-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PrNF0Ok7r2OoBcJpFJASM/u2CDjFnjIakx7zCz9MSoBojAGHjKvSsDqyjjuXiYft AAwavMpQYNLjcaa1Yevh6A== 0000950110-99-000251.txt : 19990304 0000950110-99-000251.hdr.sgml : 19990304 ACCESSION NUMBER: 0000950110-99-000251 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMS HEALTH INC CENTRAL INDEX KEY: 0001058083 STANDARD INDUSTRIAL CLASSIFICATION: 7374 IRS NUMBER: 061506026 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14049 FILM NUMBER: 99553695 BUSINESS ADDRESS: STREET 1: 200 NYALA FARMS CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2032224523 MAIL ADDRESS: STREET 1: 200 NYALA FARMS ROAD CITY: WESTPORT STATE: CT ZIP: 06880 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K (MARK ONE) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER 001-12275. IMS HEALTH INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1506026 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 200 NYALA FARMS, WESTPORT, CONNECTICUT 06880 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (203) 222-4200. SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - ------------------- ------------------- Common Stock, par value $.01 per share ................. New York Stock Exchange Preferred Stock Purchase Rights ........................ New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| As of February 1, 1999, 318,016,855 shares of Common Stock of IMS Health Incorporated were outstanding and the aggregate market value of such Common Stock held by nonaffiliates (based upon its closing transaction price on the Composite Tape on such date) was approximately $12,025 million. (Continued) ================================================================================ Documents Incorporated by Reference PART I ITEM 1 -Business IMS Health Business Segments, 1998, Pages 34 to 36 Note 17. Operations by Business Segments, of the 1998 Annual Report to Shareholders. ITEM 3 -Legal Proceedings Pages 32 and 33, Note 15. Contingencies, of the 1998 Annual Report to Shareholders. PART II ITEM 5 -Market for the Registrant's Common Pages 11 and 12, Equity and Related Stockholder Financial Review, of Matters the 1998 Annual Report to Shareholders. ITEM 6 -Selected Financial Data Page 38, Five-Year Selected Financial Data, of the 1998 Annual Report to Shareholders. ITEM 7 -Management's Discussion and Analysis Pages 1 to 12, of Financial Condition and Results of Financial Review, of Operations the 1998 Annual Report to Shareholders. ITEM 7A -Quantitative and Qualitative Disclosure Page 11, Financial About Market Risk Review, and Page 24 to 25, Note 9. Financial Instruments, of the 1998 Annual Report to Shareholders. ITEM 8 -Financial Statements and Supplementary Pages 14 to 38 of the Data 1998 Annual Report to Shareholders; Pages F-1 to F-20 of the Gartner Group, Inc. 1998 Annual Report to Shareholders. PART III ITEM 10 -Directors and Executive Officers of the Section entitled Registrant "Election of Directors" of the Company's Proxy Statement dated February 26, 1999. ITEM 11 -Executive Compensation Section entitled "Compensation of Executive Officers and Directors" of the Company's Proxy Statement dated February 26, 1999. ITEM 12 -Security Ownership of Certain Beneficial Section entitled Owners and Management "Security Ownership of Management and Others" of the Company's Proxy Statement dated February 26, 1999. ITEM 13 -Certain Relationships and Related Not Applicable. Transactions -------------------------- The Index to Exhibits is located on Page 23 1 PART I As used in this report, except where the context indicates otherwise, the terms "Company" and "IMS HEALTH" mean IMS Health Incorporated and all subsidiaries consolidated in the financial statements contained or incorporated by reference herein. ITEM 1. BUSINESS IMS Health Incorporated ("accounting successor to Cognizant") was incorporated under the laws of the State of Delaware on February 3, 1998. The Company began operating as an independent publicly held company on July 1, 1998 (the "Distribution Date") as a result of its spin-off (the "Cognizant Spin-off") from Cognizant Corporation ("Cognizant"). Prior to the Cognizant Spin-off, the Company was owned by Cognizant. Cognizant began operating as an independent publicly held company on November 1, 1996 as a result of its spin-off (the "D&B Spin-off") from The Dun & Bradstreet Corporation ("Dun & Bradstreet"). Prior to the D&B Spin-off, Cognizant was owned by Dun & Bradstreet. The Common stock of IMS HEALTH was distributed by Cognizant Corporation ("Cognizant") to its shareholders on June 30, 1998. Simultaneously with the distribution Cognizant changed its name to Nielsen Media Research, Inc. ("Nielsen Media Research"). Notwithstanding the legal form of the distribution, whereby Cognizant spun off IMS HEALTH, for accounting purposes the transaction is accounted for as if Cognizant spun off Nielsen Media Research and IMS HEALTH has been deemed the "accounting successor" to Cognizant. The separation created IMS HEALTH as the premier global provider of information solutions to the pharmaceutical and healthcare industries, and established an independent Nielsen Media Research, the leader in North American electronic audience measurement services. On November 11, 1998 the Company announced that its Board of Directors approved a plan, in principle, to spin-off substantially all of its equity ownership of Gartner Group, Inc. ("Gartner"). The transaction, expected to be completed in the first half of 1999, is to be structured as a tax-free distribution of Gartner stock to IMS HEALTH shareholders. At the December 31, 1998 the Company owned approximately 47 million shares of Gartner. Prior to the spin-off, 40.1 million of these shares will be exchanged for new Class B Common Stock of Gartner. The Class B Stock will be entitled to elect 80% of Gartner's Board of Directors, but will otherwise be identical to existing Class A Common Stock. The exchange will be part of a Gartner recapitalization. The Class B shares will be distributed to the Company's shareholders in a tax-free distribution, subject to receipt of a favorable tax ruling from the Internal Revenue Service ("IRS") with respect to the distribution. The Company intends to monetize its remaining position in Gartner by the end of 1999. This includes 6.9 million shares of Class A Common Stock and warrants to purchase a further 600,000 shares. Separately, Gartner announced that, subject to approval by the IRS of the tax-free treatment of the distribution, it intends to declare a special one-time cash dividend of $300 million to its shareholders of record immediately prior to the spin-off. The Gartner Board of Directors also announced that it intends to authorize a $300 million open market share repurchase program for up to 20% of its stock commencing immediately after the spin-off. The transaction is subject to receipt of a favorable ruling from the IRS, final approval by the Company's and Gartner Boards of Directors, and approval by Gartner shareholders. IMS HEALTH is the global provider of information solutions to the pharmaceutical and healthcare industries. IMS HEALTH consists of the market information, and decision-support services business for the pharmaceutical and healthcare industries conducted by IMS HEALTH and various subsidiaries ("IMS"), IMS Health Strategic Technologies Inc. ("Strategic Technologies"), which is a leading provider of automated sales support to the pharmaceutical industry, ERISCO Managed Care Technologies, Inc. ("Erisco"), which provides application software and services to the healthcare industry to help manage the administration of group health and life insurance products, Enterprise Associates, Inc. ("Enterprises"), which invests in businesses mainly in the information technology and healthcare information industries, a 61.7% ownership interest in Cognizant Technology Solutions Corporation ("CTS"), which provides software solutions to complex IT problems including application development and maintenance services and Year 2000 and Eurocurrency compliance services. The Company also has an equity investment in Gartner Group, Inc. ("Gartner"), the premier provider of research and advisory services to the information technology industry. The Company operates in approximately 90 countries. The number of full-time equivalent employees at December 31, 1998 was approximately 8,000. The Company's operations can be grouped into the following business segments: IMS, Emerging Markets, and CTS, plus its equity investment in Gartner. Gartner is the leading independent provider of research and analysis on the computer hardware, software, communications and related technology industries. 2 IMS The IMS segment provides information and decision-support services to the pharmaceutical and healthcare industries worldwide. These services broadly include market research services, sales management services, sales force automation and other professional, software, direct marketing and research and development services. IMS provides information services covering 94 countries and maintains offices in 74 countries on six continents, with 62% of total revenue generated outside the United States in 1998. In 1998, IMS continued its expansion in developing markets in Eastern Europe and Sub-Saharan Africa. Revenue in 1998 increased by 22% compared with 1997 in these developing markets. Sales management services represented approximately 48% of the IMS segment's worldwide revenue in 1998. Sales management services include sales territory reports, prescription tracking reports and doctor profiling services. These reports are customized for each pharmaceutical client and are used principally by pharmaceutical manufacturers to measure and forecast the effectiveness and efficiency of sales representatives and to target the marketing and sales efforts of a client's salesforce. IMS's principal sales management services are as follows: o Sales Territory Reporting Services. Sales territory reporting is the principal sales management service offered by IMS to its pharmaceutical clients. Sales territory reports can be precisely tailored for each client, and measure the sales of a client's own products and those of competitors within specified geographical configurations. These reports are designed to provide marketing and sales managers with a reliable measurement of each salesperson's activity and effectiveness in his or her sales territory, and therefore are used by clients, among other things, for determining sales force compensation. Data reported for multiple territories are used for applications such as resource allocation, territory alignment, market analyses and distribution management. Depending on the particular market, sales territory reports are available to clients on a weekly, monthly or quarterly basis. In the United States, sales territory reports from IMS's DDD service allow pharmaceutical clients to track the flow of their products and those of their competitors to various levels of geography and channels of distribution. The DDD database contains a virtual census of sales of pharmaceutical products through all distribution channels, including direct sales by pharmaceutical manufacturers and indirect sales through drug wholesalers, mail order distributors, warehousing chains and other market participants. IMS provides sales territory reporting services in 35 countries. o Prescription Tracking Reporting Services. Prescription tracking reporting services are designed to monitor prescription activity and to track the movement of pharmaceutical products out of pharmacies. Prescription tracking services are used by pharmaceutical companies to facilitate product marketing at the prescriber level. In the United States, the Xponent service monitors prescription activity at the retail pharmacy and mail order outlet level, and uses a patented statistical methodology to project the prescription activity of nearly one million individual prescribers on a monthly basis. Xponent is currently under development in Europe. The Europe Xponent database is built from prescription data collected from retail pharmacies and coding centers which are linked to the geographical area in which the prescription was written, and where permissible under local data privacy laws, to individual prescribers. Europe Xponent is in development in the United Kingdom, Germany, Belgium, the Netherlands, Italy, France and Spain. The acquisition of PMSI has accelerated the development of Xponent. Sales management reporting services are made available to clients and their sales representatives and management via hardcopy reports, CD-ROMs, software application tools, computer on-line services, web based access and magnetic media for use in client computer systems and IMS's customized electronic workstations. IMS's data delivery systems assist clients in maximizing efficiency by aiding in the setting of sales targets and calculation of sales commissions; giving fast access to sales data and permitting more sophisticated analyses; improving call reporting; and improving communication between sales management and their sales forces. In the United States, IMS has several customized client-server decision support systems that allow a client to store large amounts of data at its own site and integrate its own internal sales and marketing data with IMS data and other external data. IMS also provides clients with customized data warehouse tools and web based access capabilities. Market research services represented approximately 35% of the IMS segment's worldwide revenue in 1998. The principal market research services are syndicated pharmaceutical, medical, hospital, promotional, prescription and self-medication audits. Market research services are utilized by clients for various strategic purposes, including analyzing market shares, therapeutic prescribing trends and price movements at the national and subnational levels. The information reported in these services is generated or derived from data collected primarily from pharmaceutical manufacturers, pharmaceutical wholesalers, pharmacies, hospitals and doctors. Market research services are delivered to clients via hardcopy reports, CD-ROMs, software application tools, computer on-line services, and magnetic media for use in client computer systems and IMS's customized electronic workstations. IMS's principal market research services are as follows: 3 o Pharmaceutical Audits. These audits measure the sale of pharmaceutical products into pharmacies, supplemented in some countries by data collected from prescribing physicians, retail chains and discount stores. These audits contain data projected to national estimates, showing product sales by therapeutic class broken down by package size and dosage form. IMS publishes pharmaceutical audits in over 83 countries. o Medical Audits. These audits are based on information collected from panels of practicing physicians and contain projected national estimates of the number of consultations for each diagnosed disease with details of the therapy prescribed. These audits also analyze the use physicians make of individual drugs by listing the diseases for which they are prescribed, the potential therapeutic action the physician is expecting, other drugs prescribed at the same time, and estimates of the total number of drugs used for each disease. IMS publishes medical audits in over 47 countries. o Hospital Audits. These audits contain data projected to national estimates and show the sale of pharmaceutical products to hospitals by therapeutic class. Related reports provide audits of laboratory diagnostic supplies, hospital supplies, and hospital records. IMS publishes hospital audits for 38 countries. o Promotional Audits. These audits measure pharmaceutical promotion for a particular market, including sales-force promotion and journal and mail advertising, based on information received from panels of physicians and from monitoring medical journals and direct mail. IMS publishes promotional reports for 26 countries. o Prescription Audits. These audits analyze the rate at which drugs move out of the pharmacy and into the hands of the consumer, and measure both what is prescribed by physicians and what is actually dispensed at the pharmacy. IMS publishes prescription audits in over 15 countries. o Self-Medication and OTC Reports. These reports provide detailed product movement, market share and pricing information for over-the-counter, personal care and patient care products. IMS publishes self-medication reports in 34 countries. o Other Market Research Reports. These include managed care reports which offer an array of information to quantify the effects of managed care on the pharmaceutical and healthcare industry; personal care reports which measure the sale of healthcare accessories, wound care and dietetic aids; and veterinary reports which analyze the animal care pharmaceutical market. IMS has developed, in certain countries, disease and treatment information at the patient level (which information is not identifiable to any individual patient) that gives participants in the healthcare industry new insights into the treatment of diseases. The availability, scope and frequency of the foregoing reports vary on a country-by-country basis. The remaining 17% of the IMS segment's 1998 revenue was derived primarily through professional consulting, software, direct marketing, research and development services, and sales support technology. IMS provides pharmaceutical and other clients with a range of value-added services that are used (i) to study specific issues and trends in the pharmaceutical marketplace and the healthcare industry, (ii) to manage sales and marketing, (iii) to evaluate the effectiveness of marketing programs, (iv) to analyze components of a product marketing program at any stage of its implementation, and (v) for consultancy in optimizing strategy, marketing programs and product commercialization. These services are as follows: o IMS Global Services. IMS's Global Services unit is based in the United Kingdom and the United States and provides access to global level information services to pharmaceutical clients operating on a multinational level. Global Services' core service offering, MIDAS(TM), is an on-line multinational integrated data analysis tool which harnesses IMS's worldwiDE databases and is used by the pharmaceutical industry to assess and utilize pharmaceutical information and trends in multiple markets. MIDAS gives clients on-line access to IMS-compiled pharmaceutical, medical, promotional and chemical data. Using MIDAS, clients are able to select information from the national databases compiled by IMS and produce statistical reports in the format the client requires. IMS Global Services also publishes various in-depth reviews of the worldwide pharmaceutical marketplace and provides custom market research and strategic consultancy. o Territory enterprise relationship management systems. Strategic Technologies, a subsidiary of IMS HEALTH is a leading provider of automated sales support technologies to the pharmaceutical industry. Strategic Technologies offers sales and marketing applications which can be integrated with client-critical databases to provide customer and business insights. Over 35,000 4 pharmaceutical sales executives worldwide rely on Strategic Technologies' solutions to make critical sales and marketing decisions on a daily basis. Three industry-leading IMS HEALTH products increase pharmaceutical sales force performance and productivity by providing access to up-to-the-minute profiling, targeting, activity reporting, team selling and sample management information. Cornerstone(TM) is a flexiblE, Windows(TM)-based, integrated sales and marketing information system used by sales forces. Capabilities of IMS HEALTH'S Cornerstone include the ability to quickly access and generate standard and customized reports, such as weekly activity summary reports, division reports and product launch reports; desktop or laptop reporting that provides fast updating of customer activities; and access to pharmaceutical databases through Cornerstone's MarketViews, which can be configured to deliver customized sales summaries by territory, district and physicians. Premiere(SM) is a Windows(TM)-based, integrated salES and marketing information system similar to Cornerstone with a substantial user base in Europe, Canada and Asia/Pacific. Core data can be drawn from various sources and tailored by country, region, department or individual user. Its unique application generators and builders are used to customize and modify the system to a company's specific requirements --quickly and without the need for re-programming. Sales and marketing professionals at every level of an organization can use Premiere to develop selling strategies, allocate and coordinate sales resources, track competitive activity, and plan, monitor and evaluate sales activity. Precise(SM)2000 is an Electronic Territory Management System that offers lower-cost hardware solutions for pharmaceutical sales organizations. The system is designed to help sales teams optimize their resources at every level, including organizing daily sales activities, monitoring individual performance, and making strategic and tactical decisions. This fully integrated software system also can be customized to increase productivity, to target prospective customers and to improve decision-making within a sales organization. Management is currently developing a next stage integrated and global sales management information system. Strategic Technologies is a market leader in application of a variety of hand held devices which offer greater portability in developed markets and a low cost entry strategy into sales force automation in emerging markets. o Professional Consulting Services. IMS's professional consulting services are provided to assist clients in the analysis and evaluation of market trends, strategies and tactics, and to assist in the development and implementation of customized software applications and data warehouse tools. In the United States, IMS's professional consulting services provides a wide range of custom market research, promotion optimization, promotion effectiveness, managed care and other advanced analytics services for the pharmaceutical and healthcare marketplace. The professional services consulting group also assists clients in designing customized decision support systems based on a variety of cutting-edge technologies which enable clients to optimize IMS data more rapidly and effectively in their decision-making process. Outside of the United States, a variety of consulting services is generally offered on a country-by-country basis. o Direct Marketing Services. IMS engages in the direct marketing businesses in the United States. Clark-O'Neill, Inc. ("Clark-O'Neill"), a wholly-owned subsidiary, represents the core of IMS's direct marketing business. Clark-O'Neill's services include sample distribution, pharmaceutical field salesforce support services, publication circulation management, direct mail, telemarketing projects utilizing physicians and other healthcare professionals, and other customized promotion programs. o Research and Development Services. IMS's research and development services provide clients with information and workstation tools intended to improve the effectiveness and speed of clinical research and subsequent regulatory approvals. IMS's regulatory affairs database, IDRAC, covers the European Union, certain Eastern European countries, Japan and the United States, guides users through the drug development and registration process. IMS also owns a 40% equity interest in DataEdge, an information provider to the pharmaceutical industry on clinical trial design and implementation. o Pharmacy dispensing and point-of-sales software systems. IMS also provides pharmacy dispensing and point-of-sale software systems to retail pharmacies in the United Kingdom and Australia. Over the past four decades, IMS has developed strong relationships with its data suppliers in each market in which it operates. As the supply of pharmaceutical data is critical to IMS's business, IMS devotes significant human and financial resources to its data collection efforts and in many cases has historical connections with the trade associations and professional associations involved. In the United States, IMS HEALTH and Clark-O'Neill each have been designated as database licensees by the American Medical Association ("AMA") for use and sublicensing of the AMA's physician database. Sales to the healthcare industry accounted for substantially all of the IMS segment's revenue in 1998. All major pharmaceutical companies are customers of IMS, and many of the companies subscribe to reports and services in several 5 countries. IMS's customer base is broad in scope and enables it to avoid dependence on any single customer. None of IMS's customers accounted for more than 10% of the Company's gross revenues in 1998. While no competitor provides the geographical reach or breadth of IMS's services, IMS generally has competition in the countries in which it operates from other information services companies, as well as the in-house capabilities of its customers. Generally, competition has arisen on a country-by-country basis. In the United States, certain of IMS's sales management services, including its sales territory and prescription tracking reports, representing approximately 60% of the annual revenue of the US unit, compete with the services of National Data Corp. Quality, completeness and speed of delivery of information services and products are the principal methods of competition in IMS's market. EMERGING MARKETS This segment is comprised of Erisco, Enterprises and SSJ K.K. ("SSJ"). ERISCO Erisco has been a leading provider of application software and services to the healthcare industry for over two decades. Erisco's legacy system solutions, ClaimFacts and GroupFacts, were designed to help indemnity insurance carriers, third party administrators and self-administered corporations manage the administration of group health and life insurance products. Erisco's primary offering, Facets, is a client/server system which integrates advanced technology with clinical information to help managed care organizations ("MCOs") provide high-quality, cost-effective solutions in their marketplace. Primary markets include health maintenance organizations, preferred provider organizations, Blue Cross/Blue Shield organizations, managed-indemnity carriers and specialized MCOs. Erisco's strategic growth will come from Facets sales to the MCO market. Ongoing change in healthcare has had a significant impact on this market segment, resulting in the migration of plan members from indemnity-oriented plans to managed care. By the year 2000, managed health plan membership in the United States is estimated to surpass the 100 million mark. This significant market growth combined with the limitations of aging information systems, will continue to increase the demand for sophisticated managed care applications. Erisco also extends its Facets business solution through a service bureau offering for low-volume customers, and through alliances with strategic, complementary systems partners, and systems integration and implementation consultants. Within the high-growth managed care market segment, Erisco competes with three other information systems vendors; McKessonHBOC, Computer Sciences Corporation and Health Systems Design. Competition is principally based on company reputation, system functionality and technology, and ease of use and service. ENTERPRISES Enterprises invests in emerging and established businesses, with an emphasis on information technology and the health care information industry. It has invested as a limited partner in Information Partners Capital Fund, Information Associates, L.P. and Information Associates II, L.P., all of which are venture capital limited partnerships, as well as through direct investments. SSJ SSJ is based in Japan and markets financial application software products and services tailored for the Japanese market. 6 CTS In the second quarter of 1998, CTS effected an initial public offering of its Class A Common Stock. As of December 31, 1998 IMS HEALTH owns 61.7% of the outstanding common stock of CTS, representing approximately 94% of the combined voting power of CTS' common stock. CTS is quoted on the Nasdaq National Market under the trading symbol "CTSH." CTS provides various software development and maintenance services to IMS Health and is subsidiaries, including assisting in IMS HEALTH'S Year 2000 compliance efforts. IMS HEALTH provides certain administrative services to CTS pursuant to an agreement entered into in connection with the public offering. During 1998, CTS recorded intercompany sales of approximately $13 million, principally to the IMS segment. These sales are eliminated in consolidation. CTS delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems. Its services include the following: o Application Development Services. CTS develops new applications for IBM mainframe, client/server architectures and other emerging technology environments. CTS follows either of two approaches, including (i) full life cycle application development in which CTS assumes total start-to-finish responsibility and accountability for analysis, design, implementation and testing of systems, or (ii) cooperative development in which CTS's employees work with a customer's in-house information technology ("IT") personnel to analyze, design, implement and test new systems. o Application Maintenance Support Services. CTS provides services to ensure that a customer's legacy software systems are operational and responsive to end-users' changing needs. In doing so, CTS is often able to introduce process enhancements and improve service levels to customers requesting modifications and on-going support. o Year 2000 Compliance Services. With the year 2000 approaching, computer software systems that were not designed to process dates correctly in the next century are expected to fail. Organizations rely on mission-critical software systems and must either repair the problem presented by the Year 2000 issue or replace legacy systems. CTS uses its proprietary Year 2000 toolset and methodology, Century Transition Services 2000, to provide a cost-effective total solution for all phases of a Year 2000 compliance project. The Century Transition Services 2000 methodology covers the entire life cycle of a Year 2000 compliance project and comprises a seven step process: (i) inventory preparation, (ii) impact analysis, (iii) strategy and design, (iv) code change and data migration, (v) unit, system and acceptance testing, (vi) implementation and (vii) post-implementation support. The Century Transition Services 2000 toolset covers a wide array of common programming languages and environments including many client/server environments. CTS is thus able to provide complete solutions across a large portion of customers' systems. o Eurocurrency Compliance Services. The monetary union of the European Community presents a significant opportunity for CTS as computer systems which deal with any European denominated currency modified to handle local currency and Eurocurrency transactions. CTS is addressing the Eurocurrency compliance problem and has established a dedicated practice to focus on this problem. CTS believes that portions of its Year 2000 toolset and methodology can be extended to efficiently address the European currency compliance needs of customers. o Testing and Quality Assurance Services. Testing and quality assurance is a critical aspect of any software development activity. CTS works with customers to better define the quality assurance processes which are in use by the customers' in-house IT departments. CTS utilizes its quality assurance expertise to ensure better quality software through fundamental process improvements. o Re-Hosting and Re-Engineering Services. Through CTS's re-hosting and re-engineering service offerings, CTS works with customers to migrate systems based on legacy computing environments to newer, open-systems-based platforms and client/server architectures. The IT services market includes a large number of participants, is subject to rapid changes and is highly competitive. Many of CTS's competitors have significantly greater financial, technical and marketing resources and greater name recognition than CTS. The principal competitive factors affecting the markets for CTS's services include (i) performance and reliability, (ii) quality of technical support, training and services, (iii) responsiveness to customer needs, (iv) reputation, experience and financial stability and (v) competitive pricing of services. 7 RESOURCE GROUP Shared Business Services began operations in 1994 as an internal services business. The shared service center in Allentown, Pennsylvania provides centralized functions covering broad finance and administrative services formerly supplied within each IMS HEALTH division, in the United States and Canada, but at lower cost with higher levels of service. In 1998 effective with the Cognizant Spin-off, the center began servicing Nielsen Media Research as an external services provider in the functions of general accounting, accounts payable, payroll and financial systems support. FOREIGN OPERATIONS As indicated above, IMS HEALTH and its subsidiaries engage in a significant portion of their business outside of the United States. IMS HEALTH's foreign operations are subject to the usual risks inherent in carrying on business outside of the United States, including fluctuation in relative currency values, possible nationalization, expropriation, price controls and other restrictive government actions. IMS HEALTH believes that the risk of nationalization or expropriation is reduced because its products are software, services and information, rather than the production of products which require manufacturing facilities or the use of natural resources. INTELLECTUAL PROPERTY IMS HEALTH owns and controls a number of patents, 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 "IMS" name and related names, marks and logos are of material importance to IMS HEALTH. IMS HEALTH is licensed to use certain technology and other intellectual property rights owned and controlled by others, and similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by IMS HEALTH. The technology and other intellectual property rights licensed by IMS HEALTH are of importance to its business, although management of IMS HEALTH believes that IMS HEALTH's business, as a whole, is not dependent upon any one intellectual property or group of such properties. The names of IMS HEALTH's and its subsidiaries' products and services referred to herein are trademarks, service marks, registered trademarks or registered service marks owned by or licensed to IMS HEALTH or one of its subsidiaries. RELATIONSHIP BETWEEN IMS HEALTH AND NIELSEN MEDIA RESEARCH AFTER THE DISTRIBUTION Prior to the Cognizant Spin-off, IMS HEALTH and Cognizant (which changed its name to Nielsen Media Research, Inc.) entered into certain agreements governing their relationship subsequent to the Cognizant Spin-off and providing for the allocation of certain liabilities and obligations arising from periods prior to the Cognizant Spin-off, including those obligations and liabilities that arose in connection with the D&B Spin-off. The following descriptions summarize certain terms of such agreements, but is qualified by reference to the texts of such agreements, which are incorporated by reference to the Exhibits to this Form 10-K. DISTRIBUTION AGREEMENT Cognizant and IMS HEALTH entered into a Distribution Agreement (the "Distribution Agreement") providing for, among other things, certain corporate transactions required to effect the Cognizant Spin-off and other arrangements between Cognizant and IMS HEALTH subsequent to the Cognizant Spin-off. In particular, the Distribution Agreement defines the assets and liabilities which were allocated to and assumed by IMS HEALTH and those which are allocated to and assumed by Nielsen Media Research. All assets were transferred without any representation or warranty, "as is-where is", and the relevant transferee bears the risk that any necessary consent to transfer was not obtained. The Distribution Agreement provides for, among other things, assumption of 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) Cognizant's businesses (i.e., Nielsen Media Research) and certain other specified liabilities and (ii) all other liabilities to IMS HEALTH. Pursuant to the terms of the 1996 Distribution Agreement (the "1996 Distribution Agreement") among Cognizant, Dun & Bradstreet and ACNielsen Corporation ("ACNielsen"), as a condition to the Distribution, IMS HEALTH and Nielsen Media Research were required to and did undertake to be jointly and severally liable to Dun & Bradstreet and ACNielsen for any liabilities arising thereunder. The Distribution Agreement allocates between IMS HEALTH and 8 Nielsen Media Research the financial responsibility for such liabilities including contingent liabilities related to certain prior business transactions and certain liabilities to Dun & Bradstreet that may arise in connection with the D&B Spin-off. Among other things, IMS HEALTH and Nielsen Media Research agreed to an allocation of certain potential liabilities in connection with the action filed by Information Resources, Inc. described in Note 15 of the Notes to Consolidated Financial Statements in the 1998 Annual Report to Shareholders, referred to in Item 3 Legal Proceedings (the "IRI Action"). IMS HEALTH and Nielsen Media Research have agreed that, as between themselves, IMS HEALTH will assume 75%, and Cognizant will assume 25%, of any payments to be made by Cognizant in respect of IRI Action under the 1996 Indemnity and Joint Defense Agreement among Cognizant, Dun & Bradstreet and ACNielsen (the "IJDA") including any legal fees and expenses incurred in 1999 or thereafter. IMS HEALTH agreed to be fully responsible for any legal fees and expenses incurred during 1998. Nielsen Media Research aggregate liability to IMS HEALTH for payments in respect of the IRI Action and certain other specified contingent liabilities is not to exceed $125 million. Under the IJDA, ACNielsen assumed exclusive liability for the IRI Liabilities up to a specified amount (the "ACN Maximum Amount"), which is to be calculated at the time such liabilities, if any, become payable, and that Cognizant and Dun & Bradstreet will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount which ACNielsen is able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims-paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring shareholder approval), and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. In addition, pursuant to the Distribution Agreement, on the Distribution Date, Nielsen Media Research contributed to IMS HEALTH all cash in Nielsen Media Research accounts other than (i) cash required by Nielsen Media Research to satisfy certain specified obligations and (ii) such additional cash as was necessary for the net borrowings of Nielsen Media Research (excluding the items referred to in clause (i)) to be $300 million as of the Distribution Date. The Distribution Agreement provides that neither Nielsen Media Research nor IMS HEALTH will take any action that would jeopardize the intended tax consequences of the Cognizant Spin-off. Specifically, each company 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. As part of the request for a ruling that the Cognizant Spin-off will be tax free for Federal income tax purposes, each company represented to the Internal Revenue Service that, subject to certain exceptions, it has no plan or intent to liquidate, merge or sell all or substantially all of its assets. As a result, the Company may not initiate any action leading to a change of control, and in the case of a change in control, the foregoing representations, and the ruling based thereon, could be called into question. As a result, the acquisition of control of the Company prior to July 1, 2000 may be more difficult or less likely to occur because of the potential substantial contractual damages associated with a breach of such provisions of the Distribution Agreement. TAX ALLOCATION AGREEMENT Nielsen Media Research and IMS HEALTH entered into a Tax Allocation Agreement under which IMS HEALTH agreed to pay any taxes, or receive any refunds or credits of taxes, shown as due on a U.S. federal, state or local income or franchise tax return for a taxable period beginning prior to the 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). Any subsequent adjustment of such taxes will be allocated to IMS HEALTH if such adjustment relates to IMS HEALTH's business and to Cognizant if such adjustment relates to the Nielsen Media Research business, except that any adjustment of such taxes attributable to tax items or positions initially determined by Cognizant's corporate office will be allocated to IMS HEALTH. All taxes other than U.S. federal, state and local income and franchise taxes will be the responsibility of IMS HEALTH if they are attributable to IMS HEALTH's business and of Nielsen Media Research if they are attributable to Nielsen Media Research business. For taxable periods beginning on or after the Distribution Date (and the portion of the current taxable period beginning after the Distribution Date), IMS HEALTH and Nielsen Media Research will be responsible for their own taxes. 9 EMPLOYEE BENEFITS AGREEMENT Nielsen Media Research and IMS HEALTH entered into an Employee Benefits Agreement, which allocates responsibility for certain employee benefits matters on and after the Distribution Date. Among other things, the Employee Benefits Agreement requires that the Company adopt a defined pension plan, nonqualified supplemental pension plans and welfare plans for the benefit of IMS HEALTH employees and former employees. Nielsen Media Research is required to continue to sponsor its current defined benefit pension plans and welfare plans for the benefit of employees and former employees and will retain the liability for benefits under Nielsen Media Research nonqualified supplemental pension plans for such employees. Nielsen Media Research and IMS HEALTH will each generally retain the severance liabilities of their respective employees who terminated employment prior to the Distribution Date. Assets and liabilities of the Cognizant Pension Plan attributable to the Company's employees and retirees were transferred to a plan maintained by the Company. AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT Nielsen Media Research, IMS HEALTH, Dun & Bradstreet, R.H. Donnelley, Inc., ACNielsen and Gartner entered into an Amended and Restated Transition Services Agreement pursuant to which such parties have agreed to certain basic terms governing the provision by Dun & Bradstreet to the other parties of insurance and risk management services for a transitional period after the Distribution Date. The Amended and Restated Transition Services Agreement amends and restates in its entirety the Transition Services Agreement dated as of October 28, 1996 among Cognizant, Dun & Bradstreet and ACNielsen entered into in connection with the D&B Spin-off and includes Gartner as a party to such agreement. FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information and statements provided by the Company may contain "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. The Company cautions shareholders and investors that actual results may differ materially from those projected or suggested in any forward-looking statement as a result of a wide variety of factors, including but not limited to the factors set forth below: o Many existing computer systems and software applications use two digits, rather than four, to record years. Unless modified, such systems will not properly record or interpret years after 1999, which could lead to business disruptions ("the Year 2000 issue"). The Company began to address the Year 2000 issue in 1996, when it began to assess the impact on its operations. In 1997, the Company created a Year 2000 Task Force (the "task force") to manage overall risks and to facilitate activities across the entire Company. CTS, a majority owned subsidiary, is being used to convert the majority of the systems to allow most internal staff members to focus on the core business. The Company has also used outside services to assist in conversion and to assess the progress of its Year 2000 program. The Company has identified its Year 2000 areas of focus as systems and software for the creation and delivery of its products and systems and software for its internal administrative operations. o The cost of addressing the Year 2000 issue and the dates which the Company currently expects to complete Year 2000 compliance are based on the current best estimates of management, which are derived utilizing various assumptions regarding the future events. There can be no guarantee that these estimates will be achieved, and actual results may differ materially. Specific factors that may cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area of expertise, the ability to locate and correct all relevant computer codes, and the success of customers and suppliers in addressing the Year 2000 issue. The Company's plans are dependent on the continuous operation of industries outside of its direct control such as utilities, transportation, etc. The above expectations are subject to uncertainties. For example, if the Company is unsuccessful in identifying or fixing all Year 2000 problems in its critical operations, or effected by the inability of its data suppliers or major customers to continue operations due to such a problem, the Company's results of operations or financial condition could be materially impacted. See the "Financial Review" in the 1998 Annual Report to Shareholders. o Results could be affected by the costs and other effects of litigation and other contingencies involving the Company. In particular, management of the Company is unable to predict at this time the final outcome of the IRI Action described in "Note 15. Contingencies" of the Notes to Consolidated Financial Statements in the 1998 Annual Report to Shareholders, or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. o The Company has been informed by The Dun & Bradstreet Corporation ("D&B") that the IRS is currently reviewing D&B's utilization of certain losses during 1989 and 1990. While D&B has not received an assessment with respect to these transactions, it understands that the IRS will challenge D&B's position. The Company has estimated that D&B's total cash liability to the IRS if an assessment is made and the IRS prevails would be approximately $425,000 for taxes and accrued interest net of tax benefit. Under the terms of the 1996 Distribution Agreement, the Company is liable to pay half of such taxes and interest owed to the extent that D&B's total liabilities exceed $137,000. A portion of the Company's liabilities would in turn be shared with Nielsen Media Research in connection with the Distribution dated June 30, 1998 between Cognizant and the Company. The Company estimates that its current share of the Liability were the IRS to prevail would be approximately $135,000. Additional information is incorporated by reference to Note 12. Income Taxes on Pages 30 - 31 of the 1998 Annual Report to Shareholders. 10 o The Company operates globally, deriving 59% of its $1,186,513 in revenue and 114% of its $132,484 in operating income from non-U.S. operations. As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar may increase the volatility of U.S. dollar-denominated operating results. The Company's geographic expansion in emerging markets such as Eastern Europe, Africa 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, the Company is subject to the usual risks inherent in carrying on business in certain countries outside the United States, including possible nationalization, expropriation, price controls or other restrictive government actions. Management believes that the risk of nationalization or expropriation is reduced because its basic service is the delivery of information, rather than the production of products which require manufacturing facilities or use of natural resources. o Although an important aspect of the Company's business strategy is growth through acquisitions, there can be no assurance that management of the Company will be able to identify and consummate acquisitions on satisfactory terms. Furthermore, every acquisition will entail some degree of uncertainty and risk, and even if consummated, may not produce the operating results or increases in value over time which were expected at the time of acquisition. o The Company competes in businesses which demand or sell sophisticated information systems, software and other technology. The types of systems which the Company's businesses require or sell can be expected to be subject to refinements as such systems and underlying technologies are upgraded and advanced, and there can be no guarantee that as various systems and technologies become outdated, the Company will be able to replace them, to replace them as quickly as the Company's competition or to develop and market new and better products and services in the future on a cost-effective basis. o Currently, the Company's assets include a significant block of the outstanding shares of Gartner. In the third quarter of 1997, the Company's voting interest in Gartner fell below 50% to 49.5% based upon the exercise of Gartner employee stock options and employee stock purchases. Accordingly, as of September 30, 1997 the Company deconsolidated Gartner and is accounting for its ownership interest on the equity basis. Gartner's common stock has historically traded at higher multiples than market averages and has generally experienced greater price volatility than the market as a whole. It can be expected that variations in the market value of the Gartner shares held by the Company will have an impact on the trading prices of the Company's Common Stock. Gartner's results of operations may also be subject to the various factors described in Gartner's reports filed with the SEC from time to time. o A number of countries in which the Company operates have enacted regulations limiting the prices pharmaceutical companies may charge for drugs. The Company believes that such cost containment measures will cause pharmaceutical companies to seek more effective means of marketing their products (which will benefit the Company in the medium and long term). However, such governmental regulation may cause pharmaceutical companies to revise or reduce their marketing programs in the near term. o Certain of the data services provided by the Company relate to the diagnosis and treatment of disease. The use of patient-specific information is anticipated to be an increasingly important tool in the design, development and marketing of pharmaceuticals. To protect privacy, no individual patient is identified in any IMS database. Recently, there have been a number of regulatory and legislative initiatives in the area of medical privacy at the federal, state and foreign government levels. Most of these initiatives seek to place restrictions on the use and disclosure of patient-identifiable information without consent and consequently would not apply to the Company's business. However, there can be no assurance that future initiatives would not adversely affect the Company's ability to generate or assemble data or to develop or market current or future products and services. o Each of the Company's businesses is subject to significant or potential competition which is likely to intensify in the future. o The Company's results could be adversely affected by general or specific weakening of economic conditions, including weak economic conditions in the pharmaceutical, healthcare, information technology or other industries in which the Company's customers operate. 11 o On November 11, 1998 the Company announced that its Board of Directors approved a plan, in principle, to spin-off substantially all of its equity ownership of Gartner. The transaction, expected to be completed in the first half of 1999, is to be structured as a tax-free distribution of Gartner Stock to IMS HEALTH shareholders. The transaction is subject to receipt of a favorable ruling from the IRS, final approval by the Company's and Gartner's Board of Directors, and approval by Gartner shareholders. Additional information is incorporated by reference to the Financial Review on pages 1-12 of the 1998 Annual Report to Shareholders. --------------------------------------- The names of the Company's products used in this report are trademarks or registered trademarks of IMS Health Incorporated or one of its subsidiaries. Additional information is incorporated by reference to Note 17. Operations by Business Segment on Pages 34 - 36 of the 1998 Annual Report to Shareholders. 12 ITEM 2. PROPERTIES The principal properties of the Company are set forth below. The executive offices of IMS Health Incorporated are located at 200 Nyala Farms, Westport, Connecticut in a leased property. Property of the Company is geographically distributed to meet sales and operating requirements worldwide. The properties of the Company are generally considered to be both suitable and adequate to meet current operating requirements and virtually all space is being utilized. IMS Owned properties located within the United States include three facilities. The properties are located in Totowa, New Jersey; and Plymouth Meeting and West Norriton, Pennsylvania. Owned properties located outside the United States include nine facilities: one property each in Buenos Aires, Argentina; Artarmon, Australia; Crows Nest, Australia; Innsbruck, Austria; Santiago, Chile; Lisbon, Portugal; and London, Loughborough and Pinner, England. The operations of this business unit are also conducted from twenty-two leased offices located throughout the United States and one-hundred and five non-United States locations. EMERGING MARKETS Operations are conducted from two leased office locations throughout the United States. CTS Operations are conducted from three leased office locations throughout the United States and nine non-United States locations. RESOURCE GROUP/CORPORATE Operations are conducted from two leased office locations in Allentown, Pennsylvania and Westport, Connecticut. ITEM 3. LEGAL PROCEEDINGS Reference is made to Note 15. of Notes to Consolidated Financial Statements on Pages 32 and 33 of the 1998 Annual Report to Shareholders which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 13 EXECUTIVE OFFICERS OF THE REGISTRANT* Officers are elected by the Board of Directors to hold office until their respective successors are chosen and qualified. Listed below are the executive officers of the registrant at February 26, 1999 and brief summaries of their business experience during the past five years. Name Title Age ---- ----- --- Robert E. Weissman Chairman and Chief Executive Officer** 58 Victoria R. Fash President and Chief Operating Officer** 48 J. Michal Conaway Chief Financial Officer 50 Gilles Pajot Vice Chairman and President - Europe Region 49 Robert Hooper President, IMS America 53 Alan J. Klutch Senior Vice President - Finance 54 James C. Malone Senior Vice President - Finance and Controller 50 Kenneth S. Siegel Senior Vice President - General Counsel and Corporate Secretary 43 Craig S. Kussman Senior Vice President - Corporate Development 40 David H. Owen Senior Vice President - Global Human Resources 48 Matthew L. Friedman Vice President and Treasurer 41 * Set forth as a separate item pursuant to Items 401(b) and (e) of Regulation S-K. ** Member of the Board of Directors. Mr. Weissman was appointed Chairman and Chief Executive Officer of IMS Health Incorporated in February, 1998. He previously served as Chairman and Chief Executive Officer of Cognizant Corporation from September, 1996 to July, 1998. Mr. Weissman was Chairman and Chief Executive Officer of Dun & Bradstreet from April, 1995 to October, 1996 after serving as President and Chief Executive Officer from January, 1994 to March, 1995. He was named Dun & Bradstreet's President and Chief Operating Officer in January, 1985. Ms. Fash was appointed President and Chief Operating Officer of IMS Health Incorporated in February, 1998 and will become the Chief Executive Officer, effective March 19, 1999. Ms. Fash served as Executive Vice President and Chief Financial Officer of Cognizant Corporation from September, 1996 to July, 1998 and Chairman and Chief Executive Officer of I.M.S. International, Inc., a subsidiary of Cognizant, from December, 1997 to July, 1998. From April, 1995 to November, 1996, Ms. Fash was Vice President-Business Strategy of Dun & Bradstreet. Prior to that, she served as Vice President-Business Operations Planning of Dun & Bradstreet from May, 1994 to April, 1995. Previously, she had served as Assistant to the President of Dun & Bradstreet from September, 1991 to May, 1994. Mr. Conaway was appointed Chief Financial Officer in September, 1998. He previously served as Senior Vice President and Chief Financial Officer of Fluor Corporation, an engineering and diversified services company, from June, 1995 to September, 1998; Vice President and Chief Financial Officer from June, 1994 to June, 1995 and Vice President-Finance from January, 1993 to June, 1994. Mr. Pajot was appointed Vice Chairman and President - Europe Region in December, 1997. Prior to that he served as Senior Vice President and President Market Region Europe of Pharmacia & Upjohn. From September, 1994 to November 1995 he was Executive Vice President Worldwide of Pharmacia AB. Mr. Hooper was appointed General Manager of IMS America, Ltd. in April, 1997 and was appointed President in April, 1998. Prior to that, he was President of Abbott Laboratories Canada from July 1993 to April, 1997. Mr. Klutch was appointed Senior Vice President - Finance of IMS Health Incorporated in June, 1998. He previously served as Senior Vice President - Finance of Cognizant Corporation from September, 1996 to July, 1998. Mr. Klutch was Vice President - Financial Planning of Dun & Bradstreet from October, 1984 to October, 1996. Mr. Malone was appointed Senior Vice President - Finance and Controller of IMS Health Incorporated in May, 1998. He served as Senior Vice President - Finance and Controller of Cognizant Corporation from December, 1996 to July, 1998 and had been appointed Vice President - Finance and Controller from September, 1996 to December, 1996. Previously, he had served as Assistant Vice President and Leader - North American Shared Transaction Services Center 14 from February, 1995 to December, 1996 and as Vice President and Controller of Reuben H. Donnelley Corporation, subsidiary of Dun & Bradstreet from 1990 to February, 1995. Mr. Siegel was appointed Secretary of IMS Health Incorporated in February, 1998 and Senior Vice President, General Counsel and Corporate Secretary in June, 1998. He served as Senior Vice President and General Counsel of Cognizant Corporation from February, 1997 to July, 1998 and Secretary from July, 1997 to July, 1998. Mr. Siegel was a partner with the law firm of Baker & Botts, L.L.P. from September, 1994 to February, 1997. Previously, he was a partner at the law firm of O'Sullivan Graev & Karabell from July, 1987 to August, 1994. Mr. Kussman was appointed Senior Vice President - Corporate Development in August, 1998 having served as Vice President Corporate Development since June, 1998. He served as Vice President - Corporate Development of Cognizant Corporation from October, 1997 to June, 1998 and Vice President - Mergers and Acquisitions, from November, 1996 to October, 1997. Previously, he had served as Assistant Vice President - Financial Planning of Dun & Bradstreet from May, 1991 to November, 1996. Mr. Owen was appointed Senior Vice President, Global Human Resources in December 1998. Previously, he operated his own business consulting firm, Owen Consultants, from January, 1998 to November, 1998 and again from July, 1997 to December, 1997. Mr. Owen was Resourcing Director of Origin BV, an information technology services company, from February, 1997 to December, 1997 and was Director, Human Resources, Service Delivery and Internal Communications at Forte plc, a hotel and restaurant operator. Mr. Friedman was appointed Vice President and Treasurer of IMS Health Incorporated in February, 1999, having served as Interim Treasurer of the Company since August, 1998. Previously he was Assistant Treasurer of Cognizant Corporation from November, 1996 to June, 1998. Prior to that he served as Director - International Finance for Dun & Bradstreet from December, 1994 to November, 1996. 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information in response to this Item is set forth under Dividends and Common Stock Information in the "Financial Review" on Page 7 of the 1998 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data required by this Item is incorporated herein by reference to the information relating to the years 1994 through 1998 set forth in the "Five-Year Selected Financial Data" on Page 27 of the 1998 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information in response to this Item is set forth in the "Financial Review" on Pages 1 to 7 of the 1998 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Information in response to this Item is set forth under Market Risk in the "Financial Review" on Page 11 and in Note 9. Financial Instruments on Pages 24 to 25 of the 1998 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Schedules under Item 14 on Page 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference to the section entitled "Election of Directors" in the Company's proxy statement dated February 26, 1999 with the Securities and Exchange Commission, except that "Executive Officers of the Registrant" on Page 10 of this report responds to Items 401(b) and (e) of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference to the section entitled "Compensation of Executive Officers and Directors" in the Company's proxy statement dated February 26, 1999 with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference to the section entitled "Security Ownership of Management and Others" in the Company's proxy statement dated February 26, 1999 with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference to the section entitled "Security Ownership of Management and Others" in the Company's proxy statement dated February 26, 1999 with the Securities and Exchange Commission. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of documents filed as part of this report. (1) Financial Statements. See Index to Financial Statements and Schedule on Page 20. (2) Financial Statement Schedule. See Index to Financial Statements and Schedule on Page 20. (3) Other Financial Information. Five-year Selected Financial Data. See Index to Financial Statements and Schedule on Page 20. (4) Exhibits. See Index to Exhibits on Pages 23, which indicates which Exhibits are management contracts or compensatory plans required to be filed as Exhibits. Only responsive information appearing on pages 1 to 38 to Exhibit 13 is incorporated herein by reference, and no other information appearing in Exhibit 13 is or shall be deemed to be filed as part of this Form 10-K. (b) Reports on Form 8-K. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IMS HEALTH INCORPORATED (Registrant) By: /s/ ROBERT E. WEISSMAN ------------------------------------ (Robert E. Weissman, Chairman) By: /s/ VICTORIA R. FASH ------------------------------------ (Victoria R. Fash, President & Chief Executive Officer) By: /s/ J. MICHAL CONAWAY ------------------------------------ (J. Michal Conaway, Chief Financial Officer) By: /s/ JAMES C. MALONE ------------------------------------ (James C. Malone, Senior Vice President - Finance & Controller) Date: February 26, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ CLIFFORD L. ALEXANDER /s/ H. EUGENE LOCKHART - - -------------------------------------- --------------------------------- (Clifford L. Alexander, Jr., Director) (H. Eugene Lockhart, Director) /s/ VICTORIA R. FASH /s/ M. BERNARD PUCKETT - - -------------------------------------- --------------------------------- (Victoria R. Fash, Director) (M. Bernard Puckett, Director) /s/ JOHN P. IMLAY /s/ WILLIAM C. VAN FAASEN - - -------------------------------------- --------------------------------- (John P. Imlay, Jr., Director) (William C. Van Faasen, Director) /s/ ROBERT KAMERSCHEN /s/ ROBERT E. WEISSMAN - - -------------------------------------- --------------------------------- (Robert Kamerschen, Director) (Robert E. Weissman, Director) /s/ ROBERT J. LANIGAN - - -------------------------------------- (Robert J. Lanigan, Director) Date: February 26, 1999 19 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE FINANCIAL STATEMENTS: The Company's consolidated financial statements, the notes thereto and the related report thereon of PricewaterhouseCoopers LLP, independent accountants, for the years ended December 31, 1998, 1997, and 1996, appearing on pages 14 to 36 of the accompanying 1998 Annual Report to Shareholders, are incorporated by reference into this Annual Report on Form 10-K (see below). The additional financial data indicated below should be read in conjunction with such consolidated financial statements.
