incorporation which will authorize the
issuance of 41,000,000 shares of all classes of stock of which 500,000 shares
will represent shares of preferred stock, par value $.01 per share, 40,000,000
shares will represent shares of Common Stock, par value $0.01 per share and
500,000 shares will represent shares of Series Common Stock, par value $.01 per
share. In addition, the Company intends to adopt a stockholder rights plan prior
to the Distribution.
COMMON STOCK
It is anticipated that subject to any preferential rights of any of the
Company's Preferred Stock or the Company Series Common Stock created by the
Board of Directors of the Company, each outstanding share of the Company's
Common Stock will be entitled to such dividends, if any, as may be declared from
time to time by the Board of Directors of the Company. Each outstanding share
will be entitled to one vote on all matters submitted to a vote of stockholders.
It is further anticipated that in the event of liquidation, dissolution or
winding up of the Company, holders of the Company's Common Stock will be
entitled to receive on a pro rata basis any assets remaining after provision for
payment of
F-37
<PAGE>
SYNAVANT INC.
NOTES TO STATEMENT OF FINANCIAL POSITION (CONTINUED)
NOTE 3. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (UNAUDITED)
(CONTINUED)
creditors and after payment of any liquidation preferences to holders of the
Company's Preferred Stock and the Company's Series Common Stock.
PREFERRED STOCK AND SERIES COMMON STOCK
It is anticipated that each of the Company's authorized Preferred Stock and
the Company's authorized Series Common Stock will be available for issuance from
time to time in one or more series at the discretion of the Company's Board of
Directors without stockholder approval. The Company's Board of Directors will
have the authority to prescribe for each series of the Company's Preferred Stock
or the Company's Series Common Stock to establish the number of shares in that
series, the voting rights (if any) to which such shares in that series will be
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 Preferred Stock or the Company's
Series Common Stock, as applicable, the issuance of the Company's Preferred
Stock or the Company's Series Common Stock, as applicable, could have an adverse
effect on holders of the Company's Common Stock, by delaying or preventing a
change in control of the Company, making removal of the present management of
the Company more difficult or resulting in restrictions upon the payment of
dividends and other distributions to the holders of the Company Common Stock.
THE COMPANY RIGHTS AGREEMENT
The Company Rights Agreement will be designed to protect stockholders of the
Company in the event of unsolicited offers to acquire the Company and other
coercive takeover tactics which, in the opinion of the Board of Directors of the
Company, could impair its ability to represent stockholder interests. The
anticipated provisions of the Company Rights Agreement may render an unsolicited
takeover of the Company more difficult or less likely to occur or might prevent
such a takeover, even though such takeover may offer the Company's 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 the Company.
F-38
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
----------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenue........................................... $ 45,632 $ 39,815
Costs and expenses:
Production costs................................ 17,453 15,043
Selling, general and administrative expenses...... 19,165 18,087
Research and development costs.................... 2,757 2,812
In process research and development write-off..... 2,000 --
Amortization of intangible assets................. 214 108
----------- -----------
Total costs and expenses.......................... 41,589 36,050
----------- -----------
Operating profit.................................. 4,043 3,765
Interest income................................... 436 578
Interest expense.................................. (194) (191)
Minority interest................................. (122) 78
Other income...................................... 424 --
----------- -----------
Income before income taxes........................ 4,587 4,230
Income tax provision.............................. $ (1,655) $ (1,004)
=========== ===========
Net income........................................ $ 2,932 $ 3,226
----------- -----------
Basic earnings per share.......................... $ 0.28 $ 0.31
----------- -----------
Diluted earnings per share........................ $ 0.27 $ 0.30
----------- -----------
Shares used in computing basic earnings per
share........................................... 10,556,579 10,498,369
=========== ===========
Shares used in computing diluted earnings per
share........................................... 10,784,409 10,595,987
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 10,553
Marketable securities................................... --
Accounts receivable, principally trade.................. 17,569
Prepaid expenses and other current assets............... 1,010
--------
Total current assets........................................ 29,132
Property and equipment, net................................. 4,147
Goodwill, net............................................... 5,087
Marketable securities....................................... --
Other assets, net........................................... 4,483
--------
Total assets................................................ $ 42,849
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................... $ 112
Current portion of capital lease obligations............ 531
Accounts payable........................................ 6,692
Accrued liabilities..................................... 10,927
Unearned income......................................... 4,532
--------
Total current liabilities................................... 22,794
--------
Long-term debt.............................................. 1,151
Capital lease obligations................................... 1,548
Other liabilities........................................... 4,176
Minority interest........................................... 250
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares
authorized and10,630,937 shares issued................ 106
Paid-in capital......................................... 120,097
Accumulated deficit..................................... (107,226)
Cumulative transaction adjustment....................... 410
Unrealized gain on "available for sale" securities, net
of tax................................................ --
Treasury stock, at cost, 20,750 shares.................. (457)
--------
Total stockholders' equity.................................. 12,930
--------
Total liabilities and stockholders' equity.................. $ 42,849
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
-------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Net cash flows provided by (used in) operating activities... $ 2,582 $(1,221)
------- -------
Cash flows provided by (used in) investing activities:
Sale of marketable securities............................. 8,399 1,489
Acquisition of PMS Pty Ltd................................ (4,027) --
Capital expenditures...................................... (634) (618)
Capitalized software...................................... (787) (665)
------- -------
Net cash provided by investing activities................... 2,951 206
------- -------
Cash flows provided by (used in) financing activities:
Common stock issuance costs............................... -- (1,086)
Proceeds from issuance of bank loan....................... 3,337 --
Options exercised......................................... 623 274
Repayment of long-term debt/capital leases................ (3,275) (269)
Loan proceeds received from minority interest............. -- 111
Other..................................................... 95 --
------- -------
Net cash provided by (used in) financing activities......... 780 (970)
------- -------
Effect of exchange rate movements........................... (1,544) 189
------- -------
Net increase/(decrease) in cash and cash equivalents........ 4,769 (1,796)
Cash and cash equivalents at beginning of period............ 5,784 8,629
------- -------
Cash and cash equivalents at end of period.................. $10,553 $ 6,833
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The consolidated financial statements include the accounts of Walsh
International Inc. (the "Company") and all of its majority-owned subsidiaries.
The accompanying consolidated statements of operations and cash flows for
the nine months ended March 31, 1998 and 1997 the consolidated balance sheet as
of March 31, 1998 and the related information of Walsh International Inc.
included in these notes to the consolidated financial statements are unaudited.
In the opinion of management, the interim financial information reflects all
adjustments (consisting only of items of a normal recurring nature) necessary
for the fair presentation of the financial position, results of operations and
cash flows for the periods presented. Results of operations for the nine months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the entire year.
These interim financial statements should be read in conjunction with the
audited consolidated financial statements and related notes thereto included in
this Proxy Statement/Prospectus.
2. EARNINGS PER SHARE
The Company has adopted the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per
Share". Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding. Diluted earnings per share includes
common equivalent shares, where dilutive, from stock options and warrants (using
the treasury stock method). All historical periods presented have been restated
applying SFAS 128.
For all periods presented, income used in both basic earnings per share and
the diluted earnings per share calculations is net income as stated in the
consolidated statement of operations. The only common equivalent shares in the
diluted calculations are stock options calculated using the treasury stock
method. These calculations are summarised below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
---------- ----------
<S> <C> <C>
DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding (basic).......... 10,556,579 10,498,369
Assumed exercise of in the money stock options.............. 758,521 417,113
Less assumed buy-back under the treasury stock method....... (530,691) (319,495)
---------- ----------
Shares used in diluted earnings per share................... 10,784,409 10,595,987
========== ==========
</TABLE>
Options to purchase 318,250 and 331,025 shares of common stock at prices
ranging from $10.60 to $12.00 were outstanding at March 31, 1998 but were not
included in the computation of diluted earnings per share for the nine months
ended March 31, 1998 because the options' exercise price was greater than the
average market price of the common shares.
3. INCOME TAXES
For the nine months ended March 31, 1998 the effective tax rate was 36%
compared to 24% for the equivalent period of fiscal 1997. The effective income
tax rate was negatively impacted by the non-deductible charge for the write-off
of in process research and development costs offset, in part, by
F-42
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INCOME TAXES (CONTINUED)
a reduction of taxes provided in prior years. For 1997 the effective income tax
rate was impacted by a reduction of taxes provided for in prior years.
4. ACQUISITION OF PHARMACEUTICAL MARKETING SOLUTIONS PTY LTD
In July 1997 the Company acquired 100% of the equity of Pharmaceutical
Marketing Solutions Pty Ltd (PMS), a privately held Australian company, for
$3.8 million in cash and $0.6 million of associated acquisition costs. PMS uses
a salesforce automation system based on Lotus Notes and an analysis system which
operates as an integration product between a data warehouse and proprietary
salesforce automation system. The acquisition has been accounted for by the
purchase method and the results of operations of PMS have been included in the
income statement from the acquisition date. The total purchase price of
$4.4 million has been allocated as:
<TABLE>
<S> <C>
In Process Research and Development......................... $2.0
Completed Technology........................................ $0.6
Goodwill.................................................... $1.8
----
$4.4
====
</TABLE>
The goodwill is expected to have an economic life of 20 years and the
completed technology a life of between 3 and 5 years. Goodwill and completed
technologies are being amortized on a straight line basis over their economic
lives. The in process research and development costs have been written off
immediately.
Pro-forma results from operations of the Company as if the acquisition of
PMS had occurred on July 1, 1996 for the nine months ended March 31, 1997 are:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1997
-----------------
<S> <C>
Revenue.................................................... $42,238
Net Income................................................. $ 3,281
Basic Earnings per Share................................... $ 0.31
</TABLE>
The difference between the pro-forma operating results of the acquisition of
PMS on the Company's actual operating results, had the acquisition occurred on
July 1, 1997 was not material.
On October 14, 1997, the Company obtained an Australian dollar variable rate
commercial loan facility of $3.3 million (Australian $4.5 million). The term of
this facility was 5 years with annual principal repayments of approximately
$660,000 commencing in year 2. Interest accrued at a variable rate (5.25% during
the quarter). $3.2 million of the total marketable securities were pledged as
collateral for this loan. In January 1998 the Company repaid the loan in full
for US $2.9 million.
5. STOCKHOLDER RIGHTS PLAN.
On October 14, 1997, the Board of Directors adopted a stockholder rights
plan and declared a dividend of one right (a "Right") for each share of common
stock of the Company. The Rights were payable to holders of record of the common
stock of the Company at the close of business on October 27, 1997. The Rights
will automatically trade with the Company's common stock. Additional
F-43
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. STOCKHOLDER RIGHTS PLAN. (CONTINUED)
rights are issuable upon subsequent issuances of common stock by the Company so
long as the Rights Plan is in effect.
The Rights are not currently exercisable but become exercisable upon the
earlier of i) ten days after the first public announcement that a person or
group, which did not beneficially own 5% of the common stock as of
September 22, 1997, has acquired beneficial ownership of 15 percent or more of
the Company's common stock or ii) ten business days after a person or group
announces an offer the consummation of which would result in such person or
group beneficially owning 15 percent or more of the Company's common stock. The
Stockholder Rights Plan was amended as of March 23, 1998 to exclude Cognizant
Corporation and its subsidiaries from being considered such person or group.
Once exercisable the holder will be entitled to buy from the Company one
one-hundredth of a share of new series B of junior participating preferred
stock, of which 250,000 shares have been authorized, for $55.00 per Right or in
certain circumstances to buy at the Rights exercise price a number of shares of
the Company's common stock having a market value of twice the exercise price of
each Right or, if the Company is acquired in a merger or a business combination,
to buy at the Rights exercise price a number of shares of common stock of an
acquiring Company having a market value of twice the exercise price of each
Right. At the Company's option, the Rights are redeemable prior to becoming
exercisable for $0.001 per Right. The Rights expire on October 14, 2007.
Preferred shares purchasable upon exercise of the Rights will not be subject
to redemption by the Company. Each preferred share will be entitled to a minimum
preferential quarterly dividend payment of $0.01 per share but will be entitled
to an aggregate dividend of 100 multiplied by the dividend declared per common
share. Each holder of preferred stock will be entitled to 100 votes per share on
each matter on which holders of the common stock are entitled to vote.
6. EMPLOYEE STOCK PURCHASE PLAN
An Employee Stock Purchase Plan (the "ESPP") has been adopted by the Company
and the ESPP was approved on October 23, 1997 at the Company's Annual Meeting of
Stockholders.