PAGE ---------------------------------------------- 10-K 1998 ANNUAL REPORT TO SHAREHOLDERS --------------------- --------------------- Statement of Management's Responsibility for Financial Statements........Exhibit 13 Pg 13 13 Report of Independent Accountants........................................Exhibit 13 Pg 13 13 As of December 31, 1998, 1997 and 1996: Consolidated Statements of Financial Position..........................Exhibit 13 Pg 15 15 For the years ended December 31, 1998, 1997 and 1996: Consolidated Statements of Income......................................Exhibit 13 Pg 14 14 Consolidated Statements of Cash Flows..................................Exhibit 13 Pg 16 16 Consolidated Statements of Shareholders' Equity........................Exhibit 13 Pg 17 - 18 17 - 18 Notes to Consolidated Financial Statements...............................Exhibit 13 Pg 19 - 37 19 - 37 Other Financial Information: Quarterly Financial Data (Unaudited) for the years ended December 31, 1998, 1997 and 1996.......................................Exhibit 13 Pg 37 37 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................Exhibit 13 Pg 1- 7 1 - 7 Business Segments is already included in "Notes to Consolidated Financial Statements" Five-Year Selected Financial Data......................................Exhibit 13 Pg 38 38 SCHEDULE: Report of Independent Accountants...................................... 16 -- II. Valuation and Qualifying Accounts for the years ended December 31, 1998, 1997, and 1996............................................ 17 -- OTHER: IMS Health Incorporated and Subsidiaries............................... Exhibit 21 -- Schedules other than the one listed above are omitted as not required or inapplicable or because the required information is provided in the consolidated financial statements, including the notes thereto. The consolidated financial statements of Gartner Group, Inc. and the notes thereto, for the years ended September 30, 1998, 1997, and 1996, and the related report thereon of KPMG Peat Marwick LLP, independent accountants, for the years ended September 30, 1998, 1997 and 1996 appearing on pages F-1 to F-20 of the Gartner Group, Inc. 1998 Annual Report to Shareholders, filed hereunder as Exhibit 99.2, are incorporated by reference into this Annual Report on Form 10-K.
20 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of IMS Health Incorporated: Our audits of the consolidated financial statements referred to in our report dated February 16, 1999 appearing in the 1998 Annual Report to Shareholders of IMS Health Incorporated ("accounting successor to Cognizant Corporation") (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP New York, New York February 16, 1999 21 IMS HEALTH INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(A) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- - ----------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - - ----------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(B) OF PERIOD ----------- --------- -------- ------------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: For the Year Ended December 31, 1998 ... $ 3,905 $ 1,828 $ 2,034 $ 7,767 ======= ======= ======= ======= For the Year Ended December 31, 1997 ... $11,697 $ 462 $(8,254) $ 3,905 ======= ======= ======= ======= For the Year Ended December 31, 1996 ... $ 8,135 $ 4,093 $ (531) $11,697 ======= ======= ======= =======
NOTE: (A) Schedule II has been restated to exclude Nielsen Media Research, a discontinued operation. (B) Primarily represents the inclusion of the allowance for doubtful accounts related to the Walsh and PMSI businesses in 1998; and the deconsolidation of Gartner and the recovery of accounts in 1997. 22 INDEX TO EXHIBITS REGULATION S-K EXHIBIT NUMBER DESCRIPTION - - -------------- ----------- 3 Articles of Incorporation and By-laws .1 Restated Certificate of Incorporation of IMS Health Incorporated dated May 29, 1998 (incorporated by reference to Exhibit 3.1 to Registrant's Registration Statement on Form 10 filed on June 12, 1998, file number 001-14049). .2 Amended and Restated By-laws of IMS Health Incorporated (incorporated by reference to Exhibit 3.1 to Registrant's Registration Statement on Form 10 filed on June 12, 1998, file number 001-14049). 10 Material Contracts .1 Distribution Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998. .2 Tax Allocation Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998. .3 Employee Benefits Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998. .4 Amended and Restated Transition Services Agreement among The Dun & Bradstreet Corporation, The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc., dated as of June 30, 1998. .5 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan, as adopted effective July 1, 1998.* .6 1998 IMS Health Incorporated Non-Employee Directors' Deferred Compensation Plan, as adopted effective July 1, 1998.* .7 1998 IMS Health Incorporated Employees' Stock Incentive Plan, as adopted effective July 1, 1998.* .8 1998 IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards, as adopted effective July 1, 1998.* .9 1998 IMS Health Incorporated Replacement Plan for Certain Non-Employee Directors Holding Cognizant Corporation Equity-Based Awards, as adopted effective July 1, 1998.* .10 Form of Non-Employee Directors' Stock Option Agreement.* .11 Form of Non-Employee Directors' Restricted Stock Agreement.* .12 Form of Restricted Stock Unit Agreements .13 Form of Stock Option Agreement.* .14 Form of Purchased Option Agreement.* .15 Forms of Change-in-Control Agreement for Certain Executives of IMS Health Incorporated.* .16 IMS Health Incorporated Employee Protection Plan, as adopted effective December 1, 1998.* .17 IMS Health Incorporated Executive Annual Incentive Plan, as adopted effective July 1, 1998. * .18 IMS Health Incorporated Supplemental Executive Retirement Plan, as adopted effective July 1, 1998.* .19 IMS Health Incorporated Retirement Excess Plan, as adopted effective July 1, 1998.* .20 Rights Agreement dated as of June 15, 1998 between IMS Health Incorporated and First Chicago Trust Company of New York. .21 IMS Health Incorporated Savings Equalization Plan, as adopted effective July 1, 1998.* .22 Employment Agreement by and between IMS Health Incorporated and Robert E. Weissman, dated as of July 1, 1998.* .23 Employment Agreement by and between IMS Health Incorporated and Victoria R. Fash, dated as of July 1, 1998.* .24 Amended and Restated Cognizant Technology Solutions Non-Employee Directors' Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Form S-1 filed by Cognizant Technology Solution Corporation on April 9, 1998, file number 333-49783). .25 Undertaking of IMS Health Incorporated, dated June 30, 1998. 13 1998 Annual Report to Shareholders. 21 List of Active Subsidiaries as of December 31, 1998. 23 Consent of Independent Accountants. 27 Financial Data Schedules. 99. Additional Exhibits .1 Consent of KPMG Peat Marwick LLP, independent accountants for Gartner Group, Inc. .2 Pages F1 to F20 of the Gartner Group, Inc. 1998 Annual Report to Shareholders. - - -------------------------------------------------------------------------------- * Management contract or compensatory plan or arrangement EX-13 2 ANNUAL REPORT -- IMS IMS HEALTH INCORPORATED ------------------------------------------------- 1998 ANNUAL REPORT TO SHAREHOLDERS IMS HEALTH [LOGO} IMS HEALTH INCORPORATED 1998 ANNUAL REPORT TO SHAREHOLDERS TABLE OF CONTENTS Financial Review........................................................... 1-12 Statement of Management's Responsibility for Financial Statements............ 13 Report of Independent Accountants............................................ 13 Consolidated Financial Statements..........................................14-18 Notes to Consolidated Financial Statements................................ 19-36 Quarterly Financial Data..................................................... 37 Five-Year Selected Financial Data............................................ 38 IMS HEALTH INCORPORATED FINANCIAL REVIEW Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- All share and per share data presented are adjusted to reflect a 2-for-1 stock split distributed to shareholders on January 15, 1999. (See Note 2. to the Consolidated Financial Statements). YEAR-ENDED DECEMBER 31, 1998 COMPARED WITH YEAR-ENDED DECEMBER 31, 1997 The accompanying financial statements and related financial review relate to IMS Health Incorporated ("IMS Health" or the "Company"). On June 30, 1998, the common stock of IMS Health was distributed by Cognizant Corporation ("Cognizant") to its shareholders. Simultaneously with the distribution (the "Distribution"), Cognizant changed its name to Nielsen Media Research, Inc. ("Nielsen Media Research"). Notwithstanding the legal form of the Distribution, whereby Cognizant spun off IMS Health, for accounting purposes the transaction is accounted for as if Cognizant spun off Nielsen Media Research and IMS Health has been deemed the "accounting successor" to Cognizant. IMS Health consists of the market information and decision support services business for the pharmaceutical and healthcare industries conducted by IMS Health and various subsidiaries ("IMS") including IMS Health Strategic Technologies Inc. ("Strategic Technologies"), ERISCO Managed Care Technologies, Inc. ("Erisco"), Enterprise Associates, Inc. ("Enterprises"), a 61.7% interest in Cognizant Technology Solutions Corporation ("CTS") and SSJ K.K. ("Super Systems Japan"). The Company also has an equity investment in Gartner Group, Inc. ("Gartner"). Pursuant to Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company have been reclassified to reflect the results of Nielsen Media Research as a discontinued operation. (See Note 1. to the Consolidated Financial Statements). Investment in Gartner In September 1997, the Company's voting interest in Gartner fell below 50% as a result of the exercise of Gartner employee stock options and employee stock purchases. Accordingly, in the third quarter of 1997, the Company deconsolidated Gartner (the "Gartner Deconsolidation") and as of January 1, 1997 is accounting for its ownership interest on the equity basis. (See Note 3. to the Consolidated Financial Statements). On November 11, 1998, the Company announced that its Board of Directors had approved a plan, to spin-off substantially all of its equity ownership of Gartner. The transaction, expected to be completed in the first half of 1999, is to be structured as a tax-free distribution of Gartner stock to IMS Health shareholders. The transaction is subject to receipt of a favorable ruling from the Internal Revenue Service ("IRS") regarding the tax free nature of the proposed transaction, final approval by the Company's and Gartner's Boards of Directors, and approval by Gartner shareholders. At December 31, 1998, the Company owned approximately 47 million shares of Gartner. Prior to the proposed spin-off transaction, 40.1 million of these shares will be exchanged for new Class B Common Stock of Gartner. The Class B Stock will be entitled to elect 80% of Gartner's Board of Directors, but will otherwise be identical to existing Class A Common Stock. The exchange will be part of a Gartner recapitalization and requires approval by Gartner shareholders. The Class B shares will be distributed to the Company's shareholders in a tax-free distribution, subject to receipt of a favorable tax ruling from the Internal Revenue Service with respect to the distribution. The Company intends to monetize its remaining position in Gartner through the first quarter of the Year 2000. This includes 6.9 million shares of Class A Common Stock and warrants to purchase a further 600,000 shares. Separately, Gartner announced that subject to approval by the IRS of the tax-free treatment of the distribution, it intends to declare a special one-time cash dividend of $300,000 to its shareholders of record immediately prior to the spin-off. The Gartner Board of Directors has authorized a $300,000 open market share repurchase program for up to 20% of its stock commencing immediately after the spin-off. Dispositions During the year, the Company recorded $46,118 net pre-tax gains principally reflecting the sale of investments in Aspect Development, Inc., which is part of Enterprises' portfolio and the sale of shares in CTS. (See Note 6. to the Consolidated Financial Statements). These sales generated cash proceeds of $78,883. Acquisitions and Joint Venture On June 24, 1998, Cognizant acquired Walsh International Inc. ("Walsh"). The final purchase price of the acquisition was $193,748, consisting of $167,148 of common stock, $9,521 of stock options and $17,079 of accrued acquisition and integration costs. Under the terms of the Walsh acquisition agreement, Walsh shareholders received .6082 (on a pre-split basis the ratio is .3041) shares of Cognizant common stock per Walsh share or based on a Cognizant share price of $25.896, consideration of approximately $167,148 (on a pre-split basis a Cognizant share price of $51.792). Walsh had 10,612,628 shares outstanding. Cognizant issued 1 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- 6,454,600 shares from treasury stock to consummate the Walsh acquisition. The direct acquisition and integration costs consist of severance of $4,876, lease terminations of $2,569, and other direct acquisition and integration costs of $9,634. These direct acquisition and integration costs 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). To date, incurred acquisition and integration costs are within original estimates. Approximately $156,557 is recorded as the excess of the purchase price over the fair value of identifiable net assets, (goodwill), which is being amortized on a straight-line basis over 15 years. The severance costs are related to 78 Walsh employees. As of December 31, 1998, the Company made payments of $3,257, reducing the work force by 56, and the remaining terminations are anticipated to be completed by June 1999. The following table displays the activities since the acquisition with respect to these liabilities: ORIGINAL LIABILITY 1998 DECEMBER 31, ESTIMATE EXPENDITURES 1998 BALANCE - - -------------------------------------------------------------------------------- Employee Separation $ 4,876 $ (3,257) $ 1,619 Lease terminations 2,569 (96) 2,473 Other direct costs 9,634 (8,713) 921 - - -------------------------------------------------------------------------------- Total $ 17,079 $(12,066) $ 5,013 - - -------------------------------------------------------------------------------- On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical Marketing Services Inc. ("PMSI"). The final purchase price of the acquisition was $103,291, consisting of $75,292 of common stock, $5,415 of stock options and $22,584 of accrued acquisition and integration costs. Under the terms of the PMSI acquisition agreement, PMSI received 2,395,926 shares of IMS Health common stock. The direct acquisition and integration costs consist of severance of $3,794, lease terminations of $1,623, contract cancellations of $10,935, and other direct acquisition and integration costs of $6,232. These direct acquisition and integration costs are incremental to other costs and were incurred as a direct result of the formal plan to exit certain activities as part of the overall integration effort (such as severance costs related to PMSI employees) and certain contractual cancellation costs (such as PMSI contracts and leases). Acquisition and integration costs incurred to date are within original estimates. Approximately $115,275 is recorded as the excess of the purchase price over the fair value of identifiable net assets (goodwill), which is being amortized on a straight-line basis over 15 years. The severance costs are related to 63 PMSI employees. As of December 31, 1998, the Company made payments of $2,013 reducing the work force by 33, and the remaining terminations are anticipated to be completed by July 1999. The following table displays the activities since the acquisition with respect to these liabilities: ORIGINAL LIABILITY 1998 DECEMBER 31, ESTIMATE EXPENDITURES 1998 BALANCE - - -------------------------------------------------------------------------------- Employee Separation $ 3,794 $(2,013) $ 1,781 Lease terminations 1,623 (60) 1,563 Contract Cancellations 10,935 (1,038) 9,897 Other direct costs 6,232 (5,077) 1,156 - - -------------------------------------------------------------------------------- Total $22,584 $(8,187) $14,397 - - -------------------------------------------------------------------------------- Joint Venture On September 1, 1998, the Company formed a joint venture with IHA Institut fur Marktanalysen AG ("IHA"). The Company and IHA each contributed all of their Swiss pharmaceutical research assets to the venture and each own 50% of the venture. The Company contributed assets of $54 and cash of $11,014. The $12,027 excess of the investment over the value of the Company's share of the net assets has been recorded as goodwill, which is being amortized on a straight line basis over 20 years. The Company has accounted for its ownership interest in the joint venture under the equity method. Purchase Price Allocation The Company made allocations of the aggregate purchase price to acquired in-process research and development ("IPR&D") amounting to $21,900 in the second quarter of 1998 related to the Walsh acquisition and $10,900 in the third quarter of 1998 related to the PMSI acquisition. The Securities and Exchange Commission (the "SEC") recently issued revised guidance 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 project's stage of completion, the complexity of the work completed to date, the difficulty of completing the remaining development, costs already incurred and the projected cost to complete the projects. The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with the Walsh and PMSI acquisitions, was based primarily on estimates of fair values by an independent appraisal firm. The allocation is summarized below: WALSH PMSI TOTAL - - ------------------------------------------------------------- In-process R&D write-off $ 21,900 $ 10,900 $ 32,800 Net liabilities assumed (5,009) (28,274) (33,283) Software/Core technology 29,000 7,700 36,700 Deferred taxes (8,700) (2,310) (11,010) Goodwill 156,557 115,275 271,832 - - ------------------------------------------------------------- Total Purchase Price $193,748 $103,291 $297,039 - - ------------------------------------------------------------- 2 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- In the aggregate, the impact of both the Walsh and PMSI acquisitions on the results of operations, other than the one-time charges and IPR&D write-offs, had they occurred on January 1, 1998 or 1997, would be immaterial. At the date of the respective acquisitions, the development of the IPR&D projects had not yet reached technological feasibility and had no alternative future use. Accordingly, these costs were expensed as of the respective acquisition dates. The projects identified as IPR&D at Walsh include enhancement of Walsh's Windows-based sales manage-ment information system, enhancement of its pharmaceutical marketing database, and development of a next-stage integrated and enhanced sales management information system. These projects were identified as underway at Walsh and, at the date of the acquisition, would require additional effort to establish technological feasibility. In addition, based on a third party independent appraiser, the Company allocated $29,000 to existing core technology representing computer software that is currently in use, which is being amortized over 5 years. The projects identified as IPR&D at PMSI include significant improvements of PMSI's physician database products in Europe and Japan and to its pharmacy software system in the United Kingdom. These projects were identified as being underway at PMSI, at the date of acquisition, and would require additional effort to establish technological feasibility. In addition, based on a third party independent appraiser, the Company allocated $7,700 to existing core technology representing computer software that is currently in use, which is being amortized over 5 years. The amounts assigned to the IPR&D projects were determined by first estimating the degree of completion of each project and the potential net cash flows from such projects after commercial introduction. The potential net cash flows include reductions reflecting the necessary investment in fixed and working capital and other collateral assets, which include core technology, where appropriate and a fair return on those assets. A portion of the potential net cash flows for each project was then attributed to the effort already completed by Walsh and PMSI by the acquisition date, based upon the estimated degree of completion. The attributed potential net cash flows for each project were discounted to present value using a risk-adjusted discount rate. The discount rates utilized to value the IPR&D projects ranged from 17% to 30%. Such discount rates took into account the industry risk for the Walsh and PMSI businesses 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 and PMSI projects ranged from 12% to 15%. The degree of completion represents the extent to which the different in-process projects are complete, as of the respective acquisition dates. The completion percentage ranged from 53% to 87% for projects at Walsh and 80% to 90% for projects at PMSI. In the opinion of management, IMS Health is on target to begin realizing the benefits from these various projects through product introductions at launch dates ranging from early 1999 to January 2000. The Company believes that the assumptions used, including the revenue forecasts and margin analysis, are reasonable. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary from the projected results. Management expects to continue supporting these IPR&D efforts and believes the Company has a reasonable chance of successfully completing the IPR&D programs. However, there is risk associated with the completion of the IPR&D projects and the Company cannot be assured that any will meet with either technological or commercial success. If none of these IPR&D projects are successfully developed, the sales and profitability of the Company may be adversely affected in future periods. The failure of any particular individual project in-process would not materially impact the Company's financial condition, results of operations or cash flows. Operating results are subject to uncertain market events and risks, which are beyond the Company's control, such as trends in technology, government regulations, market size and growth, and product introduction or other actions by competitors. In connection with the PMSI acquisition, the Company commenced an evaluation of its existing IMS Health product offerings. Based on this strategic assessment, the Company decided to abandon certain of its existing software products. The impact of this decision was to recognize the impairment of certain computer software assets ($36,300), the closure of certain IMS facilities ($800) and the severance of some IMS employees ($5,600). This resulted in a one-time charge of $43,019 and is included as a component of operating income. 3 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Public Offering of a Subsidiary On June 19, 1998, CTS effected an initial public offering (the "CTS IPO") of 2,917,000 shares of Class A Common Stock, par value $0.01 per share (3,354,550 including the underwriters' over-allotment option granted by Cognizant). Cognizant's interest in CTS was transferred to the Company in the Distribution. The Company's ownership interest was 61.7% at December 31, 1998 and, accordingly, the Company consolidates CTS results within its financial statements. The equity not owned by the Company is reflected on the Statement of Financial Position in the minority interest line and on the Consolidated Statements of Income in the Other Expense-Net line. (See Note 6. to the Consolidated Financial Statements). Operating Results Revenue in 1998 increased 12.0% to $1,186,513 from $1,059,559 in 1997. This increase primarily reflects the strong growth of the core IMS worldwide business. The core IMS worldwide revenues benefited from the introduction of new compounds within the pharmaceutical client base, new product introductions, acquisition-related revenue and geographic expansion. Adjusting for the impact of a stronger U.S. dollar, 1998 revenue increased by 15.4%. Operating costs and selling and administrative expenses in 1998 were $1,054,029, compared with $831,949 in 1997, an increase of 26.7%. This increase was due primarily to the Company's increased spending on new revenue growth initiatives, increased spending on the Year 2000 ("Y2K") issue, charges related to the Distribution (approximately $35,000), one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, and incremental recurring expenses related to the two acquired businesses. If these 1998 expenses are adjusted to exclude the charges related to the Distribution, the one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, Y2K costs, operating costs and selling and administrative expenses increased by 7.4%, to $893,263 in 1998. Operating income in 1998 decreased 41.8% to $132,484 from $227,610 in 1997. This decrease primarily reflects the impact of increased spending on the Y2K issue, charges related to the Distribution, one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, and the operations of Walsh and PMSI. If 1998 operating income is adjusted to exclude the charges related to the Distribution, the one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, Y2K costs, operating income increased by 28.8%, to $293,250 in 1998. This operating income growth outpaced revenue growth primarily due to the Company's ability to leverage its worldwide resources. Operating margin in 1998 was 11.2%, compared with 21.5% in 1997. If the 1998 operating margin is adjusted to exclude the items listed above, operating margin improved to 24.7% in 1998 from 21.5% in 1997. The IMS segment operating margin was 28.6% in 1998 compared with 28.1% in 1997. Non-operating income-net (including interest income and expense) in 1998 was $138,177, compared with $94,864 in 1997. The increase was principally due to gains from the CTS IPO and the sale of assets from the Enterprises portfolio, increased Gartner Equity Income and higher net interest income. The Company's consolidated 1998 effective tax rate was 34.1%, compared with 27.4% in 1997. The Company's higher tax rate in 1998 reflects non-deductible charges related to the Distribution, and the one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, and the continued impact of global tax planning strategies. Income from continuing operations in 1998 was $178,465, compared with $234,116 in 1997, a decrease of 23.8%. This decrease was due principally to increased spending on the Y2K issue, charges related to the Distribution, one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, partially offset by gains from the CTS IPO, the sale of assets from the Enterprises portfolio and a pre-tax unrealized gain on its investment in Gartner ("SAB 51 Gain"). Excluding these items, income from continuing operations increased 25.5% to $271,815 in 1998 from $216,634 in 1997, reflecting the strong growth of the core IMS worldwide business. Income from discontinued operations, net of income taxes in 1998 was $42,093 (which includes the first six months of Nielsen Media Research's 1998 operations), compared to $78,234 in 1997 (which includes a full year of Nielsen Media Research's operations). Net income in 1998 was $220,558, compared with $312,350 in 1997, a decrease of 29.4%. This decrease principally reflects the items noted above in income from continuing operations and the inclusion of only six months of Nielsen Media Research's 1998 operations. RESULTS BY BUSINESS SEGMENT IMS The IMS segment consists of IMS, the leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries, and Strategic Technologies, a leading provider of automated sales support technologies to the pharmaceutical industry. IMS segment revenue increased 10.6% in 1998 to $1,083,992 from $980,521 in 1997. This 4 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- growth reflected strong performance of core business services, increased demand for services due to introduction of new compounds within the pharmaceutical client base, geographic expansion, the impact of the Walsh and PMSI acquisitions, and strong revenue growth at Strategic Technologies. Excluding the impact of a stronger U.S. dollar in 1998, revenue growth was 14.1%. Operating income decreased 30.4% to $184,771 in 1998 from $265,351 in 1997. Excluding the one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions, and Y2K costs in 1998, operating income growth was 17.0% due to the factors described above. Operating income growth outpaced revenue growth primarily due to the segment's ability to leverage its worldwide resources. EMERGING MARKETS The Emerging Markets segment consists primarily of Erisco, and also includes Enterprises and Super Systems Japan. In the third quarter of 1997, the Company sold Pilot and recorded a non-cash pre-tax loss of $29,945. Excluding Pilot in 1997, the segment had a 21.7% increase in 1998 revenue to $57,542 from $47,286 in 1997, primarily reflecting strong growth at Erisco. 1998 operating income for the segment was $6,171 compared with a loss of $12,669 in 1997. This improvement reflects the elimination of the Pilot losses, combined with strong improvements in profitability at Erisco. CTS CTS revenue, excluding sales to related parties, increased 224.1% to $44,979 in 1998 from $13,879 in 1997. This growth reflected the addition of new customers and the continuing conversion of Y2K customers into ongoing development and maintenance customers. Operating income, excluding the operating profit associated with related parties, increased 205.7% to $8,918 in 1998 from $2,917 in 1997. The strong revenue growth was partially offset by the continued acceleration of sales and marketing investments and increased infrastructure to support revenue growth. GARTNER Gartner is the world's leading independent provider of research and analysis on the computer hardware, software, communications and related information technology industries. As discussed earlier, the Company's voting interest in Gartner fell below 50% in September 1997. Accordingly, the Company accounts for its ownership interest on the equity basis. In both 1997 and 1998, the income statement impact of the Company's ownership interest appears in non-operating income-net as Gartner equity income and as a pre-tax unrealized gain on Gartner stock (included as a separate line ("SAB 51") in the income statement). Gartner Equity Income grew by 9.0% to $70,979 in 1998 from $65,120 in 1997. SAB 51 gains grew by 1.0% to $14,838 in 1998 from $14,689 in 1997. A SAB 51 Gain was not recognized in the fourth quarter of 1998 due to the announcement of the spin-off of the Company's equity investment in Gartner (See Note 3. to the Consolidated Financial Statements). RESULTS BY GEOGRAPHIC AREA Revenue in the United States increased by 19.6% to $489,719 in 1998 from $409,527 in 1997. The increase reflected the strong performance of core business services by the IMS segment, high revenue growth at Erisco and CTS through the addition of new customers and new product introductions and the Walsh acquisition. Non-U.S. revenue increased 7.2% to $696,794 in 1998 from $650,032 in 1997. Non-U.S. operations include Europe, Australia and the Far East. The increase reflects continued growth of IMS, new product introductions, geographic expansion by IMS and the impact of the Walsh and PMSI acquisitions. Excluding the impact of a stronger U.S. dollar in 1998, non-U.S. revenue increased by 12.7%. YEAR-ENDED DECEMBER 31, 1997 COMPARED WITH YEAR-ENDED DECEMBER 31, 1996 In September 1997, the Company's voting interest in Gartner fell below 50% as a result of the exercise of Gartner employee stock options and employee stock purchases. Accordingly, in the third quarter, the Company deconsolidated Gartner as of January 1, 1997 and is accounting for its ownership interest on the equity basis. Revenue in 1997 decreased 24.9% to $1,059,559 from $1,411,192 in 1996. This decrease primarily reflects the impact of the Gartner Deconsolidation. Revenue in 1997 increased by 10.2%, excluding Gartner revenue from both years and the impact of a stronger U.S. dollar. The increase reflects double-digit revenue growth in the IMS segment, partially offset by Pilot, which was sold in the third quarter of 1997. IMS segment revenue growth benefited from strong performance of its core business services, geographic expansion and excellent growth of its electronic territory management product. The impact of a stronger U.S. dollar in 1997 reduced revenue growth by approximately 3%. Operating costs and selling and administrative expenses in 1997 were $831,949 compared with $1,167,485 in 1996, a decrease of 28.7%. This decrease primarily reflects the impact of the Gartner Deconsolidation. Excluding Gartner expenses from both years and business units sold in 1996, operating costs and selling and administrative expenses increased 4.0% to $831,949 in 1997 from $799,939 in 1996. This increase reflects the Company's increased spending on new revenue growth initiatives 5 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- which contributed to revenue growth of 10.2% in 1997. The impact of a stronger U.S. dollar in 1997 decreased operating costs and selling and administrative expenses by approximately 3%. Operating income in 1997 decreased 6.6% to $227,610 from $243,707 in 1996. This decrease primarily reflects the impact of the Gartner Deconsolidation. Excluding Gartner operating income in both years and sold business units in 1996, operating income increased 21.8% to $227,610 in 1997 from $186,871 in 1996. Operating income growth outpaced revenue growth primarily due to IMS's ability to leverage its resources. The impact of a stronger U.S. dollar in 1997 decreased reported operating income by approximately 1%. The sale of Pilot, which had been generating an operating loss, enabled the Company to redeploy resources to strategic technology investments, including the initiative to accelerate Y2K compliance. The impact on operating income of Y2K compliance was $9,819 in 1997. Operating margin in 1997 was 21.5%, compared with 17.3% in 1996. Excluding Gartner results from both years, and discontinued business units in 1996, operating margin was 21.5% in 1997 compared with 18.9% in 1996. Non-operating income-net in 1997 was $94,864, compared with $5,853 in 1996. The increase was due principally to recording $65,120 of Gartner equity income in 1997 as a result of the Gartner Deconsolidation. The Company also recognized a SAB 51 Gain of $14,689 (included as a separate line in the income statement) corresponding to the net increase in the underlying value of its investment in Gartner. In addition, non-operating income-net for 1997 includes gains of $39,336 related to the disposition of Enterprises' investment in WEFA Group, Inc. and a portion of its investment in TSI International, Inc. and Aspect Development, Inc., and a $29,945 loss on the sale of Pilot (included in gains from dispositions-net). The Company's consolidated 1997 effective tax rate was 27.4%, compared with 44.0% in 1996. The Company's lower tax rate in 1997 is due to the benefits of global tax planning strategies. Income from continuing operations in 1997 was $234,116, compared with $139,754 in 1996, an increase of 67.5%. This increase principally reflects IMS operating income growth, gains from dispositions-net and SAB 51 gains in 1997 and a reduction in the tax rate from 44.0% in 1996 to 27.4% in 1997 due to global tax planning actions. It also reflects a one-time after-tax acquisition-related charge of $32,778 for IPR&D costs associated with Gartner's acquisition of J3 Learning Corporation (the "J3 charge") in 1996. Excluding these items, income from continuing operations increased 21.3% to $216,616 in 1997 from $178,597 in 1996. Income from discontinued operations, net of income taxes in 1997 was $78,234, compared with $55,697 in 1996 an increase of 40.5%. Income from discontinued operations, net of income taxes represents the results of Nielsen Media Research. The increase is a result of a reduced tax rate of 27.4% in 1997 from 44.0% in 1996 and growth in Nielsen Media Research. Excluding this item and Y2K expenses net of taxes in 1997, income from discontinued operations increased 12.1% over the prior year. Net income in 1997 was $312,350, compared with $195,451 in 1996, an increase of 59.8%. This increase principally reflects the items noted above in income from continuing operations and the reduction in the discontinued operations tax rate. Excluding these items, net income increased 17.6% to $294,850 in 1997 from $250,805 in 1996. RESULTS BY BUSINESS SEGMENT IMS The IMS segment consists of IMS, the leading global provider of market information and decision-support services to the pharmaceutical and healthcare industries, and Strategic Technologies, an operating unit of IMS Health and the leading provider of automated sales support technologies to the pharmaceutical industry. IMS segment revenue increased 8.4% in 1997 to $980,521 from $904,444 in 1996. This growth reflected strong performance of core business services, new product introductions, geographic expansion and strong revenue growth at Strategic Technologies. Excluding the impact of a stronger U.S. dollar, revenue growth was 11.4%. Operating income grew 14.0% to $265,351 in 1997 from $232,827 in 1996 due to the factors described above. Operating income growth outpaced revenue growth primarily due to the segment's ability to leverage its resources. Excluding the impact of Y2K compliance, a stronger U.S. dollar in 1997, and business units sold in 1996, operating income grew 18.2%. EMERGING MARKETS The Emerging Markets segment consists primarily of Erisco, and also includes Enterprises, Pilot and Super Systems Japan. In the third quarter of 1997, the Company sold Pilot and recorded a non-cash pre-tax loss of $29,945. The segment had a 17.7% decrease in 1997 revenue to $65,159 from $79,205 in 1996, reflecting the sale of Pilot. Erisco posted high revenue growth through the addition of new customers and new product introductions. The 1997 operating loss for the segment was $12,669, compared with $14,558 in 1996, reflecting the sale of Pilot. 6 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- CTS CTS revenue, excluding sales to related parties, increased to $13,879 in 1997 from $3,161 in 1996. Operating income, excluding the operating profit associated with re-lated parties, increased to $2,917 in 1997 from $1,655 in 1996. This growth reflected the impact of the addition of new customers. GARTNER Gartner is the world's leading independent provider of research and analysis on the computer hardware, software, communications and related information technology industries. As discussed earlier, the Company's voting interest in Gartner fell below 50% in September 1997. Accordingly, the Company has deconsolidated Gartner and is accounting for its ownership interest on the equity basis as of January 1, 1997. In 1997, the income statement impact of the Company's ownership interest appears in non-operating income-net as Gartner equity income and as a SAB 51 gain (included as a separate line in the income statement). Revenue and operating income for Gartner in 1996 were $424,382 and $60,114, respectively. Operating income was adversely affected by the J3 Charge. Excluding this item, operating income was $93,347. RESULTS BY GEOGRAPHIC AREA Revenue in the United States decreased by 36.0% to $409,527 in 1997 from $639,831 in 1996. This decrease is primarily the result of the Gartner Deconsolidation. Excluding Gartner and Pilot revenue in both years, 1997 revenue in the United States increased by 18.7%. The increase reflected a strong performance of core business services by IMS and high revenue growth at Erisco and CTS through the addition of new customers and new product introductions. Non-U.S. revenue decreased by 15.7% to $650,032 in 1997 from $771,361 in 1996. The decrease is primarily the result of the Gartner Deconsolidation. Excluding Gartner and Pilot revenue in both years and excluding the impact of a stronger U.S. dollar, 1997 non-U.S. revenue increased by 10.7%. This increase reflects continued growth at IMS and geographic expansion. CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997 Cash and cash equivalents were $206,390, $312,442 and $422,963 at December 31, 1998, 1997 and 1996, respectively. Cash decreased $106,052 in 1998 primarily due to payments for the purchase of treasury stock ($666,694) and investing activities for capital expenditures, additions to software and other investments ($113,389). These cash uses were partially offset by proceeds from debt assumed by Nielsen Media Research ($300,000), cash from operating activities ($229,842), proceeds from exercise of stock options ($104,990) and proceeds from sale of businesses and investments and issuance of subsidiary stock ($78,883). Accounts Receivable-Net increased to $324,219 at December 31, 1998, from $251,623 at December 31, 1997, primarily reflecting the Walsh and PMSI acquisitions and increases at IMS due to new product launches in the fourth quarter and increased sales. Other Current Assets increased to $103,868 at December 31, 1998, from $65,692 at December 31, 1997, primarily reflecting an increase in deferred income taxes associated with tax deductible non-U.S. intangible assets. Investment in Gartner Group increased to $252,852 at December 31, 1998, from $195,695 at December 31, 1997, primarily reflecting equity income-net of taxes ($41,507) and a gain on the sale by Gartner of Gartner stock ($14,838). Goodwill increased to $363,841 at December 31, 1998, from $87,430 at December 31, 1997, primarily reflecting the Walsh acquisition ($156,557) and the PMSI acquisition ($115,275). Net Assets from Discontinued Operations decreased to $0 at December 31, 1998, from $122,778 at December 31, 1997, due to the Distribution of Nielsen Media Research. Accounts and Notes Payable increased to $90,884 at December 31, 1998, from $44,441 at December 31, 1997, primarily reflecting short term borrowings in Japan and the inclusion of the liabilities related to the Walsh and PMSI businesses. Accrued and Other Current Liabilities increased to $298,625 at December 31, 1998, from $189,384 at December 31, 1997, primarily reflecting the Walsh and PMSI acquisitions and related acquisition costs. Deferred Income Taxes decreased to $30,322 at December 31, 1998, from $92,153 at December 31, 1997, primarily reflecting long-term benefits associated with tax deductible non-U.S. intangible assets. Other Liabilities increased to $181,807 at December 31, 1998, from $71,786 at December 31, 1997, primarily reflecting an increase in pre-spin liabilities. NON-U.S. OPERATING AND MONETARY ASSETS The Company operates globally, deriving a significant portion of its operating income from non-U.S. operations. As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar may increase the volatility of U.S. dollar operating results. The Company enters into forward contracts to offset the effect of currency fluctuations 7 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- on operating income. In 1998, foreign currency translation decreased U.S. dollar revenue growth and operating income growth by approximately 3% and 8%, respectively. In 1997, foreign currency translation decreased U.S. dollar revenue growth and operating income growth by approximately 3% and 1%, respectively. Non-U.S. monetary assets are maintained in currencies other than the U.S. dollar, principally in those of Switzerland, Japan and Australia. Changes in the value of these currencies relative to the U.S. dollar are charged or credited to shareholders' equity. The effect of exchange rate changes during 1998 decreased the U.S. dollar amount of cash and cash equivalents by $1,574. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $206,390, $312,442 and $422,963 at December 31, 1998, 1997 and 1996, respectively. Cash decreased $106,052 in 1998 primarily due to payments for the purchase of treasury stock ($666,694) and investing activities for capital expenditures, additions to software and other investments ($113,389). These cash uses were partially offset by proceeds from debt assumed by Nielsen Media Research ($300,000), cash from operating activities ($229,842), proceeds from exercise of stock options ($104,990) and proceeds from sale of businesses and investments and issuance of subsidiary stock ($78,883). Net cash provided by operating activities was $229,842, $259,465 and $257,059 in 1998, 1997 and 1996, respectively. The decrease of $29,623 in operating activities in 1998 primarily reflected increased accounts receivable from fourth quarter revenues ($46,001), higher taxes paid ($44,425) and increased postemployment benefit payments ($6,671). These decreases were partially offset by lower other working capital ($31,584) and higher tax refunds. The increase of $2,406 in operating activities in 1997 primarily reflected increased cash from operations, improved collections of accounts receivable, the absence in 1997 of restructuring payments, and a lower level of postemployment benefit and non-recurring charge payments. These increases were partially offset by payment of income taxes in 1997 of $44,094. Net cash used in investing activities totaled $102,592 for 1998, compared with $73,456 and $115,686 in 1997 and 1996, respectively. The cash usage in 1998 increased $29,136 reflecting payments for acquisitions and joint ventures ($38,356) and increases in other investments-net, partially offset by lower capital expenditures ($16,158) and lower additions to computer software ($13,687). The decrease in cash usage in 1997 of $42,330 primarily reflected higher proceeds from the sale of businesses and investments ($43,336) and the absence of purchases of Gartner common stock ($49,419), offset in part by the absence of net proceeds from marketable securities ($27,601). Net cash (used in)/provided by financing activities totaled ($214,555), ($215,198) and $80,609 for 1998, 1997 and 1996, respectively. Total financing activity remained essentially unchanged in 1998 from 1997 with usage for the purchase of treasury stock increasing ($341,927) and the absence of the 1997 minority interest financing ($100,000), offset by the proceeds of the debt assumed by Nielsen Media Research ($300,000), higher proceeds from employee stock option exercises ($78,581), increased short-term borrowing-net of repayments ($34,008) and the proceeds from the sale and issuance of subsidiary stock ($31,197). The increase in 1997 of cash used in financing activities primarily reflected the purchase of shares of the Company's common stock ($324,767) and dividend payments ($19,883); partially offset by minority interest financing $100,000 and proceeds from exercise of stock options $26,409. Cash flow (used by)/provided from discontinued operations totaled ($17,173), $53,580 and $47,694 for 1998, 1997 and 1996, respectively. The Gartner Deconsolidation resulted in the elimination of the Gartner Group opening cash balances in 1997. Gartner Group cash balance as of December 31, 1996 was $123,697. On October 21, 1997 Cognizant announced that its board of directors had authorized a systematic stock repurchase program to buy up to 20,000,000 shares (on a post split basis) of Cognizant's outstanding common stock. As the Accounting Successor to Cognizant, the Company purchased the remaining balance of 18,850,800 shares of the Company's stock (on a post split basis) pursuant to this program. A portion of this program was intended to offset option exercises. This program was completed by the Company on November 17, 1998 at a cost of $591,331. In the fourth quarter the Board of Directors authorized a stock repurchase program to buy up to 16,000,000 shares (on a post split basis) of the Company's outstanding common stock. A portion of this program is intended to offset option exercises. Through December 31, 1998, 2,898,800 shares (on a post split basis) have been acquired at a total cost of $98,113. In connection with the Distribution, Cognizant borrowed $300,000, which was to repay existing intercompany liabilities. This debt was assumed by Nielsen Media Research upon the Distribution. 8 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- On November 11, 1998 the Company announced that its Board of Directors, approved a plan, to spin-off substantially all of its equity ownership in Gartner. The transaction, expected to be completed in the first half of 1999, is to be structured as a tax-free distribution of Gartner stock to IMS Health shareholders. The transaction is subject to receipt of a favorable ruling from the IRS, final approval by the Company's and Gartner Boards of Directors, and approval by Gartner shareholders. The Company owns approximately 47 million shares of Gartner. Prior to the spin-off, 40.1 million of these shares will be exchanged for new Class B Common Stock of Gartner. The Class B Stock will be entitled to elect 80% of Gartner's Board of Directors, but will otherwise be identical to existing Class A Common Stock. The exchange will be part of a Gartner recapitalization and requires approval by Gartner shareholders. The Class B shares will be distributed to the Company's shareholders in a tax-free distribution, subject to receipt of a favorable tax ruling from the Internal Revenue Service with respect to the distribution. The Company intends to monetize its remaining position in Gartner, 6.9 million shares of Class A Common Stock and warrants to purchase a further 600,000 shares, during the twelve months following the spin-off. Separately, Gartner announced that, subject to approval by the IRS of the tax-free treatment of the distribution, it intends to declare a special one-time cash dividend of $300,000 to its shareholders of record immediately prior to the spin-off. The Gartner Board of Directors intends to authorize a $300,000 open market share repurchase program for up to 20% of its stock commencing immediately after the spin-off. If completed as currently contemplated the Company anticipates receiving $200-$300 million after-tax cash proceeds from the monetization of the stock and warrants and the Gartner dividend. The Company has been informed by the Dun & Bradstreet Corporation ("D&B") that the IRS is currently reviewing D&B's utilization of certain capital losses during 1989 and 1990. While D&B has not received an assessment with respect to these transactions, it understands that the IRS will challenge D&B's position. The Company has estimated that D&B's total cash liability to the IRS if an assessment is made and the IRS prevails would be approximately $425,000 for taxes and accrued interest net of tax benefit. Under the terms of the Distribution Agreement dated October 28, 1996 among D&B, Cognizant and ACNielsen Corporation (the "1996 Distribution Agreement"), the Company is liable to pay half of such taxes and interest owed to the extent that D&B's total liabilities exceed $137,000. A portion of the Company's liability would in turn be shared with Nielsen Media Research in connection with the Distribution dated June 30, 1998 between Cognizant and the Company. The Company estimates that its current share of the liability were the IRS to prevail would be approximately $135,000. (See Note 12. to the Consolidated Financial Statements). The Company's existing balances of cash, cash equivalents and marketable securities, and cash generated from operations and debt capacity are expected to be more than sufficient to meet the Company's current long-term and short-term cash requirements including dividends, acquisitions, stock repurchase programs and the other contingencies noted above. YEAR 2000 Many existing computer systems and software applications use two digits, rather than four, to record years, e.g., "98" instead of "1998". Unless modified, such systems will not properly record or interpret years after 1999, which could lead to business disruptions. This is known as the "Year 2000 issue". The Company began to address the Y2K issue in 1996, when it began to assess the impact on its operations. In 1997, the Company created a Y2K Task Force (the "task force") to manage overall risks and to facilitate activities across the entire Company. CTS, a majority owned subsidiary, is being used to convert the majority of the systems to allow most internal staff members to focus on the core business. The Company has also used outside services to assist in conversion and to assess the progress of its Y2K program. The Company has identified its Y2K areas of focus as systems and software for the creation and delivery of its products and systems and software for its internal administrative operations. The task force developed a conversion methodology that included three phases: analysis, coding and testing, and testing and implementation. The analysis phase includes planning, inventory and impact analysis. Coding and testing involves code changes, using conversion rules and criteria and unit testing, and verifying and documenting the results of the conversion. Testing and implementation includes system tests across platforms and verification of data, an acceptance test within the user environment and implementation or releasing the systems back into production. This conversion methodology has been communicated throughout the Company and is being utilized to achieve systems compliance by the Year 2000. The creation of customer products relies on the receipt of data from external data suppliers and the Company's ability to convert the data and deliver the information to its customers. The consolidation of the data is principally performed at central processing locations. The Company believes central systems represent approximately 85% of its 9 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Y2K efforts. The Company operates central processing facilities in Germany, England, the United States and Japan. The systems at these sites contained the most lines of code required to undergo conversion. The following is a status report of each location as of December 31, 1998: % OF LINE OF CODE LOCATION TESTED AND IMPLEMENTED EXPECTED COMPLIANCE TO DATE -------------------------------------------------------------- Germany 94% lines of code 99% by 1st quarter 1999 England 89% lines of code 99% by 1st quarter 1999 United States 89% lines of code 99% by 1st quarter 1999 Japan 98% lines of code 99% by 1st quarter 1999 -------------------------------------------------------------- IMS Health continues to enhance its existing product portfolio and continues to launch new products. There is an ongoing effort to ensure this software is compliant (such software is excluded from the tables above). In addition, the Company has decided to replace certain non-compliant software. It is imperative that these replacement projects be completed and deployed on schedule, as the existing software is not undergoing Y2K renovation. These projects are on track to be completed and deployed by the fourth quarter of 1999 and continue to be under close scrutiny by the task force. The Erisco systems are 99% compliant as of December 31, 1998. The Company operates local offices in over 90 countries with about half of them using systems for data collection, panel administration and customized local requirements. Varied approaches are utilized to ensure system compliance. In some cases, specialized teams from CTS are being used to assist the local offices with all phases of their system conversions and hardware compliance. The following table represents a status report of each geographic region as of December 31, 1998: % OF LOCAL SYSTEMS CONVERTED AND BACK LOCATION IN PRODUCTION EXPECTED COMPLIANCE - - ------------------------------------------------------------ North America 81% 99% 1st Quarter 1999 Europe 56% 99% 2nd Quarter 1999 Asia Pacific 62% 99% 1st Quarter 1999 South America 33% 99% 1st Quarter 1999 Rest of World 29% 99% 2nd Quarter 1999 - - ------------------------------------------------------------ % OF PC'S AND SERVERS MADE Y2K OVERALL % LOCATION CAPABLE TO DATE EXPECTED COMPLIANCE COMPLETED - - ------------------------------------------------------------------- North America 89% 99% 1st Quarter 1999 89% Europe 64% 99% 2nd Quarter 1999 63% Asia Pacific 80% 99% 2nd Quarter 1999 77% South America 63% 99% 2nd Quarter 1999 62% Rest of World 86% 99% 1st Quarter 1999 70% - - ------------------------------------------------------------------- These numbers exclude end-user desktop applications such as spreadsheets, macros, etc. The Company's Y2K project incorporates administrative operations systems and software such as accounts receivable, payroll, accounts payable and the general ledger systems. These systems are expected to be 99% compliant by the end of the first quarter of 1999. The Company has also developed an internal audit program that examines the testing and effectiveness of controls, assesses the accuracy and completeness of inventories and reviews the documentation for completeness and accuracy. As of December 31, 1998, audits occurred in the United States, England and Germany, with follow up audits scheduled for early 1999. An audit of Japan is also planned for the first quarter of 1999. The Company performs audits on the local country conversions with the assistance of CTS. Local office audits have been performed in North America and Europe with South America planned for early 1999. The Company relies on over 16,000 suppliers of electronic data and has been proactive in working with these suppliers to determine their Y2K readiness and ability to maintain data flow continuity. A program consisting of seminars, visits, mailings and telephone calls continues to be administered so the Company can track status and assess risk associated with Y2K readiness for key data suppliers. Considerable risk to some data sources currently exists, especially for hospital information as their priority relates to patient care. In some instances, IMS Health receives data from governments and continued receipt of their data will be a function of their readiness. Based on information from data sources to date, it appears that the Y2K readiness information has been incomplete or progress to date has been unsatisfactory in some areas. The Company assesses risk regarding the readiness of data sources through the use of a detailed questionnaire regarding Y2K conversion plans in order to verify and the supplier's ability to continue to deliver data. As a contingency, statistically valid methods of data extrapolation are being developed in the event the supply of data from a limited number of suppliers is incomplete or found to be unusable. Investigation of alternate sources will be pursued when the risk assessment determines the data source to have a high risk of impacting the Company's ability to deliver products. Ultimately, the risk for our customers will be the completeness and quality of the data, but the Company believes it is a short-term issue and is working to minimize the effect on its data and customers. Throughout 1999 the Company's Y2K efforts will focus on (i) the testing the critical components of the Company's systems; (ii) the continued assessment of supplier and customer readiness to address the Y2K conversion and; (iii) finalizing contingency plans to address unanticipated issues. 