Under the ESPP, which is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code, options to purchase shares
of Common Stock will be granted to eligible employees of the Company and its
subsidiaries at an exercise price of 85% of the fair market value of the shares
of Common Stock subject to such option on the date of grant, based upon the
closing price of the Common Stock on the NASDAQ National Market.
An aggregate of 100,000 shares of Common Stock have been reserved for
issuance pursuant to the ESPP. To date there have been no grants under the ESPP.
7. ACQUISITION OF WALSH INTERNATIONAL INC
On March 23, 1998 the Company, Cognizant Corporation and WAC Inc. signed a
definitive agreement for the acquisition of the Company. Under the terms of the
agreement, Walsh shareholders will receive 0.3041 shares of Cognizant common
stock per Walsh share or a consideration of approximately $167 million. The
number of Cognizant shares received is subject to a collar adjustment based on
the price of Cognizant shares during a period prior to the closing of the
transaction. If the acquisition is consummated after the spin off by Cognizant
Corporation of its subsidiary IMS Health,
F-44
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. ACQUISITION OF WALSH INTERNATIONAL INC (CONTINUED)
the acquisition consideration will be paid in shares of IMS Health. On
completion of the transaction, investment banker fees will be payable amounting
to 1.3% of the total consideration, an amount of approximately $2.2 million.
All financial statement schedules not mentioned above are omitted for the
reason that they are not required or are not applicable, or the information is
included in the Consolidated Financial Statements or the Notes thereto.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Walsh International Inc.
We have audited the accompanying consolidated balance sheets of Walsh
International Inc. and Subsidiaries as of June 30, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Walsh
International Inc. and Subsidiaries as of June 30, 1996 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
August 20, 1997
F-46
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS AT JUNE 30,
-------------------
1996 1997
ASSETS -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 8,629 $ 5,784
Marketable securities..................................... 9,992 6,803
Accounts receivable, principally trade (less allowance for
doubtful accounts of $336 and $454, respectively)....... 13,050 14,227
Prepaid expenses and other current assets................. 923 702
-------- --------
Total current assets........................................ 32,594 27,516
Property and equipment, net................................. 4,663 4,169
Goodwill, net............................................... 3,551 3,439
Marketable securities....................................... -- 1,437
Other assets, net........................................... 3,209 3,727
-------- --------
Total assets................................................ $ 44,017 $ 40,288
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 12 $ 17
Current portion of capital lease obligations.............. 443 509
Accounts payable.......................................... 7,808 6,896
Accrued liabilities....................................... 17,467 11,166
Unearned income........................................... 4,541 4,103
-------- --------
Total current liabilities................................... 30,271 22,691
-------- --------
Long-term debt.............................................. 1,105 1,260
Capital lease obligations................................... 1,652 1,407
Other liabilities........................................... 6,295 5,145
Minority interest........................................... 148 128
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares
authorized and 10,484,835 and 10,533,960 shares issued,
respectively............................................ 105 105
Paid-in capital............................................. 119,175 119,475
Accumulated deficit......................................... (114,948) (110,158)
Cumulative translation adjustment........................... 675 657
Unrealized (loss) gain on available for sale securities, net
of tax.................................................... (4) 35
Treasury stock, at cost, 20,750 shares...................... (457) (457)
-------- --------
Total stockholders' equity.................................. 4,546 9,657
-------- --------
Total liabilities and stockholders' equity.................. $ 44,017 $ 40,288
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-47
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Revenue................................................. $ 40,269 $ 47,262 $ 54,088
Costs and expenses:
Production costs...................................... 17,733 18,442 20,049
Selling, general and administrative expenses.......... 19,423 21,348 24,433
Research and development costs........................ 3,953 3,510 3,683
Amortization of intangible assets..................... 112 130 144
---------- ---------- -----------
Total costs and expenses................................ 41,221 43,430 48,309
---------- ---------- -----------
Operating profit (loss)................................. (952) 3,832 5,779
Interest income......................................... 950 843 796
Interest expense........................................ (2,325) (2,045) (265)
Gain on sale of shares in PMSI.......................... 402 -- --
Equity income of PMSI................................... 1,180 -- --
Minority Interest....................................... -- 113 20
---------- ---------- -----------
Income (loss) from continuing operations before income
taxes................................................. (745) 2,743 6,330
Income tax provision.................................... (2,212) (658) (1,540)
---------- ---------- -----------
Income (loss) from continuing operations................ (2,957) 2,085 4,790
Discontinued operations:
Loss from discontinued operations, net.................. (1,554) (1,755) --
========== ========== ===========
Net income (loss)....................................... $ (4,511) $ 330 $ 4,790
========== ========== ===========
Income (loss) per share from continuing operations...... $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net........ (0.21) (0.21) --
---------- ---------- -----------
Net income (loss) per share............................. $ (0.61) $ 0.04 0.45
========== ========== ===========
Shares used in computing income (loss) per share........ 7,346,274 8,197,796 10,657,920
</TABLE>
The accompanying notes are an integral part of these financial statements
F-48
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------ CUMULATIVE NET UNREALIZED GAIN/ TREASURY STOCK
PAR PAID-IN ACCUMULATED TRANSLATION LOSS -------------------
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT NET OF TAX SHARES AMOUNT
-------- -------- -------- ----------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1994.................... 5,803 $ 58 $ 74,076 $(110,755) $1,103 -- (20) $(360)
Net loss for 1995......... -- -- -- (4,511) -- -- -- --
Exercise of stock
options................. 6 -- 29 -- -- -- -- --
Acretion of preferred
stock................... -- -- (420) -- -- -- -- --
Cumulative translation
adjustment.............. -- -- -- -- (171) -- -- --
Unrealized gain of
available for sale
securities, net of
tax..................... -- -- -- -- -- $2,107 -- --
------ ---- -------- --------- ------ ------ --- -----
Balance June 30, 1995..... 5,809 58 $ 73,685 (115,266) 932 2,107 (20) (360)
Net income for 1996....... -- -- -- 330 -- -- -- --
Initial public offering,
net..................... 3,187 32 33,329 -- -- -- -- --
Conversion of preferred