10 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- External and internal costs of addressing the Y2K issue are expensed as incurred. It is currently estimated that the aggregate cost of the Company's Y2K program will be approximately $75,000. Through December 31, 1998 the Company has incurred $54,741 of which $44,922 was incurred in 1998. The Company expects to incur between $20,000 to $25,000 in 1999. These estimates do not include the costs of software and systems that are being replaced or upgraded in the normal course of business. The cost of addressing the Y2K issue and the dates which the Company currently expects to complete Y2K compliance are based on the current best estimates of management, which are derived utilizing various assumptions regarding the future events. There can be no guarantee that these estimates will be achieved, and actual results may differ materially. Specific factors that may cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area of expertise, the ability to locate and correct all relevant computer codes, and the success of customers and suppliers in addressing the Y2K issue. The Company's plans are dependent on the continuous operation of industries out of the Company's direct control such as utilities, transportation, etc. The above expectations are subject to uncertainties. For example, if the Company is unsuccessful in identifying or fixing all Y2K problems in its critical operations, or is affected by the inability of its data suppliers or major customers to continue operations due to such a problem, the Company's results of operations or financial condition could be materially impacted. MARKET RISK The Company's primary market risks are the impact of foreign exchange fluctuations on non-dollar-denominated revenue and price fluctuations on equity securities. In the normal course of business, the Company employs established practices and procedures to manage its exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. The Company's objective in managing the exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its core business activities. Accordingly, the Company enters into various contracts which change in value as foreign exchange rates change to protect the value of a portion of committed foreign currency revenues and non-functional currency assets and liabilities. The principal currencies hedged are the Japanese yen, the Euro and the Swiss franc. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its anticipated foreign exchange exposures over the next year. The gains and losses on these hedges offset changes in the value of the related exposures. It is the Company's policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for investment or speculative purposes. The fair value of the Company's hedging instruments are subject to change as a result of potential changes in foreign exchange rates. The potential loss in fair value for foreign exchange rate-sensitive instruments, all of which were forward exchange contracts, based on a hypothetical 10% decrease in the value of the U.S. dollar or, in the case of non-dollar-related instruments, the currency being purchased, was $11,977 at December 31, 1998. The estimated fair values of the foreign exchange risk management contracts were determined based on quoted market prices. The Company also invests in equity securities and is subject to equity price risk. These investments are classified as available for sale and consequently, carried at fair value, with unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. The Company does not hedge this market risk exposure. A 10% decline in the market price of these equity securities would cause the fair value of the securities to decrease by $3,768 at December 31, 1998. EURO CONVERSION On January 1, 1999, 11 member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency ("Euro"). The transition period for the introduction of the Euro is between January 1, 1999 and January 1, 2002. The Company has prepared for the introduction of the Euro, including the conversion of information technology systems, recalculating currency risk, recalibrating derivatives and other financial instruments, strategies concerning continuity of contracts, and impacts on the processes for preparing taxation and accounting records. Although the Euro may affect some companies' pricing policies, differences in IMS' national market size, data collection requirements and specific product specifications required due to the diverse market information needs in the healthcare markets of Europe are expected to minimize the potential for price harmonization in most of the Company's product ranges. IMS Health's expectations regarding the Euro currency issue are forward-looking statements that involve a 11 FINANCIAL REVIEW (continued) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the ability or willingness of third parties to convert affected systems in a timely manner and the actions of governmental agencies or other third parties with respect to Euro currency issues. FORWARD-LOOKING STATEMENTS This 1998 Annual Report to Shareholders, as well as information included in oral statements or other written statements made or to be made by IMS Health, contain statements which, in the opinion of IMS Health, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These statements appear in a number of places in this annual report and include, but are not limited to, all statements relating to plans for future growth and other business development activities as well as capital expenditures, financing sources, dividends and the effects of regulation and competition, the terms of the Distribution Y2K readiness and all other statements regarding the intent, plans, beliefs or expectations of IMS Health or its directors or officers. Stockholders are cautioned that such forward-looking statements are not assurances of future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These risks and uncertainties include, but are not limited to, risks associated with operating on a global basis, including fluctuations in the value of foreign currencies relative to the U.S. dollar, and the ability to successfully hedge such risks; to the extent IMS Health seeks growth through acquisition, the ability to identify, consummate and integrate acquisitions on satisfactory terms; the ability to develop new or advanced technologies and systems for their businesses on a cost-effective basis; the ability to successfully achieve estimated effective tax rates and corporate overhead levels; competition, particularly in the markets for pharmaceutical information; regulatory and legislative initiatives, particularly in the area of medical privacy; the ability to timely and cost-effectively resolve any problems associated with the Y2K issue; the ability to obtain future financing on satisfactory terms; deterioration in economic conditions, particularly in the pharmaceutical, healthcare, or other industries in which customers operate; conditions in the securities markets which may effect the value or liquidity of portfolio investments and management's estimates of lives of assets, recoverability of assets, fair market value, stimates and liabilities and accrued income tax benefits and liabilities. Consequently, all the forward-looking statements contained in this annual report are qualified by the information contained herein, including, but not limited to, the information contained under this heading the consolidated financial statements and notes thereto and by the material set forth under the headings "Business" and "Factors" that May Affect Future Results, in the Annual Report on Form 10-K for the year ended December 31, 1998. IMS Health is under no obligation to publicly release any revision to any forward-looking statement contained or incorporated herein to reflect any future events or occurrences. RECENTLY ISSUED ACCOUNTING STANDARDS During 1998, various new accounting pronouncements were issued which may impact the Company's financial statements. (See Note 2. to the Consolidated Financial Statements). DIVIDENDS The payment and level of cash dividends by the Company are subject to the discretion of the board of directors of the Company. Although the Company has declared and anticipates that it will declare quarterly dividends in the range of 6% to 10% of net earnings, dividend decisions will be based on, and affected by, a number of factors; including the operating results and financial requirements of the Company. The Company's Board of Directors approved a first quarter dividend increase of 33%, to a quarterly rate of $0.02 per post-split share, or $0.08 per share annually. This follows the January 1999 2-for-1 stock split. IMS HEALTH COMMON STOCK INFORMATION The Company's common stock is listed on the NYSE (symbol "RX"). The number of shareholders of record and shares outstanding on December 31, 1998 were 10,084 and 318,741,700, respectively. The high and low closing stock price per share during 1998 was $38 and $26 3/8, respectively. Approximately 70% of the Company's shares were held by institutions. All share and per-share amounts have been restated to give effect to the 2-for-1 stock split approved by the Company's Board of Directors on December 15, 1998 and distributed to shareholders on January 15, 1999 (See Note 2. to the Consolidated Financial Statements). DIVIDENDS PAID PRICE PER SHARE ($) PER SHARE ($) - - ------------------------------------------------------------ 1998 1998 - - ------------------------------------------------------------ HIGH LOW - - ------------------------------------------------------------ First Quarter -- -- -- Second Quarter (1) 29 3/4 26 9/16 -- Third Quarter 33 3/32 27 1/2 0.015 Fourth Quarter 38 29 3/8 0.015 - - ------------------------------------------------------------ Year 38 26 3/8 0.030 - - ------------------------------------------------------------ (1) Commencing June 23, 1998 12 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- To the Shareholders of IMS Health Incorporated: Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management's estimates and judgments, have been prepared in conformity with generally accepted accounting principles. Other financial information in the report to shareholders is consistent with that in the consolidated financial statements. The Company maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel and a program of internal audits. The Company engaged PricewaterhouseCoopers LLP, independent accountants, to audit and render an opinion on the consolidated financial statements in accordance with generally accepted auditing standards. These standards include an assessment of the systems of internal controls and tests of transactions to the extent considered necessary by them to support their opinion. The Board of Directors, through its Audit Committee consisting solely of outside directors of the Company, meets periodically with management, internal auditors and our independent accountants to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. PricewaterhouseCoopers and the internal auditors each have full and free access to the Audit Committee. /s/ ROBERT E. WEISSMAN Robert E. Weissman Chairman & Chief Executive Officer /s/ VICTORIA R. FASH Victoria R. Fash President & Chief Operating Officer /s/ J. MICHAL CONAWAY J. Michal Conaway Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS - - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of IMS Health Incorporated: In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of IMS Health Incorporated ("accounting successor to Cognizant Corporation") and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 PricewaterhouseCoopers LLP New York, New York February 16, 1999 13 IMS HEALTH INCORPORATED (ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION) Consolidated Statements of Income
Years Ended December 31, --------------------------------------------------------- Dollar amounts in thousands, except per share data 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUE $ 1,186,513 $ 1,059,559 $ 1,411,192 - - ---------------------------------------------------------------------------------------------------------------------------- Operating Costs 533,634 432,654 566,567 Selling and Administrative Expenses 343,218 310,644 459,053 Depreciation and Amortization 96,358 88,651 108,632 Acquired In Process Research and Development 32,800 0 33,233 Direct Acquisition Integration Costs 48,019 0 0 - - ---------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 132,484 227,610 243,707 - - ---------------------------------------------------------------------------------------------------------------------------- Interest Income 19,548 12,749 9,456 Interest Expense (1,166) (2,293) (1,338) Gartner Equity Income 70,979 65,120 0 Gain from Sale of Gartner Stock (SAB 51) 14,838 14,689 0 Gains from Dispositions--Net 33,341 9,391 200 Gain on Issuance of Subsidiary Stock 12,777 0 0 Other Expense--Net (12,140) (4,792) (2,465) - - ---------------------------------------------------------------------------------------------------------------------------- Non-Operating Income--Net 138,177 94,864 5,853 - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations, Before Provision for Income Taxes 270,661 322,474 249,560 Provision for Income Taxes (92,196) (88,358) (109,806) - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 178,465 234,116 139,754 Income from Discontinued Operations, Net of Income Taxes of $15,887, $29,527 and $43,764 for 1998, 1997, and 1996, respectively 42,093 78,234 55,697 - - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 220,558 $ 312,350 $ 195,451 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- Earnings Per Share of Common Stock Basic Income from Continuing Operations $ .55 $ .71 $ .41 Income from Discontinued Operations .13 .24 .17 - - ---------------------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE $ .68 $ .95 $ .58 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- DILUTED INCOME FROM CONTINUING OPERATIONS $ .53 $ .70 $ .41 INCOME FROM DISCONTINUED OPERATIONS .13 .23 .16 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ .66 $ .93 $ .57 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- Average Number of Shares Outstanding--Basic 324,584,000 330,326,000 339,888,000 Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 5,968,000 3,334,000 374,000 Adjustment of Shares Applicable to Exercised Stock Options and Restricted Stock during the period 5,218,000 1,320,000 738,000 - - ---------------------------------------------------------------------------------------------------------------------------- Average Number of Shares Outstanding--Diluted 335,770,000 334,980,000 341,000,000 - - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 14 IMS HEALTH INCORPORATED (ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION) Consolidated Statements of Financial Position
As of December 31, ---------------------------- Dollar amounts in thousands, except per share data 1998 1997 - - ---------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 206,390 $ 312,442 Accounts Receivable--Net 324,219 251,623 Other Current Assets 103,868 65,692 - - ---------------------------------------------------------------------------------------------------------------------------- Total Current Assets 634,477 629,757 - - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT IN GARTNER GROUP 252,852 195,695 SECURITIES AND OTHER INVESTMENTS 106,276 109,712 PROPERTY, PLANT AND EQUIPMENT--NET 179,151 178,533 OTHER ASSETS--NET Computer Software 168,994 153,958 Goodwill 363,841 87,430 Other Assets 25,928 24,226 - - ---------------------------------------------------------------------------------------------------------------------------- Total Other Assets-Net 558,763 265,614 - - ---------------------------------------------------------------------------------------------------------------------------- Net Assets from Discontinued Operations 0 122,778 - - ---------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,731,519 $ 1,502,089 - - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts and Notes Payable $ 90,884 $ 44,441 Accrued and Other Current Liabilities 298,625 189,384 Accrued Income Taxes 32,537 52,696 Deferred Revenues 128,272 110,768 - - ---------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 550,318 397,289 - - ---------------------------------------------------------------------------------------------------------------------------- POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS 27,577 38,082 DEFERRED INCOME TAXES 30,322 92,153 MINORITY INTERESTS 116,225 101,209 OTHER LIABILITIES 181,807 71,786 - - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 906,249 700,519 - - ---------------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock, Par Value $.01 Per Share, Authorized-- 10,000,000 Shares; Outstanding--None Series Common Stock, Par Value $.01 Per Share, Authorized-- 10,000,000 Shares; Outstanding--None Common Stock, Par Value $.01 Per Share, Authorized--800,000,000 Shares; Issued 335,045,390 and 342,240,138 Shares in 1998 and 1997 , respectively 3,352 3,422 Capital in Excess of Par 732,012 806,839 Retained Earnings 686,653 358,456 Treasury Stock, at cost, 16,303,690, and 18,052,896 Shares in 1998 and 1997, respectively (535,971) (323,026) Cumulative Translation Adjustment (84,149) (76,771) Unrealized Gains on Investments 23,373 32,650 - - ---------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 825,270 801,570 - - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,731,519 $ 1,502,089 - - ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements.
15 IMS HEALTH INCORPORATED (ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION) Consolidated Statements of Cash Flows
Years Ended December 31, -------------------------------------------------------- Dollar amounts in thousands 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 220,558 $ 312,350 $ 195,451 Less Income from Discontinued Operations (42,093) (78,234) (55,697) - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 178,465 234,116 139,754 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 96,358 88,651 108,632 Gains on Issuance of Subsidiary Stock (12,777) -- -- Gains from Sale of Investments, Net (33,341) (9,391) (200) Acquired In-Process Research and Development 32,800 -- 33,233 Direct Acquisition Integration Costs 48,019 -- -- Benefit Payments (13,653) (6,982) (10,641) Non-Recurring Charge Payments (3,885) (5,201) (13,096) Restructuring Payments -- -- (11,515) Net (Increase) Decrease in Accounts Receivable (40,123) 5,878 (5,530) Net Increase in Deferred Revenue 10,596 10,054 22,020 Equity Income, Net of Taxes (41,507) (38,040) -- Gain from Sale of Gartner Stock (SAB 51) (14,838) (14,689) -- Minority Interests 10,303 4,797 11,710 Deferred Income Taxes 6,380 48,414 (11,299) Net Increase (Decrease) in Accrued Income Taxes 14,781 (18,822) 16,194 Net Increase in Other Working Capital Items (7,736) (39,320) (22,203) - - ---------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 229,842 259,465 257,059 - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Businesses and Investments 47,686 44,901 1,565 Payments for Acquisitions of Businesses and Joint Ventures (38,356) -- (24,386) Cash of Companies Acquired in Stock Purchases 11,895 -- -- Capital Expenditures (30,862) (47,020) (57,034) Additions to Computer Software (61,089) (74,776) (47,960) Increase in Other Investments-Net (21,438) (10,723) (24,423) Proceeds from Maturities of Marketable Securities -- -- 193,392 Payments for Marketable Securities -- -- (165,791) Payments for Purchase of Gartner Group Common Stock -- -- (49,419) Other (10,428) 14,162 58,370 - - ---------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (102,592) (73,456) (115,686) - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments for Purchase of Treasury Stock (666,694) (324,767) -- Proceeds from Exercise of Stock Options 104,990 26,409 557 Dividends Paid (19,592) (19,883) -- Proceeds from Employee Stock Purchase Plan 3,855 1,683 -- Short-Term Borrowings 42,546 -- -- Short-Term Debt Payments (8,538) -- (50,000) Proceeds from debt assumed by Nielsen Media Research 300,000 -- -- Proceeds from Sale and Issuance of Subsidiary Stock 31,197 -- -- Minority Interest Financing -- 100,000 -- Net Transfers from The Dun & Bradstreet Corporation -- -- 44,880 Other Stock Transactions with Employees -- -- 14,377 Proceeds from Issuance of Purchased Stock Options -- -- 8,699 Other (2,319) 1,360 62,096 - - ---------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (214,555) (215,198) 80,609 - - ---------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Equivalents (1,574) (11,215) (3,063) Change of Gartner Group to Equity Basis -- (123,697) -- Cash Flow (used by) provided by Discontinued Operations (17,173) 53,580 47,694 - - ---------------------------------------------------------------------------------------------------------------------------- (Decrease) Increase in Cash and Cash Equivalents (106,052) (110,521) 266,613 Cash and Cash Equivalents, Beginning of Year 312,442 422,963 156,350 - - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Year $ 206,390 $ 312,442 $ 422,963 - - ---------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid during the Period for Interest $ 1,645 $ 2,293 $ 1,463 Cash Paid during the Period for Income Taxes $ 88,519 $ 44,094 $ 48,372 Non-Cash Investing Activities Stock Issued in Connection with Acquisitions $ 243,853 $ -- $ -- The accompanying notes are an integral part of the consolidated financial statements.
16 IMS HEALTH INCORPORATED (ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION) Consolidated Statements of Shareholders' Equity Dollar amounts in thousands - - --------------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME: --------------------- CAPITAL UNREALIZED IN EXCESS CUMULATIVE GAINS/ COMPRE- DIVISIONAL COMMON OF PAR RETAINED TREASURY TRANSLATION (LOSSES) HENSIVE THREE YEARS ENDED DECEMBER 31, 1998 EQUITY STOCK VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 $ 598,083 -- -- -- -- $ 6,505 -- $604,588 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- Net Income 129,462 $ 129,462 129,462 Net Transfers from The Dun & Bradstreet Corporation 44,880 44,880 Change in Cumulative Translation Adjustment (16,817) (16,817) (16,817) -------------------- Comprehensive Income $ 112,645 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- Recapitalization, November 1, 1996 -- $ 3,422 $794,203 -- $ (25,200) $ (10,312) -- $762,113 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- Net Income 65,989 $ 65,989 65,989 Exercise of Stock Options 557 557 Restricted Stock Plan (82,800 shares) 210 210 Less: Unearned Portion (210) (210) Purchase Stock Options 8,699 8,699 Change in Cumulative Translation Adjustment (1,440) (1,440) (1,440) Unrealized Gains on Investments 36,695 36,695 36,695 -------------------- Comprehensive Income $ 101,244 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 -- $ 3,422 $803,459 $ 65,989 $ (25,200) $ (11,752)$ 36,695 $872,613 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- Net Income 312,350 $ 312,350 312,350 Cash Dividends ($.06 per share) (19,883) (19,883) Exercise of Stock Options (75,536 shares) 1,151 1,151 Treasury Stock Reissued Under: Exercise of Stock Options (1,637,850 shares) 2,187 25,258 27,445 Restricted Stock Plan (82,800 shares) 1,741 1,741 Less: Unearned Portion (1,741) (1,741) Plus: Earned Portion 42 42 Employee Stock Purchase Plan (93,290 shares) 1,683 1,683 Treasury Shares Acquired (18,266,836 shares) (324,767) (324,767) Change in Cumulative Translation Adjustment (65,019) (65,019) (65,019) Unrealized Loss on Investments--Net of reclassification adjustment (4,045) (4,045) (4,045) -------------------- Comprehensive Income $ 243,286 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 -- $ 3,422 $806,839 $ 358,456 $(323,026) $ (76,771)$ 32,650 $801,570 - - --------------------------------------------------------------------------------------------------------------------------------- 17
Dollar amounts in thousands - - --------------------------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME: --------------------- CAPITAL UNREALIZED IN EXCESS CUMULATIVE GAINS/ COMPRE- DIVISIONAL COMMON OF PAR RETAINED TREASURY TRANSLATION (LOSSES) HENSIVE THREE YEARS ENDED DECEMBER 31, 1998 EQUITY STOCK VALUE EARNINGS STOCK ADJUSTMENT INVESTMENTS INCOME TOTAL - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 -- $ 3,422 $806,839 $ 358,456 $(323,026) $ (76,771)$ 32,650 $801,570 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- Net Income 220,558 $ 220,558 220,558 Cash Dividends ($.06 per share) (19,592) (19,592) Prepaid Employee Stock Option Plan exercises or cancellations (1,950) (1,950) Transfer to Nielsen Media Research Employee Prepaid Stock Option Plan Payments (1,159) (1,159) Value of Stock Options granted in connection with acquisitions 14,936 14,936 Treasury Shares Acquired (21,749,600 shares) (666,694) (666,694) Treasury Stock Reissued Under: Exercise of Stock Options (7,145,992 shares) 8,649 104,990 113,639 Restricted Stock Plan (38,090 shares) 4,317 4,317 Less: Unearned Portion (4,317) (4,317) Plus: Earned Portion of Grants (33,340 shares) 3,846 3,846 Employee Stock Purchase Plan (184,548 shares) 3,855 3,855 Stock issued for Walsh and other acquisitions (6,506,162 shares) 168,561 168,561 Stock Issued for PMSI Acquisition (2,395,926 Shares) 75,292 75,292 Other 1,832 1,832 Dividend of Nielsen Media Research including Treasury Shares (7,194,748) (70) (80,367) 127,231 80,437 127,231 Change in Cumulative Translation Adjustment (7,378) (7,378) (7,378) Unrealized Loss on Investments--Net of reclassification adjustment (9,277) (9,277) (9,277) -------------------- Comprehensive Income $ 203,903 - - --------------------------------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 -- $ 3,352 $732,012 $ 686,653 $(535,971) $ (84,149)$ 23,373 $825,270 - - --------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes are an integral part of the consolidated financial statements. 18
IMS HEALTH INCORPORATED (ACCOUNTING SUCCESSOR TO COGNIZANT) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Note 1. Basis of Presentation The financial statements and notes relate to IMS Health Incorporated ("IMS Health" or the "Company"). The Common Stock of IMS Health was distributed by Cognizant Corporation ("Cognizant") to its shareholders on June 30, 1998. Simultaneously with the distribution (the "Distribution"), Cognizant changed its name to Nielsen Media Research, Inc. ("Nielsen Media Research"). Notwithstanding the legal form of the Distribution, whereby Cognizant spun off IMS Health, for accounting purposes the transaction is accounted for as if Cognizant spun off Nielsen Media Research and IMS Health has been deemed the "accounting successor" to Cognizant. The separation created IMS Health as the global provider of information solutions to the pharmaceutical and healthcare industries, and established an independent Nielsen Media Research. IMS Health consists of the market information, sales management, and decision support services business for the pharmaceutical and healthcare industries conducted by IMS Health and various subsidiaries ("IMS"), IMS Health Strategic Technologies Inc. ("Strategic Technologies"), ERISCO Managed Care Technologies, Inc. ("Erisco"), Enterprise Associates, Inc. ("Enterprises"), a 61.7% interest in Cognizant Technology Solutions Corporation ("CTS") and SSJ K.K. ("Super Systems Japan"). The Company also has an equity investment in Gartner Group, Inc. ("Gartner"). Cognizant received a favorable ruling from the Internal Revenue Service ("IRS") with respect to the tax-free treatment of the Distribution in May 1998. Cognizant's Board of Directors on June 15, 1998 approved the final plan, terms and conditions relating to the separation of the Company including distribution, tax allocation, employee benefits and other agreements and authorized management to execute the plan of distribution. The Board of Directors declared a dividend to shareholders of record as of the close of business on June 25, 1998 consisting of one share of IMS Health Common Stock for each share of Cognizant Common Stock. The Distribution was effective June 30, 1998. In connection with the Distribution, Cognizant borrowed $300,000 on June 24, 1998, which was used to repay existing intercompany liabilities. This debt remained the obligation of Nielsen Media Research following the Distribution. In connection with the Distribution, Cognizant contributed to IMS Health all cash in Cognizant's accounts other than (i) cash required by Cognizant (renamed Nielsen Media Research) to satisfy certain specified obligations and (ii) such additional cash as was necessary for the net borrowings of Cognizant (renamed Nielsen Media Research) to equal $300,000 as of the Distribution. Prior to the Distribution, Nielsen Media Research and IMS Health entered into certain agreements that govern the relationship between Nielsen Media Research and IMS Health subsequent to the Distribution and provide for the allocation of tax, employee benefits and certain other liabilities and obligations that may arise from periods prior to the Distribution (the "Distribution Agreement"). Among other things, the agreements set forth principles to be applied in allocating certain Distribution-related costs and specify portions of contingent liabilities to be shared if certain amounts are exceeded (including certain liabilities that may arise in connection with the 1996 spin-off of Cognizant from The Dun and Bradstreet Corporation ("D&B")). Pursuant to Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company have been reclassified to reflect Nielsen Media Research as discontinued operations for periods up to and including June 30, 1998 and reflect the Distribution which occurred on June 30, 1998. Summarized data for discontinued operations is as follows. YEARS ENDED DECEMBER 31, -------------------------------------- RESULTS OF OPERATIONS 1998 (1) 1997 1996 - - -------------------------------------------------------------------------------- Operating Revenue $193,996 $358,594 $319,404 Income Before Provision for Income Taxes 57,980 107,761 99,461 Income from Discontinued Operations, Net of Income Taxes $ 42,093 $ 78,234 $ 55,697 (1) Includes Nielsen Media Research results through the date of the Distribution. NET ASSETS OF DISCONTINUED OPERATIONS DECEMBER 31, 1997 - - -------------------------------------------------------------------------------- Current Assets $ 64,655 Property Plant & Equipment 55,050 Computer Software 43,093 Deferred Charges 16,299 Other Assets 21,112 Current Liabilities (43,921) Other Liabilities (33,510) - - -------------------------------------------------------------------------------- Net Assets of Discontinued Operations $122,778 ================================================================================ As of December 31, 1998, IMS Health does not have any ownership interest in Nielsen Media Research. ================================================================================ Note 2. Summary of Significant Accounting Policies Consolidation. The consolidated financial statements of the Company include the accounts of the Company and its subsidiaries after elimination of all material intercompany accounts and transactions. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Investments in companies over which the Company has significant influence but not a controlling interest are accounted for under the equity method of accounting. The Company recognizes in the income statement any gains or losses related to the sale or issuance of stock by a consolidated subsidiary or a company accounted for under the equity basis. (See Note 3. to the Consolidated Financial Statements). The financial statements of the IMS segment reflect a fiscal year ending November 30 to facilitate timely reporting of the Company's financial results. (See Note 19. to the Consolidated Financial Statements). Cash Equivalents. The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. Securities and Other Investments. Marketable securities, principally consisting of equity securities, are classified as available-for-sale. Such securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Any gains or losses from the sale of these securities are recognized using the specific identification method. (See Note 8. to the Consolidated Financial Statements). Property, Plant and Equipment. Buildings and machinery and equipment are depreciated over their estimated useful lives using principally the straight-line method. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Computer Software. Direct costs incurred in the development of computer software are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". Research and Development costs incurred to establish technological feasibility of a computer software product are expensed in the periods in which they are incurred. Capitalization ceases and amortization starts when the product is available for general release to customers. Computer software costs are being amortized, on a product by product basis, for three to five years. Annual amortization is the greater of the amount computed using (a) the ratio that gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product. At each balance sheet date, the Company reviews the recoverability of the unamortized capitalized costs of computer software products by comparing the carrying value of computer software with its estimated net realizable value. The Company recognizes any impairment losses on capitalized software as a result of its review. Goodwill. Goodwill represents the excess purchase price over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over five to forty years. 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 flow from operating activities compared with the carrying value of goodwill and recognizes any impairment on the basis of such comparison. The recognition and measurement of goodwill impairment is assessed at the business unit level. Other Long-Lived Assets. In accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews long-lived assets and certain identifiable intangibles held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flow is less than the carrying amount of such assets. Accordingly, the Company recognizes impairment losses on long-lived assets as a result of its review. The measurement for such impairment loss is then based on the fair value of the asset. (See Note 7. to the Consolidated Financial Statements). Revenue Recognition. The Company generally recognizes revenue as earned, which is over the contract period or as the information is delivered or related services are performed. Amounts billed for service and subscriptions are credited to deferred revenues and reflected in operating revenue over the subscription term, which is generally one year. Software license revenue is recognized upon delivery of the software, when persuasive evidence of an arrangement exists, the related fees are fixed or determinable and collection of fees is probable. Revenue from post-contract customer support (maintenance) is recognized on a straight-line basis over the term of the contract. Foreign Currency Translation. The Company has significant investments in non-U.S. countries. Therefore, changes in the value of foreign currencies affect the Company's consolidated financial statements when translated into U.S. dollars. For all operations outside the United States where the Company has designated the local currency as the functional currency, assets and liabilities are translated using end-of-period exchange rates; revenues and expenses are translated using average rates of exchange. For these countries, 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- currency translation adjustments are accumulated in a separate component of shareholders' equity whereas realized transaction gains and losses are recognized in other expense net. For operations in countries that are considered to be highly inflationary or where the U.S. dollar is designated as the functional currency, monetary assets and liabilities are translated using end-of-period exchange rates, whereas non-monetary accounts are translated using historical exchange rates, and all translation and transaction adjustments are recognized in other expense net. Income Taxes. Prior to the Distribution, the Company was included in the Federal and certain state and non-U.S. income tax returns of Cognizant. Income taxes are provided using the asset and liability method in accordance with SFAS No. 109. Deferred tax assets and liabilities are recognized based on 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. 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, capitalized software costs, employee benefit plans, taxes, restructuring reserves, contingencies, in-process research and development ("IPR&D") and purchase price allocations. Earnings Per Share. Basic earnings per share are calculated by dividing net income by weighted average common shares. Diluted earnings per share are calculated by dividing net income by dilutive potential common shares. Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. The computation includes the weighted average number of shares of Cognizant common stock outstanding through the Distribution Date, reflecting the one-for-one distribution ratio, and the weighted average number of shares of IMS Health common stock outstanding since the Distribution. On December 15, 1998, the Company's Board of Directors authorized a 2-for-1 split of its common stock effective January 15, 1999, in the form of a stock dividend to shareholders of record on December 29, 1998. All share and per-share amounts in the accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements have been restated to give effect to the stock split. Concentrations of Credit Risk. IMS Health maintains accounts receivable balances ($324,219 and $251,623 at December 31, 1998 and 1997, respectively), principally from customers in the pharmaceutical industry. Reclassifications. Certain prior-year amounts have been reclassified to conform with the 1998 presentation. Recently Issued Accounting Standards. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software Developed Or Obtained For Internal Use." SOP 98-1 provides guidance on costs to be capitalized and when capitalization of such costs should commence. SOP 98-1 applies to costs incurred after adoption, including costs for software projects that are in progress at the time of the adoption. The Company has evaluated the impact of this SOP on its financial position and results of operations and will implement SOP 98-1 for fiscal years beginning after December 15, 1998. The adoption of this pronouncement will not have a material effect on the Company's financial statements. In April 1998, the AICPA issued SOP 98-5, "Accounting for the Costs of Start-up Activities". SOP 98-5 requires all costs of start-up activities to be expensed as incurred. SOP 98-5 is effective for financial statements for years beginning after December 15, 1998. The adoption of this pronouncement will not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal quarters for all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions, in which the Company is 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. Management is currently evaluating the effects of this change on the Company's financial statements. ================================================================================ Note 3. Investment in Gartner In the third quarter of 1997, the Company's voting interest in Gartner fell below 50%, principally as a result of the exercise of Gartner employee stock options and employee stock purchases. Accordingly, effective January 1, 1997, the Company deconsolidated Gartner in that year and is now accounting for its ownership interest on the equity basis. In 1998, proceeds from the issuance of shares to Gartner employees, including associated tax benefits, increased Gartner's equity by $43,654 and reduced the Company's ownership interest by less than 1% to approximately 47% at September 30, 1998. Accordingly, the Company recognized a pre-tax unrealized gain on Gartner stock of $14,838 corresponding to the net increase in the value of its underlying investment in Gartner. As a result of the proposed tax-free spin-off of Gartner, the Company has not recognized gains in accordance with Staff Accounting Bulletin 51 ("SAB 51") for the fourth quarter of 1998. Selected financial information regarding the results of operations and financial position of Gartner is summarized below: (UNAUDITED) YEARS ENDED DECEMBER 31, ------------------------- 1998 1997 - - ------------------------------------------------------------- Condensed Income Statement Information Operating Revenue $669,670 $548,539 Operating Income $148,134 $126,239 Income Before Provision for Taxes $155,992 $134,385 Net Income $ 92,791 $ 79,732 ============================================================= (UNAUDITED) AS OF DECEMBER 31, ----------------------- 1998 1997 - - ------------------------------------------------------------ Condensed Balance Sheet Information Current Assets $511,857 $439,356 Non-current Assets $328,323 $237,284 Current Liabilities $386,528 $338,087 Non-current Liabilities $ 888 $ 3,933 ============================================================ Note 4. Dispositions During 1998, the Company realized a net $46,118 pre-tax gain on the sale of certain of its investments including Aspect Development Inc., which is part of Enterprises' portfolio and the sale of stock holdings in CTS. (See Note 6. to the Consolidated Financial Statements). These sales generated cash proceeds of $78,883. During 1997, the Company realized a $39,336 pre-tax gain on the sale of its investment in WEFA Group, Inc. and a portion of its investment in TSI International, Inc. and Aspect Development, Inc. These investments, which were part of Enterprises' portfolio, generated cash proceeds of $43,601. Additionally, in the third quarter of 1997, the Company sold its wholly owned subsidiary Pilot Software Inc. and realized a non-cash pre-tax loss of $29,945. ================================================================================ Note 5. Investment Partnership Two of the Company's subsidiaries have contributed assets to, and participate in, a limited partnership. One subsidiary serves as general partner, and all other partners hold limited partnership interests. The partnership, which is a separate and distinct legal entity, is in the business of licensing database assets and computer software. In the second quarter of 1997, third-party investors contributed $100,000 to the partnership in exchange for limited partnership interests. For financial reporting purposes, the assets, liabilities, results of operations and cash flows of the partnership are included in the Company's consolidated financial statements because the Company and its subsidiaries maintain a controlling interest (85%) in the partnership. The third-parties' investments in this partnership are reflected as a minority interest. ================================================================================ Note 6. Public Offering of a Subsidiary CTS effected an initial public offering (the "CTS IPO") of 2,917,000 shares of Class A Common Stock, par value $0.01 per share, of CTS (3,354,550 including the underwriters' over-allotment option granted by Cognizant) on June 19, 1998. Of such shares, 2,500,000 were offered by CTS and 417,000 shares were offered by Cognizant, the accounting predecessor to IMS Health. Of the total proceeds, CTS used approximately $6.5 million to repay intercompany debt owed to Cognizant. Cognizant's interest in CTS was transferred to the Company in the Distribution. The transaction (other than the over-allotment option) closed on June 24, 1998 and resulted in a gain of $12,777, which is a SAB 51 gain. The underwriters over-allotment option was exercised during the third quarter. The Company recognized a gain from this sale. The Company's 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- ownership interest is 61.7% at December 31, 1998 and accordingly, the Company consolidates CTS's results within its financial statements. Any minority interest is captured on the Statement of Financial Position in the minority interest line and on the Consolidated Statements of Income in the Other Expense-Net line. CTS's Class A Common Stock is listed on the NASDAQ National Market under the symbol "CTSH". ================================================================================ Note 7. Acquisitions and Joint Venture Walsh Acquisition On June 24, 1998, Cognizant acquired Walsh International Inc. ("Walsh"). The final purchase price of the acquisition was $193,748, consisting of $167,148 of common stock, $9,521 of stock options and $17,079 of accrued acquisition and integration costs. Under the terms of Walsh acquisition agreement, Walsh shareholders received .6082 (on a pre-split basis the ratio is .3041) shares of Cognizant common stock per Walsh per share or based on a Cognizant share price of $25.896, consideration of approximately $167,148 (on a pre-split basis a Cognizant share price of $51.792). Walsh had 10,612,628 shares outstanding. Cognizant issued 6,454,600 shares from treasury stock to consummate the Walsh acquisition. The direct acquisition and integration costs consist of severance of $4,876, lease terminations of $2,569, and other direct acquisition and integration costs of $9,634. These direct acquisition and integration costs 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). To date incurred acquisition and integration costs are within original estimates. Approximately $156,557 is recorded as the excess of the purchase price over the fair value of identifiable net assets (goodwill), which is being amortized on a straight-line basis over 15 years. PMSI Acquisition On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical Marketing Services Inc. ("PMSI"). The final purchase price of the acquisition was $103,291, consisting of $75,292 of common stock, $5,415 of stock options and $22,584 of accrued acquisition and integration costs. Under the terms of PMSI acquisition agreement, PMSI received 2,395,926 shares of IMS Health common stock issued from treasury stock, consideration of approximately $75,292. The acquisition and integration costs consist of severance of $3,794, lease terminations of $1,623, contract cancellation of $10,935, and other direct acquisition and integration costs of $6,232. These direct acquisitions and integration costs are incremental to other costs and were incurred as a direct result of the formal plan to exit certain activities as part of the overall integration effort (such as severance costs related to PMSI employees) and certain contractual cancellation costs (such as PMSI contracts and leases). Acquisition and integration costs incurred to date are within original estimates. Approximately $115,275 is recorded as the excess of the purchase price over the fair value of identifiable net assets (goodwill), which is being amortized on a straight-line basis over 15 years. Joint Venture On September 1, 1998, the Company formed a joint venture with IHA Institut fur Marktanalysen AG ("IHA"). The Company and IHA each contributed all of their Swiss pharmaceutical research assets to the venture and each own 50% of the venture. The Company contributed assets of $54 and cash of $11,014. The $12,027 excess of the investment over the value of the Company's share of the net assets has been recorded as goodwill, which is being amortized on a straight line basis over 20 years. The Company has accounted for its ownership interest in the venture under the equity basis. Purchase Price Allocation In connection with both the Walsh and PMSI acquisitions, the Company made allocations of the purchase price to acquired IPR&D amounting to $21,900 in the second quarter of 1998 related to the Walsh acquisition and $10,900 in the third quarter of 1998 related to the PMSI acquisition. The Securities and Exchange Commission (the "SEC") recently issued revised guidance with respect to allocations of IPR&D projects in connection with an acquisition. 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 project's stage of completion, the complexity of the work completed to date, the difficulty of completing the remaining development, costs already incurred and the projected cost to complete the projects. In addition, the Company allocated $29,000 at Walsh and $7,700 at PMSI to existing core technology, representing computer software that will be used. Such amounts are being amortized over 5 years. The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with these acquisitions was based primarily on estimates of fair values 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- by an independent appraisal firm. The allocation is summarized below: WALSH PMSI TOTAL - - ------------------------------------------------------------------------------- In-process R&D write-off $ 21,900 $ 10,900 $ 32,800 Net liabilities assumed (5,009) (28,274) (33,283) Software/Core technology 29,000 7,700 36,700 Deferred taxes (8,700) (2,310) (11,010) Goodwill 156,557 115,275 271,832 - - ------------------------------------------------------------------------------- Total Purchase Price $193,748 $103,291 $297,039 - - ------------------------------------------------------------------------------- The excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired has been recorded as goodwill, which is being amortized on a straight-line basis over a period of 15 years. At the date of the respective acquisitions, the development of the IPR&D projects had not yet reached technological feasibility and had no alternative future uses. Accordingly, these costs were expensed as of the respective acquisition dates. In the aggregate, the impact of both the Walsh and PMSI acquisitions on the results of operations, other than the one-time charges and the IPR&D write-offs, had they occurred on January 1, 1998 or 1997 would be immaterial. In connection with the PMSI acquisition, the Company commenced an evaluation of its existing IMS Health product offerings. Based on this strategic assessment, the Company decided to abandon certain existing IMS Health software products. The impact of this decision was to recognize the impairment of certain computer software assets ($36,300), the closure of certain IMS facilities ($800) and the severance of some IMS employees ($5,600). This resulted in a one-time charge of $43,019 recorded as a one time acquisition charge as a component of operating income. ================================================================================ Note 8. Equity Securities Amounts included below are classified in the consolidated statements of financial position as Securities and Other Investments. Cash equivalents have been excluded from these disclosures. DECEMBER 31, ------------------------------------------------------- 1998 1997 - - -------------------------------------------------------------------------------- COST FAIR VALUE COST FAIR VALUE - - ------------------------------------------------------------------------------- Equity Securities $5,491 $37,685 $3,491 $48,463 ================================================================================ Note 9. Financial Instruments Foreign Exchange Risk Management The Company transacts business in virtually every part of the world and is subject to risks associated with changing foreign exchange rates. The Company's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its core business activities. Accordingly, the Company enters into various contracts which change in value as foreign exchange rates change to protect the value of a portion of committed and anticipated foreign currency revenues and non-functional currency assets and liabilities. The Company's policy is to maintain hedge coverage between minimum and maximum percentages of its anticipated foreign exchange exposures over the next year. The gains and losses on these hedges offset changes in the value of the related exposures. It is the Company's policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for investment or speculative purposes. The Company uses forward contracts and purchased currency options to hedge committed and anticipated foreign currency denominated revenues, respectively. The principal currencies hedged are the Japanese yen, the Euro and the Swiss franc. The Company also uses forward contracts to hedge non-functional currency assets and liabilities. Gains and losses on contracts hedging anticipated and committed foreign currency revenues are deferred until such revenues are recognized, and offset changes in the value of such revenues. At December 31, 1998, the notional amount hedged of committed foreign revenues was $126,271. At December 31, 1998, the Company had deferred losses of $1,185 related to foreign currency hedge transactions. Deferred amounts to be recognized can change with market conditions and are expected to be substantially offset by changes in the value of the related hedged transactions. The impact of foreign exchange risk management activities on operating income in 1998 and 1997 was a net gain of $ 9,433 and $15,617, respectively. In addition, at December 31, 1998, the Company had approximately $75,211 in foreign exchange forward contracts outstanding with various expiration dates through January 1999 hedging non-functional currency assets and liabilities. Gains and losses on contracts hedging non-functional currency assets and liabilities are not deferred and are included in current income in other income/expense-net. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Fair Value of Financial Instruments At December 31, 1998, the Company's financial instruments included cash, cash equivalents, receivables, accounts payable and foreign exchange risk management contracts. At December 31, 1998, the fair values of cash, cash equivalents, receivables and accounts payable approximated carrying values due to the short-term nature of these instruments. At December 31, 1998, the notional amounts of the Company's risk management contracts were $201,482 and all contracts mature in 1999. The estimated fair values of the foreign exchange risk management contracts were determined based on quoted market prices. 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, 1998 in the event of non-performance by any one counterparty. The Company enters into transactions only with financial institution counterparties which have a credit rating of A or better. In addition, the Company limits the amount of credit exposure with any one institution. The Company maintains accounts receivable balances ($324,219 and $251,623 at December 31, 1998 and 1997, respectively), principally from customers in the pharmaceutical industry. The Company's trade receivables do not represent significant concentrations of credit risk at December 31, 1998 due to the high quality of its customers and their dispersion across many geographic areas. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Note. 10 Pension and Post-retirement Benefits In accordance with FAS No. 132, "Employers' Disclosure About Pensions and Other Postretirement Benefits", the status of all of the Company's defined benefit pension and postretirement benefit plans at December 31, 1998 and 1997 is as follows:
PENSION BENEFITS POST-RETIREMENT BENEFITS - - -------------------------------------------------------------------------------------------------------------------------- 1998 1997 1998 1997 - - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $150,372 $124,327 $ 14,940 $ 14,880 Service Cost 10,687 9,959 870 1,000 Interest Cost 9,738 10,504 720 860 Foreign Currency Exchange Loss (1,931) (2,013) 0 0 Amendments (1,156) 0 0 (1,920) Plan participant's contributions 988 895 30 20 Actuarial (gain)/loss (865) 8,976 (230) 240 Impact of 1998 Distribution of Nielsen Media Research (34,870) 0 (8,040) 0 Benefits paid (3,427) (2,276) (180) (140) - - -------------------------------------------------------------------------------------------------------------------------- Net benefit obligation at December 31, $129,536 $150,372 $ 8,110 $ 14,940 - - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $175,263 $144,105 $ 0 $ 0 Actual return on plan assets 27,965 31,007 0 0 Foreign Currency Exchange Loss (948) 0 0 0 Employer contribution 1,653 1,532 150 120 Plan participant's contributions 988 895 30 20 Impact of 1998 Distribution of Nielsen Media Research (58,290) 0 0 0 Benefits paid (3,427) (2,276) (180) (140) - - -------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at December 31, $143,204 $175,263 $ 0 $ 0 - - --------------------------------------------------------------------------------------------------------------------------
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - --------------------------------------------------------------------------------
PENSION BENEFITS POST-RETIREMENT BENEFITS - - ----------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1998 1997 - - ------------------------------------------------------------------------------------------------------------------------------------ OVER/(UNDER) FUNDED STATUS AT END OF YEAR $ 13,668 $ 24,891 $ (8,110) $(14,940) Unrecognized actuarial (gain)/loss (18,898) (17,823) 420 540 Unrecognized prior service cost/(benefit) (2,606) (5,620) (680) (2,110) Unrecognized net transition asset (388) (1,990) 0 0 - - ------------------------------------------------------------------------------------------------------------------------------------ Net amount recognized at December 31, $ (8,224) $ (542) $ (8,370) $(16,510) - - ------------------------------------------------------------------------------------------------------------------------------------ AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost $ 13,295 $ 21,083 $ 0 $ 0 Accrued benefit liability (22,282) (21,625) (8,370) (16,510) Intangible asset 763 0 0 0 - - ------------------------------------------------------------------------------------------------------------------------------------ Net amount recognized in the Statement of Financial Position at December 31, $ (8,224) $ (542) $ (8,370) $(16,510) - - ------------------------------------------------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, Discount rate 6.34% 6.93% 6.50% 7.00% Expected return on plan assets 8.68% 9.11% n/a n/a Rate of compensation increase 4.98% 4.33% n/a n/a - - ------------------------------------------------------------------------------------------------------------------------------------ The assumed rate of future increases in per capita cost of covered healthcare benefits is 6.5% in 1999, decreasing gradually to 5% for the year 2021 and remaining constant thereafter. The components of net periodic benefit cost for 1998 and 1997 are summarized as follows: PENSION BENEFITS POST-RETIREMENT BENEFITS - - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1998 1997 - - ------------------------------------------------------------------------------------------------------------------------------------ Components of net periodic benefit cost Service cost $ 10,687 $ 9,959 $ 870 $ 1,000 Interest cost 9,738 10,504 720 860 Expected return on plan assets (13,124) (13,951) 0 0 Amortization of prior service cost (237) (190) (490) (660) Recognized actuarial loss 316 660 0 0 - - ------------------------------------------------------------------------------------------------------------------------------------ Net periodic benefit cost for the year ended December 31 $ 7,380 $ 6,982 $ 1,100 $ 1,200 - - ------------------------------------------------------------------------------------------------------------------------------------ Net periodic benefit cost for 1996 was $6,885 and $2,619 for pension benefits and postretirement benefits, respectively. The components of 1996 net periodic benefit costs is unavailable.
27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data - - -------------------------------------------------------------------------------- The Distribution at June 30, 1998 resulted in a transfer of the allocable portion of the benefit obligation and plan assets to Nielsen Media Research. (See Note 1. to the Consolidated Financial Statements). Pension expenses related to discontinued operations included in the table above were $226, $1,571 and $2,397 for the years 1998, 1997 and 1996, respectively. Other benefit costs for discontinued operations were not significant. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $35,036, $28,964, and $14,695, respectively, as of December 31, 1998, and $38,247, $23,522, and $13,415, respectively as of December 31, 1997. Assumed health care costs trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates for 1998 would have the following effects: 1-PERCENTAGE-POINT 1-PERCENTAGE-POINT INCREASE DECREASE - - -------------------------------------------------------------------------------- Increase/(Decrease) Effect on total service/interest cost $130 ($110) Effect on post-retirement benefit obligation $780 ($680) - - -------------------------------------------------------------------------------- Certain employees of the Company in the United States also are eligible to participate in the Company-sponsored defined contribution plan. The Company's businesses make a matching contribution of up to 50% of the employee's contribution based on specified limits of the employee's salary. The Company's expense related to this plan was $3,713, $4,666 and $4,075 for the years 1998, 1997 and 1996, respectively which includes expenses related to discontinued operations of $768, $2,021, and $1,797 for the years 1998, 1997, and 1996, respectively. - - -------------------------------------------------------------------------------- Note 11. Employee Stock Plans The Company has an Employees Stock Incentive Plan which provides for the grant of stock options and restricted stock to eligible employees. 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. All options have a life of ten years, vest proportionally over three to six years and have an exercise price equal to the fair market value of the common stock on the grant date. The Company adopted an Employee Stock Purchase Plan in 1998 which allows eligible employees to purchase a limited amount of common stock at the end of each quarter at a price equal to the lesser of 90% of fair market value on (a) the first trading day of the quarter, or (b) the last trading day of the quarter. Fair market value is defined as the average of the high and low prices of the shares on the relevant day. Gartner has several stock option and stock purchase plans. The exercise price of options granted under the plans is equal to the fair market value at the date of grant of Gartner stock. Options outstanding and exercisable were 14,560,757 and 5,774,615, respectively, at December 31, 1998, at prices ranging from $0.63 to $35.68 per share. In July 1997, CTS adopted a Key Employees Stock Option Plan which provides for the grant of stock options to eligible employees. Options granted under this plan may not be granted at an exercise price less than fair market value of the underlying shares on the date of grant. All options have a life of ten years, vest proportionally over four years and have an exercise price equal to the fair market value of the common stock on the grant date. At December 31, 1998, 586,776 options were outstanding at a weighted average exercise price of $5.40 per share. Of this amount, 89,628 were exercisable at a price of $3.85. In December 1997, CTS adopted a Non-Employee Directors' Stock Option Plan which provides for the grant of stock options to eligible directors. Options granted under this plan may not be granted at an exercise price less than fair market value of the underlying shares on the date of grant. All options have a life of ten years, vest proportionally over two years and have an exercise price equal to the fair market value of the common stock on the grant date. At December 31, 1998, 49,500 options were outstanding at a weighted average exercise price of $9.76 per share. Of this amount, 10,250 were exercisable at prices ranging from $9.08 to $10.00 per share. In March 1998, CTS granted non-qualified stock options to purchase an aggregate of 48,750 shares to CTS's Chairman and Chief Executive Officer at an exercise price of $6.92 per share. At December 31, 1998, 12,187 were exercisable. 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 APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no significant compensation cost has been recognized for the fixed stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans, consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollar amounts in thousands, except per share data Years Ended December 31, --------------------------------------- 1998 1997 1996 - - -------------------------------------------------------------------------------- Net Income As reported $220,558 $312,350 $195,451 Pro forma $188,001 $284,634 $188,705 Earnings Per Share: Basic As reported $0.68 $0.95 $0.58 Pro forma $0.58 $0.86 $0.56 Diluted As reported $0.66 $0.93 $0.57 Pro forma $0.56 $0.85 $0.55 ================================================================================ Years Ended December 31, -------------------------------- 1998 1997 1996 - - -------------------------------------------------------------------------------- Income from continuing operations: As reported $178,465 $234,116 $139,754 Pro forma $147,734 $206,400 $133,008 Earnings Per Share: Basic from Continuing Operations As reported $0.55 $0.71 $0.41 Pro forma $0.46 $0.62 $0.39 Diluted from Continuing Operations As reported $0.53 $0.70 $0.41 Pro forma $0.44 $0.62 $0.39 ================================================================================ Note: The pro forma disclosures shown above are not representative of the effects on net income and earnings per share in future years. The fair value of the Company's stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option pricing model. The following weighted-average assumptions were used for 1998, 1997 and 1996: dividend yield of 0.3%; expected volatility of 25%; a risk-free interest rate of 5.1%; and an expected term of 3.5 years. The weighted average fair value of the Company's stock options granted in 1998, 1997 and 1996 are $7.92, $6.56 and $4.88, respectively. The fair value of Gartner stock options used to compute the Company's pro forma net income and earnings per share disclosures was computed in the same manner as the Company's with the following weighted-average assumptions for 1998, 1997 and 1996: dividend yield of 0%; expected volatility of 38%; a risk-free interest rate of 5.4%; and an expected term of 3.5 years. The weighted average fair value of Gartner stock options granted in 1998, 1997 and 1996 are $11.55, $10.12 and $11.80, respectively. Immediately following the 1996 Distribution, outstanding awards under the D&B Key Employees Stock Option Plans held by Cognizant employees were canceled and replaced by substitute awards under Cognizant's Key Employees Stock Incentive Plan. The substitute awards had the same ratio of the exercise price per option to the market value per share, the same aggregate difference between market value and exercise price and the same vesting provisions, option periods and other terms and conditions as the options they replaced. Immediately following the Distribution, outstanding awards under Cognizant's Key Employees Stock Incentive Plan and other option plans were cancelled and replaced by substitute awards under various IMS Health option plans. The formula to determine the number of replacement options was the average fair market value of Cognizant shares before the Distribution divided by the average fair market value of IMS Health shares after the Distribution. At December 31, 1998, outstanding options for IMS Health common stock held by Company employees, including the replacement awards mentioned above, totaled 28,859,996, of which 5,402,436 had vested and were exercisable. The option prices range from $3.69 to $34.25 per share and are exercisable over periods ending no later than 2008. At December 31, 1997, outstanding options for Cognizant common stock held by Company employees totaled 43,844,780, of which 8,772,362 had vested and were exercisable. The option prices ranged from $11.50 to $22.24 per share. WEIGHTED AVERAGE SHARES EXERCISE PRICE - - ------------------------------------------------------------------------------- Options Outstanding, December 31, 1996 40,453,498 $16.50 Granted 7,756,474 $21.18 Exercised (1,713,386) $15.39 Expired/Terminated (2,651,806) $16.60 - - -------------------------------------------------------------------------------- Options Outstanding, December 31, 1997 43,844,780 $17.38 ================================================================================ Nielsen Media Research (9,394,856) $16.89 Conversion Adjustment (1,768,840) -- Granted (1)(2) 6,508,614 $28.94 Exercised (2) (6,324,494) $16.91 Expired/Terminated (2) (4,005,208) $18.17 - - -------------------------------------------------------------------------------- Options Outstanding, December 31, 1998 28,859,996 $21.18 ================================================================================ (1) This includes 1,928,188 options granted in connection with the Walsh and PMSI acquisitions. (2) Excludes Nielsen Media Research.
WEIGHTED-AVERAGE ------------------------------------------------------------- DECEMBER 31, 1998 OPTION EXERCISE PRICES RANGE OF ---------------------------------------------- REMAINING ----------------------------------------- EXERCISE PRICES NUMBER OUTSTANDING NUMBER EXERCISABLE CONTRACTUAL LIFE OUTSTANDING EXERCISABLE - - -------------------- ----------------------- ---------------------- ------------------- ---------------- ------------------------ $ 3.69-$14.83 443,490 388,780 4.8 years $12.42 $12.29 $15.23-$17.82 16,702,910 3,777,072 7.8 years $17.57 $17.39 $18.23-$20.86 1,254,202 566,580 7.4 years $19.20 $18.91 $21.48-$23.51 4,951,255 668,791 8.9 years $23.41 $23.46 $27.39-$29.97 1,181,737 671 9.5 years $29.22 $27.39 $30.17-$34.25 4,326,402 542 9.7 years $31.85 $30.17 ----------------------- ---------------------- 28,859,996 5,402,436 ==================================================================================================================================
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Note 12. Income Taxes The Company has been informed by D&B that the IRS is currently reviewing D&B's utilization of certain capital losses during 1989 and 1990. While D&B has not received an assessment with respect to these transactions, it understands that the IRS will challenge D&B's position. The Company has estimated that D&B's total cash liability to the IRS if an assessment is made and the IRS prevails would be approximately $425,000 for taxes and accrued interest net of tax benefit. Under the terms of the Distribution Agreement dated October 28, 1996 among D&B, Cognizant and ACNielsen Corporation (the "1996 Distribution Agreement"), the Company is liable to pay half of such taxes and interest owed to the IRS to the extent that D&B's total liabilities exceed $137,000. A portion of the Company's liability would in turn be shared with Nielsen Media Research under the Distribution Agreement. The Company estimates that its share of the liability were the IRS to prevail would be approximately $135,000. This liability has been included in other liabilities. The Company has accrued its anticipated share of the probable liability to D&B under the 1996 Distribution Agreement. Accordingly, management does not believe that this matter will have a material adverse effect on the Company's consolidated financial position or operating results when it is resolved in a future period. However, should the IRS issue an assessment notice, payment of the Company's share could have a material adverse effect on cash flows in the period in which it is made. However, the Company believes that is has more than sufficient funds available from operating cash flows and committed bank lines to cover any such payment without a material effect on its liquidity or its financial condition. Income from continuing operations before provision for income taxes consisted of: 1998 1997 1996 - - ------------------------------------------------------------ U.S. $122,161 $124,524 $ 66,164 Non-U.S. 148,500 197,950 183,396 - - ------------------------------------------------------------ Total $270,661 $322,474 $249,560 - - ------------------------------------------------------------ The provision (benefit) for income taxes consisted of: 1998 1997 1996 - - ------------------------------------------------------------ U.S. Federal and State: Current $161,661 $16,883 $16,031 Deferred (3,627) 1,528 25,092 - - ------------------------------------------------------------ Sub-total $158,034 $ 18,411 $41,123 - - ------------------------------------------------------------ Non-U.S.: Current $30,235 $57,221 $ 61,660 Deferred (96,073) 12,726 7,023 - - ------------------------------------------------------------ Sub-total (65,838) 69,947 68,683 - - ------------------------------------------------------------ Total $92,196 $88,358 $109,806 - - ------------------------------------------------------------ The following table summarizes the significant differences between the U.S. Federal statutory taxes and the Company's provision for income taxes for consolidated financial statement purposes. 1998 1997 1996 - - --------------------------------------------------------------- Tax Expense at Statutory Rate 35.0% 35.0% 35.0% State and Local Income Taxes, net of Federal TaxBenefit 0.7 1.5 1.1 Impact of Non-U.S. Tax Rates and Credit 0.4 (0.2) 1.6 Amortization of Non-U.S. Intangibles (43.7) -- -- Pre D&B Spin Liability 39.0 -- -- Amortization of U.S. Intangibles (7.4) (8.8) -- Non-Deductible Reorganization Costs 4.5 -- -- Non-Deductible IPR&D 4.2 -- 4.6 Goodwill 1.3 0.4 1.5 Other 0.1 (0.5) 0.2 - - --------------------------------------------------------------- Total Taxes 34.1% 27.4% 44.0% - - --------------------------------------------------------------- The Company's deferred tax assets (liabilities) are comprised of the following at December 31: 1998 1997 - - ------------------------------------------------------------ Deferred Tax Assets: Non U.S. Intangibles $ 86,738 $ -- U.S. Intangibles 20,701 15,107 Operating Losses 22,546 23,236 Post-Retirement and Post-Employment Benefits 9,934 8,069 Other 5,576 9,129 - - ------------------------------------------------------------ 145,495 55,541 Valuation Allowance (21,239) (21,826) - - ------------------------------------------------------------ 124,256 33,715 - - ------------------------------------------------------------ Deferred Tax Liabilities: Computer Software (48,549) (40,781) Deferred Revenue (28,990) (33,322) Depreciation (10,168) (10,822) Marketable Securities (8,821) (20,522) Other (25,301) (13,158) - - ------------------------------------------------------------ (121,829) (118,605) - - ------------------------------------------------------------ Net Deferred Tax $ 2,427 $ (84,890) Asset/(Liability) - - ------------------------------------------------------------ To consolidate certain of its international operations, in 1998 the Company engaged in certain non-U.S. reorganizations which gave rise to tax deductible non-U.S. intangible assets. The 1998 net deferred tax asset consists of a current deferred tax asset of $32,749, included in Other Current Assets, offset by a non-current deferred tax liability of $30,322. (See Notes 2., 5. and 16. to the Consolidated Financial Statements). The Company has established a valuation allowance attributable to deferred tax assets 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. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Undistributed earnings of non-U.S. subsidiaries aggregated approximately $534,930 at December 31, 1998. Deferred tax liabilities have not been recognized for these undistributed earnings because it is the Company's intention to indefinitely reinvest such undistributed earnings outside the United States. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, applicable taxes will be provided for on such amounts. It is not currently practicable to determine the amount of applicable taxes. - - -------------------------------------------------------------------------------- Note 13. Commitments Certain of the Company's operations are conducted from leased facilities, which are under operating leases. Rental expense under real estate operating leases for the years 1998, 1997 and 1996 was $21,868, $19,432, and $28,963, respectively. The minimum annual rental expense for real estate operating leases that have remaining noncancelable lease terms in excess of one year, net of sublease rentals, at December 31, 1998 was: 1999--$22,527; 2000--$21,563; 2001--$20,762; 2002--$17,313; 2003--$15,029 and an aggregate of $31,546 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 $17,815, $28,241, and $23,372 for 1998, 1997 and 1996, respectively. At December 31, 1998, 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: 1999--$16,778; 2000--$10,859; 2001--$6,435; 2002--$5,320 and 2003--$651. The Company has agreements with various third parties to purchase certain data and telecommunications services, extending beyond one year. At December 31, 1998, the purchases covered by these agreements aggregated: 1999--$76,287; 2000--$26,181 and 2001--$14,389. - - -------------------------------------------------------------------------------- Note 14. IMS Health Capital Stock Under the Company's Restated Certificate of Incorporation, the Company has authority to issue 420,000,000 shares with a par value of $.01 per share of which 400,000,000 represent shares of common stock, 10,000,000 represent shares of preferred stock and 10,000,000 represent shares of series common stock. The preferred and series common stock can be issued with varying terms, as determined by the Board of Directors. On June 30, 1998, 335,225,390 shares of the Company's common stock were distributed to the shareholders of Cognizant. Since the Company has been treated as the successor entity for accounting purposes, the Company's historical financial statements reflect the recapitalization of the Company in connection with the Distribution, including the elimination of treasury shares (which shares became treasury shares of Nielsen Media Research). In connection with the Distribution, the Company entered into a Rights Agreement designed to protect shareholders of the Company in the event of unsolicited offers to acquire the Company and the other coercive takeover tactics which, in the opinion of the Board of Directors, could impair its ability to represent shareholder interests. Under the Rights Agreement, each share of the common stock has one-half of one right which trades with the stock until the right becomes exercisable. Each right entitles the registered holder to purchase 1/1000 of a share of Series A Junior Participating Preferred Stock, par value $.0l per share, at a price of $225 per 1/1000 of a share, subject to adjustment. The rights will generally not be exercisable until a person or group ("Acquiring Person") acquires beneficial ownership of, or commences a tender offer or exchange offer which would result in such person or group having beneficial ownership of 15% or more of the outstanding common stock (20% in the case of certain institutional investors). In the event that any person or group becomes an Acquiring Person, each right will thereafter entitle its holder (other than the Acquiring Person) to receive, upon exercise, shares of stock having a market value of two times the exercise price in the form of the Company's common stock or, where appropriate, the Acquiring Person's common stock. The Company may redeem the rights, which expire in June 2008, for $0.01 per right, under certain circumstances. On October 21, 1997 Cognizant announced that its board of directors had authorized a systematic stock repurchase program to buy up to 20,000,000 shares (on a post split basis) of Cognizant's outstanding common stock. As the "Accounting Successor to Cognizant," the Company purchased the remaining balance of 18,850,800 shares of the Company's stock (on a post split basis). A portion of this program was intended to offset option exercises. This program was completed by the Company on November 17, 1998 at a total cost of $591,331. In the fourth quarter, the Board of Directors authorized a stock repurchase program to buy up to 16,000,000 shares of the Company's outstanding common stock. A portion of this program is intended to offset option exercises. Through December 31, 1998, 2,898,800 shares have been acquired at a total cost of $98,113. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Note 15. Contingencies The Company and its subsidiaries are involved in legal proceedings, claims litigation and tax matters arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims litigation and tax matters, if decided adversely, could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, in the opinion of management, these matters will not materially affect the Company's consolidated financial position. In addition the Company is subject to certain other contingencies discussed below: Information Resources Litigation On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants D&B, A.C. Nielsen Company and I.M.S. International Inc. (a predecessor of IMS Health) (the "IRI Action"). The complaint alleges various violations of the United States antitrust laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These latter claims relate to the acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI when it agreed to be acquired by defendants and that the defendants induced SRG to breach that agreement. IRI's complaint alleges damages in excess of $350,000, which amount IRI has asked to be trebled under the antitrust laws. IRI also seeks punitive damages in an unspecified amount. On October 15, 1996, defendants moved for an order dismissing all claims in the complaint. On May 6, 1997 the United States District Court for the Southern District of New York issued a decision dismissing IRI's claim of attempted monopolization in the United States, with leave to replead within sixty days. The Court denied defendants' motion with respect to the remaining claims in the complaint. On June 3, 1997, defendants filed an answer denying the material allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim alleging that IRI has made false and misleading statements about its services and commercial activities. On July 7, 1997, IRI filed an amended and restated complaint repleading its alleged claim of attempted monopolization in the United States and realleging its other claims. On August 18, 1997, defendants moved for an order dismissing the amended claims. On December 1, 1997, the court denied the motion and, on December 16, 1997, defendants filed a supplemental answer denying the remaining material allegations of the amended complaint. Discovery is continuing in this matter. In light of the potentially significant liabilities which could arise from the IRI Action and in order to facilitate the distribution by D&B of shares of Cognizant and ACNielsen in 1996, D&B, ACNielsen (the parent company of A.C. Nielsen Company) and Cognizant entered into an Indemnity and Joint Defense Agreement pursuant to which they agreed (i) to certain arrangements allocating liabilities that may arise out of or in connection with the IRI Action, and (ii) to conduct a joint defense of such action. In particular, the Indemnity and Joint Defense Agreement provides that ACNielsen will assume exclusive liability for liabilities up to a maximum amount to be calculated at the time such liabilities, if any, become payable (the "ACN Maximum Amount") and that Cognizant and D&B will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount which ACNielsen will be able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring shareholder approval), and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. Under the terms of the 1996 Distribution Agreement as a condition to the Distribution, IMS Health and Nielsen Media Research were required to and did undertake to be jointly and severally liable to D&B and ACNielsen for Cognizant's obligations under the 1996 Distribution Agreement. In connection with the Distribution, IMS Health and Nielsen Media Research agreed that, as between themselves, IMS Health will assume 75%, and Nielsen Media Research 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. Nielsen Media Research's aggregate liability to IMS Health for payments in respect of the IRI Action and certain other contingent liabilities shall not exceed $125 million. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data - - -------------------------------------------------------------------------------- Management of the Company is unable to predict at this time the final outcome of this matter or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. Other Contingencies The Company, Cognizant and D&B have entered into global tax planning initiatives in the normal course of business. These activities are subject to review by tax authorities. As a result of the review process, uncertainties exist and it is possible that some of these matters could be resolved adversely to the Company, Cognizant or D&B. (See Notes 2. and 12. to the Consolidated Financial Statements). - - -------------------------------------------------------------------------------- Note 16. Supplemental Financial Data Accounts Receivable--Net: 1998 1997 - - ------------------------------------------------------------- Trade and Notes $262,990 $204,317 Less: Allowance for Doubtful Accounts (7,767) (3,905) Unbilled Receivables 51,097 34,232 Other 17,899 16,979 - - ------------------------------------------------------------- At December 31, $324,219 $251,623 - - ------------------------------------------------------------- Other Current Assets: 1998 1997 - - ------------------------------------------------------------- Deferred Income Taxes $32,749 $ 7,263 Prepaid Expenses 39,706 32,114 Inventories 31,413 26,315 - - ------------------------------------------------------------- At December 31, $103,868 $ 65,692 - - ------------------------------------------------------------- Property, Plant and Equipment--Net, Carried at Cost, Less Accumulated Depreciation and Amortization: 1998 1997 - - ------------------------------------------------------------ Buildings $88,921 $92,291 Machinery and Equipment 238,679 229,610 Less: Accumulated (170,764) (162,660) Depreciation Leasehold Improvements, less: Accumulated Amortization of $13,415 and $11,310 14,340 12,636 Land 7,975 6,656 - - ------------------------------------------------------------ At December 31, $179,151 $178,533 - - ------------------------------------------------------------ Computer Software and Goodwill: COMPUTER SOFTWARE GOODWILL - - ------------------------------------------------------------ January 1, 1997 $148,604 $251,483 Additions at Cost 74,776 1,554 Amortization (47,521) (8,810) Other Deductions, Additions and Reclassifications (21,901) (156,797) - - ------------------------------------------------------------ December 31, 1997 153,958 87,430 Additions at Cost 61,089 292,349 Amortization (51,190) (12,100) Asset Impairment (36,300) -- Software Additions from Acquisitions 36,700 -- Other Deductions and Reclassifications 4,737 (3,838) - - ------------------------------------------------------------ December 31, 1998 $168,994 $ 363,841 - - ------------------------------------------------------------ Accumulated Amortization of Computer Software was $216,136 and $203,970 at December 31, 1998 and 1997, respectively. Accumulated Amortization of Goodwill $46,380 and $40,399 at December 31, 1998 and 1997, respectively. Accounts and Notes Payable: 1998 1997 - - ------------------------------------------------------------- Trade $21,892 $21,994 Taxes Other Than Income Taxes 16,596 13,736 Notes 40,378 458 Other 12,018 8,253 - - ------------------------------------------------------------- At December 31, $90,884 $44,441 - - ------------------------------------------------------------- The weighted average interest rates in notes payable at December 31,1998 and 1997 were 2.0% and 7.50%, respectively. The Company has short-term borrowing arrangements with several banks to provide up to $135,400 of borrowings at December 31, 1998. None of these arrangements had material commitment fees or compensating balance requirements. Accrued and Other Current Liabilities: 1998 1997 - - ------------------------------------------------------------- Salaries, Wages, Bonuses and Other Compensation $75,178 $ 60,159 Accrued Acquisition and Integration Costs 19,410 -- Other 204,037 129,225 - - ------------------------------------------------------------- At December 31, $298,625 $189,384 - - ------------------------------------------------------------- 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data - - -------------------------------------------------------------------------------- At December 31, 1998, the Company had a severance accrual of $11,700, included in other liabilities, principally relating to the reorganization of its European operations. - - -------------------------------------------------------------------------------- Note 17. Operations by Business Segment As described in Note 1, the business segments have been restated to reflect Nielsen Media Research as a discontinued operation. In 1997, the Company adopted SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information". As required, the Company has restated prior period segment results in order to conform to this statement. The Company, operating globally in approximately 80 countries, delivers information, software and related services principally through the strategic business segments referenced below. The accounting policies of the segments are the same as those described in Note 2. to the Consolidated Financial Statements. The IMS segment includes the market information, sales management and decision-support services and sales management systems businesses for the pharmaceutical and healthcare industries. In 1998, the IMS segment includes the acquisition of Walsh and PMSI, (See Note 7. to the Consolidated Financial Statements), which have been integrated into the IMS operations. The Emerging Markets segment principally includes Erisco, a leading supplier of software-based administrative and analytical solutions to the managed care industry. It also includes Super Systems Japan, a marketer of financial application software products to the Japanese market; Enterprises, the Company's venture capital unit focused on investments in emerging healthcare businesses; and Pilot Software Inc. ("Pilot"), which was sold as of July 31, 1997. CTS is a provider of software applications development and maintenance services and Year 2000 and Eurocurrency compliance services (See Note 6. to the Consolidated Financial Statements). Gartner is the world's leading independent provider of research and analysis on the computer hardware, software, communications and related information technology industries. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data
EMERGING YEAR ENDED DECEMBER 31, 1998 IMS MARKETS CTS (1) GARTNER(2) TOTAL - - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUE $1,083,992 $ 57,542 $ 44,979 $1,186,513 Acquired In Process Research and Development 32,800 32,800 Direct Acquisition Integration Costs 48,019 48,019 SEGMENT OPERATING INCOME $ 184,771 $ 6,171 $ 8,918 $ 199,860 General Corporate Expenses (67,376) Interest Income (3) 9,212 3 638 9,853 Interest Expense (4) (804) (804) Non-Operating Income--Net Gartner Equity Income (2) 70,979 70,979 Gains from Dispositions--Net (5) 27,753 12,777 40,530 Non-Operating Income--Other--Net 17,619 - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Provisions for Income Taxes $ 270,661 Provision for Income Taxes (92,196) Income from Discontinued Operations, Net of Income Taxes (6) 42,093 Net Income 220,558 Segment Depreciation and Amortization $ 87,723 $ 5,418 $ 2,221 $ 95,362 Segment Capital Expenditures $ 25,146 $ 1,121 $ 4,075 $ 30,342 Identifiable Assets at December 31, 1998 (7) $1,235,285 $ 109,431 $ 51,634 $ 252,852 $1,649,202 - - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 - - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUE $ 980,521 $ 65,159 $ 13,879 $1,059,559 SEGMENT OPERATING INCOME/(LOSS) $ 265,351 $ (12,669) $ 2,917 $ 255,599 General Corporate Expenses (27,989) Interest Income (3) 4,441 123 17 4,581 Interest Expense (4) (679) (109) (788) Non-Operating Income--Net Gartner Equity Income (1) 65,120 65,120 Gains from Dispositions--Net 9,391 9,391 Non-Operating Income--Other--Net 16,560 - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Provision for Income Taxes $ 322,474 Provision for Income Taxes (88,358) Income from Discontinued Operations, Net of Income Taxes (6) 78,234 Net Income 312,350 Segment Depreciation and Amortization $ 76,375 $ 10,164 $ 975 $ 87,514 Segment Capital Expenditures $ 41,932 $ 1,724 $ 2,580 $ 46,236 Identifiable Assets at December 31, 1997 (7) $ 855,789 $ 132,748 $ 15,880 $ 195,695 $1,199,112 - - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996 - - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUE $ 904,444 $ 79,205 $ 3,161 $ 424,382 $1,411,192 Write-Off of Purchased In Process Research & Development 33,233 33,233 SEGMENT OPERATING INCOME/(LOSS) $ 232,827 $ (14,558) $ 1,655 $ 60,114 $ 280,038 General Corporate Expenses (36,331) Interest Income (3) 3,597 125 96 3,982 7,800 Interest Expense (4) (1,043) (295) (1,338) Non-Operating Expense--Other--Net (809) Gains from Dispositions--Net 200 200 - - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Provision for Income Taxes $ 249,560 Provision for Income Taxes (109,806) Income from Discontinued Operations, Net of Income Taxes (6) 55,697 Net Income 195,451 Segment Depreciation and Amortization $ 80,313 $ 11,634 $ 547 $ 15,934 $ 108,428 Segment Capital Expenditures $ 37,862 $ 2,522 $ 732 $ 15,918 $ 57,034 Identifiable Assets at December 31, 1996 (7) $ 756,966 $ 196,743 $ 10,082 $ 497,242 $1,461,033 - - ---------------------------------------------------------------------------------------------------------------------------- 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Dollars amounts in thousands, except per share data (1) Related party sales of $13,627, $11,092 and $8,877 for the years ended December 31, 1998, 1997 and 1996, respectively, consisting primarily of sales from CTS to the IMS segment and Nielsen Media Research have been excluded. The related party sales associated with discontinued operations were $4,365 and $2,436 for December 31, 1997 and 1996, respectively. (2) The Company maintained a majority interest in Gartner during 1996 and accordingly, reflected Gartner on a consolidated basis. During 1997, The Company's voting interest in Gartner fell below 50%. Gartner's results for 1997 and 1998 are therefore reflected as Gartner Equity Income and included in Non-Operating Income--Net. (3) Interest income excludes amounts recorded at corporate of $9,695, $8,168 and $1,656 for the years ended December 31, 1998, 1997 and 1996, respectively. (4) Interest expense excludes amounts recorded at corporate of $362, $1,505 and $0 for the years ended December 31, 1998, 1997 and 1996, respectively. (5) Gains from Dispositions-Net excludes amounts recorded at Corporate of $5,588 at December 31, 1998. (6) Income from Discontinued Operations, Net of Income Taxes includes taxes of $15,887, $29,527 and $43,764 for the years ended December 31, 1998, 1997 and 1996, respectively. (7) Total Assets include Net Assets of Discontinued Operations of $122,778, and $98,124 as of December 31, 1997 and 1996, respectively. Assets of $82,317, $180,199 and $234,288 as of December 31, 1998, 1997 and 1996, respectively, include cash and cash equivalents and Property, Plant and Equipment not identified with business segments and represent the reconciling items between total identifiable assets and Net Assets of Discontinued Operations. (See Note 1. to the Consolidated Financial Statements) and the Company's total assets. Financial Information by Country:(1)
UNITED STATES UNITED KINGDOM ALL OTHER (3) TOTAL - - ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1998 - - ------------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUE (2) $489,719 $ 79,897 $616,897 $ 1,186,513 LONG-LIVED ASSETS $239,578 $153,236 $342,100 $ 734,914 - - ------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 - - ------------------------------------------------------------------------------------------------------------------------------- Operating Revenue (2) $409,527 $43,299 $606,733 $ 1,059,559 Long-Lived Assets $242,974 $54,028 $134,145 $ 431,147 - - ------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1996 - - ------------------------------------------------------------------------------------------------------------------------------- Operating Revenue (2) $639,831 $82,727 $688,634 $ 1,411,192 Long-Lived Assets $430,020 $73,153 $142,898 $ 646,071 - - -------------------------------------------------------------------------------------------------------------------------------
(1) The above table reflects the deconsolidation of Gartner and the sale of Pilot, in 1997. (2) Revenue relates to external customers and is primarily attributable to the country of domicile. (3) Included in All Others is non U.S. and non-UK revenue principally from Europe, Australia and the Far East. Note 18. Subsequent Events (Unaudited) Elimination of one month Reporting lag in IMS operating entities. As indicated in Note 2. to the Consolidated Financial Statements, the Company consolidates its IMS operating units on a one month reporting lag basis. Effective in the first quarter of the Company's 1999 fiscal year, IMS operating units that previously reported on a fiscal year ending November 30, changed their reporting period to eliminate the one month lag to bring these to a fiscal year ending December 31. This change was made to reflect the results of operations and financial position of these operating units on a more timely basis and to increase operating and planning efficiency. The results of these operating units for the period December 1 through December 31, 1998, will be reflected as an adjustment to retained earnings in the Company's 1999 first quarter reporting period ending March 31, 1999. The Company is still evaluating the financial statement impact of the change. 36 QUARTERLY FINANCIAL DATA (UNAUDITED) Dollar amounts in thousands, except per share data Historical results are restated to reflect Nielsen Media Research as a discontinued operation. (See Note 1. to the Consolidated Financial Statements). The results of operations and related disclosures as of and for the quarter ended June 30, 1998 and September 30, 1998 have been restated as it relates to the purchase price allocation for the Walsh and PMSI acquisitions. This change was made to conform with the SEC's refined approach for the measurement of acquired IPR&D, Core Technology/Software and the related allocation of purchase price. The estimate for the one time charge for the acquired IPR&D projects for the original quarterly filing(s) upon the acquisitions was $57,000 for Walsh (revised to $52 million quarter 3) and $14,200 for PMSI. These have now been reduced to $21,900 and $10,900, respectively. The impact of this re-allocation of the purchase price on the income statement, is an increase to net income of $35,100 for quarter 2 and a decrease in pre-tax income of $2,335 for Quarter 3, on previously reported amounts for consolidated income. The impact of increased amortization expense related to the intangible assets is not significant. Net income for the year is increased now by $32,785. (See note 7 to the Consolidated Financial Statement). Additionally, the Company has retroactively restated all per-share amounts to give effect for the 2:1 stock split (See Note 2. to the Consolidated Financial Statements). 1997 quarterly results have been restated to reflect the deconsolidation of Gartner. (See Note 3. to the Consolidated Financial Statements).
THREE MONTHS ENDED ------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR - - ------------------------------------------------------------------------------------------------------------------------------------ 1998 OPERATING REVENUE $240,968 $270,496 $283,606 $391,443 $1,186,513 OPERATING INCOME $ 18,728 $(13,912) $ 4,753 $122,915 $ 132,484 INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES $ 39,082 $ 1,552 $ 24,955 $112,876 $ 178,465 INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES $ 21,005 $ 21,088 $ 0 $ 0 $ 42,093 NET INCOME $ 60,087 $ 22,640 $ 24,955 $112,876 $ 220,558 - - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE OF COMMON STOCK BASIC INCOME FROM CONTINUING OPERATIONS $ .12 $ .00 $ .08 $ .35 $ .55 INCOME FROM DISCONTINUED OPERATIONS $ .06 $ .07 $ .00 $ .00 $ .13 NET INCOME $ .18 $ .07 $ .08 $ .35 $ .68 DILUTED INCOME FROM CONTINUING OPERATIONS $ .12 $ .00 $ .07 $ .34 $ .53 INCOME FROM DISCONTINUED OPERATIONS $ .06 $ .07 $ .00 $ .00 $ .13 NET INCOME $ .18 $ .07 $ .07 $ .34 $ .66 - - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED ------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR - - ------------------------------------------------------------------------------------------------------------------------------------ 1997 Operating Revenue $229,305 $251,076 $251,130 $328,048 $1,059,559 Operating Income $ 21,608 $ 39,355 $ 59,174 $107,473 $ 227,610 Income from Continuing Operations, Net of Income Taxes $ 33,371 $ 40,067 $ 57,317 $103,361 $ 234,116 Income from Discontinued Operations, Net of Income Taxes $ 19,534 $ 19,988 $ 19,749 $ 18,963 $ 78,234 Net Income $ 52,905 $ 60,055 $ 77,066 $122,324 $ 312,350 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share of Common Stock Basic Income from Continuing Operations $ 0.10 $ 0.12 $ 0.18 $ 0.31 $ 0.71 Income from Discontinued Operations $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24 Net Income $ 0.16 $ 0.18 $ 0.24 $ 0.37 $ 0.95 Diluted Income from Continuing Operations $ 0.10 $ 0.12 $ 0.17 $ 0.31 $ 0.70 Income from Discontinued Operations $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.23 Net Income $ 0.16 $ 0.18 $ 0.23 $ 0.36 $ 0.93 - - ------------------------------------------------------------------------------------------------------------------------------------ 37
FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED) Dollar amounts in thousands, except per share data - - ------------------------------------------------------------------------------------------------------------------------------------ The Company has retroactively restated all per-share amounts to give effect for the 2:1 stock split. (See Note 2. to the Consolidated Financial Statements).
1998 1997 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------------------ RESULTS OF OPERATIONS: Operating Revenue $ 1,186,513 $ 1,059,559 $ 1,411,192 $ 1,253,688 $ 995,112 Costs and Expenses(1)(2) 1,054,029 831,949 1,167,485 1,186,079 849,899 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income(1)(2) 132,484 227,610 243,707 67,609 145,213 Non-Operating Income--Net(3) 138,177 94,864 5,853 7,880 18,85 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations, Before Provision for Income Tax 270,661 322,474 249,560 75,489 164,065 Provision For Income Taxes (92,196) (88,358) (109,806) (34,214) (66,282) - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Continuing Operations 178,465 234,116 139,754 41,275 97,783 Income from Discontinued Operations, Net of Income Taxes (4) 42,093 78,234 55,697 47,606 48,622 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 220,558 $ 312,350 $ 195,451 $ 88,881 $ 146,405 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share of Common Stock Basic Income from Continuing Operations $ .55 $ .71 $ .41 $ .12 $ .29 - - ------------------------------------------------------------------------------------------------------------------------------------ Income from Discontinued Operations, Net of Income Taxes $ .13 $ .24 $ .17 $ .14 $ .14 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ .68 $ .95 $ .58 $ .26 $ .43 - - ------------------------------------------------------------------------------------------------------------------------------------ Average Number of Shares Outstanding 324,584,000 330,326,000 339,888,000 339,044,000 339,892,000 Diluted Income from Continuing Operations $ .53 $ .70 $ .41 $ .12 -- Income from Discontinued Operations, Net of Income Taxes $ .13 $ .23 $ .16 $ .14 -- - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ .66 $ .93 $ .57 $ .26 -- - - ------------------------------------------------------------------------------------------------------------------------------------ Average Number of Shares Outstanding 335,770,000 334,980,000 341,000,000 343,216,000 -- - - ------------------------------------------------------------------------------------------------------------------------------------ As a % of Operating Revenue: Operating Income (1) 11.2% 21.5% 17.3% 5.4% 14.6% Income from continuing operations (1) 15.1% 22.1% 9.9% 3.3% 9.8% SHAREHOLDERS' EQUITY $ 825,270 $ 801,570 $ 872,613 $ 604,588 $ 606,483 - - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 1,731,519 $ 1,502,089 $ 1,793,445 $ 1,398,823 $ 1,305,114 - - ------------------------------------------------------------------------------------------------------------------------------------ (1) 1998 includes charges related to the Distribution of $35,025 and one-time charges and IPR&D write-offs to the Walsh and PMSI acquisitions of $48,019 and $32,800, respectively. 1996 includes a one-time acquisition-related charge of $33,233 related to Gartner's acquisition of J3 Learning Corporation. (2) 1995 includes a non-recurring charge of $87,770 and an incremental provision for post-employment benefits of $32,500. Also includes restructuring expense of $12,800 and $7,957 in 1995 and 1994, respectively. (3) Non-operating Income in 1998 includes Gartner equity income of $70,979, SAB 51 gains of $14,838, the gain related to the CTS IPO of $12,777, and gains from dispositions-net of $33,341. Non-Operating Income in 1997 includes Gartner equity income of $65,120, SAB 51 gains of $14,689, and gains from dispositions--net of $9,391. Results for prior years include gains from dispositions--net of $200, $15,124 and $21,473 in non-operating income in 1996, 1995 and 1994, respectively. (4) Income from Discontinued Operations, net of Income Taxes include a tax provision of $15,887, $29,527, $43,764, $39,462 and $32,801 for 1998, 1997, 1996, 1995 and 1994, respectively.
38 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] IMS HEALTH INCORPORATED
- - ---------------------------------------------------------------------------------------------------------------------------- DIRECTORS - - ---------------------------------------------------------------------------------------------------------------------------- CLIFFORD L. ALEXANDER, JR. (1) H. EUGENE LOCKHART (1) President Executive Vice President & Alexander & Associates, Inc. Chief Marketing Officer AT&T Corporation VICTORIA R. FASH M. BERNARD PUCKETT (2) President & Chief Operating Officer Private Investor IMS Health Incorporated JOHN P. IMLAY, JR. (2) WILLIAM C. VAN FAASEN (2) Chairman President & Chief Executive Officer Imlay Investments, Inc. Blue Cross & Blue Shield of Massachusetts ROBERT KAMERSCHEN (2) ROBERT E. WEISSMAN Chairman Chairman & Chief Executive Officer ADVO, Inc. IMS Health Incorporated Board Committees ROBERT J. LANIGAN (1) (1) Audit Committee Chairman Emeritus (2) Compensation and Benefits Former Chairman & Chief Executive Officer Committee Owens-Illinois, Inc. OFFICERS - - ---------------------------------------------------------------------------------------------------------------------------- ROBERT E. WEISSMAN Chairman & Chief Executive Officer - - ---------------------------------------------------------------------------------------------------------------------------- VICTORIA R. FASH President & Chief Operating Officer - - ---------------------------------------------------------------------------------------------------------------------------- J. MICHAL CONAWAY Chief Financial Officer - - ---------------------------------------------------------------------------------------------------------------------------- ALAN J. KLUTCH JAMES C. MALONE KENNETH S. SIEGEL Senior Vice President-Finance Senior Vice President-Finance & Senior Vice President Controller General Counsel & Secretary CRAIG S. KUSSMAN DAVID H. OWEN MATTHEW L. FRIEDMAN Senior Vice President-Corporate Development Senior Vice President-Global Human Vice President-Treasurer Resources OFFICERS OF OPERATING UNITS - - ---------------------------------------------------------------------------------------------------------------------------- IMS EMERGING MARKETS VICTORIA R. FASH ERISCO Managed Care Technologies, Inc. Chairman & Chief Executive Officer ANTHONY BELLOMO COGNIZANT TECHNOLOGY SOLUTIONS President CORPORATION GILES PAJOT WIJEYARAJ A. MAHADEVA Vice Chairman Enterprise Associates, Inc. Chairman & Chief Executive Officer President, IMS Europe Region VENETIA KONTOGOURIS President ROBERT HOOPER President, IMS America Region SHUNSUKE KEIMATSU Chairman & Chief Executive Officer, IMS Japan HANS BIEDERMAN President, Emerging Markets JAMES C. NEWELL President, Global Services RONALD BROWN Chief Executive Officer and President IMS Health Strategic Technologies, Inc.