stock................... 1,486 15 12,094 -- -- -- -- --
Cumulative translation
adjustment.............. -- -- -- -- (257) -- -- --
Net unrealized gain on
available for sale
securities, net of
tax..................... -- -- -- -- -- 2,046 -- --
Purchase of treasury
stock................... -- -- -- -- -- -- (1) (97)
Spin-off of source
business................ -- -- -- (12) -- (4,157) -- --
Shares issued............. 3 -- 67 -- -- -- -- --
------ ---- -------- --------- ------ ------ --- -----
Balance June 30, 1996..... 10,485 105 119,175 (114,948) 675 (4) (21) (457)
Exercise of stock
options................. 49 -- 300 -- -- -- -- --
Net income for 1997....... -- -- -- 4,790 -- -- -- --
Cumulative translation
adjustment.............. -- -- -- -- (18) -- -- --
Net unrealised gain on
available for sale
securities, net of
tax..................... -- -- -- -- -- 39 -- --
------ ---- -------- --------- ------ ------ --- -----
Balance June 30, 1997..... 10,534 $105 $119,475 $(110,158) $ 657 $ 35 (21) $(457)
====== ==== ======== ========= ====== ====== === =====
</TABLE>
F-49
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (4,511) $ 330 $4,790
Loss from discontinued operations......................... 1,554 1,755 --
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 1,485 1,241 1,688
Gain on sale of shares in PMSI............................ (402) -- --
Equity income of PMSI..................................... (1,180) -- --
Deferred taxes............................................ (286) (2,739) 371
Minority interest......................................... -- (113) (20)
Gain on sale of marketable securities..................... -- -- (162)
Change in assets and liabilities
(Increase) decrease in accounts receivable................ 2,922 500 (471)
(Increase) decrease in prepaid expenses and other current
assets.................................................. 228 (588) (87)
(Decrease) increase in accounts payable and accrued
liabilities............................................. 8,628 1,153 (6,818)
(Decrease) increase in unearned income.................... 381 (2,459) (622)
Other..................................................... 25 753 (572)
-------- -------- ------
Net cash (used in) provided by operating activities....... 8,844 (167) (1,903)
-------- -------- ------
Cash flows (used in) provided by investing activities:
Sales (purchases) of marketable securities................ -- (9,936) 1,953
Proceeds from sale of shares in PMSI...................... 7,811 -- --
Capital expenditures...................................... (697) (780) (826)
Capitalized software...................................... (1,092) (896) (1,010)
-------- -------- ------
Net cash (used in) provided by investing activities....... $ 6,022 $(11,612) $ 117
Cash provided by (used in) financing activities:
Collateral receipts....................................... $ -- $ 1,088 $ --
Issuance of common stock.................................. 28 34,519 300
Common stock issuance costs............................... -- -- (1,174)
Treasury stock purchases.................................. -- (97) --
Dividend to Source business............................... -- (5,182) --
Repayments of long-term debt.............................. (8) (15,737) --
Repayments of capital leases.............................. (335) (358) (360)
Cash provided by minority interest........................ -- 261 111
-------- -------- ------
Net cash (used in) provided by financing activities......... (315) 14,494 (1,123)
-------- -------- ------
Effect of exchange rate movements......................... 278 (856) 64
-------- -------- ------
Effect of discontinued operations......................... (11,600) (8,340) --
-------- -------- ------
Net (decrease) increase in cash and cash equivalents........ 3,229 (6,481) (2,845)
Cash and cash equivalents at beginning of year.............. 11,881 15,110 8,629
-------- -------- ------
Cash and cash equivalents at end of year.................... $ 15,110 $ 8,629 $5,784
======== ======== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 2,213 $ 1,989 $ 201
======== ======== ======
Income taxes.............................................. $ 3,339 $ 1,995 $ 964
======== ======== ======
Supplemental disclosures of non-cash investing and financing
activities:
Capital lease obligations................................... $ 89 $ 444 $ 509
======== ======== ======
Spin-off of the Source Business:
PMSI shares................................................. $ 13,663
Unrealized gain on PMSI shares.............................. $ (4,157)
Net liabilities of Source business.......................... $ (4,124)
Preferred stock............................................. $(11,802)
Other corporate assets...................................... $ 1,250
</TABLE>
The accompanying notes are an integral part of these financial statements
F-50
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Walsh International Inc. ("Walsh" or the "Company") provides electronic
territory management systems and sales management information solutions, as well
as data services and associated support services, to the pharmaceutical and
healthcare industries. The Company's principal markets are located in Australia,
Austria, Belgium, Canada, France, Germany, Italy, the Netherlands, New Zealand,
Singapore, Spain, the United Kingdom and the United States.
INITIAL PUBLIC OFFERING
On April 16, 1996 the Company consummated an Initial Public Offering ("IPO"
or "Offering"). The Offering resulted in the issuance of approximately 3,187,000
shares of the Company's common stock and generated net proceeds of
$33.3 million.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Walsh and all
of its majority-owned subsidiaries. The consolidated financial statements have
been restated for discontinued operations (see Note 2). The accompanying notes
present amounts related only to continuing operations. All inter-company
balances and transactions have been eliminated on consolidation. On
February 21, 1996 the Company's Board of Directors approved a one-for-four
reverse stock split of the Company's Common and Series A Convertible Preferred
Stock ("Preferred Stock"). All references in the accompanying consolidated
financial statements to the number of shares and per share amounts have been
retroactively adjusted to reflect the reverse stock split.
GOODWILL
Under the purchase method of accounting, the excess of the purchase price of
businesses acquired over the fair value of tangible and identifiable intangible
assets at the dates of acquisition has been assigned to goodwill. The net assets
and results of operations of the acquisitions have been included in the
consolidated financial statements of the Company from their respective dates of
purchase. The goodwill reflected in the Company's balance sheets principally
relates to the Company's direct mail marketing business and is amortized on a
straight-line basis over periods not exceeding 40 years. The Company assesses
the recoverability of its goodwill, on a subsidiary by subsidiary basis, by
determining whether amortization of goodwill can be recovered through
undiscounted projected net income, excluding goodwill amortization, of the
respective subsidiary. Impairment, if any, is measured based on projected
discounted net income, excluding goodwill amortization, using a discount rate
reflecting the Company's cost of funds.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. All maintenance and repairs are
expensed as incurred.
Depreciation and amortization are provided on the straight-line basis.
Furniture, office equipment and computer equipment are depreciated over five
years. Leasehold improvements are amortized over the estimated useful lives of
the assets or the lease terms (maximum of 10 years), whichever are shorter.