IMS HEALTH [LOGO] TRANSFER AGENT First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 07303-2500 Telephone: (201) 324-1225 CORPORATE CENTER 200 Nyala Farms Westport, Connecticut 06880 Telephone: (203) 222-4200 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1301 Avenue of Americas New York, N.Y. 10019 FORM 10-K Your Company will file its report to shareholders on Form 10-K with the Securities and Exchange Commission by March 31, 1999. Many of the SEC's 10-K information requirements are satisfied by this 1998 Annual Report to Shareholders. However, a copy of the Form 10-K will be available without charge after March 31, 1999, upon request to the Investor Relations Department at the Corporate Center address. COMMON STOCK INFORMATION The Company's common stock (RX) is listed on the New York Stock Exchange. EX-10.1 3 DISTRIBUTION AGREEMENT Exhibit 10.1 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, dated as of June 30, 1998, between COGNIZANT CORPORATION, a Delaware corporation (the "Corporation") and IMS HEALTH INCORPORATED, a Delaware corporation ("IMS HEALTH"). WHEREAS, the Corporation acting through its direct and indirect subsidiaries, currently conducts a number of businesses, including, without limitation, (i) providing television audience measurement services (the "Nielsen Media Research Business"), (ii) providing information and decision support services to the pharmaceutical and healthcare industries (the "IMS Business"), (iii) providing software-based administrative and analytical solutions to the managed care industry (the "ERISCO Business"), (iv) making venture capital investments in emerging healthcare businesses (the "Enterprises Business") and (v) providing software application and development services specializing in Year 2000 conversion services (the "Technology Solutions Business"). WHEREAS, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $0.01 per share, of the Corporation (the "Cognizant Common Stock"), as well as of the Corporation and its businesses, to reorganize the Corporation to separate from the Corporation all businesses currently conducted by the Corporation other than the Nielsen Media Research Business and to cause such businesses to be owned and conducted, directly or indirectly, by IMS HEALTH; WHEREAS, in order to effect the separation, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of Cognizant Common Stock, as well as of the Corporation and its businesses, for the Corporation (i) to take certain steps to reorganize the Corporation's Subsidiaries (as defined herein) and businesses, including prior to the Distribution (as defined herein) (A) causing Media Licensing Associates, Inc. ("Media Licensing") to withdraw its interest in Cognizant Licensing Associates, L.P. ("Licensing Associates"), and, in connection therewith, to receive the shares of common stock of Gartner Group, Inc. ("Gartner") held by Licensing Associates, (B) upon the completion of the transaction described in (A), causing Media Licensing to merge with and into NMR, with NMR as the surviving corporation, (C) upon the completion of the transaction described in (B), to cause NMR to merge with and into the Corporation, with the Corporation as the surviving corporation renamed "Nielsen Media Research, Inc.", (D) causing I.M.S. International, Inc. to merge with and into IMS HEALTH, with IMS HEALTH as the surviving corporation, (E) upon the completion of the transaction described in (D), causing IMS America Ltd. to merge with and into IMS HEALTH, with IMS HEALTH as the surviving corporation, (F) upon the completion of the transaction described in (E), causing the Corporation to contribute all of the non-stock assets and liabilities held directly by the Corporation (other than assets specified herein to remain with the Corporation after the Distribution) to IMS HEALTH, (G) upon the completion of the transaction described in (F), causing the Corporation to contribute all the capital stock held by the Corporation in Cognizant Technology Solutions Corporation, Cognizant Enterprises Inc., Gartner, Erisco, Inc., I.M.S. Services Nederland B.V., IMS Italia S.p.A., IMS Japan K.K., Cognizant India Holdings Corporation, IMS ChinaMetrik Incorporated, Cognizant Transportation Services Corporation, DBHC Inc., IMS 2 Holdings (UK) Limited, Sales Technologies, Inc., Walsh International, Inc. and any other first tier subsidiary of the Corporation not related to the NMR Business and (ii) upon the completion of such reorganization to distribute to the holders of the Cognizant Common Stock all the outstanding shares of common stock of IMS HEALTH (the "IMS HEALTH Common Shares"), together with the associated Rights (as defined herein), as set forth herein; WHEREAS, each of the Corporation and IMS HEALTH has determined that it is necessary and desirable, on or prior to the Distribution Date (as defined herein), to allocate and transfer those assets and to allocate and assign responsibility for those liabilities in respect of the activities of the businesses of such entities and those assets and liabilities in respect of other businesses and activities of the Corporation and its current and former Subsidiaries and other matters; and WHEREAS, each of the Corporation and IMS HEALTH has determined that it is necessary and desirable to set forth the principal corporate transactions required to effect such Distribution and to set forth other agreements that will govern certain other matters following the Distribution. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: ARTICLE I. DEFINITIONS SECTION I.1. General. As used in this Agreement, the following terms shall have the following meanings: (a) "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency, body or commission or any arbitration tribunal. (b) "Affiliate" shall mean, when used with respect to a specified person, another person that controls, is controlled by, or is under common control with the person specified. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other interests, by contract or otherwise. (c) "Agent" shall have the meaning set forth in Section 2.1(b). (d) "Agreement Disputes" shall have the meaning set forth in Section 6.1. (e) "Ancillary Agreements" shall mean all of the written agreements, instruments, assignments or other arrangements (other than this Agreement) entered into in connection with the transactions contemplated hereby, including, without limitation, the 3 Conveyancing and Assumption Instruments, the Employee Benefits Agreement, the Tax Allocation Agreement and the Transition Services Agreement. (f) "Assets" shall mean assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person, including, without limitation, the following: (i) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (ii) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property; (iii) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; (iv) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise; (v) all interests in any capital stock or other equity interests of any Subsidiary or any other person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other person and all other investments in securities of any person; (vi) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (vii) all deposits, letters of credit and performance and surety bonds; (viii) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; 4 (ix) all domestic and foreign patents, copyrights, trade names, trademarks, service marks and registrations and applications for any of the foregoing, mask works, trade secrets, inventions, data bases, other proprietary information and licenses from third persons granting the right to use any of the foregoing; (x) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; (xi) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (xii) all prepaid expenses, trade accounts and other accounts and notes receivable; (xiii) all rights under contracts or agreements, all claims or rights against any person arising from the ownership of any asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent; (xiv) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (xv) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; (xvi) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (xvii) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. (g) "Assignee" shall have the meaning set forth in Section 2.1(f). (h) "Business Entity" shall mean any corporation, partnership, limited liability company or other entity which may legally hold title to Assets. (i) "Claims Administration" shall mean the processing of claims made under the Shared Policies, including, without limitation, the reporting of claims to the insurance carriers and the management of the defense of claims. 5 (j) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor legislation. (k) "Cognizant Common Stock" shall have the meaning set forth in the recitals hereto. (l) "Commission" shall mean the U.S. Securities and Exchange Commission. (m) "Conveyancing and Assumption Instruments" shall mean, collectively, the various agreements, instruments and other documents heretofore entered into and to be entered into to effect the transfer of Assets and the assumption of Liabilities in the manner contemplated by this Agreement, or otherwise arising out of or relating to the transactions contemplated by this Agreement, which shall be in substantially the forms attached hereto as Schedule 1.1(m) for transfers to be effected pursuant to New York law or the laws of one of the other states of the United States, or, if not appropriate for a given transfer, and for transfers to be effected pursuant to non-U.S. laws, shall be in such other form or forms as the parties agree and as may be required by the laws of such non-U.S. jurisdictions. (n) the "Corporation" or "Cognizant" shall mean Cognizant Corporation, a Delaware corporation, which will change its name in connection with the Distribution to "Nielsen Media Research, Inc.". (o) "Corporation Debt" shall mean have the meaning set forth in Section 2.1(n). (p) "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of Cognizant Common Stock as of the Distribution Record Date of the IMS HEALTH Common Shares owned by the Corporation on the basis of one IMS HEALTH Common Share for each outstanding share of Cognizant Common Stock. (q) "Distribution Date" shall mean June 30, 1998. (r) "Distribution Record Date" shall mean June 25, 1998. (s) "Effective Time" shall mean immediately prior to the midnight, New York time, that ends the 24-hour period comprising June 30, 1998. (t) "Employee Benefits Agreement" shall mean the Employee Benefits Agreement between the Corporation and IMS HEALTH. (u) "Enterprises Business" shall have the meaning set forth in the recitals hereto. (v) "ERISCO Business" shall have the meaning set forth in the recitals hereto. 6 (w) "Governmental Authority" shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. (x) "IMS Business" shall have the meaning set forth in the recitals hereto. (y) "IMS HEALTH Assets" shall mean, collectively, all the rights and Assets owned or held by the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, except the NMR Assets. (z) "IMS HEALTH Business" shall mean each and every business conducted at any time by the Corporation or any Subsidiary of the Corporation prior to the Effective Time (including, without limitation, the IMS Business, the ERISCO Business, the Enterprises Business and the Technology Solutions Business), except an NMR Business. (aa) "IMS HEALTH Common Shares" shall have the meaning set forth in the recitals hereto. (bb) "IMS HEALTH Contracts" shall mean all the contracts and agreements to which the Corporation or any of its Affiliates who are not individuals is a party or by which it or any of its Affiliates who are not individuals is bound immediately prior to the Effective Time, except the NMR Contracts. (cc) "IMS HEALTH Group" shall mean IMS HEALTH and each person (other than any member of the NMR Group) that is a Subsidiary of the Corporation immediately prior to the Effective Time. (dd) "IMS HEALTH Indemnitees" shall mean IMS HEALTH, each member of the IMS HEALTH Group, each of their respective present and former directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing, except the NMR Indemnitees, as well as any present and former directors, officers, employees and agents of the Corporation prior to the Effective Time and each of their heirs, executors, successors and assigns. (ee) "IMS HEALTH Liabilities" shall mean collectively, all obligations and Liabilities of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, except the NMR Liabilities. (ff) "IMS HEALTH Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time which do not relate to the NMR Business and which Policies are either maintained by IMS HEALTH or a member of the IMS HEALTH Group or are assignable to IMS HEALTH or a member of the IMS HEALTH Group. (gg) "Indemnifiable Losses" shall mean any and all losses, liabilities, claims, damages, demands, costs or expenses (including, without limitation, reasonable attorneys' fees and 7 any and all out-of-pocket expenses) reasonably incurred in investigating, preparing for or defending against any Actions or potential Actions or in settling any Action or potential Action or in satisfying any judgment, fine or penalty rendered in or resulting from any Action. (hh) "Indemnifying Party" shall have the meaning set forth in Section 3.3. (ii) "Indemnitee" shall have the meaning set forth in Section 3.3. (jj) "Indemnity and Joint Defense Agreement" shall mean the Indemnity and Joint Defense Agreement dated as of October 28, 1996 by and among the Corporation, The Dun & Bradstreet Corporation and ACNielsen Corporation. (kk) "Information Statement" shall mean the Information Statement sent to the holders of shares of Cognizant Common Stock in connection with the Distribution, including any amendment or supplement thereto. (ll) "Insurance Administration" shall mean, with respect to each Shared Policy, the accounting for premiums, retrospectively-rated premiums, defense costs, indemnity payments, deductibles and retentions, as appropriate, under the terms and conditions of each of the Shared Policies; and the reporting to excess insurance carriers of any losses or claims which may cause the per-occurrence, per claim or aggregate limits of any Shared Policy to be exceeded, and the distribution of Insurance Proceeds as contemplated by this Agreement. (mm) "Insurance Proceeds" shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost of reserve paid or held by or for the benefit of such insured. (nn) "Insured Claims" shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Shared Policies, whether or not subject to deductibles, co-insurance, uncollectibility or retrospectively-rated premium adjustments. (oo) "IRI Action" shall mean the complaint filed in the United States District Court for the Southern District of New York on July 29, 1996 by Information Resources, Inc. naming as defendants The Dun & Bradstreet Corporation, A. C. Nielsen Company and IMS International, Inc. (pp) "Liabilities" shall mean any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any 8 law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses, whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any governmental or other regulatory or administrative agency, body or commission or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person. (qq) "Nielsen Media Research Business" shall have the meaning set forth in the recitals hereto. (rr) "1996 Distribution" shall mean the distribution described in the 1996 Distribution Agreement. (ss) "1996 Distribution Agreement" shall mean the Distribution Agreement among the Corporation, The Dun & Bradstreet Corporation and ACNielsen Corporation dated as of October 28, 1996. (tt) "NMR" shall mean Nielsen Media Research, Inc., a Delaware corporation and a wholly-owned subsidiary of the Corporation. (uu) "NMR Assets" shall mean: (i) the ownership interests in those Business Entities listed on Schedule 1.1(au)(i); (ii) any and all Assets that are expressly contemplated by this Agreement, including those on the list of pre-Distribution reorganization transactions attached as Schedule 1.1(au)(ii) hereto, or any Ancillary Agreement (or included on any Schedule hereto or thereto) as Assets which have been or are to be transferred to the Corporation, NMR or any other member of the NMR Group prior to the Effective Time or are to remain with the Corporation, NMR or any member of the NMR Group subsequent to the Effective Time; (iii) any Assets reflected on the NMR Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for NMR or any member of the NMR Group subsequent to the date of such balance sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on such balance sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of such balance sheet; 9 (iv) subject to Article VII, any rights of any member of the NMR Group under any of the Policies, including any rights thereunder arising from and after the Effective Time in respect of any Policies that are occurrence policies; (v) any NMR Contracts, any rights or claims arising thereunder, and any other rights or claims or contingent rights or claims primarily relating to or arising from any NMR Asset or the NMR Business; (vi) the minute books and similar corporate records of the Corporation; and (vii) any and all Assets of the Corporation from and after the Effective Time. Notwithstanding the foregoing, the NMR Assets shall not in any event include: (v) the Corporation's rights arising from or related to the Corporation's agreements to acquire Walsh International Inc. ("Walsh") or Pharmaceutical Marketing Services Inc. ("PMSI"), or any of the assets of Walsh or PMSI; or (w) any rights of the Corporation under (i) the 1996 Distribution Agreement or (ii) the Tax Allocation Agreement, Employee Benefits Agreement or any Ancillary Agreement referred to in the 1996 Distribution Agreement (except in each case to the extent provided in this Agreement or any Ancillary Agreement to this Agreement); or (x) the Corporation's interest in the capital stock of the Gartner Group, Inc. and any other Assets listed or described on Schedule 1.1(au)(x); or (y) any Assets primarily relating to or used in any terminated or divested Business Entity, business or operation formerly owned or managed by or associated with the Corporation, NMR or any NMR Business, except for those Assets primarily relating to or used in those Business Entities, businesses or operations listed on Schedule 1.1(au)(y); or (z) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be transferred or conveyed to any member of the IMS HEALTH Group. 10 In the event of any inconsistency or conflict which may arise in the application or interpretation of any of the foregoing provisions, for the purpose of determining what is and is not an NMR Asset, any item explicitly included on a Schedule referred to in this Section 1.1(au) shall take priority over any provision of the text hereof, and clause (ii) shall take priority over clause (iii) hereof of this Section 1.1(au). (vv) "NMR Balance Sheet" shall mean the consolidated balance sheet of the NMR Group, including the notes thereto, as of March 31, 1998, set forth as Schedule 1.1(av) hereto. (ww) "NMR Business" shall mean (i) the Nielsen Media Research Business, (ii) the businesses of the members of the NMR Group, (iii) any other business conducted by the Corporation or any Subsidiary of the Corporation primarily through the use of the NMR Assets, (iv) the businesses of Business Entities acquired or established by or for NMR or any of its Subsidiaries after the date of this Agreement and (v) the business of the Corporation from and after the Effective Time. (xx) "NMR Contracts" shall mean the following contracts and agreements to which the Corporation or any of its Affiliates who are not individuals is a party or by which it or any of its Affiliates who are not individuals or any of their respective Assets is bound, whether or not in writing, except for any such contract or agreement that is not expressly contemplated to be transferred or assigned to the Corporation, NMR or any other member of the NMR Group prior to the Effective Time, or to remain with the Corporation, NMR or any other member of the NMR Group subsequent to the Effective Time, pursuant to any provision of this Agreement or any Ancillary Agreement: (i) the TAM Master Agreement (as defined herein), the Intellectual Property Agreement referred to in the 1996 Distribution Agreement (except to the extent it relates to intellectual property used by the IMS HEALTH Group) and any contracts or agreements listed or described on Schedule 1.1(ax)(i); (ii) any contract or agreement entered into in the name of the Corporation, or in the name of, or expressly on behalf of, any division, business unit or member of the NMR Group except for those contracts listed or described on Schedule 1.1(ax)(ii) or which are primarily for the benefit of any division, business unit or member of the IMS HEALTH Group; (iii) any contract or agreement that relates primarily to the NMR Business; (iv) federal, state and local government and other contracts and agreements that are listed or described on Schedule 1.1(ax)(iv) and any other government contracts or agreements entered into after the date hereof and prior to the Effective Time that relate primarily to the NMR Business; 11 (v) any contract or agreement representing capital or operating equipment lease obligations reflected on the NMR Balance Sheet, and obligations as lessee under those contracts or agreements listed on Schedule 1.1(ax)(v); (vi) any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be transferred or assigned to the Corporation or any member of the NMR Group prior to the Effective Time or to remain with the Corporation or any member of the NMR Group subsequent to the Effective Time; and (vii) any guarantee, indemnity, representation or warranty of any member of the NMR Group. (yy) "NMR Group" shall mean (i) NMR, (ii) each Business Entity which is contemplated to become a Subsidiary of the Corporation or NMR hereunder prior to the Effective Time or to remain a Subsidiary of the Corporation or NMR hereunder subsequent to the Effective Time, which shall include those identified as such on Schedule 1.1(au)(i) hereto, which Schedule shall also indicate the amount of the Corporation's or NMR's direct or indirect ownership interest therein, and (iii) the Corporation from and after the Effective Time. (zz) "NMR Indemnitees" shall mean NMR, each member of the NMR Group, each of their respective present and former directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing. (aaa) "NMR Liabilities" shall mean: (i) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto, including Schedule 1.1(ba) hereto) as Liabilities to be assumed by the Corporation or any member of the NMR Group prior to the Effective Time or to remain with the Corporation or any member of the NMR Group subsequent to the Effective Time, and all agreements, obligations and Liabilities of the Corporation or any member of the NMR Group under this Agreement or any of the Ancillary Agreements; (ii) all Liabilities (other than Taxes and any employee-related Liabilities which are subject to the provisions of the Tax Allocation Agreement and the Employee Benefits Agreement, respectively), primarily relating to, arising out of or resulting from: (A) the operation of the NMR Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, 12 officer, employee, agent or representative (whether or not such act or failure to act is or was within such person's authority)); (B) the operation of any business conducted by the Corporation or any Subsidiary of the Corporation at any time from and after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such person's authority)); or (C) any NMR Assets; whether arising before, on or after the Effective Time; (iii) all Liabilities reflected as liabilities or obligations on the NMR Balance Sheet or the accounting records supporting such balance sheet, and all Liabilities arising or assumed after the date of such balance sheet which, had they arisen or been assumed on or before such date and been retained as of such date, would have been reflected on such balance sheet, subject to any discharge of such Liabilities subsequent to the date of the NMR Balance Sheet; and (iv) the Corporation Debt. Notwithstanding the foregoing, the NMR Liabilities shall not include: (x) any Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by IMS HEALTH or any member of the IMS HEALTH Group, including any Liabilities set forth in Schedule 1.1(ba)(x); (y) any Liabilities primarily relating to, arising out of or resulting from any terminated or divested Business Entity, business or operation formerly owned or managed by or associated with the Corporation or any NMR Business except for Liabilities primarily relating to, arising out of or resulting from those Business Entities, businesses or operations listed in Schedule 1.1(ba)(y); or (z) all agreements and obligations of any member of the IMS HEALTH Group under this Agreement or any of the Ancillary Agreements. (bbb) "NMR Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, which do not relate to the IMS HEALTH Business. 13 (ccc) "person" shall mean any natural person, Business Entity, corporation, business trust, joint venture, association, company, partnership, other entity or government, or any agency or political subdivision thereof. (ddd) "Policies" shall mean insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including, without limitation, primary, excess and umbrella policies, comprehensive general liability policies, director and officer liability, fiduciary liability, automobile, aircraft, property and casualty, workers' compensation and employee dishonesty insurance policies, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder. (eee) "Provider" shall have the meaning set forth in Section 5.1. (fff) "Recipient" shall have the meaning set forth in Section 5.1. (ggg) "Records" shall have the meaning set forth in Section 4.1. (hhh) "Rights" shall have the meaning set forth in Section 2.1(c). (iii) "Rules" shall have the meaning set forth in Section 6.2. (jjj) "Security Interest" shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. (kkk) "Shared Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time which relate to the IMS HEALTH Business and the NMR Business. (lll) "Shared Transaction Services Agreement" shall mean the Shared Transaction Services Agreement between the Corporation and IMS HEALTH. (mmm) "Subsidiary" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). (nnn) "TAM Master Agreement" shall mean the master agreement between the Corporation and ACNielsen Corporation dated as of October 28, 1996, including any agreements ancillary thereto, relating to the conduct of the television audience measurement business after the 1996 Distribution. 14 (ooo) "Tax" shall have the meaning set forth in the Tax Allocation Agreement. (ppp) "Tax Allocation Agreement" shall mean the Tax Allocation Agreement between the Corporation and IMS HEALTH. (qqq) "Technology Solutions Business" shall have the meaning set forth in the recitals hereto. (rrr) "Third Party Claim" shall have the meaning set forth in Section 3.3. (sss) "Transition Services Agreement" shall mean the Amended and Restated Transition Services Agreement among the Corporation, IMS HEALTH, The Dun & Bradstreet Corporation, The New Dun & Bradstreet Corporation, ACNielsen Corporation and Gartner Group, Inc. SECTION I.2. References; Interpretation. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words "include", "includes" and "including" when used in this Agreement shall be deemed to be followed by the phrase "without limitation". Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, such Agreement. Unless the context otherwise requires, the words "hereof", "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS SECTION II.1. The Distribution and Other Transactions. (a) Certain Transactions. On or prior to the Distribution Date: (i) the Corporation shall, on behalf of itself and its Subsidiaries, transfer or cause to be transferred to IMS HEALTH or another member of the IMS HEALTH Group, effective prior to or as of the Effective Time, all of the Corporation's and its Subsidiaries' right, title and interest in the IMS HEALTH Assets. (ii) IMS HEALTH shall to the extent not already held by the Corporation or a member of the NMR Group, on behalf of itself and its Subsidiaries, transfer or cause to be transferred to the Corporation or a member of the NMR Group, effective prior to or as of the 15 Effective Time, all of IMS HEALTH's and its Subsidiaries' right, title and interest in the NMR Assets. (iii) the Corporation or IMS HEALTH, as applicable, shall be entitled to designate the Business Entity within the NMR Group or the IMS HEALTH Group, as applicable, to which any Assets are to be transferred pursuant to this Section 2.1(a). (b) Stock Dividend to the Corporation. On or prior to the Distribution Date, IMS HEALTH shall issue to the Corporation as a stock dividend (i) such number of IMS HEALTH Common Shares as will be required to effect the Distribution, as certified by the Corporation's stock transfer agent (the "Agent"). In connection therewith the Corporation shall deliver to IMS HEALTH for cancellation the share certificate held by it representing IMS HEALTH Common Shares and shall receive a new certificate or certificates representing the total number of IMS HEALTH Common Shares to be owned by the Corporation after giving effect to such stock dividend. (c) Charters; By-laws; Rights Plans. On or prior to the Distribution Date, all necessary actions shall have been taken to provide for the adoption of the form of Certificate of Incorporation and By-laws and the execution and delivery of the form of Rights Agreement, relating to the preferred share purchase rights relating to the IMS HEALTH Common Shares (the "Rights"), filed by IMS HEALTH with the Commission as exhibits to IMS HEALTH's Registration Statement on Form 10 (or any amendment thereto). (d) Directors. On or prior to the Distribution Date, the Corporation as the sole stockholder of IMS HEALTH, shall have taken all necessary action to cause the Board of Directors of IMS HEALTH to consist of the individuals identified in the Information Statement as directors of IMS HEALTH. (e) Certain Licenses and Permits. Without limiting the generality of the obligations set forth in Section 2.1(a), on or prior to the Distribution Date or as soon as reasonably practicable thereafter: (i) all transferable licenses, permits and authorizations issued by any Governmental Authority which do not relate primarily to the NMR Business but which are held in the name of the Corporation or any member of the NMR Group, or in the name of any employee, officer, director, stockholder or agent of the Corporation or any such member, or otherwise, on behalf of a member of the IMS HEALTH Group shall be duly and validly transferred or caused to be transferred by the Corporation to the appropriate member of the IMS HEALTH Group; and (ii) all transferable licenses, permits and authorizations issued by Governmental Authorities which relate primarily to the NMR Business but which are held in the name of any member of the IMS HEALTH Group, or in the name of any employee, officer, director, stockholder, or agent of any such member, or otherwise, on behalf of a member of the NMR 16 Group shall be duly and validly transferred or caused to be transferred by IMS HEALTH to the Corporation or the appropriate member of the NMR Group. (f) Transfer of Agreements. Without limiting the generality of the obligations set forth in Section 2.1(a): (i) the Corporation hereby agrees that on or prior to the Distribution Date or as soon as reasonably practicable thereafter, subject to the limitations set forth in this Section 2.1(f), it will, and it will cause each member of the NMR Group to, assign, transfer and convey to the appropriate member of the IMS HEALTH Group all of the Corporation's or such member of the NMR Group's respective right, title and interest in and to any and all IMS HEALTH Contracts; (ii) IMS HEALTH hereby agrees that on or prior to the Distribution Date or as soon as reasonably practicable thereafter, subject to the limitations set forth in this Section 2.1(f), it will, and it will cause each member of the IMS HEALTH Group to, assign, transfer and convey to the Corporation or the appropriate member of the NMR Group all of IMS HEALTH's or such member of the IMS HEALTH Group's respective right, title and interest in and to any and all NMR Contracts; (iii) subject to the provisions of this Section 2.1(f), any agreement to which any of the parties hereto or any of their Subsidiaries is a party that inures to the benefit of both the NMR Business and the IMS HEALTH Business shall be assigned in part so that each party shall be entitled to the rights and benefits inuring to its business under such agreement; (iv) the assignee of any agreement assigned, in whole or in part, hereunder (an "Assignee") shall assume and agree to pay, perform, and fully discharge all obligations of the assignor under such agreement or, in the case of a partial assignment under paragraph (f)(iii), such Assignee's related portion of such obligations as determined in accordance with the terms of the relevant agreement, where determinable on the face thereof, and otherwise as determined in accordance with the practice of the parties prior to the Distribution; and (v) notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any agreement, in whole or in part, or any rights thereunder if the agreement to assign or attempt to assign, without the consent of a third party, would constitute a breach thereof or in any way adversely affect the rights of the assignor or Assignee thereof. Until such consent is obtained, or if an attempted assignment thereof would be ineffective or would adversely affect the rights of any party hereto so that the intended Assignee would not, in fact, receive all such rights, the parties will cooperate with each other in any arrangement designed to provide for the intended Assignee the benefits of, and to permit the intended Assignee to assume liabilities under, any such agreement. 17 (g) Consents. The parties hereto shall use their commercially reasonable efforts to obtain required consents to transfer and/or assignment of licenses, permits and authorizations of Governmental Authorities and of agreements hereunder. (h) Delivery of Shares to Agent. The Corporation shall deliver to the Agent the share certificates representing the IMS HEALTH Common Shares issued to the Corporation by IMS HEALTH pursuant to Section 2.1(b) which are to be distributed to the holders of Cognizant Common Stock in the Distribution and shall instruct the Agent to distribute, on or as soon as practicable following the Distribution Date, certificates representing such IMS HEALTH Common Shares to holders of record of shares of Cognizant Common Stock on the Distribution Record Date as further contemplated by the Information Statement and herein. IMS HEALTH shall provide all share certificates that the Agent shall require in order to effect the Distribution. (i) Certain Liabilities. For purposes of this Agreement, including Article III hereof, IMS HEALTH agrees with the Corporation that: (i) any and all Liabilities arising from or related to Cognizant's agreements to acquire Walsh and PMSI or any filings with the Commission or any other governmental or regulatory authority related thereto shall be deemed to be IMS HEALTH Liabilities and not NMR Liabilities; (ii) any and all Liabilities arising from or based upon "controlling person" liability relating to the Form 10 (or any amendment thereto) filed by IMS HEALTH shall be deemed to be IMS HEALTH Liabilities and not NMR Liabilities; and (iii) notwithstanding Section 2.1(m) below, any and all Liabilities arising from or related to the spin-off of the Corporation and ACNielsen Corporation from The Dun & Bradstreet Corporation pursuant to the 1996 Distribution Agreement, other than those set forth on Schedule 2.1(i) or allocated to NMR pursuant to Section 2.1(j), shall be deemed to be IMS HEALTH Liabilities and not NMR Liabilities. (j) Certain Contingencies. For purposes of this Agreement, including Article III hereof, each of IMS HEALTH and the Corporation agrees that: (i) notwithstanding anything to the contrary herein or in the Tax Allocation Agreement, each of the Corporation and IMS HEALTH shall be liable for a portion of the liabilities related to certain prior business transactions to the extent and in the circumstances described in Schedule 2.1(j)(i); (ii) subject to Section 2.1(p), any and all Liabilities of Cognizant under the Indemnity and Joint Defense Agreement or otherwise related to the IRI Action, including legal fees and expenses related thereto, shall be allocated 75% to the IMS HEALTH Group (and thereby become IMS HEALTH Liabilities hereunder) and 25% to the NMR Group (and thereby become NMR Liabilities hereunder); provided that (X) any such legal fees and 18 expenses incurred prior to January 1, 1999 shall be IMS HEALTH Liabilities and not NMR Liabilities and (Y) any such legal fees and expenses incurred during 1999 that are NMR Liabilities will be reimbursed to IMS HEALTH on the first business day after January 1, 2000 with respect to fees incurred through November 30, 1999 and notified to the Corporation, and within 10 business days after notice to the Corporation of other such fees incurred in 1999; and provided further that the aggregate amount of NMR Liabilities under Section 2.1(j)(i) and this Section 2.1(j)(ii) shall be limited to $125 million, and any amounts in excess of $125 million shall be IMS HEALTH Liabilities; and (iii) notwithstanding anything to the contrary herein or in the Tax Allocation Agreement, each of the Corporation and IMS HEALTH agree that the Corporation's interests in certain prior business transactions described on Schedule 2.1(j)(i) of the 1996 Distribution Agreement shall be held by IMS HEALTH or a member of the IMS HEALTH Group and not by NMR or any member of the NMR Group and any rights or Liabilities arising in connection with such interests and any transactions relating thereto shall be IMS HEALTH rights and Liabilities and not NMR rights and Liabilities. (k) Matters Relating to Certain Partnerships. Each of the Corporation and IMS HEALTH agrees that the interests in Cognizant Licensing Associates, L.P. held by members of the NMR Group will be retired prior to the Distribution. (l) Certain Acquisitions. The Corporation shall contribute to IMS HEALTH any Assets relating to Walsh and PMSI which the Corporation acquires pursuant to its agreements to acquire such companies. (m) Undertaking of IMS HEALTH. On or prior to the Distribution Date, IMS HEALTH will undertake to each of The Dun & Bradstreet Corporation and ACNielsen Corporation to be jointly and severally liable for all "Cognizant Liabilities" (as defined in the 1996 Distribution Agreement) under the 1996 Distribution Agreement pursuant to an undertaking substantially in the form of Exhibit 2.1(m) hereto. (n) Corporation Debt. In connection with the Distribution, the Corporation shall borrow an aggregate of $300 million, the proceeds of which will be used to pay expenses of the Distribution and to repay existing intercompany indebtedness to certain members of the IMS HEALTH Group. This $300 million of debt shall be an obligation of the Corporation after the Distribution. (o) Cognizant Common Stock Held by IMSA. IMS HEALTH agrees that promptly after the Distribution Date IMS HEALTH will sell the 800,000 shares of Cognizant Common Stock which IMS HEALTH will own as a result of Cognizant Common Stock currently held by IMS America Ltd. (p) 1996 Distribution. The Corporation agrees that it will not take any action it is required or permitted to take pursuant to the terms of (i) the 1996 Distribution Agreement or (ii) 19 the Indemnity and Joint Defense Agreement, the Tax Allocation Agreement, the Employee Benefits Agreement or any Ancillary Agreement referred to in the 1996 Distribution Agreement (other than the TAM Master Agreement and the Intellectual Property Agreement (to the extent such action relates to intellectual property used by the NMR Group)), in each such case without the prior written consent of IMS HEALTH. The Corporation agrees that it will take any action pursuant to the terms of the agreements referred to in clauses (i) and (ii) of the preceding sentence that it is requested to take by IMS HEALTH; provided that IMS HEALTH agrees to consult with the Corporation regarding the terms and conditions of any settlement agreement relating to the IRI Action which would require the Corporation to contribute to the amount of the settlement thereunder; and provided further that if the Corporation reasonably asserts that such settlement would cause financial hardship to the Corporation then the obligations of the Corporation under this Agreement with respect to the payment of its portion of such settlement shall be adjusted as follows: (I) if the payment date for the settlement (the "Payment Date") occurs prior to the second anniversary of the Distribution Date, then (A) the Corporation shall pay 50% of the amount that it would otherwise be obligated to pay hereunder in respect of such settlement on the Payment Date, (B) IMS HEALTH shall pay the remaining 50% of such amount on behalf of the Corporation on the Payment Date and (C) the Corporation shall reimburse IMS HEALTH for the amount IMS HEALTH pays pursuant to clause (B) (plus interest thereon at the prevailing three-month treasury rate) in two equal installments to be paid on each of the first and second anniversaries of the Payment Date; and (II) if the Payment Date occurs on or after the second anniversary of the Distribution Date but prior to the third anniversary of the Distribution Date, then (A) the Corporation shall pay 66 2/3% of the amount that it would otherwise be obligated to pay hereunder in respect of such settlement on the Payment Date, (B) IMS HEALTH shall pay the remaining 33 1/3% of such amount on behalf of the Corporation on the Payment Date and (C) the Corporation shall reimburse IMS HEALTH for the amount IMS HEALTH pays pursuant to clause (B) (plus interest thereon at the prevailing three-month treasury rate) on the first anniversary of the Payment Date. Notwithstanding the foregoing, if the Payment Date occurs on or after the third anniversary of the Distribution Date, then no adjustment shall be made to the obligations of the Corporation under this Agreement with respect to the payment of its portion of such settlement. (q) Cognizant Restricted Stock. At the time of the Distribution, the Corporation shall contribute to IMS HEALTH any IMS HEALTH Common Shares received by the Corporation as a result of the forfeiture of restricted Cognizant Common Stock by employees of the Corporation in connection with the Distribution. 20 (r) New Assistance Agreement. As soon as reasonably practicable after the Distribution Date, the Corporation and IMS HEALTH shall enter into an amendment to the Assistance Agreement (the "1996 Assistance Agreement") among the State of Connecticut, acting by the Department of Economic and Community Development, The Dun & Bradstreet Corporation, ACNielsen Corporation and the Corporation dated October 30, 1996 pursuant to which the Corporation will be released from its obligations under the 1996 Assistance Agreement in consideration for (i) the Corporation's agreement to maintain no less than 170 Full Time Positions (as defined in the 1996 Assistance Agreement) and (ii) IMS HEALTH's agreement to maintain no less than 17 Full Time Positions (as defined in the 1996 Assistance Agreement), in each such case for the remainder of the term of the 1996 Assistance Agreement. The Corporation and IMS HEALTH shall cooperate with one another in negotiating such amendment and shall use their respective reasonable efforts to conclude such negotiations on or prior to July 15, 1998. (s) Other Transactions. On or prior to the Distribution Date, each of the Corporation and IMS HEALTH shall consummate those other transactions in connection with the Distribution that are contemplated by the ruling request submissions by the Corporation to the Internal Revenue Service in respect of the ruling granted on May 21, 1998, and not specifically referred to in subparagraphs (a)-(r) above. After the Distribution Date, each of the Corporation and IMS HEALTH will exercise good faith commercially reasonable efforts to consummate as promptly as practicable all other transactions which must be consummated in order fully to complete the Distribution and any of the transactions contemplated hereby or by any of the Ancillary Agreements. SECTION II.2. Intercompany Accounts. The parties acknowledge that the Corporation has transferred $417 million to IMS HEALTH to repay intercompany indebtedness to certain members of the IMS HEALTH Group existing as of May 31, 1998. On the Distribution Date, the Corporation shall transfer the remaining cash balances referred to in Section 2.3 below to IMS HEALTH as a contribution of capital. If there is a net amount due and payable from either party to the other for intercompany receivables, payables and loans with respect to the month of June, 1998, the amount characterized as a capital contribution by the Corporation to IMS HEALTH shall be adjusted by such net amount due and no cash payment in respect thereof shall be made. SECTION II.3. Cash Balances. In addition to any other obligations hereunder or under any Ancillary Agreement or otherwise, on the Distribution Date, the Corporation shall contribute to IMS HEALTH all cash in the Corporation's accounts other than the estimated cash amounts set forth on Schedule 2.3. Promptly after the Distribution Date, but no later than July 31, 1998, the Corporation and IMS HEALTH shall determine the actual amounts for each item on Schedule 2.3. Any net variance between such actual amounts and the estimated amounts set forth on Schedule 2.3 shall be paid by the appropriate party to the other party on or promptly after July 31, 1998 (including the closing market price on June 30, 1998 of the APAC Teleservices, Inc. shares held pursuant to the Escrow Agreement identified in Schedule 1.1(ax)(ii)). If additional variances are discovered thereafter and prior to December 31, 1998, the appropriate party shall pay the amount thereof promptly to the other party. 21 SECTION II.4. Assumption and Satisfaction of Liabilities. Except as otherwise specifically set forth in any Ancillary Agreement, and subject to Section 2.3 hereof, from and after the Effective Time, (i) the Corporation shall, and shall cause each member of the NMR Group to, assume, pay, perform and discharge all NMR Liabilities and (ii) IMS HEALTH shall, and shall cause each member of the IMS HEALTH Group to, assume, pay, perform and discharge all IMS HEALTH Liabilities. To the extent reasonably requested to do so by another party hereto, each party hereto agrees to sign such documents, in a form reasonably satisfactory to such party, as may be reasonably necessary to evidence the assumption of any Liabilities hereunder. SECTION II.5. Resignations. (a) Subject to Section 2.5(b), the Corporation and NMR shall cause all their employees to resign or be terminated, effective not later than the Effective Time, from all positions as officers or directors of any member of the IMS HEALTH Group in which they serve, and IMS HEALTH shall cause all its employees to resign or be terminated, effective not later than the Effective Time, from all positions as officers or directors of the Corporation or any members of the NMR Group in which they serve. (b) No person shall be required by any party hereto to resign from any position or office with another party hereto if such person is disclosed in the Information Statement as the person who is to hold such position or office following the Distribution. SECTION II.6. Further Assurances. In case at any time after the Effective Time any further action is reasonably necessary or desirable to carry out the purposes of this Agreement and the Ancillary Agreements, the proper officers of each party to this Agreement shall take all such necessary action. Without limiting the foregoing, the Corporation and IMS HEALTH shall use their commercially reasonable efforts promptly to obtain all consents and approvals, to enter into all amendatory agreements and to make all filings and applications that may be required for the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, including, without limitation, all applicable governmental and regulatory filings. SECTION II.7. Limited Representations or Warranties. Each of the parties hereto agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, making any representation or warranty whatsoever, as to title or value of Assets being transferred. It is also agreed that, notwithstanding anything to the contrary otherwise expressly provided in the relevant Conveyancing and Assumption Instrument, all Assets either transferred to or retained by the parties, as the case may be, shall be "as is, where is" and that (subject to Section 2.6) the party to which such Assets are to be transferred hereunder shall bear the economic and legal risk that such party's or any of the Subsidiaries' title to any such Assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto agrees that, except as otherwise expressly provided in the relevant Conveyancing and Assumption Instrument, no party hereto is representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable laws or judgments, it being agreed that the party to which any Assets are transferred shall bear the economic and legal risk 22 that any necessary consents or approvals are not obtained or that any requirements of laws or judgments are not complied with. SECTION II.8. Guarantees. (a) Except as otherwise specified in any Ancillary Agreement, the Corporation and IMS HEALTH shall use their commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, the Corporation and any member of the NMR Group removed as guarantor of or obligor for any IMS HEALTH Liability, including, without limitation, in respect of those guarantees set forth on Schedule 2.8(a) to the extent that they relate to IMS HEALTH Liabilities. (b) Except as otherwise specified in any Ancillary Agreement, the Corporation and IMS HEALTH shall use their commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, any member of the IMS HEALTH Group removed as guarantor of or obligor for any NMR Liability, including, without limitation, in respect of those guarantees set forth on Schedule 2.8(b) to the extent that they relate to NMR Liabilities. (c) If the Corporation or IMS HEALTH is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (a) or (b) of this Section 2.8, the applicable guarantor or obligor shall continue to be bound as such and, unless not permitted by law or the terms thereof, the relevant beneficiary shall or shall cause one of its Subsidiaries, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other liabilities of such guarantor or obligor thereunder from and after the date hereof. SECTION II.9. Witness Services. At all times from and after the Distribution Date, each of the Corporation and IMS HEALTH shall use their commercially reasonable efforts to make available to the other, upon reasonable written request, its and its Subsidiaries' officers, directors, employees and agents as witnesses to the extent that (i) such persons may reasonably be required in connection with the prosecution or defense of any Action in which the requesting party may from time to time be involved and (ii) there is no conflict in the Action between the requesting party and the Corporation or IMS HEALTH as applicable. A party providing witness services to the other party under this Section shall be entitled to receive from the recipient of such services, upon the presentation of invoices therefor, payments for such amounts, relating to disbursements and other out-of-pocket expenses (which shall be deemed to exclude the costs of salaries and benefits of employees who are witnesses), as may be reasonably incurred in providing such witness services. 23 SECTION II.10. Certain Post-Distribution Transactions. (a)(i) The Corporation shall comply and shall cause its Subsidiaries to comply with and otherwise not take action inconsistent with each representation and statement made to the Internal Revenue Service in connection with the request by the Corporation for a ruling letter in respect of the Distribution as to certain tax aspects of the Distribution and (ii) until two years after the Distribution Date, the Corporation will maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code. (b)(i) IMS HEALTH shall comply and shall cause its Subsidiaries to comply with and otherwise not take action inconsistent with each representation and statement made to the Internal Revenue Service in connection with the request by the Corporation for a ruling letter in respect of the Distribution as to certain tax aspects of the Distribution and (ii) until two years after the Distribution Date, IMS HEALTH will maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code. (c) The Corporation agrees that until two years after the Distribution Date, it will not (i) merge or consolidate with or into any other corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all or substantially all of its assets (within the meaning of Rev. Proc. 77-37, 1977 - 2 C.B. 568) in a single transaction or series of related transactions, (iv) redeem or otherwise repurchase any Cognizant Common Stock (other than as described in Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (v) take any other action or actions which in the aggregate would have the effect of causing or permitting one or more persons to acquire directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in the Corporation, unless prior to taking such action the Corporation has obtained (and provided to IMS HEALTH) a written opinion of a law firm reasonably acceptable to IMS HEALTH, or a supplemental ruling from the Internal Revenue Service, that such action or actions will not result in (i) the Distribution failing to qualify under Section 355(a) of the Code or (ii) the IMS HEALTH Common Shares failing to qualify as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code. (d) Notwithstanding anything to the contrary herein or in the Tax Allocation Agreement, if the Corporation or IMS HEALTH (or any of their respective Subsidiaries) fails to comply with any of its obligations under Sections 2.10(a), 2.10(b) and 2.10(c) above or takes or fails to take any action on or after the Distribution Date, and such failure to comply, action or omission contributes to a determination that (i) the Distribution fails to qualify under Section 355(a) of the Code or (ii) the IMS HEALTH Common Shares fail to qualify as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code, then such party shall indemnify and hold harmless the other party and each member of the consolidated group of which the other party is a member from and against any and all federal, state and local taxes, including any interest, penalties or additions to tax, imposed upon or incurred by such other party, any member of its group or any stockholder of either party as a result of the failure of the Distribution to qualify under Section 355(a) of the Code or the application of Section 355(e). The obligation of the Corporation to indemnify IMS HEALTH pursuant to the preceding sentence shall not be affected by the delivery of any legal opinion or supplemental ruling under Section 2.10(c). 24 SECTION II.11. Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date. To the extent that any transfers contemplated by this Article II shall not have been consummated on or prior to the Distribution Date, the parties shall cooperate to effect such transfers as promptly following the Distribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer of any Assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred; provided, however, that the parties hereto and their respective Subsidiaries shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all Assets and Liabilities contemplated to be transferred pursuant to this Article II. In the event that any such transfer of Assets or Liabilities has not been consummated, from and after the Distribution Date the party retaining such Asset or Liability shall hold such Asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) or retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, as the case may be, and take such other action as may be reasonably requested by the party to whom such Asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as is reasonably possible, in the same position as would have existed had such Asset or Liability been transferred as contemplated hereby. As and when any such Asset or Liability becomes transferable, such transfer shall be effected forthwith. The parties agree that, as of the Distribution Date, each party hereto shall be deemed to have acquired complete and sole beneficial ownership over all of the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such party is entitled to acquire or required to assume pursuant to the terms of this Agreement. SECTION II.12. Conveyancing and Assumption Instruments. In connection with the transfers of Assets and the assumptions of Liabilities contemplated by this Agreement, the parties shall execute or cause to be executed by the appropriate entities the Conveyancing and Assumption Instruments in substantially the form contemplated hereby for transfers to be effected pursuant to New York law or the laws of one of the other states of the United States or, if not appropriate for a given transfer, and for transfers to be effected pursuant to non-U.S. laws, in such other form as the parties shall reasonably agree, including the transfer of real property with deeds as may be appropriate. The transfer of capital stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to transfer title to stock and, to the extent required by applicable law, by notation on public registries. SECTION II.13. Ancillary Agreements. On or prior to the Distribution Date, each of the Corporation and IMS HEALTH shall enter into, and/or (where applicable) shall cause members of the NMR Group or the IMS HEALTH Group, as applicable, to enter into, the Ancillary Agreements and any other agreements in respect of the Distribution reasonably necessary or appropriate in connection with the transactions contemplated hereby and thereby. 25 SECTION II.14. Corporate Names. (a) Except as otherwise specifically provided in any Ancillary Agreement: (i) on or prior to the Distribution Date, the Corporation shall change its name to remove any reference to "Cognizant" therein; (ii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, the Corporation will, at its own expense, remove (or, if necessary, on an interim basis, cover up) any and all exterior signs and other identifiers located on any of its property or premises or on the property or premises used by it or its Subsidiaries (except property or premises to be shared with IMS HEALTH or its Subsidiaries after the Distribution) which refer or pertain to Cognizant or which include the Cognizant name, logo or other trademark or other intellectual property utilizing Cognizant; (iii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, the Corporation will, and will cause its Subsidiaries to, remove from all letterhead, envelopes, invoices and other communications media of any kind, all references to Cognizant, including the "Cognizant" name, logo and any other trademark or other intellectual property utilizing Cognizant (except that the Corporation shall not be required to take any such action with respect to materials in the possession of customers), and neither the Corporation nor its Subsidiaries shall use or display the "Cognizant" name, logo or other trademarks or intellectual property utilizing Cognizant without the prior written consent of any assignee of the Corporation's rights to the "Cognizant" name, logo or other trademarks or intellectual property utilizing Cognizant; (iv) as soon as reasonably practicable after the Distribution Date, but in any event within six months thereafter, the Corporation will cause its Subsidiaries to change their corporate names to the extent necessary to remove and eliminate any reference to Cognizant, including the "Cognizant" name; provided, however, that notwithstanding the foregoing requirements of this Section 2.14(a), if the Corporation has exercised good faith efforts to comply with this clause (iv) but is unable, due to regulatory or other circumstance beyond its control, to effect a corporate name change in compliance with applicable law, then the Corporation or its Subsidiary will not be deemed to be in breach hereof if it continues to exercise good faith efforts to effectuate such name change and does effectuate such name change within nine months after the Distribution Date, and, in such circumstances, such party may continue to include in exterior signs and other identifiers and in letterhead, envelopes, invoices and other communications references to the name which includes references to Cognizant, but only to the extent necessary to identify such party and only until such party's corporate name can be changed to remove and eliminate such references; and (v) notwithstanding the foregoing clauses (i) through (iv), nothing herein or in any Ancillary Agreement shall require the Corporation to take any action to remove any reference to Cognizant, including the "Cognizant" name, from any stock certificate relating to shares of Cognizant Common Stock outstanding on or prior to the Effective Time; 26 provided that from and after the Effective Time, any newly issued stock certificates representing Cognizant Common Stock (which at the Effective Time will become NMR Common Stock) shall not have any reference to Cognizant, including the "Cognizant" name. (b) Except as otherwise specifically provided in any Ancillary Agreement: (i) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, IMS HEALTH will, at its own expense, remove (or, if necessary, on an interim basis, cover up) any and all exterior signs and other identifiers located on any of their respective property or premises owned or used by them or their respective Subsidiaries (except property or premises to be shared with the Corporation or its Subsidiaries after the Distribution) which refer or pertain to NMR or which include the "Nielsen Media Research" or "Nielsen" name, logo or other trademark or other NMR intellectual property; (ii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, IMS HEALTH will, and will cause its respective Subsidiaries to, remove from all letterhead, envelopes, invoices and other communications media of any kind, all references to NMR, including the "Nielsen Media Research" or "Nielsen" name, logo and any other trademark or other NMR intellectual property (except that IMS HEALTH shall not be required to take any such action with respect to materials in the possession of customers), and neither IMS HEALTH nor any of its Subsidiaries shall use or display the "Nielsen Media Research" or "Nielsen" name, logo or other trademarks or NMR intellectual property without the prior written consent of the Corporation; and (iii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, IMS HEALTH will, and will cause its Subsidiaries to, change their corporate names to the extent necessary to remove and eliminate any reference to NMR, including the "Nielsen Media Research" or "Nielsen" name; provided, however, that notwithstanding the foregoing requirements of this Section 2.14(b), if IMS HEALTH has exercised good faith efforts to comply with this clause (iii) but is unable, due to regulatory or other circumstance beyond its control, to effect a corporate name change in compliance with applicable law, then IMS HEALTH or its Subsidiary will not be deemed to be in breach hereof if it continues to exercise good faith efforts to effectuate such name change and does effectuate such name change within nine months after the Distribution Date, and, in such circumstances, such party may continue to include in exterior signs and other identifiers and in letterhead, envelopes, invoices and other communications references to the name which includes references to NMR but only to the extent necessary to identify such party and only until such party's corporate name can be changed to remove and eliminate such references. 27 ARTICLE III. INDEMNIFICATION SECTION III.1. Indemnification by the Corporation. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, the Corporation shall indemnify, defend and hold harmless the IMS HEALTH Indemnitees from and against any and all Indemnifiable Losses of the IMS HEALTH Indemnitees arising out of, by reason of or otherwise in connection with the NMR Liabilities or alleged NMR Liabilities, including any breach by the Corporation of any provision of this Agreement or any Ancillary Agreement. SECTION III.2. Indemnification by IMS HEALTH. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, IMS HEALTH shall indemnify, defend and hold harmless the NMR Indemnitees from and against any and all Indemnifiable Losses of the NMR Indemnitees arising out of, by reason of or otherwise in connection with the IMS HEALTH Liabilities or alleged IMS HEALTH Liabilities, including any breach by IMS HEALTH of any provision of this Agreement or any Ancillary Agreement. SECTION III.3. Procedures for Indemnification. (a) Third Party Claims. If a claim or demand is made against an NMR Indemnitee or a IMS HEALTH Indemnitee (each, an "Indemnitee") by any person who is not a party to this Agreement (a "Third Party Claim") as to which such Indemnitee is entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the party which is or may be required pursuant to Section 3.1 or Section 3.2 hereof to make such indemnification (the "Indemnifying Party") in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within 15 business days) after receipt by such Indemnitee of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure (except that the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event within five business days) after the Indemnitee's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim. If a Third Party Claim is made against an Indemnitee, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges in writing its obligation to indemnify the Indemnitee therefor, to assume the defense thereof with counsel selected by the Indemnifying Party; provided that such counsel is not reasonably objected to by the Indemnitee. Should the Indemnifying Party so elect to assume the defense of a Third Party Claim, the Indemnifying Party shall, within 30 days (or sooner if the nature of the Third Party Claim so requires), notify the Indemnitee of its intent to do so, and the Indemnifying Party shall thereafter not be liable to the Indemnitee for legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, that such Indemnitee shall have the right to employ counsel to represent such Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim which 28 would make representation of both such parties by one counsel inappropriate, and in such event the fees and expenses of such separate counsel shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, subject to the proviso of the preceding sentence, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnifying Party has failed to assume the defense thereof (other than during the period prior to the time the Indemnitee shall have given notice of the Third Party Claim as provided above). If the Indemnifying Party so elects to assume the defense of any Third Party Claim, all of the Indemnitees shall cooperate with the Indemnifying Party in the defense or prosecution thereof, including by providing or causing to be provided, Records and witnesses as soon as reasonably practicable after receiving any request therefor from or on behalf of the Indemnifying Party. If the Indemnifying Party acknowledges in writing responsibility for a Third Party Claim, then in no event will the Indemnitee admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party's prior written consent; provided, however, that the Indemnitee shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the Indemnifying Party if the Indemnitee releases the Indemnifying Party from its indemnification obligation hereunder with respect to such Third Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the Indemnifying Party. If the Indemnifying Party acknowledges in writing liability for a Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of a Third Party Claim that the Indemnifying Party may recommend and that by its terms obligates the Indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim and releases the Indemnitee completely in connection with such Third Party Claim and that would not otherwise adversely affect the Indemnitee; provided, however, that the Indemnitee may refuse to agree to any such settlement, compromise or discharge if the Indemnitee agrees that the Indemnifying Party's indemnification obligation with respect to such Third Party Claim shall not exceed the amount that would be required to be paid by or on behalf of the Indemnifying Party in connection with such settlement, compromise or discharge. If an Indemnifying Party elects not to assume the defense of a Third Party Claim, or fails to notify an Indemnitee of its election to do so as provided herein, such Indemnitee may compromise, settle or defend such Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred by the Indemnitee in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee which the Indemnitee reasonably determines, after conferring with its counsel, cannot be separated from any related claim for money damages. If such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages. 29 (b) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. (c) The remedies provided in this Article III shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. SECTION III.4. Indemnification Payments. Indemnification required by this Article III shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or loss, liability, claim, damage or expense is incurred. ARTICLE IV. ACCESS TO INFORMATION SECTION IV.1. Provision of Corporate Records. (a) Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), after the Distribution Date, upon the prior written request by IMS HEALTH for specific and identified agreements, documents, books, records or files (collectively, "Records") which relate to (x) IMS HEALTH or the conduct of the IMS HEALTH Business up to the Effective Time, or (y) any Ancillary Agreement to which the Corporation and IMS HEALTH are parties, as applicable, the Corporation shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if IMS HEALTH has a reasonable need for such originals) in the possession or control of the Corporation or any of its Subsidiaries, but only to the extent such items are not already in the possession or control of IMS HEALTH. (b) Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), after the Distribution Date, upon the prior written request by the Corporation for specific and identified Records which relate to (x) the Corporation, NMR or the conduct of the NMR Business up to the Effective Time, or (y) any Ancillary Agreement to which IMS HEALTH and the Corporation are parties, as applicable, IMS HEALTH shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Corporation has a reasonable need for such originals) in the possession or control of IMS HEALTH or any of its Subsidiaries, but only to the extent such items are not already in the possession or control of the Corporation. 30 SECTION IV.2. Access to Information. Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), from and after the Distribution Date, each of the Corporation and IMS HEALTH shall afford to the other and its authorized accountants, counsel and other designated representatives reasonable access during normal business hours, subject to appropriate restrictions for classified, privileged or confidential information, to the personnel, properties, books and records of such party and its Subsidiaries insofar as such access is reasonably required by the other party and relates to (x) such other party or the conduct of its business prior to the Effective Time or (y) any Ancillary Agreement to which each of the party requesting such access and the party requested to grant such access are parties. SECTION IV.3. Reimbursement; Other Matters. Except to the extent otherwise contemplated by any Ancillary Agreement, a party providing Records or access to information to the other party under this Article IV shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Records or access to information. SECTION IV.4. Confidentiality. Each of (i) the Corporation and its Subsidiaries and (ii) IMS HEALTH and its Subsidiaries shall not use or permit the use of (without the prior written consent of the other) and shall keep, and shall cause its consultants and advisors to keep, confidential all information concerning the other parties in its possession, its custody or under its control (except to the extent that (A) such information has been in the public domain through no fault of such party or (B) such information has been later lawfully acquired from other sources by such party or (C) this Agreement or any other Ancillary Agreement or any other agreement entered into pursuant hereto permits the use or disclosure of such information) to the extent such information (w) relates to or was acquired during the period up to the Effective Time, (x) relates to any Ancillary Agreement, (y) is obtained in the course of performing services for the other party pursuant to any Ancillary Agreement, or (z) is based upon or is derived from information described in the preceding clauses (w), (x) or (y), and each party shall not (without the prior written consent of the other) otherwise release or disclose such information to any other person, except such party's auditors and attorneys, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by law and such party has used commercially reasonable efforts to consult with the other affected party or parties prior to such disclosure. SECTION IV.5. Privileged Matters. The parties hereto recognize that legal and other professional services that have been and will be provided on or prior to the Distribution Date have been and will be rendered for the benefit of each of the Corporation, the members of the NMR Group and the members of the IMS HEALTH Group, and that each of the Corporation, the members of the NMR Group and the members of the IMS HEALTH Group should be deemed to be the client for the purposes of asserting all privileges which may be asserted under applicable law. To allocate the interests of each party in the information as to which any party is entitled to assert a privilege, the parties agree as follows: 31 (a) The Corporation shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the NMR Business, whether or not the privileged information is in the possession of or under the control of the Corporation or IMS HEALTH. The Corporation shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting NMR Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by the Corporation, whether or not the privileged information is in the possession of or under the control of the Corporation or IMS HEALTH. (b) IMS HEALTH shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the IMS HEALTH Business, whether or not the privileged information is in the possession of or under the control of the Corporation or IMS HEALTH. IMS HEALTH shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the subject matter of any claims constituting IMS HEALTH Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by IMS HEALTH whether or not the privileged information is in the possession of or under the control of the Corporation or IMS HEALTH. (c) The parties hereto agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 4.5, with respect to all privileges not allocated pursuant to the terms of Sections 4.5(a) and (b). All privileges relating to any claims, proceedings, litigation, disputes, or other matters which involve both the Corporation and IMS HEALTH in respect of which both parties retain any responsibility or liability under this Agreement, shall be subject to a shared privilege among them. (d) No party hereto may waive any privilege which could be asserted under any applicable law, and in which the other party hereto has a shared privilege, without the consent of the other party, except to the extent reasonably required in connection with any litigation with third-parties or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within twenty (20) days after notice upon the other party requesting such consent. (e) In the event of any litigation or dispute between or among any of the parties hereto, any party and a Subsidiary of another party hereto, or a Subsidiary of one party hereto and a Subsidiary of another party hereto, either such party may waive a privilege in which the other party has a shared privilege, without obtaining the consent of the other party, provided that such waiver of a shared privilege shall be effective only as to the use of information with respect to the litigation or dispute between the parties and/or their Subsidiaries, and shall not operate as a waiver of the shared privilege with respect to third parties. (f) If a dispute arises between or among the parties hereto or their respective Subsidiaries regarding whether a privilege should be waived to protect or advance the interest of any 32 party, each party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other parties, and shall not unreasonably withhold consent to any request for waiver by another party. Each party hereto specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests. (g) Upon receipt by any party hereto or by any Subsidiary thereof of any subpoena, discovery or other request which arguably calls for the production or disclosure of information subject to a shared privilege or as to which another party has the sole right hereunder to assert a privilege, or if any party obtains knowledge that any of its or any of its Subsidiaries' current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably calls for the production or disclosure of such privileged information, such party shall promptly notify the other party or parties of the existence of the request and shall provide the other party or parties a reasonable opportunity to review the information and to assert any rights it or they may have under this Section 4.5 or otherwise to prevent the production or disclosure of such privileged information. (h) The transfer of all Records and other information pursuant to this Agreement is made in reliance on the agreement of the Corporation and IMS HEALTH, as set forth in Sections 4.4 and 4.5, to maintain the confidentiality of privileged information and to assert and maintain all applicable privileges. The access to information being granted pursuant to Sections 4.1 and 4.2 hereof, the agreement to provide witnesses and individuals pursuant to Sections 2.9 and 3.3 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Section 3.3 hereof, and the transfer of privileged information between and among the parties and their respective Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise. SECTION IV.6. Ownership of Information. Any information owned by one party or any of its Subsidiaries that is provided to a requesting party pursuant to Article III or this Article IV shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such information. SECTION IV.7. Limitation of Liability. (a) No party shall have any liability to any other party in the event that any information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate. (b) Other than in connection with Section 2.2, no party or any Subsidiary thereof shall have any liability or claim against any other party or any Subsidiary of any other party based upon, arising out of or resulting from any agreement, arrangement, course of dealing or understanding existing on or prior to the Distribution Date (other than this Agreement or any Ancillary Agreement or any agreement entered into in connection herewith or in order to consummate the transactions contemplated hereby or thereby), unless such agreement, arrangement, course of dealing or understanding is listed on Schedule 4.7(b) hereto, and any such liability or 33 claim, whether or not in writing, which is not reflected on such Schedule, is hereby irrevocably cancelled, released and waived. SECTION IV.8. Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Article IV are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of information set forth in any Ancillary Agreement. ARTICLE V. ADMINISTRATIVE SERVICES SECTION V.1. Performance of Services. Beginning on the Distribution Date, each party will provide, or cause one or more of its Subsidiaries to provide, to the other party and its Subsidiaries such services on such terms as may be set forth in the Shared Transaction Services Agreement. Except as otherwise set forth in such agreement or any Schedule thereto, the party that is to provide the services (the "Provider") will use (and will cause its Subsidiaries to use) commercially reasonable efforts to provide such services to the other party (the "Recipient") and its Subsidiaries in a satisfactory and timely manner and as further specified in such agreement. SECTION V.2. Independence. Unless otherwise agreed in writing, all employees and representatives of the Provider providing the scheduled services to the Recipient will be deemed for purposes of all compensation and employee benefits matters to be employees or representatives of the Provider and not employees or representatives of the Recipient. In performing such services, such employees and representatives will be under the direction, control and supervision of the Provider (and not the Recipient) and the Provider will have the sole right to exercise all authority with respect to the employment (including, without limitation, termination of employment), assignment and compensation of such employees and representatives. SECTION V.3. Non-exclusivity. Nothing in this Agreement precludes any party from obtaining, in whole or in part, services of any nature that may be obtainable from the other party from its own employees or from providers other than the other party. ARTICLE VI. DISPUTE RESOLUTION 34 SECTION VI.1. Negotiation. In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement or the transactions contemplated hereby, including, without limitation, any claim based on contract, tort, statute or constitution (but excluding any controversy, dispute or claim arising out of any agreement relating to the use or lease of real property if any third party is a party to such controversy, dispute or claim) (collectively, "Agreement Disputes"), the general counsels of the parties shall negotiate in good faith for a reasonable period of time to settle such Agreement Dispute, provided such reasonable period shall not, unless otherwise agreed by the parties in writing, exceed 30 days from the time the parties began such negotiations; provided further that in the event of any arbitration in accordance with Section 6.2 hereof, the parties shall not assert the defenses of statute of limitations and laches arising for the period beginning after the date the parties began negotiations hereunder, and any contractual time period or deadline under this Agreement or any Ancillary Agreement to which such Agreement Dispute relates shall not be deemed to have passed until such Agreement Dispute has been resolved. SECTION VI.2. Arbitration. If after such reasonable period such general counsels are unable to settle such Agreement Dispute (and in any event, unless otherwise agreed in writing by the parties, after 60 days have elapsed from the time the parties began such negotiations), such Agreement Dispute shall be determined, at the request of any party, by arbitration conducted in New York City, before and in accordance with the then-existing International Arbitration Rules of the American Arbitration Association (the "Rules"). In any dispute between the parties hereto, the number of arbitrators shall be one. Any judgment or award rendered by the arbitrator shall be final, binding and nonappealable (except upon grounds specified in 9 U.S.C. '10(a) as in effect on the date hereof). If the parties are unable to agree on the arbitrator, the arbitrator shall be selected in accordance with the Rules; provided that the arbitrator shall be a U.S. national. Any controversy concerning whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation of enforceability of this Article VI shall be determined by the arbitrator. In resolving any dispute, the parties intend that the arbitrator apply the substantive laws of the State of New York, without regard to the choice of law principles thereof. The parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable. The parties agree to comply with any award made in any such arbitration proceeding that has become final in accordance with the Rules and agree to enforcement of or entry of judgment upon such award, by any court of competent jurisdiction, including (a) the Supreme Court of the State of New York, New York County, or (b) the United States District Court for the Southern District of New York, in accordance with Section 8.17 hereof. The arbitrator shall be entitled, if appropriate, to award any remedy in such proceedings, including, without limitation, monetary damages, specific performance and all other forms of legal and equitable relief; provided, however, the arbitrator shall not be entitled to award punitive damages. Without limiting the provisions of the Rules, unless otherwise agreed in writing by or among the parties or permitted by this Agreement, the parties shall keep confidential all matters relating to the arbitration or the award, provided such matters may be disclosed (i) to the extent reasonably necessary in any proceeding brought to enforce the award or for entry of a judgment upon the award and (ii) to the extent otherwise required by law. Notwithstanding Article 35 32 of the Rules, the party other than the prevailing party in the arbitration shall be responsible for all of the costs of the arbitration, including legal fees and other costs specified by such Article 32. Nothing contained herein is intended to or shall be construed to prevent any party, in accordance with Article 22(3) of the Rules or otherwise, from applying to any court of competent jurisdiction for interim measures or other provisional relief in connection with the subject matter of any Agreement Disputes. SECTION VI.3. Continuity of Service and Performance. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article VI with respect to all matters not subject to such dispute, controversy or claim. ARTICLE VII. INSURANCE SECTION VII.1. Policies and Rights Included Within Assets; Assignment of Policies. (a) Policy Rights. The IMS HEALTH Assets shall include (i) any and all rights of an insured party under each of the Shared Policies, subject to the terms of such Shared Policies and any limitations or obligations of IMS HEALTH contemplated by this Article VII, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred on or prior to the Distribution Date by any party in or in connection with the conduct of the IMS HEALTH Business or, to the extent any claim is made against IMS HEALTH or any of its Subsidiaries, the conduct of the NMR Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Shared Policies. (b) Assignment of Shared Policies. Subject to the terms and conditions hereof, the Corporation hereby assigns, transfers and conveys to IMS HEALTH all of the Corporation's right, title and interest in and to any and all of the Shared Policies, including, without limitation, the right of indemnity, the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; and the Corporation and IMS HEALTH shall use their commercially reasonable efforts to obtain any required consents of insurers to the assignment contemplated by this paragraph. SECTION VII.2. Post-Distribution Date Claims. If, subsequent to the Distribution Date, any person shall assert a claim against IMS HEALTH or any of its Subsidiaries (including, without limitation, where IMS HEALTH or its Subsidiaries are joint defendants with other persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred on or prior to the Distribution Date in or in connection with the conduct of the IMS HEALTH Business or, to the extent any claim is made against IMS HEALTH or any of its Subsidiaries (including, without limitation, where IMS HEALTH or its Subsidiaries are joint defendants with other persons), in connection with the conduct of the NMR Business, and 36 which claim, suit, action, proceeding, injury, loss, liability, damage or expense may arise out of an insured or insurable occurrence under one or more of the Shared Policies, the Corporation shall, at the time such claim is asserted, to the extent any such Policy may require that Insurance Proceeds thereunder be collected directly by the named insured or anyone other than the party against whom the Insured Claim is asserted, be deemed to designate, without need of further documentation, IMS HEALTH as the agent and attorney-in-fact to assert and to collect any related Insurance Proceeds under such Shared Policy. SECTION VII.3. Administration; Other Matters. (a) Administration. After the Distribution Date, IMS HEALTH shall be responsible for (i) Insurance Administration of the Shared Policies and (ii) Claims Administration under such Shared Policies with respect to NMR Liabilities and IMS HEALTH Liabilities; provided that the assumption of such responsibilities by IMS HEALTH is in no way intended to limit, inhibit or preclude any right to insurance coverage for any Insured Claim of a named insured under such Policies as contemplated by the terms of this Agreement; provided further that IMS HEALTH's assumption of the administrative responsibilities for the Shared Policies shall not relieve the party submitting any Insured Claim of the primary responsibility for reporting such Insured Claim accurately, completely and in a timely manner or of such party's authority to settle any such Insured Claim within any period permitted or required by the relevant Policy; and provided further that all direct or indirect communication with insurers relating to the Shared Policies shall be conducted by IMS HEALTH. IMS HEALTH may discharge its administrative responsibilities under this Section 7.3 by contracting for the provision of services by independent parties. Each of the parties hereto shall administer and pay any costs relating to defending its respective Insured Claims under Shared Policies to the extent such defense costs are not covered under such Policies and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective Insured Claims under Shared Policies. The disbursements, out-of-pocket expenses and direct and indirect costs of employees or agents of IMS HEALTH relating to Claims Administration and Insurance Administration contemplated by this Section 7.3(a) shall be treated in accordance with the terms of the Transition Services Agreement, if still in effect with respect to insurance and risk management, or, if the Transition Services Agreement shall no longer be in effect with respect to insurance and risk management, then each of the Corporation and IMS HEALTH shall be responsible for its own Claims Administration and Insurance Administration. (b) Exceeding Policy Limits. The Corporation and IMS HEALTH shall not be liable to one another for claims not reimbursed by insurers for any reason not within the control of the Corporation or IMS HEALTH, as the case may be, including, without limitation, coinsurance provisions, deductibles, quota share deductibles, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy limitations or restrictions, any coverage disputes, any failure to timely claim by the Corporation or IMS HEALTH or any defect in such claim or its processing. (c) Allocation of Insurance Proceeds. Insurance Proceeds received with respect to claims, costs and expenses under the Shared Policies shall be paid to IMS HEALTH, which shall thereafter administer the Shared Policies by paying the Insurance Proceeds, as appropriate, to the Corporation with respect to NMR Liabilities and to IMS HEALTH with respect to IMS HEALTH 37 Liabilities. Payment of the allocable portions of indemnity costs of Insurance Proceeds resulting from such Policies will be made by IMS HEALTH to the appropriate party upon receipt from the insurance carrier. In the event that the aggregate limits on any Shared Policies are exceeded by the aggregate of outstanding Insured Claims by both of the parties hereto, the parties agree to allocate the Insurance Proceeds received thereunder based upon their respective percentage of the total of their bona fide claims which were covered under such Shared Policy (their "allocable portion of Insurance Proceeds"), and any party who has received Insurance Proceeds in excess of such party's allocable portion of Insurance Proceeds shall pay to the other party the appropriate amount so that each party will have received its allocable portion of Insurance Proceeds pursuant hereto. Each of the parties agrees to use commercially reasonable efforts to maximize available coverage under those Shared Policies applicable to it, and to take all commercially reasonable steps to recover from all other responsible parties in respect of an Insured Claim to the extent coverage limits under a Shared Policy have been exceeded or would be exceeded as a result of such Insured Claim. (d) Allocation of Deductibles. In the event that both parties have bona fide claims under any Shared Policy for which an aggregate deductible is reached, the parties agree that the aggregate amount of the deductible paid shall be borne by the parties in the same proportion which the Insurance Proceeds received by each such party bears to the total Insurance Proceeds received under the applicable Shared Policy (their "allocable share of the deductible"), and any party who has paid more than such share of the deductible shall be entitled to receive from the other party an appropriate amount so that each party has borne its allocable share of the deductible pursuant hereto. (e) After the Distribution Date, each of IMS HEALTH and the Corporation shall be responsible for its applicable deductible for workers' compensation, general liability and automobile liability claims. SECTION VII.4. Agreement for Waiver of Conflict and Shared Defense. In the event that Insured Claims of both of the parties hereto exist relating to the same occurrence, the parties shall jointly defend and waive any conflict of interest necessary to the conduct of the joint defense. Nothing in this Article VII shall be construed to limit or otherwise alter in any way the obligations of the parties to this Agreement, including those created by this Agreement, by operation of law or otherwise. SECTION VII.5. Cooperation. The parties agree to use their commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement. 38 ARTICLE VIII. MISCELLANEOUS SECTION VIII.1. Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. Other than Section 2.1(j), Section 2.7, Section 4.5 and Article VI, which shall prevail over any inconsistent or conflicting provisions in any Ancillary Agreement, notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any Ancillary Agreement, such Ancillary Agreement shall control. SECTION VIII.2. Ancillary Agreements. Subject to the last sentence of Section 8.1, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements. SECTION VIII.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. SECTION VIII.4. Survival of Agreements. Except as otherwise contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. SECTION VIII.5. Expenses. Except as set forth on Schedule 8.5 or as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred and for which invoices have been submitted on or prior to the Distribution Date in connection with the preparation, execution, delivery and required implementation of this Agreement and any Ancillary Agreement, the Information Statement (including any registration statement on Form 10 (or any amendment thereto) of which such Information Statement may be a part) and the Distribution and the consummation of the transactions contemplated thereby shall be charged to and paid by the Corporation; provided that if such costs and expenses are not paid by the Corporation prior to the Effective Time, they shall be charged to and paid by IMS HEALTH. Except as set forth on Schedule 8.5 or as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred or for which invoices are submitted after the Distribution Date in connection with the required implementation of this Agreement or any Ancillary Agreement, the consummation of the Distribution or the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement shall be charged to and paid by IMS HEALTH. Except as set forth on Schedule 8.5 or as otherwise set forth in this Agreement or any Ancillary Agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. Any amount or expense to be paid or reimbursed by any party hereto to any other party hereto shall be so paid or reimbursed 39 promptly after the existence and amount of such obligation is determined and demand therefor is made. SECTION VIII.6. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To the Corporation: Nielsen Media Research, Inc. 299 Park Avenue New York, NY 10171 Telecopy: (212) 708-6927 Attn: Chief Legal Officer To IMS HEALTH: IMS Health Incorporated 200 Nyala Farms Westport, CT 06880 Telecopy: (203) 222-4313 Attn: General Counsel SECTION VIII.7. Waivers. The failure of any party to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. SECTION VIII.8. Amendments. Subject to the terms of Section 8.11 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. SECTION VIII.9. Assignment. (a) This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other parties hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. (b) The Corporation will not distribute to its stockholders any interest in any NMR Business Entity, by way of a spin-off distribution, split-off or exchange of interests in a NMR Business Entity for any interest in the Corporation held by NMR stockholders, or any similar 40 transaction or transactions, unless the distributed NMR Business Entity undertakes to IMS HEALTH to be jointly and severally liable for all NMR Liabilities hereunder. (c) IMS HEALTH will not distribute to its stockholders any interest in any IMS HEALTH Business Entity, by way of a spin-off distribution, split-off or exchange of interests in a IMS HEALTH Business Entity for any interest in IMS HEALTH held by IMS HEALTH stockholders, or any similar transaction or transactions, unless the distributed IMS HEALTH Business Entity undertakes to the Corporation to be jointly and severally liable for all IMS HEALTH Liabilities hereunder. SECTION VIII.10. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. SECTION VIII.11. Termination. This Agreement (including, without limitation, Article III hereof) may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of the Corporation without the approval of IMS HEALTH or the shareholders of the Corporation. In the event of such termination, no party shall have any liability of any kind to any other party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the parties; provided, however, that Article III shall not be terminated or amended after the Distribution in respect of the third party beneficiaries thereto without the consent of such persons. SECTION VIII.12. Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party or by any entity that is contemplated to be a Subsidiary of such party on or after the Distribution Date. SECTION VIII.13. Third Party Beneficiaries. Except as provided in Article III relating to Indemnitees, this Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION VIII.14. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION VIII.15. Exhibits and Schedules. The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION VIII.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE 41 STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. SECTION VIII.17. Consent to Jurisdiction. Without limiting the provisions of Article VI hereof, each of the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 8.17. Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION VIII.18. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 42 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. COGNIZANT CORPORATION By: /s/ Robert E. Weissman --------------------------------- Name: Robert E. Weissman Title: Chairman and Chief Executive Officer IMS HEALTH INCORPORATED By: /s/ Victoria R. Fash --------------------------------- Name: Victoria R. Fash Title: President and Chief Operating Officer DISTRIBUTION AGREEMENT between COGNIZANT CORPORATION and IMS HEALTH INCORPORATED Dated as of June 30, 1998 TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS.........................................................2 SECTION 1.1. General....................................................2 SECTION 1.2. References; Interpretation................................14 ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS...............................................14 SECTION 2.1. The Distribution and Other Transactions...................14 SECTION 2.2. Intercompany Accounts.....................................20 SECTION 2.3. Cash Balances.............................................20 SECTION 2.4. Assumption and Satisfaction of Liabilities................20 SECTION 2.5. Resignations..............................................20 SECTION 2.6. Further Assurances........................................20 SECTION 2.7. Limited Representations or Warranties.....................21 SECTION 2.8. Guarantees................................................21 SECTION 2.9. Witness Services..........................................22 SECTION 2.10. Certain Post-Distribution Transactions....................22 SECTION 2.11. Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date ....................................................23 SECTION 2.12. Conveyancing and Assumption Instruments...................23 SECTION 2.13. Ancillary Agreements......................................24 SECTION 2.14. Corporate Names...........................................24 ARTICLE III. INDEMNIFICATION.................................................26 SECTION 3.1. Indemnification by the Corporation........................26 SECTION 3.2. Indemnification by IMS HEALTH.............................26 SECTION 3.3. Procedures for Indemnification............................26 SECTION 3.4. Indemnification Payments..................................28 ARTICLE IV. ACCESS TO INFORMATION............................................28 SECTION 4.1. Provision of Corporate Records............................28 SECTION 4.2. Access to Information.....................................29 SECTION 4.3. Reimbursement; Other Matters..............................29 SECTION 4.4. Confidentiality...........................................29 SECTION 4.5. Privileged Matters........................................29 SECTION 4.6. Ownership of Information..................................31 SECTION 4.7. Limitation of Liability...................................31 SECTION 4.8. Other Agreements Providing for Exchange of Information....32 ARTICLE V. ADMINISTRATIVE SERVICES...........................................32 SECTION 5.1. Performance of Services...................................32 SECTION 5.2. Independence..............................................32 SECTION 5.3. Non-exclusivity...........................................32 i ARTICLE VI. DISPUTE RESOLUTION..............................................32 SECTION 6.1. Negotiation...............................................32 SECTION 6.2. Arbitration...............................................33 SECTION 6.3. Continuity of Service and Performance.....................34 ARTICLE VII. INSURANCE.......................................................34 SECTION 7.1. Policies and Rights Included Within Assets; Assignment of Policies...................................34 SECTION 7.2. Post-Distribution Date Claims.............................34 SECTION 7.3. Administration; Other Matters.............................35 SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense.......36 SECTION 7.5. Cooperation...............................................36 ARTICLE VIII. MISCELLANEOUS..................................................36 SECTION 8.1. Complete Agreement; Construction..........................36 SECTION 8.2. Ancillary Agreements......................................37 SECTION 8.3. Counterparts..............................................37 SECTION 8.4. Survival of Agreements....................................37 SECTION 8.5. Expenses..................................................37 SECTION 8.6. Notices...................................................37 SECTION 8.7. Waivers...................................................38 SECTION 8.8. Amendments................................................38 SECTION 8.9. Assignment................................................38 SECTION 8.10. Successors and Assigns...................................38 SECTION 8.11. Termination..............................................38 SECTION 8.12. Subsidiaries.............................................39 SECTION 8.13. Third Party Beneficiaries................................39 SECTION 8.14. Title and Headings.......................................39 SECTION 8.15. Exhibits and Schedules...................................39 SECTION 8.16. GOVERNING LAW............................................39 SECTION 8.17. Consent to Jurisdiction..................................39 SECTION 8.18. Severability.............................................40 ii Exhibits Exhibit 2.1(m) Undertaking of IMS Health Incorporated iii Schedules to Distribution Agreement Schedules 1.1(m) Conveyance and assumption instruments 1.1(au)(i) Certain Business Entities and Subsidiaries to be included in the NMR Group 1.1(au)(ii) Pre-Distribution reorganization transactions to transfer assets to the Corporation or the NMR Group 1.1(au)(x) Certain assets not to be included as NMR Assets 1.1(au)(y) Certain Business Entities or businesses holding assets from divested, terminated or former businesses which are to be included as NMR Assets 1.1(av) Combined balance sheet of the NMR Group as of March 31, 1998 1.1(ax)(i) Certain contracts to be included as NMR Contracts 1.1(ax)(ii) Certain contracts in the name of the Corporation or NMR to be included as IMS HEALTH Contracts 1.1(ax)(iv) Certain federal, state and local government contracts to be included as NMR Contracts 1.1(ax)(v) Capital or operating lease obligations to be included as NMR Contracts 1.1(ba)(i) Certain liabilities to be included as NMR Liabilities 1.1(ba)(x) Certain liabilities not to be included as NMR Liabilities 1.1(ba)(y) Certain Business Entities or businesses holding liabilities from divested, terminated or former businesses which are to be included as NMR Liabilities 2.1(i) Liabilities from 1996 Distribution to be included as NMR Liabilities 2.1(j)(i) Allocation of Liabilities for certain prior business transactions 2.3 Cash Balances 2.8(a) Guarantees of IMS HEALTH Liabilities from which NMR Group members are to be removed 2.8(b) Guarantees of NMR Liabilities from which IMS HEALTH Group members are to be removed 4.7(b) Pre-existing agreements between the parties which continue after the Distribution iv Exhibit 2.1(m) IMS Health Incorporated 200 Nyala Farms Westport, CT 06880 June 29, 1998 Nancy Henry, Esq. The Dun & Bradstreet Corporation One Diamond Hill Road Murray Hill, NJ 07974 Earl Doppelt, Esq. ACNielsen Corporation 177 Broad Street Stamford, CT 06901 Dear Ms. Henry and Mr. Doppelt: Reference is made to the Distribution Agreement (the "1996 Distribution Agreement"), dated as of October 28, 1996, among Cognizant Corporation ("Cognizant"), The Dun & Bradstreet Corporation ("D&B") and ACNielsen Corporation ("ACNielsen"). Cognizant has announced its intention to separate into two separate companies through a distribution (the "IMS HEALTH Distribution") to its stockholders of all of the shares of common stock of its subsidiary IMS Health Incorporated ("IMS HEALTH"). In Section 8.9(c) of the 1996 Distribution Agreement, Cognizant agreed not to make a distribution such as the IMS HEALTH Distribution unless it caused the distributed entity to undertake to both D&B and ACNielsen to be jointly and severally liable for all Cognizant Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in accordance with Section 8.9(c) of the 1996 Distribution Agreement and intending to be legally bound hereby, from and after the effective time of the IMS HEALTH Distribution, IMS HEALTH undertakes to each of D&B and ACNielsen to be jointly and severally liable with Cognizant for all Cognizant Liabilities under the 1996 Distribution Agreement. Very truly yours, IMS HEALTH INCORPORATED By: ----------------------------- Name: Title: Schedule 2.1(j)(i) Allocation of Liabilities Relating to Certain Prior Business Transactions 1. Any and all Liabilities of Cognizant for any audit adjustments to Taxes arising out of the transactions and related agreements known as (a) Nieuw Willemstad Partnership or Oud Philipsburg Partnership, involving A.C. Nielsen Company and The Dun & Bradstreet Corporation; (b) Duns Licensing Associates, L.P., involving Dun & Bradstreet, Inc. and IMS America, Ltd.; and (c) D&B Investors, L.P., involving Reuben H. Donnelley Corporation, IMS America, Ltd. and Dun & Bradstreet, Inc. shall be allocated as follows: (x) IMS HEALTH shall be liable for and shall pay all such Taxes allocated to Cognizant pursuant to Section 2.1(j)(ii) of the 1996 Distribution Agreement until such Taxes, in the aggregate, equal one hundred and thirty million dollars; and (y) IMS HEALTH and the Corporation shall each be liable for and shall pay one-half of any such Taxes allocated to Cognizant pursuant to Section 2.1(j)(ii) of the 1996 Distribution Agreement in excess of one hundred and thirty million dollars; provided, that the Corporation's aggregate liability for Taxes pursuant to this paragraph and for amounts described in Section 2.1(j)(ii) of the Distribution Agreement shall not exceed one hundred and twenty-five million dollars; provided, further, that prior to January 1, 2001, IMS HEALTH shall make any and all payments for all of the Taxes referred to in clause (y) above, with the Corporation reimbursing IMS HEALTH for its proportionate share thereof on the first business day after such date. 2. The liability for any audit adjustments to Taxes arising out of the transactions and related agreements known as Dun & Bradstreet Computer Leasing, Inc. and Fillupar Leasing Partnership shall be allocated solely to IMS HEALTH. 3. To the extent that the allocation of liability for Taxes in this Schedule 2.1(j) results in the sharing of liability for Taxes between IMS HEALTH and the Corporation, Section 5.1 of the Tax Allocation Agreement, governing Tax Audits and Controversies, shall be applied as though IMS HEALTH alone were liable for all such Taxes and the Corporation were not liable for such Taxes; provided, however, that IMS HEALTH shall not enter into any final settlement or closing agreement without the consent of the Corporation, which consent may not be unreasonably withheld. Where consent to any final settlement or closing agreement is withheld, the Corporation shall continue or initiate further proceedings, at its own expense, and the liability of IMS HEALTH shall be limited to the liability that would have resulted for IMS HEALTH from the proposed closing agreement or final settlement (including interest, additions to tax and penalties which have accrued at that time). EX-10.2 4 TAX ALLOCATION AGREEMENT Exhibit 10.2 TAX ALLOCATION AGREEMENT This TAX ALLOCATION AGREEMENT is dated as of June 30, 1998, between COGNIZANT CORPORATION, a Delaware corporation (the "Corporation") and IMS HEALTH INCORPORATED, a Delaware corporation ("IMS HEALTH") (collectively, the "Parties"). WHEREAS, the Corporation acting through its direct and indirect subsidiaries, currently conducts a number of businesses, including, without limitation, providing television audience measurement services (the "Nielsen Media Research Business"); WHEREAS, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $0.01 per share, of the Corporation (the "Cognizant Common Stock"), as well as of the Corporation and its businesses, to reorganize the Corporation to separate from the Corporation all businesses currently conducted by the Corporation other than the Nielsen Media Research Business and to cause such businesses to be owned and conducted, directly or indirectly, by IMS HEALTH; WHEREAS, in order to effect the separation, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of Cognizant Common Stock, as well as of the Corporation and its businesses, for the Corporation (i) to take certain steps to reorganize the Corporation's Subsidiaries (as defined herein) and businesses, including prior to the Distribution (as defined herein) merging I.M.S. International, Inc. and IMS America, Inc. with and into IMS HEALTH and (ii) upon the completion of such reorganization to distribute to the holders of the Cognizant Common Stock all the outstanding shares of common stock of IMS HEALTH (the "IMS HEALTH Common Shares"), together with the associated Rights; WHEREAS, as of the date hereof, the Corporation is the common parent of an affiliated group of domestic corporations within the meaning of Section 1504(a) of the Code (as defined herein), including members of the IMS HEALTH Group (as defined herein), and the members of the affiliated group have heretofore joined in filing consolidated federal Income Tax Returns (as defined herein); WHEREAS, as a result of the Distribution, the IMS HEALTH Group will not be included in the consolidated federal Income Tax Return of the Corporation for the portion of the year following the Distribution and in future years; and 2 WHEREAS, the Corporation and IMS HEALTH desire to allocate the Tax (as defined herein) burdens and benefits of transactions which occurred on or prior to the Distribution Date (as defined herein) and to provide for certain other Tax matters, including the assignment of responsibility for the preparation and filing of Tax Returns (as defined herein), the payment of Taxes, and the prosecution and defense of any Tax controversies. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows: ARTICLE DEFINITIONS SECTION General. Capitalized terms used in this Agreement and not defined herein shall have the meanings that such terms have in the Distribution Agreement. As used in this Agreement, the following terms shall have the following meanings: "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor legislation. "Combined Returns" shall mean all state Income Tax Returns with respect to which the Corporation files on a combined or unitary basis with some or all of its Subsidiaries for taxable periods beginning November 1, 1996, January 1, 1997 and January 1, 1998. "Consolidated Returns" shall mean all consolidated federal Income Tax Returns of the affiliated group of which the Corporation is the common parent for taxable periods beginning November 1, 1996, January 1, 1997 and January 1, 1998. "Controlled Entity" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). "D&B Tax Allocation Agreement" shall mean the Tax Allocation Agreement dated October 28, 1996 among The Dun & Bradstreet Corporation, the Corporation and ACNielsen Corporation. "Deferred Compensation Deduction" shall mean any deduction with respect to (i) compensation payments made by any member of the IMS HEALTH Group or the NMR Group, 3 as the case may be, if such deduction is disallowed for any member of the payor's group and may be claimed by any member of the other group and/or (ii) the exercise of stock options in IMS HEALTH or the Corporation, as the case may be, by any former employee of the Pre-Distribution Cognizant Group if such deduction is disallowed for any member of the IMS HEALTH Group or the NMR Group, as the case may be, and may be claimed by any member of the other group. "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of Cognizant Common Stock as of the Distribution Record Date of the IMS HEALTH Common Shares owned by the Corporation on the basis of one IMS HEALTH Common Share for each outstanding share of Cognizant Common Stock. "Distribution Agreement" shall mean the distribution agreement, dated as of June 30, 1998, between the Corporation and IMS HEALTH. "Distribution Date" shall mean June 30, 1998. "Final Determination" shall mean the final resolution of liability for any Tax for any taxable period, including any related interest or penalties, by or as a result of: a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreement under the laws of other jurisdictions which resolves the entire Tax liability for any taxable period; any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or any other final disposition, including by reason of the expiration of the applicable statute of limitations. "Franchise Tax Returns" shall mean all franchise Tax Returns of the Pre-Distribution Cognizant Group or any member thereof for taxable periods beginning November 1, 1996, January 1, 1997, January 1, 1998 and, solely for purposes of Sections 2.1(a) and 2.2(a), on or the day after the Distribution Date. "Governmental Authority" shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. "IMS HEALTH Business" shall mean each and every business conducted at any time by the Corporation or any Subsidiary of the Corporation prior to the Effective Time, including, without limitation, (i) providing 4 information and decision support services to the pharmaceutical and healthcare industries (the "IMS Business"), (ii) providing software-based administrative and analytical solutions to the managed care industry (the "ERISCO Business"), (iii) making venture capital investments in emerging healthcare businesses (the "Enterprises Business"), (iv) supplying research and analysis to the information technology industry (the "Gartner Business") and (v) providing software applications and development services specializing in Year 2000 conversion services (the "Technology Solutions Business"), but excluding the NMR Business. "IMS HEALTH Group" shall mean IMS HEALTH and each Business Entity (other than any member of the NMR Group) that is a Subsidiary of the Corporation immediately prior to the Effective Time. "Included Party" shall have the meaning as defined in Section 2.3. "Income Tax Return" shall mean any Tax Return relating to Income Taxes. "Income Taxes" shall mean any federal, state or local Taxes determined by reference to income or imposed in lieu of income Taxes, such as Taxes based on net worth or gross receipts. "Indemnifying Party" shall have the meaning as defined in Section 3.5(c). "Indemnitee" shall have the meaning as defined in Section 3.5(c). "IRS" shall mean the Internal Revenue Service. "NMR" shall mean Nielsen Media Research, Inc., a Delaware corporation. "NMR Assets" shall have the same meaning as such term has in the Distribution Agreement. "NMR Business" shall mean (i) the Nielsen Media Research Business, (ii) the businesses of the members of the NMR Group, (iii) any other business conducted by the Corporation or any Subsidiary of the Corporation primarily through the use of the NMR Assets, (iv) the businesses of any Business Entity acquired or established by or for NMR or any of its Subsidiaries after the date of this Agreement and (v) the business of the Corporation from and after the Effective Time. "NMR Group" shall mean NMR, each Business Entity which is contemplated to remain or become a 5 Subsidiary of the Corporation or NMR hereunder, which shall include those identified as such on Schedule 1.1(au)(i) to the Distribution Agreement, and the Corporation from and after the Effective Time. "Non-Combined Returns" shall mean all state and local Income Tax Returns (other than Combined Returns and any foreign Tax Returns), of the Pre-Distribution Cognizant Group or any member thereof for taxable periods beginning November 1, 1996, January 1, 1997, January 1, 1998 and, solely for purposes of Sections 2.1(a) and 2.2(a), on or the day after the Distribution Date. "Nonperforming Party" shall have the meaning as defined in Section 5.2. "Other Taxes" shall mean all Taxes other than Taxes covered by a Consolidated Return, a Combined Return, a Non-Combined Return or a Franchise Tax Return. "Parties" shall have the meaning as defined in the recitals hereto. "Person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Post-Distribution Expense Deduction" shall mean any deduction with respect to an expense or indemnity paid by a member of the IMS HEALTH Group or the NMR Group after the Distribution Date if such deduction is disallowed or not allowable for any member of the payor's group and may be claimed by any member of the other group. "Pre-Distribution Cognizant Group" shall mean the Corporation and all of its Subsidiaries (direct and indirect, domestic and foreign) prior to the Distribution. "Preparing Party" shall have the meaning as defined in Section 2.3. "Reorganization Tax Payment" shall mean the payment of any Tax for which IMS HEALTH is liable pursuant to Section 3.3(a) of this Agreement. "Reorganizations" shall mean the series of contributions and distributions of Controlled Entities and assets, transfers and assumptions of liabilities, and other transactions whereby the NMR Group and the IMS HEALTH Group are formed and all other Controlled Entities of the Corporation prior to the Distribution are placed under the control of the appropriate parent corporation(s) in preparation for the Distribution. 