Buildings are being depreciated over 50 years.
F-51
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On disposal, costs and accumulated depreciation are removed from the balance
sheet and gains (losses) are recognized in the statement of operations.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain costs related to the development of new
software products or the enhancement of existing software products for sale or
license. These costs are capitalized from the point in time that technological
feasibility has been established, as evidenced by a working model or a detailed
working program design, to the point in time that the product is available for
general release to customers.
Capitalized software development costs are amortized on a product-by-product
basis over the ratio of current revenues to total anticipated revenues or on a
straight-line basis over the estimated economic lives of the products (no longer
than five years), using whichever method yields the greater amortization,
beginning with the release to the customer. Research and development costs
incurred prior to establishing technological feasibility and costs incurred
subsequent to general product release to customers are charged to expense as
incurred. The Company continually evaluates whether events or circumstances have
occurred that indicate that the remaining useful life of the capitalized
software development costs should be revised or that the remaining balance of
such assets may not be recoverable. As of June 30, 1997 management believes that
no revisions to the remaining useful life or write-down of capitalized
development costs are required.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position No
91-1, "Software Revenue Recognition". The Company recognizes revenue from the
usage of its electronic territory management systems ratably over the term of
the customer agreements. The contract bundles the fees for the use of the
software together with post contract support revenues of maintenance, support
and related data server/network management fees ("on-going fees"). As part of
providing these services, certain fees ("one-time fees") relating to project
scope and design, application building and testing, loading and installation of
user equipment and training are recognized as revenues when the service has been
completed and accepted by the customer. Other special projects are recognized as
revenue upon completion of the project.
Revenue from market research and direct mail marketing is recognized on
delivery of the product. Revenue from medical professional database services is
recognized ratably over the term of the contract.
Prebillings for products that have not been delivered or for services not
rendered are classified as unearned income until the earnings process is
complete.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash balances, marketable
securities and trade receivables. The Company invests its excess cash with major
banks and cash equivalent and marketable securities in a professionally managed
fund. The Company's customer base principally comprises companies within the
pharmaceutical industry. The Company maintains reserves for potential credit
losses and such losses
F-52
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have been within management's expectations given the generally strong credit
ratings of the customers. The Company does not require collateral from its
customers.
FOREIGN CURRENCY
The balance sheet and results of operations of the Company's foreign
subsidiaries that operate outside the United States are measured using local
currency as the functional currency.
Assets and liabilities have been translated into United States dollars at
the rates of exchange at the balance sheet date. Revenues and expenses are
translated into United States dollars at the average rate during the period.
Translation gains and losses arising from the use of differing exchange rates
from year to year are included in the cumulative translation adjustment on the
balance sheet.
Transaction gains and losses are recognized in the statement of operations
as incurred. For the years presented, these amounts were not material.
INCOME TAXES
Federal, foreign and state income taxes in the consolidated financial
statements have been computed on a stand-alone return basis according to the
fiscal and legal structure under which the various tax-paying entities operate.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and
financial reporting amounts at each year-end.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity dates of
three months or less from the date of acquisition by the Company to be cash
equivalents.
INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and re-evaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with any investments in equity securities. Securities
available for sale are carried at fair value, as determined by the quoted market
value at the balance sheet date, with the unrealized gains and losses, net of
tax, reported in a separate component of stockholders' equity. At June 30, 1997,
the Company had no investments that qualified as trading or held to maturity.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin, all stock options and warrants issued by
the Company at an exercise price below the public offering price during the
twelve-month period, prior to the offering, have been included in the
calculations as if they were outstanding for all periods presented prior to the
offering using the treasury stock method and the IPO price of $12.00. Common
F-53
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equivalent shares from the Preferred Stock (using the if-converted method) have
been included for all periods in which the Preferred shares were outstanding.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
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 and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximates fair value due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its capital lease obligations approximates
fair value.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Generally, compensation expense would be recorded over the vesting period if the
current market price of the underlying stock exceeded the exercise price on the
date of grant. On July 1, 1996, the Company adopted the disclosure requirements
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation". Under SFAS No. 123, the Company must disclose
proforma net income and proforma earnings per share for employee stock option
grants and employee stock purchases made in 1995 and future years as if the fair
value based method defined in SFAS No 123 had been employed.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board recently adopted SFAS
No. 121,"Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed of". This statement requires long-lived assets to be
evaluated for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. The Company adopted
SFAS No 121 on July 1, 1996. The adoption of SFAS No 121 did not have a material
impact on the Company's consolidated results of operations.
2. DISCONTINUED OPERATIONS--SOURCE BUSINESS
In conjunction with the IPO, the Company spun off the Source Business to its
stockholders (the "Spin-Off") as of April 16, 1996. The Source Business provides
a range of data services for pharmaceutical companies primarily based on a
proprietary database of prescriptions dispensed in the United States. The
Spin-Off was accomplished by the distribution of all the issued and outstanding
capital stock of Source International Inc., a holding company formed for
purposes of the Spin-Off.
F-54
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISCONTINUED OPERATIONS--SOURCE BUSINESS (CONTINUED)
Pursuant to the amendments to the Preferred Stock, at the time of the
Spin-Off, one-half of the shares of the Company's Preferred Stock were exchanged
for shares of Preferred Stock of Source having substantially similar terms.
Based on the relative fair value of Walsh and Source, $11,802,000 of obligations
of the Preferred Stock were transferred to the newly issued Source Preferred
Stock. The Company also contributed the Pharmaceutical Marketing Services Inc.
("PMSI") shares; certain other corporate assets of the Company with a carrying
value of $1,250,000; the identifiable net liabilities of the Source business in
the amount of $4,124,000 and $5,182,000 of cash to consummate the Spin-Off. The
remaining issued and outstanding Preferred Stock after the Spin-Off was
converted into 1,486,252 shares of Common Stock concurrently with the
consummation of the offering.