6 "Subsidiary" shall mean any entity of which another entity's ownership satisfies the 80-percent voting and value test defined in Section 1504(a)(2) of the Code, whether directly or indirectly. "Tax" or "Taxes" whether used in the form of a noun or adjective, shall mean taxes on or measured by income, franchise, gross receipts, sales, use, excise, payroll, personal property, real property, ad-valorem, value-added, leasing, leasing use or other taxes, levies, imposts, duties, charges or withholdings of any nature. Whenever the term "Tax" or "Taxes" is used (including, without limitation, regarding any duty to reimburse another Party for indemnified taxes or refunds or credits of taxes) it shall include penalties, fines, additions to tax and interest thereon. "Tax Benefit" shall mean the sum of the amount by which the Tax liability (after giving effect to any alternative minimum or similar Tax) of a corporation or group of affiliated corporations to the appropriate taxing authority is reduced (including, without limitation, by deduction, entitlement to refund, credit or otherwise, whether available in the current taxable year, as an adjustment to taxable income in any other taxable year or as a carryforward or carryback, as applicable) plus any interest from such government or jurisdiction relating to such Tax liability. "Tax Item" shall mean any item of income, capital gain, net operating loss, capital loss, deduction, credit or other Tax attribute relevant to the calculation of a Tax liability. "Tax Matters Partner" shall mean the tax matters partner as defined in section 6231(a)(7) of the Code. "Tax Returns" shall mean all reports or returns (including information returns) required to be filed or that may be filed for any period with any taxing authority (whether domestic or foreign) in connection with any Tax or Taxes (whether domestic or foreign). SECTION References; Interpretation. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words "include", "includes" and "including" when used in this Agreement shall be deemed to be followed by the phrase "without limitation". Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, such Agreement. Unless the context otherwise requires, the words "hereof", "hereby" and "herein" and words of similar 7 meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. ARTICLE PREPARATION AND FILING OF TAX RETURNS SECTION Predistribution Tax Returns. IMS HEALTH (or its relevant Controlled Entity) shall prepare, and the Corporation (or its relevant Controlled Entity) shall file, (i) all Consolidated Returns, Combined Returns, Non-Combined Returns, and Franchise Tax Returns that are not filed prior to the Distribution Date and (ii) any Tax Returns of any partnership (other than NMR Licensing Associates LP) of which the Corporation or any Subsidiary is the Tax Matters Partner if a distributive share of partnership income or loss is included in any such Return. All Tax Returns for Other Taxes for periods beginning prior to the Distribution Date that are not subject to the D&B Tax Allocation Agreement shall be prepared and filed by IMS HEALTH if they relate to any member of the IMS HEALTH Group and, otherwise, by the Corporation. SECTION Post-Distribution Tax Returns. The filing of all Tax Returns for periods beginning on or after the Distribution Date (other than Non-Combined Returns and Franchise Tax Returns covered by Section 2.1(a)) shall be the responsibility of the Corporation if they relate to the NMR Group or any member thereof and shall be the responsibility of IMS HEALTH if they relate to the IMS HEALTH Group or any member thereof. In the case of any partnership in which a member of the Pre-Distribution Cognizant Group is the designated Tax Matters Partner, such entity shall continue to be responsible for the preparation and filing of such partnership's Tax Returns. SECTION Manner of Preparation. To the extent any Tax Return includes Taxes relating to a Party (or any of its Subsidiaries) other than the Party preparing such Tax Return (the "Preparing Party"), the Party not responsible for preparing the Tax Return (the "Included Party"), shall prepare and deliver to the Preparing Party, at least 120 days prior to the due date (including extensions) of such Tax Return, a true and correct accounting of all relevant Tax Items relating to the Included Party (and any of its Subsidiaries) for the taxable period. 8 All Tax Returns filed on or after the Distribution Date shall be prepared on a basis that is consistent with the rulings obtained from the IRS or any other Governmental Authority in connection with the Reorganizations or Distribution (in the absence of a controlling change in law or circumstances) and shall be filed on a timely basis (including pursuant to extensions) by the Party responsible for such filing under this Agreement. In the absence of a controlling change in law or circumstances and unless deviation from past practice would have no adverse effect on the other Party, all Tax Returns filed within three years after the Distribution Date shall be prepared on a basis consistent with the elections, accounting methods, conventions, assumptions and principles of taxation used for the most recent taxable periods for which Tax Returns involving similar Tax Items have been filed; provided, however, that a Party preparing any Tax Return that does not conform to such past practices shall not be liable for any additional Tax liability imposed, in whole or in part, as a result of such deviation from past practice if: (i) 30 days prior to the filing of such Tax Return, the Party preparing such Tax Return notifies the other Party if such other Party may be adversely affected; and (ii) the Party preparing such Tax Return establishes that conformity with past practice involves a significant risk of the imposition of a penalty. Subject to the provisions of this Agreement, all decisions relating to the preparation of Tax Returns shall be made in the sole discretion of the Party responsible under this Agreement for its preparation; provided, however, that the "Included Party" shall have the right to review and comment on such Tax Return prior to the filing thereof in the following manner: The Preparing Party shall submit any part of such Tax Return relating to the Included Party (or any of its Subsidiaries) to the Included Party at least 28 days prior to the date on which such Tax Return is due (including extensions). The Included Party shall submit its comments to the Preparing Party within 14 days of receipt of the relevant portions of such Tax Return. The Preparing Party shall alter such Tax Return to reflect the reasonable comments of the Included Party unless the Preparing Party reasonably believes that such alteration would have an adverse impact upon the Preparing Party. Unless otherwise required by the IRS, any Governmental Authority or a court, the Parties hereby agree to file all Tax Returns, and to take all other actions, in a manner consistent with the position that the Distribution Date is the last day on which any member of the IMS HEALTH Group was included in the Pre-Distribution Cognizant Group. For any period that includes but does not end on the Distribution Date, to the extent permitted by law or administrative practice, the taxable year of each member of 9 the Pre-Distribution Cognizant Group and any group of such members shall be treated as ending on the Distribution Date. ARTICLE PAYMENT OF TAXES SECTION Predistribution Taxes The Party responsible for the filing of any Tax Return pursuant to Sections 2.1 and 2.2 shall pay to the relevant taxing authority all Taxes due or payable in connection therewith; provided, that if, pursuant to this Article III, one Party is liable for any Taxes relating to a Tax Return filed by the other Party, such non-filing Party shall pay the filing Party the amount of such Taxes at least 5 days prior to the due date (including extensions) of such Tax Return. With respect to any Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return for a taxable period ending before January 1, 1998 that is not filed prior to the Distribution Date, IMS HEALTH shall be liable for all Taxes payable with such Return and shall be entitled to any refund or credit for an overpayment of Taxes shown on such Return. With respect to any Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return for a taxable period beginning on or after January 1, 1998, IMS HEALTH (i) shall only be liable for Taxes payable with such Return that are attributable to the portion of such taxable period up to and including the Distribution Date and that exceed the amount of Taxes paid in respect of such taxable period (as estimated Taxes or otherwise) on or prior to the Distribution Date and (ii) shall be entitled to any refund or credit of Taxes to the extent Taxes paid in respect of such taxable period (as estimated Taxes or otherwise) on or prior to the Distribution Date exceed the amount of Taxes attributable to the portion of the period up to and including the Distribution Date. The determination of the amount of Taxes attributable to the portion of such taxable period up to and including the Distribution Date shall be done on a closing of the books basis, except that Tax Items calculated on an annual basis shall be apportioned on a time basis. In the event of any Final Determination adjusting the amount of any Taxes that are the subject of a Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return, IMS HEALTH shall be liable for its share of any increases in Taxes and shall be entitled to its share of any refunds or credits of Taxes, and the Corporation shall be liable for all other increases in Taxes and shall be entitled to all other refunds or credits of Taxes. IMS HEALTH's share of any Taxes, credits or refunds shall be determined in accordance with the following principles: 10 (i) IMS HEALTH shall be liable for any increase in Taxes, and shall be entitled to all refunds or credits of Taxes, that are attributable to a Tax Return that relates solely to the IMS HEALTH Business; and (ii) In the case of any Tax Return that relates to both the IMS HEALTH Business and the NMR Business, IMS HEALTH's share of any increase in Taxes, or refunds or credits of Taxes, shall be determined on a pro forma basis as if IMS HEALTH filed a separate Tax Return for the taxable period that (i) included only (x) the Tax Items attributable to the IMS HEALTH Business otherwise included in the Tax Return and (y) an appropriate allocation of Tax Items not specifically attributable to either the IMS HEALTH Business or the NMR Business (including, without limitation, corporate overhead) and (ii) credits IMS HEALTH with its share of Taxes previously paid by the Corporation or IMS HEALTH with respect to such taxable period; provided, that, in the case of a Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return, IMS HEALTH shall be liable for and shall pay all increases in Taxes, and shall be entitled to receive all refunds or credits of Taxes, that result from a Tax Item or position determined by the corporate office. The Corporation shall be liable for all Other Taxes that are attributable to the NMR Business and IMS HEALTH shall be liable for all Other Taxes that are attributable to the IMS HEALTH Business. In the case of any Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return with respect to which IMS HEALTH has responsibility for any Taxes or is entitled to any refunds or credits of Taxes pursuant to Section 3.1(c) above, IMS HEALTH shall have the right to prepare an amended Tax Return. The Corporation shall have the right to review any such amended Tax Return and shall be required to sign and file any such amended Tax Return unless it reasonably determines that the filing of such amended Tax Return would create a significant risk of a material increase in the Taxes payable by the NMR Group or any member thereof for any taxable period beginning on or after the Distribution Date. IMS HEALTH shall be entitled to any refunds or credits of Taxes relating to any such amended Tax Return. If the Corporation is liable for any Taxes or entitled to any refunds or credits of Taxes pursuant to the D&B Tax Allocation Agreement, such Taxes, refunds or credits shall be allocated between the Corporation and IMS HEALTH in accordance with the principles of this Section 3.1. Notwithstanding any statement herein to the contrary, any Taxes covered by Section 2.1(j)(i) of the 11 Distribution Agreement shall be governed by Schedule 2.1(j)(i) to the Distribution Agreement. SECTION Post-Distribution Taxes. Unless otherwise provided in this Agreement: The Corporation shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes attributable to the NMR Group or any member thereof: (i) with respect to a Consolidated Return, Combined Return, Non-Combined Return or Franchise Tax Return for a taxable period that begins prior to the Distribution Date and includes but does not end on the Distribution Date to the extent such Taxes or refunds are attributable to the portion of such period after the Distribution Date; and (ii) with respect to periods beginning on or after the Distribution Date. IMS HEALTH shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning on or after the Distribution Date that are attributable to the IMS HEALTH Group or any member thereof. SECTION Restructuring Taxes. Notwithstanding any statement to the contrary in this Agreement and except as otherwise provided in the Distribution Agreement, to the extent that any Taxes are found to arise out of the Reorganizations, then any such Tax liability incurred by the Parties (or any of their Subsidiaries) shall be the responsibility of IMS HEALTH; provided, however, that to the extent specific cash allocations for such Taxes are made in connection with the Distribution, IMS HEALTH shall be relieved of its liability for such Taxes to the extent covered by such cash. Notwithstanding any statement herein to the contrary, any Taxes relating to or arising out of the Distribution shall be governed by Section 2.10 of the Distribution Agreement. SECTION Gain Recognition Agreements. IMS HEALTH shall assume all of the Corporation's responsibilities with respect to gain recognition agreements pursuant to the D&B Tax Allocation Agreement. SECTION Indemnification. Indemnification by the Corporation. The Corporation shall indemnify, defend and hold harmless IMS HEALTH (and its affiliates) from and against any and all Tax liabilities allocated to the Corporation by this Agreement. 12 Indemnification by IMS HEALTH. IMS HEALTH shall indemnify, defend and hold harmless the Corporation (and its affiliates) from and against any and all Tax liabilities allocated to IMS HEALTH by this Agreement. Indemnity Payments. To the extent that one Party (the "Indemnifying Party") owes money to another Party (the "Indemnitee") pursuant to this Section 3.5, the Party (the "Notifying Party") having knowledge of such obligation shall notify the other Party and shall provide such other Party with its calculations of such obligation (as specified in Article II and Article III). The other Party, within 14 days after receiving the Notifying Party's calculations, shall submit to the Notifying Party such other Party's calculations of the amount required to be paid pursuant to this Section 3.5, showing such calculations in sufficient detail so as to permit the Notifying Party to understand the calculations. The Indemnifying Party shall pay the Indemnitee, no later than the later of 5 days prior to the due date (including extensions) of the relevant Tax Returns and 14 days after the Notifying Party receives the other Party's calculations, the amount for which the Indemnifying Party is required to pay or indemnify the Indemnitee under this Section 3.5. The Indemnifying Party shall have the right to disagree with the Indemnitee's calculations. Any dispute regarding such calculations shall be resolved in accordance with Section 5.4 of this Agreement. All indemnity payments shall be calculated on a pre-Tax basis and shall be treated as contributions to capital and/or reductions of assets previously contributed and/or dividends immediately prior to the Distribution. ARTICLE TAX ATTRIBUTES AND REORGANIZATION TAX PAYMENTS SECTION Carrybacks. In the event of the realization of any deduction, loss or credit by a Party for any taxable period beginning on or after the Distribution Date, the Party realizing such deduction, loss or credit may, in its sole discretion, and to the extent permitted under applicable Tax law, elect to either carry back or carry forward such deduction, loss or credit. Any refund attributable to such carryback shall be allocable to such Party. In the event both Parties elect to carry back an amount to the same taxable period beginning prior to the Distribution Date, any refund shall be apportioned between the Parties based on the relative carryback amounts. SECTION Reorganization Tax Payments, Deferred Compensation Deductions and Post-Distribution Expense Deductions. 13 If an audit or other examination of any federal, state or local Tax Return for any taxable period shall result (by settlement or otherwise) in a Deferred Compensation Deduction or Post-Distribution Expense Deduction in favor of the NMR Group or any member thereof or if any Reorganization Tax Payment is made by IMS HEALTH, then: If necessary, IMS HEALTH shall notify the Corporation and shall provide the Corporation with adequate information so that it can reflect on the appropriate Tax Returns any resulting increases in deductions, losses or Tax credits or decreases in income, gains or recapture of Tax credits; The Corporation shall pay IMS HEALTH the amount of any Tax Benefit that relates to any adjustments arising from or connected with such Reorganization Tax Payment or that results from such Deferred Compensation Deduction or Post-Distribution Expense Deduction within 30 days of the date such Tax Benefits are realized; Notwithstanding the foregoing, the Corporation shall only be required to take steps to obtain such Tax Benefit or to pay IMS HEALTH if, in the opinion of the Corporation's Tax counsel, which counsel shall be reasonably acceptable to IMS HEALTH, the reporting of such Tax Benefit shall not subject the Corporation to the imposition of a penalty unless IMS HEALTH agrees to indemnify the Corporation for such penalty. 14 If an audit or other examination of any federal, state or local Tax Return for any taxable period shall result (by settlement or otherwise) in a Deferred Compensation Deduction or Post-Distribution Expense Deduction in favor of the IMS HEALTH Group or any member thereof, then: If necessary, the Corporation shall notify IMS HEALTH and shall provide IMS HEALTH with adequate information so that it can reflect on the appropriate Tax Returns any resulting increases in deductions, losses or Tax credits or decreases in income, gains or recapture of Tax credits; IMS HEALTH shall pay the Corporation the amount of any Tax Benefit that results from such Deferred Compensation Deduction or Post-Distribution Expense Deduction within 30 days of the date such Tax Benefits are realized; Notwithstanding the foregoing, IMS HEALTH shall only be required to take steps to obtain such Tax Benefit or to pay the Corporation if, in the opinion of IMS HEALTH's Tax counsel, which counsel shall be reasonably acceptable to the Corporation, the reporting of such Tax Benefit shall not subject IMS HEALTH to the imposition of a penalty unless the Corporation agrees to indemnify IMS HEALTH for such penalty. Realization of Tax Benefits. For purposes of this Section 4.2, a Tax Benefit shall be deemed to have been realized at the time any refund of Taxes is received or applied against other Taxes due, or at the time of filing of a Tax Return (including any Tax Return relating to estimated Taxes) on which a loss, deduction or credit is applied in reduction of Taxes which would otherwise be payable; provided, however, that where a Party has other losses, deductions, credits or similar items available to it, such deductions, credits or similar items may be applied prior to the use of any adjustments relating to a Reorganization Tax Payment or any Deferred Compensation Deduction or Post-Distribution Expense Deduction. Either Party may, at its election, pay the amount of any Tax Benefit to the other Party rather than filing amended returns or otherwise reflecting adjustments or taking positions on its Tax Returns. If such an election is made, the Party will be treated as having realized a Tax Benefit at the time it would have realized a Tax Benefit had it chosen to file amended returns or otherwise to reflect adjustments or to take positions on its Tax Returns. 15 Tax Benefits Subsequently Denied. If any Tax Benefit realized pursuant to Section 4.2(b)(i) is subsequently denied, then IMS HEALTH or the Corporation, as the case may be, shall refund the amount of any payment for such Tax Benefit within 30 days of its notification by the other Party that a Final Determination has been reached denying the claimed Tax Benefit. SECTION Competent Authority Relief. If as a result of any audit of a taxable period beginning prior to the Distribution Date, a Party (or Subsidiary) is required to adjust its income, deductions, credits or allowances under Section 482 of the Code or under similar principles in a foreign jurisdiction, and the payment of additional Taxes in accordance with such a determination allows the other Party (or Subsidiary) to obtain competent authority relief as a result thereof, then the Party eligible to obtain such relief shall: execute or cause to be executed any powers of attorney or other documents necessary to enable the other Party to pursue such relief at its own expense; and cooperate with the other Party and the competent authorities in seeking such relief. ARTICLE TAX AUDITS, TRANSACTIONS AND OTHER MATTERS SECTION Tax Audits and Controversies. In the case of any audit, examination or other proceeding ("Proceeding") brought against a Party (or Subsidiary) with respect to Taxes for which the other Party is or may be liable pursuant to this Agreement, the Party subject to such Proceeding shall promptly inform such other Party and shall execute or cause to be executed any powers of attorney or other documents necessary to enable the other Party to take all actions desired with respect to such Proceeding to the extent such Proceeding may affect the amount of Taxes for which the other Party is liable pursuant to this Agreement. Each Party shall have the right to control, at its own expense, the portion of any such Proceeding that relates to Taxes for which such Party is or may be liable pursuant to this Agreement; provided, however, that such Party shall consult with the other Party with respect to any issue that may affect the other Party (or Subsidiary). The Party in control of such Proceeding or any part thereof shall not enter into any final settlement or closing agreement that may adversely affect the other Party (or Subsidiary) without the consent of such other Party, which consent may not unreasonably be withheld. Where consent to any final settlement or closing agreement is withheld, the Party withholding consent shall continue or initiate further proceedings, at its own expense, and the liability of the Party in control of such Proceeding shall not exceed the liability that would have resulted from the proposed closing agreement or final settlement (including interest, additions to Tax and penalties which have accrued at that time). 16 SECTION Cooperation. The Corporation and IMS HEALTH shall cooperate with each other in the filing of any Tax Returns and the conduct of any audit or other proceeding and each shall execute and deliver such powers of attorney and other documents and make available such information and documents as are necessary to carry out the intent of this Agreement. To the extent such cooperation involves the services of officers, directors, employees, or agents of a Party, such services shall be made available in accordance with Section 2.9 of the Distribution Agreement. Each Party agrees to notify the other Party of any audit adjustment that does not result in Tax liability but can reasonably be expected to affect Tax Returns of the other Party or any of its Subsidiaries. Notwithstanding any other provision of this Agreement, if a Party (the "Nonperforming Party") fails to give its full cooperation and use its best efforts in the conduct of an audit or other proceeding as provided by this Section 5.2, and such failure results in the imposition of additional Taxes for the period or periods involved in the audit or other proceeding, the Nonperforming Party shall be liable in full for such additional Taxes. SECTION Retention of Records; Access. Beginning on the Distribution Date, the Corporation and IMS HEALTH shall, and shall cause each of their Controlled Entities to: retain adequate records, documents, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns required to be filed by any member of the Pre-Distribution Cognizant Group or any combination of such members and for any audits and litigation relating to such Tax Returns or to any Taxes payable by any member of the Pre-Distribution Cognizant Group or any combination of such members; and give to the other Party reasonable access to such records, documents, accounting data and other information (including computer data) and to its personnel and premises, for the purpose of the review or audit of such reports or returns to the extent relevant to an obligation or liability of a Party under this Agreement and in accordance with the procedures provided in Article IV of the Distribution Agreement. The obligations set forth in these paragraphs 5.3(a) and 5.3(b) shall continue until the final conclusion of any litigation to which the records and information relate or until expiration of all applicable statutes of limitations, whichever is longer. 17 SECTION Dispute Resolution. Any dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, shall be resolved in the manner set forth in Article VI of the Distribution Agreement. SECTION Confidentiality; Ownership of Information; Privileged Information. The provisions of Article IV of the Distribution Agreement relating to confidentiality of information, ownership of information, privileged information and related matters shall apply with equal force to any records and information prepared and/or shared by and between the Parties in carrying out the intent of this Agreement. ARTICLE MISCELLANEOUS SECTION Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. SECTION Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Party. SECTION Survival of Agreements. Except as otherwise provided by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date. A. SECTION Expenses. Except as otherwise set forth in this Agreement, all costs and expenses in connection with the preparation, execution, delivery and required implementation of this Agreement shall be charged to and paid by the Parties in accordance with Section 8.5 of the Distribution Agreement. SECTION Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: 18 To the Corporation: Nielsen Media Research, Inc. 299 Park Avenue New York, NY 10171 Telecopy: Attn: Chief Legal Officer To IMS HEALTH: 200 Nyala Farms Westport, CT 06880 Telecopy: (203) 222-4313 Attn: General Counsel and Vice President - Taxes SECTION Waivers. The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party's right to demand strict performance thereafter of that or any other provision hereof. SECTION Amendments. This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties hereto. SECTION Assignment. This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party hereto without the prior written consent of the other Party hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. SECTION Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. SECTION Termination. This Agreement may be terminated, amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of the Corporation without the approval of IMS HEALTH or the stockholders of the Corporation. In the event of such termination, neither Party shall have any liability of any kind to the Party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the Parties. SECTION Controlled Entities. Each of the Parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Controlled Entity of such Party or by any entity that is 19 contemplated to be a Controlled Entity of such Party on and after the Distribution Date. SECTION Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties hereto and their respective Subsidiaries and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. B. SECTION Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION Exhibits and Schedules. The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. SECTION Consent to Jurisdiction. Without limiting the provisions of Section 5.4 hereof, each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 6.17. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 20 SECTION Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 21 IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written. COGNIZANT CORPORATION By: /s/ Robert E. Weissman ------------------------------ Name: Robert E. Weissman Title: Chairman and Chief Executive Officer IMS HEALTH INCORPORATED By:/s/ Victoria R. Fash ------------------------------ Name: Victoria R. Fash Title: President and Chief Operating Officer EX-10.3 5 EMPLOYEE BENEFITS AGREEMENT Exhibit 10.3 EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT is dated as of June 30, 1998 (the "Agreement"), between COGNIZANT CORPORATION, a Delaware corporation ("Corporation") and IMS HEALTH INCORPORATED, a Delaware corporation ("IMS Health"). WHEREAS, the Board of Directors of Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $.01 per share, of Corporation (the "Corporation Common Stock") to take certain steps to reorganize Corporation's Subsidiaries (as defined herein) and businesses and then to distribute to the holders of the Corporation Common Stock all the outstanding shares of common stock of IMS Health (the "IMS Health Common Stock"); and WHEREAS, Corporation and IMS Health have determined that it is necessary and desirable to allocate and assign responsibility for certain employee benefit matters in respect of such entities on and after the Effective Time (as defined herein). NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, Corporation and IMS Health agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used in this Agreement shall have the following meanings: "ACNielsen" shall mean ACNielsen Corporation, a Delaware corporation. "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency, body or commission or any arbitration tribunal. "Affiliate" shall mean, when used with respect to a specified person, another person that controls, is controlled by, or is under common control with the person specified. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other interests, by contract or otherwise. "Ancillary Agreements" shall mean all of the written agreements, instruments, assignments or other written arrangements (other than this Agreement and the Distribution Agreement) entered into in connection with the transactions 2 contemplated by this Agreement and the Distribution Agreement, including, without limitation, the Conveyancing and Assumption Instruments, the Shared Transaction Services Agreement, the Tax Allocation Agreement and the Transition Services Agreement. "Assets" shall have the meaning set forth in Section 1.1(f) of the Distribution Agreement. "Board of Directors" shall mean, when used with respect to a specified corporation, the board of directors of the corporation so specified. "Business Entity" shall mean any corporation, partnership, limited liability company or other entity which may legally hold title to Assets. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder, including any successor legislation. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, including any successor legislation. "Conveyancing and Assumption Instruments" shall mean, collectively, the various agreements, instruments and other documents heretofore entered into and to be entered into to effect the transfer of Assets and the assumption of Liabilities in the manner contemplated by the Distribution Agreement, or otherwise arising out of or relating to the transactions contemplated in the Distribution Agreement. "Cognizant" shall mean Cognizant Corporation, a Delaware corporation. "Corporate Staff Employees" shall mean Corporation Pre-Distribution Employees who performed administrative functions generally for the Corporation Group prior to the Effective Time and who were based at the Corporation headquarters in Westport, CT, aviation department in Purchase, NY or STS department in Allentown, PA. "Corporation" shall mean Cognizant Corporation, a Delaware corporation. "Corporation Committee" shall mean the Compensation and Benefits Committee of the Board of Directors of Corporation. "Corporation Common Stock" shall have the meaning set forth in the recitals hereto. 3 "Corporation Disabled Employees" shall mean all employees of the Corporation Group who are receiving benefits under the Corporation Long-Term Disability Plan as of the Effective Time, as in effect from time to time. "Corporation Employee Stock Purchase Plan" shall mean the 1997 Cognizant Corporation Employee Stock Purchase Plan, as in effect from time to time. "Corporation Executive Annual Incentive Plan" shall mean the Cognizant Corporation Executive Annual Incentive Plan, as in effect from time to time. "Corporation Group" shall mean Cognizant Corporation and each Business Entity that is a Subsidiary of Corporation, except that Corporation Group shall not include Walsh International Inc. or any of its Subsidiaries. "Corporation Long-Term Disability Plan" shall mean The Cognizant Long Term Disability Plan or any other long-term disability plan sponsored by Corporation or any Subsidiary of Corporation prior to the Effective Time. "Corporation LSARs" shall have the meaning set forth in Section 6.2 of this Agreement. "Corporation Nonqualified Plans" shall have the meaning as set forth in Section 4.1 of this Agreement. "Corporation Nonqualified Plan Participants" shall have the meaning set forth in Section 4.1. "Corporation Pension REP" shall mean the Cognizant Retirement Excess Plan, as in effect from time to time. "Corporation Post-Distribution Employees" shall mean persons who, immediately after the Effective Time, are employed by the Corporation Group (including persons who are absent from work by reason of layoff or leave of absence and inactive employees treated as such by agreement therewith) other than IMS Health Transitional Employees. "Corporation Pre-Distribution Employees" shall mean persons who, at any time prior to the Effective Time, were employed by the Corporation Group. "Corporation Ratio" shall have the meaning set forth in Section 6.1(a) of this Agreement. "Corporation Restricted Stock" shall have the meaning set forth in Section 6.3 of this Agreement. "Corporation Retirees" shall mean persons who (i) were Corporation Pre-Distribution Employees, (ii) terminated 4 employment from the Corporation Group prior to the Effective Time or, with respect to Corporate Staff Employees, terminated employment prior to or as a result of the Distribution, (iii) are not IMS Health Employees or IMS Health Transitional Employees after the Effective Time and (iv) would have been Corporation Post-Distribution Employees had they remained employed, after the Distribution, by the same employer from which they terminated employment or were Corporate Staff Employees; but shall not include any person on Schedule 1.1. "Corporation Retirement Plan" shall mean the Cognizant Retirement Plan, as in effect from time to time. "Corporation Savings BEP" shall mean the Cognizant Corporation Savings Benefit Equalization Plan, as in effect from time to time. "Corporation Savings Plan" shall mean the Cognizant Corporation Savings Plan, as in effect from time to time. "Corporation Stock Option" shall have the meaning set forth in Section 6.1 of this Agreement. "Corporation Stock Option Plans" shall mean the 1996 Key Employees' Stock Incentive Plan, the 1996 Replacement Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based Awards or any other stock option plan established by the Corporation prior to the Effective Time. "Corporation SERP" shall mean the Cognizant Corporation Supplemental Executive Retirement Plan, as in effect from time to time. "Corporation Transition Plans" shall mean The Cognizant Corporation Executive Transition Plan and The Cognizant Corporation Career Transition Plan. "D&B" shall mean The Dun & Bradstreet Corporation, a Delaware corporation. "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of Corporation Common Stock as of the Distribution Record Date of the IMS Health Common Stock owned by Corporation on the basis of one IMS Health Common Share for each outstanding share of Corporation Common Stock. "Distribution Agreement" shall mean the Distribution Agreement between Corporation and IMS Health, dated as of June 30, 1998. "Distribution Date" shall mean June 30, 1998. 5 "Distribution Record Date" shall mean such date as may be determined by Corporation's Board of Directors as the record date for the Distribution. "Effective Time" shall mean immediately prior to the midnight, New York time, ending the 24-hour period comprising June 30, 1998. "Employee Benefit Dispute" shall include any controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, including, without limitation, any claim based on contract, tort, statute or constitution. "Employee Benefit Litigation Liability" shall mean, with respect to a Business Entity, a Liability relating to a controversy, dispute or claim arising out of, in connection with or in relation to the interpretation, performance, nonperformance, validity or breach of an Employee Benefit Plan of such Business Entity or otherwise arising out of, or in any way related to such Employee Benefit Plan, including, without limitation, any claim based on contract, tort, statute or constitution. "Employee Benefit Plans" shall mean, with respect to a Business Entity, all "employee benefit plans" (within the meaning of Section 3(3) of ERISA), "multiemployer plans" (within the meaning of Section 3(37) of ERISA), retirement, pension, savings, profit-sharing, welfare, stock purchase, stock option, equity-based, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation, worker's compensation and all other employee benefit plans, agreements, programs, policies or other arrangements (including any funding mechanisms therefor), whether or not subject to ERISA, whether formal or informal, oral or written, legally binding or not, under which (i) any past, present or future employee of the Business Entity or its Subsidiaries has a right to benefits and (ii) the Business Entity or its Subsidiaries has any Liability. "Employee Benefit Records" shall mean all agreements, documents, books, records or files relating to the Employee Benefit Plans of Corporation and IMS Health. "Employee Benefit Welfare Plans" shall mean, with respect to a Business Entity, all Employee Benefit Plans that are "welfare plans" within the meaning of Section 3(1) of ERISA. "Employer Stock" shall mean, after the Distribution Date, IMS Health Common Stock credited to the account of an IMS Health Employee and Corporation Common Stock credited to the account of a Corporation Post-Distribution Employee in the pooled 6 stock fund of the respective savings plan in which such employee participates, pursuant to Section 3.4. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, including any successor legislation. "Final IMS Health Retirement Plan Transfer Date" shall have the meaning set forth in Section 2.2(d) of this Agreement. "IMS Health" shall mean IMS Health Incorporated, a Delaware corporation. "IMS Health Committee" shall mean the Compensation and Benefits Committee of the Board of Directors of IMS Health. "IMS Health Common Stock" shall have the meaning set forth in the recitals hereto. "IMS Health Disabled Employees" shall mean all employees of the IMS Health Group who are receiving benefits or are in the waiting period to receive benefits under the Corporation Long-Term Disability Plan immediately prior to the Effective Time. "IMS Health Employees" shall mean persons who, immediately after the Effective Time, are employed by the IMS Health Group (including persons who are absent from work by reason of layoff or leave of absence and inactive employees treated as such by agreement therewith). "IMS Health Employee Stock Purchase Plan" shall mean the Employee Stock Purchase Plan to be adopted by IMS Health pursuant to Section 6.5. "IMS Health Group" shall mean IMS Health and each Business Entity which is contemplated to remain or become a Subsidiary of IMS Health pursuant to the Distribution Agreement. "IMS Health Nonqualified Plans" shall mean the nonqualified plans to be adopted by IMS Health pursuant to Section 4.2. "IMS Health Nonqualified Plan Participants" shall have the meaning set forth in Section 4.2. "IMS Health Pension REP" shall mean the IMS Health Retirement Excess Plan to be adopted by IMS Health pursuant to Section 4.2. "IMS Health Ratio" shall have the meaning set forth in Section 6.1(b) of this Agreement. 7 "IMS Health Replacement Plans" shall mean the replacement plans to be adopted by IMS Health pursuant to Section 6.1(b) of this Agreement. "IMS Health Restricted Stock" shall have the meaning set forth in Section 6.3 of this Agreement. "IMS Health Retirees" shall mean persons who (i) were Corporation Pre-Distribution Employees, (ii) terminated employment from the IMS Health Group prior to the Effective Time (iii) are not Corporation Post-Distribution Employees after the Effective Time and (iv) would have been IMS Health Employees had they remained employed, after the Distribution, by the same employer from which they terminated employment but shall not include Corporate Staff Employees included in the definition of Corporation Retirees; and shall include any person on Schedule 1.1. "IMS Health Retirement Plan" shall mean the defined benefit plan to be adopted by IMS Health pursuant to Section 2.2(a) of this Agreement. "IMS Health Retirement Plan Effective Date" shall have the meaning set forth in Section 2.2(a) of this Agreement. "IMS Health Retirement Plan Segregation Ratio" shall equal a fraction, the numerator of which is the Present Value of the accrued vested and nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the IMS Health Transferred Retirement Plan Employees under the Corporation Retirement Plan at the Effective Time, and the denominator of which is the Present Value of the accrued vested and nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the Corporation Pre-Distribution Employees under the Corporation Retirement Plan at the Effective Time. "IMS Health Savings BEP" shall mean the IMS Health Savings Benefit Equalization Plan to be adopted by IMS Health pursuant to Section 4.2. "IMS Health Savings Plan" shall mean the defined contribution plan to be adopted by IMS Health pursuant to Section 3.2(a) of this Agreement. "IMS Health Savings Plan Transfer Date" shall have the meaning set forth in Section 3.2(b) of this Agreement. "IMS Health SERP" shall mean the IMS Health Supplemental Executive Retirement Plan to be adopted by IMS Health pursuant to Section 4.2. "IMS Health Transferred Retirement Plan Employees" shall have the meaning set forth in Section 2.2(a) of this Agreement. 8 "IMS Health Transferred Savings Plan Employees" shall have the meaning set forth in Section 3.2(a) of this Agreement. "IMS Health Transitional Employees" shall mean Corporate Staff Employees who are under an agreement to remain employed by the Corporation after the Effective Time for a fixed period of time either to perform services in connection with the Distribution or to perform services primarily for the IMS Health Group. "Information Statement" shall mean the Information Statement sent to the holders of shares of Corporation Common Stock in connection with the Distribution, including any amendment or supplement thereto. "Initial IMS Health Retirement Plan Transfer Date" shall have the meaning set forth in Section 2.2(a) of this Agreement. "Initial Transferred Assets" shall have the meaning set forth in Section 2.2(b) of this Agreement. "Liabilities" shall mean any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any governmental or other regulatory or administrative agency, body or commission or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, the Distribution Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person. "Nonemployer Stock" shall mean, after the Distribution Date, IMS Health Common Stock credited to the account of a Corporation Post-Distribution Employee and Corporation Common Stock credited to an account of an IMS Health Employee in the 9 pooled stock fund of the respective savings plan in which such employee participates, pursuant to Section 3.4. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor entity thereto. "PBGC Assumptions" shall mean the actuarial assumptions set forth in 29 C.F.R. Part 2619, et seq. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Present Value" shall mean the single sum value of a series of future payments, determined utilizing PBGC Assumptions in effect as of the measurement date. "Service" shall mean the Internal Revenue Service or any successor entity thereto. "Shared Transaction Services Agreements" shall mean the Shared Transaction Services Agreements between Corporation and IMS Health. "Subsidiary" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). "Tax Allocation Agreement" shall mean the Tax Allocation Agreement between Corporation and IMS Health. "Transition Services Agreement" shall mean the Amended and Restated Transition Services Agreement among Corporation, IMS Health, ACNielsen, D&B and R.H. Donnelley Corporation. "Walsh" shall mean Walsh International Inc., a Delaware corporation. "Walsh Optionees" shall mean individuals whose options to purchase the common stock of Walsh were converted into options to purchase Corporation Common Stock (other than those individuals who are IMS Health Employees). 10 ARTICLE II CORPORATION RETIREMENT PLAN SECTION 2.1. Corporation Retirement Plan. From and after the Effective Time, Corporation shall continue to sponsor the Corporation Retirement Plan. Active participation of IMS Health Transferred Retirement Plan Employees in the Corporation Retirement Plan shall cease immediately after the Effective Time. Nothing contained in this Article II shall have the effect of accelerating the degree to which any individual has a vested interest in or eligibility for the Corporation Retirement Plan or the IMS Health Retirement Plan. SECTION 2.2. IMS Health Retirement Plan. (a) As of the Effective Time, (herein referred to as the "IMS Health Retirement Plan Effective Date"), IMS Health shall establish the IMS Health Retirement Plan for the benefit of IMS Health Employees, IMS Disabled Employees, IMS Health Retirees and IMS Health Transitional Employees who were participants in the Corporation Retirement Plan immediately prior to the Effective Time (the "IMS Health Transferred Retirement Plan Employees"). On the first business day after the Effective Time (the "Initial IMS Health Retirement Plan Transfer Date"), Corporation shall cause the trustee of the Corporation Retirement Plan to segregate, based on a good faith estimate made in accordance with the spinoff provisions set forth under Section 414(l) of the Code, the assets of the Corporation Retirement Plan allocable to IMS Health Transferred Retirement Plan Employees in an amount equal to the sum of (i) and (ii), as follows: (i) the amount allocable to IMS Health Transferred Retirement Plan Employees under ERISA Section 4044 as of the Effective Time, determined using PBGC Assumptions; and (ii) the excess (if any) of the fair market value of assets of the Corporation Retirement Plan over the Present Value of the vested and nonvested benefits accrued thereunder for all the Corporation Pre-Distribution Employees as of the Effective Time, multiplied by the IMS Health Retirement Plan Segregation Ratio. (b) On the Initial IMS Health Retirement Plan Transfer Date, 90% of the segregated assets determined under Section 2.2(a) of this Agreement (the "Initial Transferred Assets") shall be transferred to a separate trust established under the IMS Health Retirement Plan. (c) From the Effective Time until the Final IMS Health Retirement Transfer Date (as defined below), the remaining 10% of the segregated assets determined under Section 2.2(a) of this Agreement shall be invested by the trustee of the Corporation Retirement Plan with the same investment managers and in the same 11 proportions as such assets were invested immediately prior to the Effective Time, which are set forth in Schedule 2.2 hereof. (d) As soon as practicable after the Effective Time, the remaining assets allocable to the IMS Health Transferred Retirement Plan Employees shall be transferred to a separate trust established under the IMS Health Retirement Plan (such date herein referred to as the "Final IMS Health Retirement Plan Transfer Date"); provided, however, that in no event shall such transfer take place until Corporation shall make all required amendments to the Corporation Retirement Plan and related trust agreement necessary to provide for the segregation and transfer of assets described in this Section 2.2. The value of such assets to be transferred shall equal the value of segregated assets determined based on same methodology as in Section 2.2(a) of this Agreement, reduced by an amount equal to the Initial Transferred Assets, adjusted as follows: (i) reduced by the amount of benefit payments made under the Corporation Retirement Plan with respect to IMS Health Transferred Retirement Plan Employees from the Effective Time to the Final IMS Health Retirement Plan Transfer Date; and (ii) increased (or decreased) by the share of the net investment income (or loss) and expenses incurred or for which invoices are submitted after the Effective Time to the IMS Health Retirement Plan Transfer Date attributable to the value of such segregated assets. (e) Unless otherwise agreed to by Corporation and IMS Health, the form of the assets to be transferred shall consist of an undivided percentage interest in each asset that is held by the Corporation Retirement Plan on the IMS Health Retirement Plan Transfer Date, such undivided percentage interest being equal to the value of assets allocable to the IMS Health Transferred Retirement Plan Employees, divided by the fair market value of plan assets. (f) If the amount of the Initial Transferred Assets exceeds the value of the assets to be transferred as determined under Section 2.2(d) of this Agreement, such excess amount shall promptly be transferred from the IMS Health Retirement Plan trust to the Corporation Retirement Plan trust. SECTION 2.3. Allocation of Liabilities. The IMS Health Group shall assume all Liabilities relating to the participation of IMS Health Transferred Retirement Plan Employees in the Corporation Retirement Plan. The Corporation Group shall retain all other Liabilities relating to the Corporation Retirement Plan. 12 ARTICLE III CORPORATION SAVINGS PLAN SECTION 3.1. Corporation Savings Plan. From and after the Effective Time, Corporation shall continue to sponsor the Corporation Savings Plan. Active participation of IMS Health Transferred Savings Plan Employees in the Corporation Savings Plan shall cease immediately after the Effective Time. Nothing contained in this Article III shall have the effect of accelerating the degree to which any individual has a vested interest in the Corporation Savings Plan or the IMS Health Savings Plan. SECTION 3.2. IMS Health Savings Plan. (a) As of the Effective Time, IMS Health shall adopt the IMS Health Savings Plan for the benefit of IMS Health Employees, IMS Health Disabled Employees, IMS Health Transitional Employees and IMS Health Retirees who were participants in the Corporation Savings Plan immediately prior to the Effective Time (the "IMS Health Transferred Savings Plan Employees"). (b) Prior to the date on which the transfer of assets and liabilities to the IMS Health Savings Plan shall occur (the "IMS Health Savings Plan Transfer Date"), which date shall occur as promptly as practicable following the Effective Time, Corporation shall (A) cause the trustee of the Corporation Savings Plan to segregate, in accordance with the spinoff provisions set forth under Section 414(l) of the Code, the assets of the Corporation Savings Plan representing the full account balances of IMS Health Transferred Savings Plan Employees for all periods of participation through the Effective Time (including, as applicable, all contributions and all earnings attributable thereto); (B) make all required filings and submissions to the appropriate governmental agencies; and (C) make all required amendments to the Corporation Savings Plan and related trust agreement necessary to provide for the segregation and transfer of assets described in this Section 3.2. (c) On the IMS Health Savings Plan Transfer Date, IMS Health shall cause the trustee of the Corporation Savings Plan to transfer to the trustee of the IMS Health Savings Plan the full account balances (inclusive of loans) of IMS Health Transferred Savings Plan Employees in kind based on those investment funds in which such account balances are then invested (including, but not limited to, the pooled stock fund described in Section 3.4); provided, however, that loans to IMS Health Transferred Savings Plan Employees shall be transferred in the form of notes. In consideration of the segregation and transfer of assets described herein, the IMS Health Savings Plan shall, as of the IMS Health Savings Plan Transfer Date, assume all Liabilities attributable to such assets, whether incurred prior to or after the Effective Time. If the account balances of the IMS Health Transferred Savings Plan that are transferred on the IMS Health Savings Plan Transfer Date are thereafter determined to have been incorrect, 13 the parties agree to make appropriate payments or asset transfers to correct such error (appropriately adjusted for subsequent investment experience and expenses incurred). SECTION 3.3. Outstanding Loans. During their employment with Corporation, IMS Health Transferred Savings Plan Employees who have outstanding loans originally made from the Corporation Savings Plan shall be permitted to repay such loans by way of regular deductions from their paychecks, and, prior to the IMS Health Savings Plan Transfer Date, Corporation or IMS Health (as the case may be) shall cause all such deductions to be forwarded to the Corporation Savings Plan as promptly as practicable. SECTION 3.4. Employer Stock Fund. (a) Participants in the Corporation Savings Plan who, immediately prior to the Effective Time, have balances in the Corporation Common Stock fund shall have such balances converted, as of the Effective Time, to the extent applicable, to units in a pooled stock fund consisting of Corporation Common Stock and IMS Health Common Stock. The initial ratio of stock in the pooled stock fund shall be one share of Corporation Common Stock to one share of IMS Health Common Stock. The percentage interest of each participant in the pooled stock fund as of the Effective Time shall equal such participant's percentage interest in the Corporation Common Stock fund immediately prior to the Effective Time. The IMS Health Savings Plan shall maintain a pooled stock fund, to which the pooled stock fund assets of IMS Health Transferred Savings Plan Employees in the Corporation Savings Plan shall be transferred on the IMS Health Savings Plan Transfer Date. Notwithstanding the foregoing, the Corporation Savings Plan shall transfer the units of Corporation Common Stock from the pooled stock fund into the Corporation Common Stock fund and the IMS Health Savings Plan shall transfer the units of IMS Health Common Stock from the pooled stock fund into the IMS Health Common Stock fund. (b) Within nine months after the Distribution Date, each participant shall liquidate his or her units of Nonemployer Stock in the pooled stock fund and invest the proceeds thereof in any other investment option available under the applicable plan. If the participant does not liquidate such units, such units shall be liquidated and invested in a fixed income investment option available under the applicable plan. (c) A participant may not acquire additional units in the pooled stock fund from or after the Effective Time. SECTION 3.5. Allocation of Liabilities. The IMS Health Group shall assume all Liabilities relating to the participation of IMS Health Transferred Savings Plan Employees in the Corporation Savings Plan. The Corporation Group shall retain all other Liabilities relating to the Corporation Savings Plan. 14 ARTICLE IV NONQUALIFIED PLANS SECTION 4.1. Corporation Nonqualified Plans. From and after the Effective Time, Corporation shall continue to sponsor the Corporation SERP, the Corporation Pension REP and the Corporation Savings BEP (collectively, the "Corporation Nonqualified Plans") for the benefit of Corporation Post-Distribution Employees and Corporation Retirees who, prior to the Effective Time, were participants thereunder ("Corporation Nonqualified Plan Participants"). SECTION 4.2. IMS Health Nonqualified Plans. As of the Effective Time, IMS Health shall (i) adopt the IMS Health SERP, the IMS Health Pension REP and the IMS Health Savings BEP (collectively, the "IMS Health Nonqualified Plans") for the benefit of IMS Health Employees and IMS Health Retirees who were participants in the Corporation Nonqualified Plans immediately prior to the Effective Time ("IMS Health Nonqualified Plan Participants") and (ii) assume the Liabilities for benefits under the Corporation Nonqualified Plans with respect to such employees. SECTION 4.3. Joint and Several Liability. Corporation and IMS Health acknowledge joint and several liability under the Employee Benefits Agreement dated as of October 28, 1996 among D&B, Corporation and ACNielsen with respect to certain nonqualified plans maintained by D&B prior to such date. To the extent such joint and several liability is imposed on Corporation in respect of a liability assumed by IMS Health under this Agreement, Corporation shall be entitled to contribution from IMS Health for the amount of such liability imposed. To the extent joint and several liability is imposed on IMS Health in respect of a liability assumed by Corporation under this Agreement, IMS Health shall be entitled to contribution from Corporation for the amount of such liability imposed. SECTION 4.4. Third-Party Beneficiaries. It is the intention of the parties to this Agreement that the provisions of Section 4.3 shall be enforceable by (a) Corporation and IMS Health Nonqualified Plan Participants and (b) their respective surviving beneficiaries. 