The results of operations of Source have been reclassified to identify them
as discontinued operations. The summarized data for Source, through the date of
the Spin-Off, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE, 30
---------------------
1995 1996
--------- ---------
DOLLARS IN THOUSANDS
<S> <C> <C>
Results of discontinued operations:
Revenues.................................................. $48,710 $40,181
Loss from operations:
Loss before taxes....................................... (2,653) (1,570)
Income tax provision.................................... -- --
------- -------
Loss from operations...................................... (2,653) (1,570)
------- -------
(Loss) gain on disposal of operations:
(Loss) gain on disposal................................... 1,322 (185)
Income taxes on disposal.................................. (223) --
------- -------
(Loss) gain on disposal, net.............................. 1,099 (185)
------- -------
Loss from discontinued operations, net.................. $(1,554) (1,755)
======= =======
</TABLE>
3. TRANSACTIONS WITH SOURCE
In connection with the Spin-off, Walsh and Source have entered into several
agreements:
PREFERRED TECHNOLOGY PARTNER AGREEMENT. Walsh and Source have created a
preferred technology partnership whereby the companies collaborate to build,
maintain and promote a seamless data interface between their respective
technologies to facilitate delivery by means of Premiere of prescription data at
the sales representative level. No compensation is payable under this agreement.
PHARBASE LICENSE. Walsh has granted to Source a non-exclusive license to its
Pharbase medical professional databases in certain European countries. Source is
allowed to use the Pharbase databases only for internal purposes and in
connection with the development, delivery and marketing of its prescriber-linked
prescription databases. The initial term of the license runs for ten years and
the license is renewable for two additional five-year terms. Source has agreed
to provide Walsh with all
F-55
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH SOURCE (CONTINUED)
updating information which it receives with regard to medical professionals,
their specialties, affiliations and locations generated as a result of the use
of PHARBASE by Source. Source has agreed to pay $1.00 per prescriber in the
database universe in the first year of prescription data collection in a
particular market. In consideration of Source's obligation to provide updating
information to Walsh, such fee will be reduced to $0.75 in the second year,
$0.50 in the third year and $0.25 per prescriber thereafter. In addition, Source
has agreed to pay Walsh 75% of the list price of the PHARBASE service for each
Source client to which it delivers prescriber-level data and which does not have
a current PHARBASE license.
Transitional Services Arrangements. All transitional service agreements were
completed during fiscal year 1997. The Chief Executive Officer of Source, who
serves as the Chairman of Walsh continues to be made available as a consultant
to Walsh.
4. INVESTMENTS
On January 25, 1996, the Company entered into a Joint Venture Agreement with
an affiliate of Zuellig Pharma S.A., pursuant to which the parties have
established a joint venture for the commercialization of the Company's PRECISE,
PREMIERE and PHARBASE services in 12 countries in Asia-Pacific. The joint
venture company has been formed in Singapore. Walsh owns 51% of the equity and
has operational control of the joint venture. As such, the Company has included
the results of operations of the joint venture in its consolidated statement of
operations since January 25, 1996.
F-56
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. MARKETABLE SECURITIES
Marketable securities consist of the following as of June 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
NAME OF ISSUER AMORTIZED
AND TITLE OF EACH ISSUE COST OF FAIR VALUE UNREALIZED GAINS
----------------------- ---------- ---------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS:
Corporate debt securities........................ $4,985 $5,000 $15
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies....................................... 1,047 1,056 9
Debt securities issued by foreign governments.... 741 747 6
------ ------ ---
$6,773 $6,803 $30
====== ====== ===
NON-CURRENT ASSETS:
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies....................................... $ 348 $ 348 $--
Debt securities issued by foreign governments.... 1,084 1,089 5
====== ====== ===
$1,432 $1,437 $ 5
====== ====== ===
Maturities
Due after one year through five years............ $ 805 $ 808 $ 3
Due after five years............................. 627 629 2
====== ====== ===
$1,432 $1,437 $ 5
====== ====== ===
</TABLE>
Marketable securities consist of the following as of June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
NAME OF ISSUER AMORTIZED
AND TITLE OF EACH ISSUE COST OF FAIR VALUE UNREALIZED LOSSES
----------------------- ---------- ---------- ------------------
<S> <C> <C> <C>
Corporate debt securities....................... $6,608 $6,606 $(2)
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies...................................... 2,613 2,613 --
Debt securities issued by foreign governments... 775 773 (2)
------ ------ ---
$9,996 $9,992 (4)
====== ====== ===
Maturities
Short-term investments.......................... $6,794 $6,790 $(4)
Due after one year through five years........... 2,260 2,260 --
Due after five years............................ 942 942 --
====== ====== ===
$9,996 $9,992 $(4)
====== ====== ===
</TABLE>
The fair value of the marketable securities has been reflected entirely
within current assets in the balance sheet at June 30, 1996 as it was the
Company's intention to utilize the marketable securities within the next
operating cycle.
F-57
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. MARKETABLE SECURITIES (CONTINUED)
During 1997 the following sales of securities took place (there were no
sales of securities in 1996) (in thousands):
<TABLE>
<S> <C>
Net proceeds of sale........................................ $ 43,612
Cost........................................................ (43,450)
========
Realized Gain............................................... $ 162
========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Property including leasehold improvements................. $ 2,702 $ 2,514
Furniture, computer & office equipment.................... 12,716 11,058
------- -------
15,418 13,572
Less accumulated depreciation and amortization............ (10,755) (9,403)
------- -------
$ 4,663 $ 4,169
======= =======
</TABLE>
Depreciation and amortization charged to operations for the years ended
June 30, 1995, 1996 and 1997 were $839,000, $1,106,000 and $1,297,000,
respectively.
7. OTHER ASSETS
Other assets at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Capitalized software........................................ $2,035 $3,045
Deferred taxes.............................................. 250 0
Collateral and other deposits............................... 924 924
------ ------
3,209 3,969
Less accumulated amortization............................... -- (242)
------ ------
$3,209 $3,727
====== ======
</TABLE>
The Company capitalized software development costs of $896,000 and
$1,010,000 for the years ended June 30, 1996 and 1997, respectively.
Amortization expense and adjustments to net realizable value charged to
production costs amounted to $520,000, $0 and $242,000 for the years ended
June 30, 1995, 1996 and 1997, respectively.
F-58
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long term debt at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Long-term debt (1).......................................... $1,117 $1,277
Less current portion........................................ (12) (17)
------ ------
$1,105 $1,260
====== ======
</TABLE>
------------------------
(1) Long-term debt is principally comprised of the carrying value of a note
payable to PMSI to cover taxes payable by Walsh on gains on the sale of the
Source segment targeting business. This note which is due in fiscal year
2000, is non-interest bearing with a face value of $1.2 million
Aggregate maturities of long-term debt at June 30, 1997 for the next five
fiscal years are as follows: 1998-$17,000; 1999-$14,000; 2000-$1,131,000; and
2002 -$115,000.
9. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1996 and 1997 comprised the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Employee compensation and benefits........................ $ 4,374 4,101
Sales taxes............................................... 978 1,057
Other liabilities......................................... 12,115 6,008
------- -------
$17,467 $11,166
======= =======
</TABLE>
10. EQUITY PLANS
A Stock Option and Restricted Stock Purchase Plan ("The Plan") has been
established by the Company for selected employees, officers and directors of the
Company or any of its subsidiaries. There are 1,500,000 shares of Common Stock
reserved for issuance under the Plan and a registration statement for such stock
was filed on August 22, 1996. At June 30, 1997 the Company had available 381,299
shares of Common Stock outstanding for issuance under the Plan.
Under the Plan, the exercise price for incentive options is at least 100% of
the fair market value on the date of the grant and options generally expire in
10 years. Vesting periods are determined by the Board of Directors and generally
provide for shares to vest ratably over 5 years.
During 1993, the Company established a Non-Employee Director's Stock Option
Plan ("The Director's Plan"). There are 120,000 shares reserved for issuance
under the Director's Plan. The options granted under the Director's Plan have a
vesting term of 3 years and expire after 10 years.
F-59
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EQUITY PLANS (CONTINUED)
Information relating to the Company's Fixed Option Plan is as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Options outstanding at beginning of year................. 584,543 626,951 992,576
Options granted.......................................... 93,189 401,250 172,200
Options exercised........................................ (6,825) (50) (49,125)
Options lapsed........................................... (43,956) (35,575) (51,700)
---------- ----------- ----------
Options outstanding at end of year....................... 626,951 992,576 1,063,951
========== =========== ==========
Options exercisable at end of year....................... 344,863 392,950 507,880
Option prices per share:
Granted.................................................. $ 6.36 $6.36-12.00 $ 8.87
Exercised................................................ $2.12-6.36 $ 6.36 $2.12-8.48
</TABLE>
Under agreements dated May 31, 1994 and December 8, 1995, the Company issued
warrants to purchase 25,789 shares of Common Stock to a supplier. These warrants
are exercisable at $12.72 per share at any time for a period of three years from
April 16, 1996.
The exercise price of outstanding options and warrants to purchase Walsh
Common Stock was allocated, as of the date of the Spin-Off, between such options
and warrants and the options and warrants to be granted by Source in proportion
to the relative fair market values of the Walsh Common Stock and the Source
common stock as of such date. As such, the ratio of the exercise price per
option to the market value per share has not been reduced. The vesting
provisions and the option period of the original grant have not been affected by
the amendments to the exercise price.
11. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to continue to use the intrinsic value based method
to account for all of its employee stock-based compensation plans. Under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", the Company has
recorded no compensation costs related to its stock option plans for the years
ended June 30, 1995, 1996 and 1997.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company is required to disclose the pro-forma effects on net income and net
income per share data as if the Company had elected to use the fair value
approach to account for all its employee stock-based compensation plans.
Had compensation cost for the Company's plans been determined consistent
with the fair value approach enumerated in SFAS No. 123 the Company's net income
and net income per share for the
F-60
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
year ended June 30, 1997 and 1996 would have been decreased as indicated below
(in thousands, except per share data):
<TABLE>
<CAPTION>
JUNE 30
-------------------
1996 1997
-------- --------
<S> <C> <C>
Net Income
As reported............................................... $ 330 $4,790
pro forma................................................. $ 230 $4,355
Net Income Per Share
As reported............................................... $ 0.04 $ 0.45
pro forma................................................. $ 0.02 $ 0.41
</TABLE>
The weighted average fair value of options granted during the period at
exercise price equal to market price at grant date is $6.32 and $5.51 for the
fiscal years ended June 30, 1996 and 1997 respectively.
The fair value of options granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997; risk-free interest rate of 6.4%;
weighted average expected life of 5 years; 60% expected volatility and no
dividends.
A summary of the status of the Company's fixed option plans as of June 30,
1996 and 1997 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
YEARS ENDING
------------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1997
---------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of
year............................ 626,951 6.49 992,576 8.13
Granted........................... 401,250 10.56 172,200 8.87
Exercised......................... (50) 6.36 (49,125) 6.02
Cancelled......................... (35,575) 6.65 (51,700) 9.04
======= =========
Outstanding at end of year........ 992,576 8.13 1,063,951 8.23
======= =========
Options vested at year end........ 392,950 6.49 507,880 7.10
</TABLE>
F-61
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
A summary of information regarding the options outstanding and those
exerciseable at the year end is provided in the two tables below;
OPTIONS OUTSTANDING AT JUNE 30, 1997
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING CONTRACTUAL
EXERCISE PRICE ($) NUMBER OF OPTIONS LIFE (YRS)
------------------ ------------------ -----------------------
<S> <C> <C>
2.12................................... 8,094 1.73
6.36................................... 503,045 5.63
7.42................................... 93,800 8.38
8.48................................... 30,737 5.74
8.87................................... 170,200 9.26
10.60.................................. 13,325 5.37
12.00.................................. 244,750 8.81
--------- ----
1,063,951 7.15
========= ====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT JUNE 30, 1997
NUMBER OF OPTIONS
EXERCISE PRICE ($) EXERCISABLE
------------------ ------------------
<S> <C>
2.12.................................................... 8,094
6.36.................................................... 390,269
7.42.................................................... 18,650
8.48.................................................... 28,837
8.87.................................................... --
10.60................................................... 13,080
12.00................................................... 48,950
507,880
=======
</TABLE>
A Directors' Deferred Fee Program was approved by the Board of Directors on
June 27, 1996. This provides non-employee directors to defer income until
termination of status as a director. Amounts deferred in a calendar year will be
deemed to have been invested in shares of Walsh International Inc. Common Stock.
F-62
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAX
The components of the income tax provision for the years ended June 30,
1995, 1996 and 1997 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. state taxes currently payable.......................... $ -- $ -- $ (45)
Foreign taxes currently payable............................. (2,498) (3,397) (1,124)
Deferred income taxes....................................... 286 2,739 (371)
====== ====== ======
(2,212) (658) (1,540)
====== ====== ======
</TABLE>
The domestic and foreign components of income (loss) from continuing
operations before income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic.................................................... $(4,728) $(3,729) $(2,732)
Foreign..................................................... 3,983 6,472 9,062
------- ------- -------
$ (745) $ 2,743 $ 6,330
------- ------- -------
</TABLE>
Deferred tax (assets) liabilities comprised the following at June 30, 1996
and 1997 (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Other....................................................... $ -- $ 121
------- -------
Gross deferred tax liabilities.............................. -- 121
------- -------
Deferred tax assets:
Loss carryforwards........................................ (13,625) (13,629)
Capitalized software...................................... (3,335) (1,561)
Other accrued liabilities................................. (1,215) (694)
Other..................................................... (513) (47)
------- -------
Gross deferred tax assets................................. (18,688) (15,931)
Valuation allowance....................................... 18,438 15,931
------- -------
Net deferred tax assets................................... (250) 0
------- -------
Deferred taxes, net......................................... $ (250) $ 121
------- -------
</TABLE>
F-63
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAX (CONTINUED)
A reconciliation of federal statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. federal rate........................................... (34)% 34% 34%
Effect of:
Net operating losses...................................... 321 (54) 5
Foreign income taxes...................................... 9 44 (1)
Reduction of taxes provided in prior years................ -- -- (15)
State taxes............................................... 1 -- 1
--- --- ---
Effective income tax rate................................... 297% 24% 24%
</TABLE>
At June 30, 1997 there were available for U.S. federal income tax purposes
operating loss carryforwards of approximately $24,015,000 expiring in the years
2008, 2009, 2010 and 2011 which may provide future tax benefits for U.S. federal
income tax purposes.
At June 30, 1997 there were available for foreign income tax purposes
operating loss carryforwards of approximately $12,719,000. These operating loss
carryforwards may provide future tax benefits totaling $5,465,000, expiring as
follows: 1999, $227,000; 2000, $302,000; 2001, $267,000; 2002, $588,000 and
thereafter $4,081,000.
U.S. income taxes have not been provided at June 30, 1997, on unremitted
earnings aggregating $13,176,000 of entities located outside of the United
States, as such earnings are considered to be permanently invested. If such
earnings were to be remitted without offsetting tax credits in the United
States, withholding taxes would be approximately $562,000.
Included within accounts payable is $2,948,000 and $3,008,000 of current
income taxes payable for the years ended June 30, 1996 and 1997, respectively.
13. EMPLOYEE BENEFIT PLANS
In the U.S., the Company maintains a defined contribution profit-sharing
plan. The Company's contribution is a discretionary amount to match employee
contributions.
In the United Kingdom, a money purchase plan is maintained with the Company
contributing an average of approximately 5% of salaries.
In the Netherlands, a defined contribution plan was established in 1990. The
contributions (which vary, depending on age and salary) are between 8% and 13%
of each employee's basic salary less a fixed deduction. The Company pays 60% of
the premiums and the employee pays the remaining 40%.
In Belgium the Company maintains a defined contribution plan. The Company's
contribution is 5% of basic salary.
F-64
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The total costs associated with these plans were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States............................................... $ 16 $ 6 $ 24
United Kingdom.............................................. 185 214 251
The Netherlands............................................. 89 79 62
Belgium..................................................... 48 59 60
==== ==== ====
$338 $358 $397
</TABLE>
14. LEASING ARRANGEMENTS
The Company leases certain property and equipment.
Obligations under long-term and non-cancelable lease agreements expiring at
various dates have the following aggregate approximate annual minimum rentals
(in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASING OPERATING LEASES
--------------- ----------------
<S> <C> <C>
June 30, 1998............................................ $ 568 $3,011
June 30, 1999............................................ 541 2,168
June 30, 2000............................................ 160 1,228
June 30, 2001............................................ 160 720
June 30, 2002............................................ 160 433
After June 30, 2002...................................... 501 1,508
------ ------
Total minimum lease payments............................. 2,090 $9,068
====== ======
Less amount representing interest........................ (174)
------
Present value of minimum lease payments................ 1,916
Less current portion..................................... (509)
------
$1,407
======
</TABLE>
Rental Expense for the years ended June 30, 1995, 1996 and 1997 was
$2,901,000, $2,633,000 and $3,474,000, respectively.
Included in property and equipment at June 30, 1996 and 1997 are assets
subject to capitalized leases with a cost of $3,206,000 and $3,459,000,
respectively, and accumulated amortization of $874,000 and $1,346,000 for the
years ended June 30, 1996 and 1997, respectively.
F-65
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. GEOGRAPHIC DATA
The following table presents information about the Company by geographic
area (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995
--------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- ------------
<S> <C> <C> <C>
United States......................................... $ 3,010 $(1,480) $ 2,073
Canada................................................ 4,384 465 2,193
Europe................................................ 30,179 3,957 23,464
Pacific............................................... 2,696 26 695
General corporate..................................... -- (3,920) 20,966
------- ------- -------
$40,269 $ (952) $49,391
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995
--------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- ------------
<S> <C> <C> <C>
United States......................................... $ 3,351 $ 373 $ 861
Canada................................................ 4,163 190 2,065
Europe................................................ 36,256 6,714 25,280
Pacific............................................... 3,432 (68) (667)
Other................................................. 60 60 --
General Corporate..................................... -- (3,437) 16,478
------- ------- -------
$47,262 $ 3,832 $44,017
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
--------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- ------------
<S> <C> <C> <C>
United States......................................... $ 6,041 $ 124 $ 2,048
Canada................................................ 3,955 2 1,833
Europe................................................ 39,241 9,253 20,863
Pacific............................................... 4,790 (254) 1,779
Other................................................. 61 61 --
General corporate..................................... -- (3,407) 14,015
------- ------- -------
$54,088 $ 5,779 $40,538
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-66
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS
On July 24, 1997, the Company acquired 100% of the equity of Pharmaceutical
Marketing Solutions Pty Ltd (PMS), a privately held Australian company for
$3.8 million in cash. PMS uses a salesforce automation system based on Lotus
Notes and an analysis system which operates as an integration product between a
data warehouse and proprietary salesforce automation system.
The Company is in the process of completing its valuation of the acquired
assets and cannot therefore estimate the allocation of the purchase price.
F-67