15 ARTICLE V WELFARE PLANS SECTION 5.1. Employee Benefit Welfare Plans. Prior to the Effective Time, the Corporation shall continue to sponsor its Employee Benefit Welfare Plans for the benefit of Corporation Pre-Distribution Employees. Except as provided in Section 5.4 and Section 5.5 below, from and after the Effective Time, Corporation shall sponsor its Employee Benefit Welfare Plans solely for the benefit of Corporation Post-Distribution Employees, Corporation Disabled Employees and Corporation Retirees. From and after Effective Time, IMS Health shall sponsor its Employee Benefit Welfare Plans solely for the benefit of IMS Health Employees, IMS Health Retirees and IMS Health Disabled Employees. Notwithstanding the foregoing, neither Corporation nor IMS Health shall have any obligation to sponsor any Employee Benefit Welfare Plan from or after Effective Time. SECTION 5.2. Dollar Limits. With respect to any medical and dental plan that may be sponsored by IMS Health after the Effective Time, IMS Health shall give effect, in determining any deductible, maximum out-of-pocket limitations and annual plan maximums, to claims incurred during 1998 prior to the Effective Time by IMS Health Employees, IMS Health Retirees and IMS Health Disabled Employees under similar plans maintained by Corporation (or any Affiliate thereof) for their benefit immediately prior to the Effective Time. SECTION 5.3. Severance Plans. The Corporation Group shall retain all Liabilities with respect to severance payments made or to be made to Corporation Retirees including any liabilities for severance payments under the Corporation Transition Plans. The IMS Health Group shall retain all Liabilities with respect to severance payments made or to be made to IMS Health Retirees including any liabilities for severance payments under the Corporation Transition Plans. For purposes of this Section 5.3, the term "severance payments" shall include any welfare benefit coverage provided under severance plans. SECTION 5.4. Flexible Spending Accounts. From the Effective Time until December 31, 1998, Corporation shall continue to sponsor its flexible spending accounts for all Corporation Pre-Distribution Employees; provided, however, that IMS Health shall cause all deductions from participant paychecks to be forwarded to Corporation within two business days thereafter; provided, further, that IMS Health shall reimburse Corporation for the administrative costs incurred with respect to IMS Health Employees. All unused funds remaining in the flexible spending accounts of IMS Health Employees after April 30, 1999 shall be paid to IMS Health. SECTION 5.5. Allocation of Liabilities. (a) The IMS Health Group shall retain responsibility for and continue to pay all claims relating to the Corporation self-insured Medical and 16 Dental Plans with respect to claims incurred prior to the Effective Time, but which are paid after the Effective Time, by IMS Health Employees, IMS Health Disabled Employees, IMS Health COBRA participants, IMS Health Transitional Employees and IMS Health Retirees as well as their covered dependents. Any claims relating to the Corporation self-insured Medical and Dental Plans with respect to claims incurred prior to the Effective Time, but which are paid after the Effective Time, by Corporation Pre-Distribution Employees who are not IMS Health Employees will remain the responsibility of The Corporation Group. (b) The Corporation Group shall retain responsibility for and continue to pay all premiums, expenses and benefits relating to the Corporation Employee Welfare Plans with respect to claims incurred (for self-insured plans) or premiums due (for insured plans) from and after the Effective Time by Corporation Post-Distribution Employees, Corporation Disabled Employees, Corporation COBRA participants and Corporation Retirees as well as their covered dependents. (c) The IMS Health Group shall retain responsibility for and continue to pay all premiums, expenses and benefits relating to the Employee Welfare Plans with respect to claims incurred (for self-insured plans) or premiums due (for insured plans) from and after the Effective Time by IMS Health Employees, IMS Health Disabled Employees, IMS Health COBRA participants, IMS Health Transitional Employees and IMS Health Retirees as well as their covered dependents. (d) For the purposes of this Section 5.5, a claim is deemed incurred when the services that are the subject of the claim are performed; in the case of life insurance, when the death occurs; in the case of long-term disability, when the disability occurs; and, in the case of a hospital stay, when the employee first enters the hospital. Notwithstanding the foregoing, claims incurred by any employee of a pre-Distribution Subsidiary of Corporation or their covered dependents under any welfare plan maintained by such Subsidiary solely for the benefit of its employees and their dependents shall, whether incurred prior to, on or after the Effective Time, be the sole responsibility and liability of that Subsidiary. (e) The Corporation Group shall be responsible for all COBRA coverage for any Corporation Retiree and his or her covered dependents who participated in a Corporation Employee Benefit Welfare Plan and who had or have a loss of health care coverage due to a qualifying event occurring prior to the Effective Time. The IMS Health Group shall be responsible for all COBRA coverage for any IMS Health Retiree and his or her covered dependents who participated in a Corporation Employee Benefit Welfare Plan and who had or have a loss of health care coverage due to a qualifying event occurring prior to the Effective Time. Notwithstanding the foregoing, a pre-Distribution Subsidiary of Corporation shall be responsible for all COBRA coverage for its 17 former employees and covered dependents who participated in a plan maintained solely for their benefit whether the applicable event occurs prior to, on or after the Effective Time. COBRA coverage to which a Corporation Post-Distribution Employee is entitled as a result of a qualifying event occurring at or after the Effective Time shall be the responsibility of the Corporation Group. SECTION 5.6. Allocation of the Corporation's Self-Insured Medical and Dental Plans Reserve for Claims Incurred But Not Yet Reported (IBNR). The IBNR reserve of which is estimated to be approximately $2.5 million as of June 30, 1998 will be allocated 61.9% to the Corporation Group and 38.1% to IMS Health. SECTION 5.7. Retiree Welfare Plans. The Corporation Group shall be responsible for providing retiree welfare benefits, where applicable, to Corporation Retirees and Corporation Post-Distribution Employees. The IMS Health Group shall be responsible for providing retiree welfare benefits, where applicable, to IMS Health Retirees and IMS Health Employees. ARTICLE VI EQUITY-BASED PLANS SECTION 6.1. Corporation Stock Options. Stock options awarded under the Corporation Stock Option Plans ("Corporation Stock Options") shall be treated as follows: (a) Corporation Post-Distribution Employees; and Corporation Disabled Employees. From and after the Effective Time, each unexercised Corporation Stock Option held by Corporation Post-Distribution Employees, Corporation Disabled Employees and the specified options held by the persons listed on Schedule 6.1 shall remain outstanding pursuant to the terms of the award agreements and the Corporation Stock Option Plans; provided, however, that from and after such time, each unexercised Corporation Stock Option shall be adjusted as follows: (i) the number of shares of Corporation Common Stock covered by the adjusted stock option shall be determined by (A) multiplying the number of shares of Corporation Common Stock covered by the Corporation Stock Option by a fraction, the numerator of which equals the average of high and low trading prices of a share of Corporation Common Stock for the five trading days immediately preceding the ex-dividend date, and the denominator of which equals the average of high and low trading prices of a share of Corporation Common Stock for the five trading days starting on the ex-dividend trading Date ("Corporation Ratio") and (B) rounding down the result to a whole number of shares and (ii) the exercise price of the adjusted stock option shall equal the original exercise price divided by the Corporation Ratio. 18 (b) IMS Health Employees; IMS Health Transitional Employees; IMS Health Disabled Employees; and Walsh Optionees. As of the Effective Time, (i) each unexercised Corporation Stock Option held by IMS Health Employees, IMS Health Transitional Employees, IMS Health Disabled Employees and Walsh Optionees shall be cancelled except as provided in Schedule 6.1 and (ii) such individuals shall except as provided in Schedule 6.1 receive replacement stock options awarded under the IMS Health Replacement Plans, which shall be adopted by IMS Health prior to the Effective Time. The number of shares of IMS Health Common Stock covered by each replacement stock option shall be determined by (i) multiplying the number of shares of Corporation Common Stock covered by the cancelled Corporation Stock Option by a fraction, the numerator of which equals the average of high and low trading prices of a share of Corporation Common Stock for the five trading days immediately preceding the ex-dividend date, and the denominator of which equals the average of high and low trading prices of an IMS Health Common Share for the five trading days starting on the regular way trading date ("IMS Health Ratio") and (ii) rounding down the result to a whole number of shares. The exercise price of each replacement stock option shall be determined by dividing the exercise price of the cancelled Corporation Stock Option by the IMS Health ratio. Except as otherwise provided in the IMS Health Replacement Plans, all other terms of the replacement stock options shall remain substantially identical to the terms of the cancelled Corporation Stock Options. (c) IMS Health Retirees; and Corporation Retirees. As of the Effective Time, (i) each unexercised Corporation Stock Option held by IMS Health Retirees and Corporation Retirees shall be adjusted in substantially the same manner as employees of the Corporation Group and (ii) IMS Health may offer to such IMS Health Retirees and Corporation Retirees, and the IMS Health Committee may determine, alternative adjustments or substitutions, provided such Retirees agree to surrender their adjusted Corporation Stock Options. SECTION 6.2. Corporation LSARs. All limited stock appreciation rights awarded under the Corporation Stock Option Plans ("Corporation LSARs") shall be adjusted or substituted (as the case may be) in substantially the same manner as the Corporation Stock Options described in Section 6.1 above. SECTION 6.3. Restricted Stock Plan. Restricted stock awarded under the Corporation Stock Option Plans ("Corporation Restricted Stock") and restricted stock received as a result of the Distribution ("IMS Health Restricted Stock") shall be treated as follows: (a) Corporation Post-Distribution Employees. As of Effective Time, IMS Health Restricted Stock credited to Corporation Post-Distribution Employees shall be adjusted pursuant to the Corporation Stock Option Plans and each such 19 individual shall receive a number of additional shares of Corporation Restricted Stock, determined by multiplying the number of shares of forfeited IMS Health Restricted Stock by the Corporation Ratio and the reciprocal of the IMS Health Ratio, having the same terms as the Corporation Restricted Stock from which they arose. (b) IMS Health Employees. As of the Effective Time, Corporation Restricted Stock and IMS Health Restricted Stock credited to IMS Health Employees and IMS Health Transitional Employees shall be forfeited and such individuals shall receive replacement IMS Health Restricted Stock equal to (i) the number of shares of forfeited IMS Health Restricted Stock plus (ii) the number of shares of forfeited Corporation Restricted Stock multiplied by the IMS Health Ratio and the reciprocal of the Corporation Ratio, such replacement shares of IMS Health Restricted Stock to have the same terms as the Corporation Restricted Stock from which they arose. SECTION 6.4. Executive Annual Incentive Plan. Outstanding awards under the Corporation Executive Annual Incentive Plan shall be treated as determined by the Corporation and IMS Health, respectively. SECTION 6.5. Corporation Employee Stock Purchase Plan. (a) From and after the Effective Time, Corporation shall continue to sponsor the Corporation Employee Stock Purchase Plan. (b) As of the Effective Time, IMS Health shall adopt the IMS Health Employee Stock Purchase Plan for the benefit of IMS Health Employees. SECTION 6.6. Allocation of Liabilities. The IMS Health Group shall assume all Liabilities with respect to awards granted to IMS Health Employees, IMS Health Retirees, Corporation Retirees and IMS Health Disabled Employees pursuant to the IMS Health Replacement Option Plan. The Corporation Group shall retain all other Liabilities with respect to awards granted pursuant to the Corporation Stock Option Plans (including, but not limited to, awards granted to Corporation Post-Distribution Employees). ARTICLE VII FOREIGN EMPLOYEE BENEFIT PLANS SECTION 7.1. Foreign Plans. Except as set forth in Schedule 7.1, Corporation and IMS Health shall continue to sponsor and retain liability for any Employee Benefits Plans maintained outside the United States with respect to their respective employees. ARTICLE VIII 20 OTHER EMPLOYEE BENEFIT ISSUES SECTION 8.1. Employee Benefit Litigation Liabilities. Except as otherwise expressly provided in this agreement, the IMS Health Group shall assume all Employee Benefit Litigation Liabilities that are asserted by Corporation Pre-Distribution Employees who were employees of the IMS Health Group or Corporate Staff Employees and the Corporation Group shall assume all Employee Benefit Litigation Liabilities that are asserted by all other Corporation Pre-Distribution Employees. SECTION 8.2. Indemnification. To the extent that any claim or litigation is asserted against Corporation by a Corporation Retiree who was a Corporate Staff Employee prior to the Distribution, Corporation shall be entitled to indemnification from IMS Health for the amount of any liability imposed. SECTION 8.3. Workers' Compensation. The Corporation Group shall retain all Liabilities relating to workers' compensation claims that were incurred (a) prior to the Effective Time with respect to Corporation Pre-Distribution Employees who were employed by the Corporation Group (not including the IMS Health Group) and Corporate Staff Employees allocated to Corporation as a result of the Distribution and (b) on and after the Effective Time with respect to Corporation Post-Distribution Employees. The IMS Health Group shall retain all Liabilities relating to workers' compensation claims that were incurred (a) prior to the Effective Time with respect to Corporation Pre-Distribution Employees who were employed by the IMS Health Group and Corporate Staff Employees allocated to IMS Health as a result of the Distribution and (b) on and after the Effective Time with respect to IMS Health Employees. For purposes of this paragraph, a claim is deemed incurred when the injury that is the subject of the claim occurs. SECTION 8.4. Cash Funding. Sufficient cash shall be left with Corporation upon the Distribution, based on a good faith estimate, to fund all severance (and related benefits) Liabilities of Corporate Staff Employees retained by Corporation Group pursuant to Section 5.3(a) hereof as well as the unfunded amounts payable by Corporation to Corporation Retirees hereunder who were Corporate Staff Employees (including the actuarially determined value of payments under non-qualified plans pursuant to Section 4.1 hereof and the value of retiree welfare benefits pursuant to Section 5.7 hereof). Such cash amount shall include amounts sufficient to fund all such payments as well as any related tax, social security and similar government-mandated payments and employee plan contributions, (i) without giving effect to any present-value calculation and (ii) with respect to severance (and related benefits) liabilities, net of tax benefits calculated at a 40% rate. If the estimated cash amounts result in an excess or deficit over or under the amounts actually expended by Corporation for such items, appropriate payments will 21 be made between the parties to eliminate any such excess or deficit no later than December 31, 1998. ARTICLE IX BENEFIT PLAN PARTICIPATION SECTION 9.1. Corporation Plans. Except as specifically provided herein, all IMS Health Employees shall cease participation in all Corporation Employee Benefit Plans as of the Effective Time. SECTION 9.2. IMS Health Plans. Except as provided in Section 5.7 herein, (a) with respect to any newly created Employee Benefit Plan sponsored by the IMS Health Group after the Effective Time, the IMS Health Group shall cause to be recognized (to the extent applicable) each IMS Health Employee's (i) past service with the Corporation Group to the extent recognized under similar plans maintained by the Corporation Group immediately prior to the Effective Time and (ii) accrued but unused vacation time and sick days, and (b) any IMS Health Employee who participated in a Corporation Employee Benefit Plan immediately prior to the Effective Time shall be entitled to immediate participation in a similar newly created Employee Benefit Plan sponsored by the IMS Health Group. SECTION 9.3. Subsequent Employer. Except as provided in Section 5.6 herein, if, during the one-year period following the Effective Time, a Corporation Post-Distribution Employee or a IMS Health Employee terminates employment with his or her employer and then immediately commences employment with the Corporation Group or the IMS Health Group, the subsequent employer shall cause to be recognized (to the extent applicable) such employee's past service with the Corporation Group or the IMS Health Group to the extent recognized under similar plans maintained by the prior employer. Notwithstanding the foregoing, no past service shall be recognized with respect to pension accruals under the defined benefit plans of the subsequent employer. SECTION 9.4. Right to Amend or Terminate. Except as specifically provided herein, nothing in this Agreement shall be construed or interpreted to restrict the Corporation Group's or the IMS Health Group's right or authority to amend or terminate any of their Employee Benefit Plans following the Effective Time. 22 ARTICLE X ACCESS TO INFORMATION SECTION 10.1. Access to Information. Article IV of the Distribution Agreement shall govern the rights of the Corporation Group and the IMS Health Group with respect to access to information. The term "Records" in that Article shall be read to include all Employee Benefit Records. ARTICLE XI INDEMNIFICATION SECTION 11.1. Indemnification. Article III of the Distribution Agreement shall govern the rights of the Corporation Group and the IMS Health Group with respect to indemnification. The term "Corporation Liabilities" in that Article shall be read to include all Liabilities assumed or retained by the Corporation Group pursuant to this Agreement. The term "IMS Health Liabilities" in that Article shall be read to include all Liabilities assumed or retained by the IMS Health Group pursuant to this Agreement. ARTICLE XII DISPUTE RESOLUTION SECTION 12.1. Dispute Resolution. Article VI of the Distribution Agreement shall govern the rights of the Corporation Group and the IMS Health Group with respect to dispute resolution. The term "Agreement Dispute" in that Article shall be read to include all Employee Benefit Disputes. ARTICLE XIII MISCELLANEOUS SECTION 13.1. Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules (if any), and the Distribution Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. Other than Sections 2.7 and 4.5 and Article VI of the Distribution Agreement, which shall prevail over any inconsistent or conflicting provisions in this Agreement, notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement, this Agreement shall control. 23 SECTION 13.2. Ancillary Agreements. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements. SECTION 13.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. SECTION 13.4. Survival of Agreements. Except as otherwise contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. SECTION 13.5. Expenses. Except as otherwise set forth in this Agreement, the Distribution Agreement or any Ancillary Agreement, all costs and expenses incurred and for which invoices have been submitted on or prior to the Effective Time (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and implementation of this Agreement, the Distribution Agreement, any Ancillary Agreement, the Information Statement (including any registration statement on Form 10 of which such Information Statement may be a part) and the Distribution and the consummation of the transactions contemplated thereby, as well as all administrative costs, fees or expenses relating to any Employee Benefit Plan, shall be charged to and paid by Corporation, provided that, if such expenses are not paid by Corporation prior to the Effective Time, they shall be charged to and paid by IMS Health. Except as otherwise set forth in this Agreement, the Distribution Agreement or any Ancillary Agreement, all such costs, fees and expenses incurred or for which invoices are submitted after the Effective Time shall be charged to and paid by IMS Health. Any amount or expense to be paid or reimbursed by any party hereto to any other party hereto shall be so paid or reimbursed promptly after the existence and amount of such obligation is determined and demand therefor is paid. SECTION 13.6. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: 24 To Nielsen Media Research, Inc.: 299 Park Avenue New York, NY 10171 Telecopy: (212) 708-6927 Attn: Chief Legal Officer To IMS Health Incorporated: 200 Nyala Farms Westport, CT 06880 Telecopy: (203) 222-4313 Attn: General Counsel SECTION 13.7. Waivers. The failure of any party to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. SECTION 13.8. Amendments. Subject to the terms of Section 13.11 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. SECTION 13.9. Assignment. This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other parties hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. SECTION 13.10. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. SECTION 13.11. Termination. This Agreement (including, without limitation, Section 4.4 and Article XI hereof) may be terminated and may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of Corporation without the approval of the shareholders of Corporation. In the event of such termination, no party shall have any liability of any kind to any other party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the parties; provided, however, that Section 4.4 and Article XI shall not be terminated or amended after the Distribution in respect of the third party beneficiaries thereto without the consent of such persons. SECTION 13.12. Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth 25 herein to be performed by any Subsidiary of such party or by any entity that is contemplated to be a Subsidiary of such party on and after the Distribution Date. SECTION 13.13. Third Party Beneficiaries. Except as provided in Section 4.4 and Article XI, this Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 13.14. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 13.15. Exhibits and Schedules. The Exhibits and Schedules, if any, shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 13.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. 26 SECTION 13.17. Consent to Jurisdiction. Without limiting the provisions of Article XII hereof, each of the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 13.17. Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 13.18. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 13.19. Governmental Notices; Cooperation. Notwithstanding anything in this Agreement to the contrary, all actions contemplated herein with respect to Employee Benefit Plans which are to be consummated pursuant to this Agreement shall be subject to such notices to, and/or approvals by, the Service or the PBGC (or any other governmental agency or entity) as are required or deemed appropriate by such Employee Benefit Plan's sponsor. Each of Corporation and IMS Health agrees to use its commercially reasonable efforts to cause all such notices and/or approvals to be filed or obtained, as the case may be. Each party hereto shall reasonably cooperate with the other parties with respect to any government filings, employee notices or any other actions reasonably necessary to maintain and implement the Employee Benefit Plans covered by this Agreement. 27 SECTION 13.20. Further Assurances. From time to time, as and when reasonably requested by any other party hereto, each party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder. IN WITNESS WHEREOF, the parties have duly executed and entered into this Agreement, as of the date first above written. COGNIZANT CORPORATION by /s/ Robert E. Weissman --------------------------------- Name: Robert E. Weissman Title: Chairman and Chief Executive Officer IMS HEALTH INCORPORATED by /s/ Victoria R. Fash --------------------------------- Name: Victoria R. Fash Title: Chief Operating Officer Schedule 1.1 to Employee Benefits Agreement IMS HEALTH Retirees - - ------------------- Tom Crawford Schedule 2.2 to Employee Benefits Agreement
Target % of Investment Manager Fund Name Portfolio (1) - - ------------------ --------- ------------- Barclays Global Investors US Debt Index Fund 34.5% Barclays Global Investors US Equity Index Fund 27.5% J.P. Morgan Investment Management Research Optimized Equity Fund 27.5% Wellington Trust Company, N.A. International Research Equity Fund 10.0% Bank of New York Cash/Collective Trust Fund 0.5% Short Term Investment Fund
- - ---------- (1) The actual percent of the portfolio for any one fund may vary plus or minus three percentage points compared to the target percentages. Schedule 6.1 to Employee Benefits Agreement William G. Jacobi: - - ------------------ The following Corporation Stock Options of Mr. Jacobi shall remain outstanding (and be adjusted as provided for in this Agreement), with the balance of his options to be converted to IMS Health Options: Purchased Options (vest 11/15/02) 20,834 Regular Options (vest 11/15/02) 45,834 Regular Options (vest 11/15/01) 33,332 ------- 100,000 James R. Peterson: - - ------------------ Directors' Options 2,000 Corporation 5,000 IMS HEALTH M. Bernard Puckett: - - ------------------- The Directors' options held by Mr. Puckett shall be cancelled and replaced with IMS HEALTH options and Corporation options in proportion to the relative value of a share of IMS HEALTH Common Stock and Corporation Common Stock immediately after the Distribution, based on the average of the high and low trading prices of each such share for the five trading days starting on the first IMS Health "regular-way" and Corporation "ex-dividend" trading dates. Schedule 7.1 to Employee Benefits Agreement 1 Corporation shall, as soon as practicable after the Effective Time, transfer the Corporation multinational insurance pooling arrangement to IMS Health, which shall be entitled to all dividends payable thereon from and after the Effective Time. 2 IMS Health shall continue to maintain Harry Holland and Richard James on the IMS Health U.K. payroll, and, as promptly as practicable after the Effective time, shall transfer (i) related pension assets for these individuals to individual pension accounts to be established for them by Corporation, based on national valuations to be prepared by Watson Wyatt, and (ii) the lease contracts for the 2 automobiles used by said individuals to Corporation. Corporation shall be responsible for, and shall reimburse IMS Health U.K. for, all costs and expenses associated with the continued employment of said individuals, including without limitation, salary, benefits, pension, social security, taxes, insurance and automobile expenses, and shall indemnify and hold harmless IMS Health and its Affiliates from any and all liabilities relating to or arising out of the employment of said individuals, except for those arising out of the gross negligence or willful misconduct of IMS Health U.K. EX-10.4 6 AMENDED TRANSITION SERVICES AGREEMENT Exhibit 10.4 AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT This AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT dated as of June 30, 1998, among THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation"), THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B"), COGNIZANT CORPORATION, a Delaware corporation ("Cognizant"), IMS HEALTH INCORPORATED, a Delaware corporation ("IMS Health"), ACNIELSEN CORPORATION, a Delaware corporation ("ACNielsen"), and GARTNER GROUP, INC., a Delaware Corporation ("Gartner") amends and restates in its entirety the Transition Services Agreement dated as of October 28, 1996 (the "1996 Transition Services Agreement") among the Corporation, Cognizant and ACNielsen. W I T N E S S E T H WHEREAS, pursuant to a Distribution Agreement dated as of October 28, 1996 (the "1996 Distribution Agreement") among the Corporation, Cognizant and ACNielsen, each party agreed to provide to the other parties certain transitional, administrative and support services, including insurance and risk management services, on the terms set forth in the 1996 Transition Services Agreement and the Appendix thereto. WHEREAS, each of the Corporation, Cognizant and ACNielsen desires to amend and restate the 1996 Transition Services Agreement as set forth in this Agreement and to include New D&B, IMS Health and Gartner as parties hereto; and each of New D&B, IMS Health and Gartner desires to become a party to this Agreement. NOW, THEREFORE, in consideration of the agreements, covenants and provisions in this Agreement and intending to be legally bound hereby, each of the Corporation, New D&B, Cognizant, IMS Health, ACNielsen and Gartner mutually covenant and agree as follows: ARTICLE I SERVICES PROVIDED I.1 Transition Services. New D&B (the "Provider") shall provide comprehensive insurance and risk management services to the Corporation, Cognizant, IMS Health, ACNielsen and Gartner (each a "Recipient"; collectively, the "Recipients"). Such services shall include risk identification, development of appropriate insurance programs, loss prevention initiatives, accounting for premiums, deductibles, retentions and defense costs, claims management (including coordination with insurance carriers), the collection and distribution of insurance proceeds and such other services as the Corporation's Risk Management staff has been providing 2 to the Corporation, Cognizant and ACNielsen as of the date hereof (all such services, collectively, the "Transition Services"). I.2 Personnel. In providing the Transition Services, the Provider as it deems necessary or appropriate in its sole discretion, may (i) use the personnel of such Provider or its Affiliates, and (ii) employ the services of third parties to the extent such third party services are routinely utilized to provide similar services to other businesses of such Provider or are reasonably necessary for the efficient performance of any of such Transition Services. Each Recipient may retain at its own expense its own consultants and other professional advisers. I.3 Representatives. Each of the Corporation, New D&B, Cognizant, IMS Health, ACNielsen and Gartner shall nominate a representative to act as its primary contact person for the provision of all of the Transition Services (collectively, the "Primary Coordinators"). The initial Primary Coordinators shall be Frank Colarusso, Treasurer, for the Corporation, John Riley, Director of Risk Management, for New D&B, Stuart Goldshein, Controller, for Cognizant, Matthew Friedman, Assistant Treasurer, for IMS Health, John Forster for ACNielsen and Andrea Tarbox for Gartner. Each party may treat an act of a Primary Coordinator of another party as being authorized by such other party without inquiring behind such act or ascertaining whether such Primary Coordinator had authority to so act. The Provider and the relevant Recipient of a Transition Service shall advise each other in writing of any change in the Primary Coordinators for such Transition Service, setting forth the name of the Primary Coordinator to be replaced and the name of the replacement, and certifying that the replacement Primary Coordinator is authorized to act for such party in all matters relating to this Agreement. Each of the Corporation, New D&B, Cognizant, IMS Health, ACNielsen and Gartner agree that all communications relating to the provision of the Transition Services shall be directed to the Primary Coordinators. I.4 Level of Transition Services. (a) The Provider shall perform the Transition Services for which it is responsible hereunder following commonly accepted standards of care in the industry and exercising the same degree of care as it exercises in performing the same or similar services for its own account as of the date of this Agreement, with priority equal to that provided to its own businesses or those of any of its Affiliates, Subsidiaries or divisions. Nothing in this Agreement shall require the Provider to favor the businesses of any Recipient over its own businesses or those of any of its Affiliates, Subsidiaries or divisions. (b) The Provider shall not be required to provide any Recipient of such Transition Services with extraordinary levels of Transition Services, special studies, training, or the like or the advantage of systems, equipment, facilities, training, or improvements procured, obtained or made by the Provider. (c) In addition to being subject to the terms and conditions of this Agreement for the provision of the Transition Services, each Recipient agrees that the Transition Services 3 provided by third parties shall be subject to the terms and conditions of any agreements between the Provider and such third parties. The Provider shall consult with the relevant Recipient concerning the terms and conditions of any such agreements to be entered into, or proposed to be entered into, with third parties after the date hereof. I.5 Limitation of Liability. In the absence of gross negligence or willful misconduct on the part of the Provider, and whether or not the Provider is negligent, such Provider shall not be liable for any claims, liabilities, damages, losses, costs, expenses (including, but not limited to, settlements, judgments, court costs and reasonable attorneys' fees), fines and penalties, arising out of any actual or alleged injury, loss or damage of any nature whatsoever in providing or failing to provide Transition Services for which it is responsible hereunder to the Recipient of such Transition Services. Notwithstanding anything to the contrary contained herein, in the event the Provider commits an error with respect to or incorrectly performs or fails to perform any Transition Service, at the relevant Recipient's request, the Provider shall use reasonable efforts and good faith to correct such error, re-perform or perform such Transition Service at no additional cost to such Recipient; provided, that the Provider shall have no obligation to recreate any lost or destroyed data to the extent the same cannot be cured by the re-performance of the Transition Service in question. I.6 Force Majeure. Any failure or omission by a party in the performance of any obligation under this Agreement shall not be deemed a breach of this Agreement or create any liability, if the same arises from any cause or causes beyond the control of such party, including, but not limited to, the following, which, for purposes of this Agreement shall be regarded as beyond the control of each of the parties hereto: acts of God, fire, storm, flood, earthquake, governmental regulation or direction, acts of the public enemy, war, rebellion, insurrection, riot, invasion, strike or lockout; provided, however, that such party shall resume the performance whenever such causes are removed. Notwithstanding the foregoing, if such party cannot perform under this Agreement for a period of forty-five (45) days due to such cause or causes, the affected party may terminate the Agreement with the defaulting party by providing written notice thereto. I.7 Modification of Procedures. The Provider may make changes from time to time in its standards and procedures for performing the Transition Services for which it is responsible hereunder. Notwithstanding the foregoing sentence, unless required by law, the Provider shall not implement any substantial changes affecting a Recipient of the relevant Transition Services unless: (a) the Provider has furnished such Recipient notice (which shall be the same notice the Provider shall provide its own businesses) thereof; (b) the Provider changes such procedures for its own businesses at the same time; and 4 (c) the Provider gives such Recipient a reasonable period of time for such Recipient (i) to adapt its operations to accommodate such changes or (ii) to reject the proposed changes. In the event such Recipient fails to accept or reject a proposed change on or before a date specified in such notice of change, such Recipient shall be deemed to have accepted such change. In the event such Recipient rejects a proposed change but does not terminate this Agreement, such Recipient agrees to pay any charges resulting from the Provider's need to maintain different versions of the same systems, procedures, technologies, or services or resulting from requirements of third party vendors or suppliers. I.8 No Obligation to Continue to Use Services. No Recipient shall have any obligation to continue to use the Transition Services and may terminate the Transition Services that the Provider is providing to such Recipient by giving the Provider 180 days notice thereof. I.9 Provider Access. To the extent reasonably required for personnel of the Provider to perform the Transition Services for which the Provider is responsible hereunder, the Recipient of such Transition Services shall provide personnel of the Provider with access to its equipment, office space, plants, telecommunications and computer equipment and systems, and any other areas and equipment. I.10 Performance Reviews. The Primary Coordinators for each Recipient shall meet during the fourth quarter of each calendar year with the Primary Coordinator for the Provider for the purpose of reviewing the performance of the Provider's Risk Management staff. Any disputes relating to the quality of such performance shall be brought to the attention of the respective Chief Financial Officers (or person holding an equivalent title) of the Provider and the Recipients. ARTICLE II COMPENSATION 5 II.1 Consideration. As consideration for the Transition Services, each Recipient of Transition Services shall pay to the Provider a portion of the costs and expenses incurred by the Provider relating to the Risk Management staff as follows: each Recipient shall pay (i) a base charge of $50,000 per year plus (ii) a proportionate share of any additional costs and expenses (i.e., not covered by the total base charge) based on such Recipient's proportion of total revenue as a percentage of the aggregate total revenue of all parties to this Agreement. For purposes of calculating any additional amount payable pursuant to clause (ii) of the preceding sentence, a party's revenue shall be that set forth on its audited financial statements for the most recent fiscal year-end. Such costs and expenses shall be calculated in accordance with generally accepted accounting principles applied consistently and billed in twelve monthly installments. Notwithstanding the foregoing, however, any services provided by the Provider's Risk Management staff to the Provider or the Recipients that are not in the ordinary course (all such services being "extraordinary services") shall be borne by the company or companies for whom such extraordinary service was provided. No extraordinary service shall be provided without the specific approval of the company to be charged. The costs and expenses to be borne by each Recipient will be in accordance with the annual Risk Management budget to be provided by the Primary Coordinator for the Provider during the preceding calendar year by May 1 of each year. The Risk Management budget may increase each year in an amount equal to 5% over the prior year's budget; increases in excess of 5% must be approved by the respective Primary Coordinators for each Recipient. II.2 Invoices. After the end of each month, the Provider, together with its Affiliates or Subsidiaries providing Transition Services will submit one invoice to the Recipient of such Transition Services for all Transition Services provided to such Recipient and its Subsidiaries by the Provider during such month. Such monthly invoices shall be issued no later than the fifteenth day of each succeeding month. Each invoice shall include a summary list of the previously agreed upon Transition Service for which there are fixed dollar fees, together with documentation supporting each of the invoiced amounts that are not covered by the fixed fee agreements. The total amount set forth on such summary list and such supporting detail shall equal the invoice total, and will be provided under separate cover apart from the invoice. All invoices shall be sent to the attention of the Primary Coordinator of the applicable Recipient at the address set forth in Section 6.5 hereof or to such other address as such Recipient shall have specified by notice in writing to the Provider. II.3 Payment of Invoices. (a) Payment of all invoices in respect of Transition Services shall be made by check or electronic funds transmission in U.S. Dollars, without any offset or deduction of any nature whatsoever, within thirty (30) days of the invoice date. All payments shall be made to the account designated by the Provider to the relevant Recipient, with written confirmation of payment sent by facsimile to the Primary Coordinator or other person designated thereby. 6 (b) If any payment is not paid when due, the Provider shall have the right, without any liability to any Recipient of Transition Services, or anyone claiming by or through such Recipient, upon five days' notice, to cease providing any or all of the Transition Services provided by the Provider to such Recipient, which right may be exercised by the Provider in its sole and absolute discretion. ARTICLE III CONFIDENTIALITY III.1 Obligation. Each party and its Subsidiaries shall not use or permit the use of (without the prior written consent of the other parties) and shall keep, and shall cause its consultants and advisors to keep, confidential all information concerning the other parties received pursuant to or in connection with this Agreement. Additionally, any information which is identified by a party as being "highly sensitive" (in connection with a contemplated acquisition or otherwise) shall not be disclosed outside of the Provider's Risk Management staff. III.2 Care and Inadvertent Disclosure. With respect to any confidential information, each party agrees as follows: (a) it shall use the same degree of care in safeguarding said information as it uses to safeguard its own information which must be held in confidence; and (b) upon the discovery of any inadvertent disclosure or unauthorized use of said information, or upon obtaining notice of such a disclosure or use from any other party, it shall take all necessary actions to prevent any further inadvertent disclosure or unauthorized use, and, subject to the provisions of Section 1.5 above, each such other party shall be entitled to pursue any other remedy which may be available to it. ARTICLE IV TERM AND TERMINATION IV.1 Term. This Agreement shall become effective on June 30, 1998 and shall remain in force for a period of three years (or in the case of ACNielsen, IMS Health and Gartner until November 1, 1999). After such initial period, this Agreement shall automatically be renewed for successive one-year periods as to each party unless such party provides at least 180-days notice to the other parties of its intention not to renew; provided that this Agreement may be terminated at such other times as are set forth in Sections 1.6, 1.8 and 4.3. IV.2 Reserved. 7 IV.3 Default. If any party (hereafter called the "Defaulting Party") shall fail to perform or default in the performance of any of its obligations under this Agreement (other than a payment default), the party entitled to the benefit of such performance (hereinafter referred to as a "Non-Defaulting Party") may give written notice to the Defaulting Party specifying the nature of such failure or default and stating that the Non-Defaulting Party intends to terminate this Agreement with respect to the Defaulting Party if such failure or default is not cured within fifteen days of such written notice. If any failure or default so specified is not cured within such fifteen day period, the Non-Defaulting Party may elect to immediately terminate this Agreement with respect to the Defaulting Party; provided, however, that if the failure or default relates to a dispute contested in good faith by the Defaulting Party, the Non-Defaulting Party may not terminate this Agreement pending the resolution of such dispute in accordance with Article V hereof. Such termination shall be effective upon giving a written notice of termination from the Non-Defaulting Party to the Defaulting Party and shall be without prejudice to any other remedy which may be available to the Non-Defaulting Party against the Defaulting Party. IV.4 Termination of Obligations. Each Recipient specifically agrees and acknowledges that all obligations of the Provider to provide the Transition Services shall immediately cease, with respect to such Recipient, upon the termination of this Agreement as to such Recipient. Upon the cessation of the Provider's obligation to provide any Transition Service to a Recipient, such Recipient shall immediately cease using, directly or indirectly, the Transition Services (including, without limitation, any and all software of the Provider or third party software provided through the Provider, telecommunications services or equipment, or computer systems or equipment). IV.5 Survival of Certain Obligations. Without prejudice to the survival of the other agreements of the parties, Sections 1.5, 2.1 (with respect to services provided prior to the effective time of the termination), 3.1, 3.2, 4.4, 4.5, 5.1, 6.10, 6.13 and 6.14 shall survive any termination of this Agreement. ARTICLE V DISPUTE RESOLUTION V.1 Dispute Resolution. Any disputes arising out of or in connection with this Agreement shall be settled in accordance with the dispute resolution mechanisms set forth in Article VI of the 1996 Distribution Agreement, with each of the parties hereto being deemed a party to that agreement for this purpose. 8 ARTICLE VI MISCELLANEOUS VI.1 Complete Agreement; Construction. This Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. VI.2 Other Agreements. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by other agreements between or among the parties. VI.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts has been signed by each of the parties and delivered to the other parties. VI.4 Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To the Corporation: R.H. Donnelley Corporation One Manhattanville Road Purchase, New York 10577 Telecopy: (914) 933-6899 Attn: Treasurer With a copy to: R.H. Donnelley Corporation One Manhattanville Road Purchase, New York 10577 Telecopy: (914) 933-6899 Attn: General Counsel To New D&B: The Dun & Bradstreet Corporation 220 East 42 Street New York, New York 10017 Telecopy: (212) 883-3403 Attn: Director of Risk Management With a copy to: The Dun & Bradstreet Corporation One Diamond Hill Road Murray Hill, New Jersey 07974 Telecopy: (908) 665-5803 Attn: Chief Legal Counsel To Cognizant: Nielsen Media Research, Inc. 299 Park Avenue New York, New York 10171 Telecopy: (212) 708-7504 Attn: Controller With a copy to: Nielsen Media Research, Inc. 299 Park Avenue New York, New York 10171 Telecopy: 212-708-6927 Attn: Chief Legal Officer To IMS Health: IMS Health Incorporated 200 Nyala Farms Westport, Connecticut 06880 Telecopy: (203) 222-4201 Attn: Treasurer 10 With a copy to: IMS Health Incorporated 200 Nyala Farms Westport, Connecticut 06880 Telecopy: (203) 222-4201 Attn: General Counsel To ACNielsen: ACNielsen Corporation 177 Broad Street Stamford, Connecticut 06901 Telecopy: (203) 961-3177 Attn: John Forster With a copy to: ACNielsen Corporation 177 Broad Street Stamford, Connecticut 06901 Telecopy: (203) 961-3179 Attn: General Counsel To Gartner: Gartner Group, Inc. P.O. Box 10212 56 Top Gallant Road Stamford, Connecticut 06904 Telecopy: (203) 316-6525 Attn: Andrea Tarbox With a copy to: Gartner Group, Inc. P.O. Box 10212 56 Top Gallant Road Stamford, Connecticut 06904 Telecopy: (203) 316-6525 Attn: General Counsel 11 VI.5 Waivers. The failure of any party to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. VI.6 Amendments. This Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. VI.7 Assignment. This Agreement may not be assigned by any party, other than to an Affiliate of such party or pursuant to a corporate reorganization or merger, without the consent of the other party. Any assignment in contravention of this Section 6.7 shall be void. VI.8 Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. VI.9 Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party or by any entity that is contemplated to be a Subsidiary of such party on and after the applicable Distribution Date. VI.10 Third Party Beneficiaries. This Agreement is solely for the benefit of the parties hereto and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. VI.11 Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. VI.12 Reserved. VI.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. VI.14 Consent to Jurisdiction. Each of the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties agrees to commence any action, suit or proceeding 12 relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 6.14. Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. VI.15 Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. VI.16 Laws and Government Regulations. Each Recipient shall be responsible for (i) compliance with all laws and governmental regulations affecting its businesses and (ii) any use such Recipient may make of the Transition Services to assist it in complying with such laws and governmental regulations. While the Provider shall not have any responsibility for the compliance by the Recipient of such Transition Services with such laws and regulations, the Provider agrees to use reasonable efforts to cause the Transition Services to be provided by such party to be designed in such manner that such Transition Services shall be able to assist the Recipient of such Transition Services in complying with applicable legal and regulatory responsibilities. VI.17 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship of buyer and seller of services nor be deemed to vest any rights, interests or claims in any third parties. The parties do not intend to waive any privileges or rights to which they may be entitled. VI.18 Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the applicable Distribution Agreement governing the relevant parties. IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Transition Services Agreement to be executed the day and year first above written. THE DUN & BRADSTREET CORPORATION By: /s/ Frank R. Noonan ----------------------------------- Name: Frank R. Noonan Title: Senior Vice President THE NEW DUN & BRADSTREET CORPORATION By: /s/ Volney Taylor ----------------------------------- Name: Volney Taylor Title: Chairman and Chief Executive Officer COGNIZANT CORPORATION By: /s/ Kenneth Siegel ----------------------------------- Name: Kenneth Siegel Title: Senior Vice President, General Counsel and Secretary IMS HEALTH INCORPORATED By: /s/ Kenneth Siegel ----------------------------------- Name: Kenneth Siegel Title: Senior Vice President, General Counsel and Secretary ACNIELSEN CORPORATION By: /s/ John A. Forster ----------------------------------- Name: John A. Forster Title: Vice President and Treasurer GARTNER GROUP, INC. By: /s/ George C. Roy, Jr. ----------------------------------- Name: George C. Roy, Jr. Title: Senior Vice President - Finance EX-10.5 7 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN Exhibit 10.5 1998 IMS HEALTH INCORPORATED NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN 1. Purpose of the Plan The purpose of the Plan is to aid the Company in attracting, retaining and compensating non-employee directors and to enable them to increase their ownership of Shares. The Plan will be beneficial to the Company and its stockholders since it will allow non-employee directors of the Board to have a greater personal financial stake in the Company through the ownership of Shares, in addition to underscoring their common interest with stockholders in increasing the value of the Shares on a long-term basis. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Award: An Option or Share of Restricted Stock granted pursuant to the Plan. (c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (d) Board: The Board of Directors of the Company. (e) Change in Control: The occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has 2 entered into an agreement with the Company to effect a transaction described in Sections 2(e)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (f) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (g) Cognizant: Cognizant Corporation, a Delaware corporation. (h) Committee: The Compensation and Benefits Committee of the Board. 3 (i) Company: IMS Health Incorporated, a Delaware corporation. (j) Disability: Inability to continue to serve as a non-employee director of the Board due to a medically determinable physical or mental impairment which constitutes a permanent and total disability, as determined by the Committee (excluding any member thereof whose own Disability is at issue in a given case) based upon such evidence as it deems necessary and appropriate. A Participant shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. (k) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 13 of the Plan. (l) Fair Market Value: On a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealers Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (m) Option: A stock option granted pursuant to Section 6 of the Plan. (n) Option Price: The purchase price per Share of an Option, as determined pursuant to Section 6(b) of the Plan. 4 (o) Participant: Any director of the Company who is not an employee of the Company or any Subsidiary of the Company as of the date that an Award is granted. (p) Person: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). (q) Plan: The 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan. (r) Restricted Stock: A Share of restricted stock granted pursuant to Section 7 of the Plan. (s) Retirement: Termination of service with the Company after such Participant has attained age 70, regardless of the length of such Participant's service; or, with the prior written consent of the Committee (excluding any member thereof whose own Retirement is at issue in a given case), termination of service at an earlier age after the Participant has completed six or more years of service with the Company. (t) Shares: Shares of common stock, par value $0.01 per share, of the Company. (u) Spinoff Date: The date on which the Shares that are owned by Cognizant are distributed to the holders of record of shares of Cognizant. (v) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. Shares Subject to the Plan The total number of Shares which may be issued under the Plan is 80,000. The Shares may consist, in whole or in part, of unissued Shares or treasury Shares. The issuance of Awards or the payment of cash upon exercise of an Award shall reduce the total number of Shares available under the Plan, as applicable. Shares which are subject to Awards which terminate or lapse may be granted again under the Plan. 4. Administration The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any 5 subcommittee thereof consisting solely of at least two "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). 5. Eligibility All Participants shall be eligible to participate under this Plan. 6. Terms and Conditions of Options Options granted under the Plan shall be non-qualified stock options for federal income tax purposes, as evidenced by the related Option agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Grants. A Participant may receive, on such dates as determined by the Committee in its sole discretion, grants consisting of such number of Options as determined by the Committee in its sole discretion. (b) Option Price. The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares on the date an Option is granted. (c) Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. (d) Exercise of Options. Except as otherwise provided in the Plan or in a related Option agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 6 of the Plan, the exercise date of an Option shall be the later of 6 the date a notice of exercise is received by the Company and, if applicable, (A) the date payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the following sentence or (B) the date of sale by a broker of all or a portion of the Shares being purchased pursuant to clause (iv) in the following sentence. The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise at the election of the Participant (i) in cash, (ii) in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (iii) partly in cash and partly in such Shares, or (iv) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Option Price for the Shares being purchased. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (e) Exercisability Upon Termination of Service by Death. If a Participant's service with the Company and its Subsidiaries terminates by reason of death after the date of grant of an Option, (i) the unexercised portion of such Option shall immediately vest in full and (ii) such portion may thereafter be exercised during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of death. (f) Exercisability Upon Termination of Service by Disability or Retirement. If a Participant's service with the Company and its Subsidiaries terminates by reason of Disability or Retirement after the date of grant of an Option, (i) the unexercised portion of such Option shall immediately vest in full and (ii) such portion may thereafter be exercised during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of such termination of service; provided, however, that if a Participant dies within a period of five years after such termination of service, the unexercised portion of the Option may thereafter be exercised, during the shorter of (i) the remaining stated term of the Option or (ii) the period that is the longer of (A) five years after the date of such termination of service or (B) one year after the date of death. (g) Effect of Other Termination of Service. If a Participant's service with the Company and its Subsidiaries terminates for any reason other than death, Disability or Retirement after the date of grant of an Option as described above, the unexercised portion of an Option may thereafter be exercised during the period ending ninety days after the date of such termination of service, but only to the extent to which such 7 Option was exercisable at the time of such termination of service. 7. Terms and Conditions of Restricted Stock Restricted Stock granted under the Plan shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Grants. A Participant may receive, on such dates as determined by the Committee in its sole discretion, grants consisting of such amounts of Restricted Stock as determined by the Committee in its sole discretion. (b) Restrictions. Restricted Stock granted under the Plan may not be sold, transferred, pledged, assigned or otherwise disposed of under any circumstances; provided, however, that the foregoing restrictions shall elapse at such time and upon such terms and conditions as may be specified by the Committee in the related Award agreement(s). (c) Acceleration. Notwithstanding anything in the Plan to the contrary, (i) the restrictions set forth in Section 7(b) of the Plan shall automatically elapse in the event that a Participant terminates service with the Company as a result of death or Disability and (ii) the Committee (excluding any member thereof whose own Award is at issue in a given case) may, in its sole discretion, accelerate the elapsing of the restrictions set forth in Section 7(b) of the Plan in the event that a Participant terminates service with the Company for any other reason. In the absence of such acceleration, all Shares of Restricted Stock as to which restrictions have not previously elapsed pursuant to Section 7(b) of the Plan shall be forfeited upon the termination of a Participant's service with the Company for reasons other than death or Disability. 8. Adjustments Upon Certain Events Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it 8 deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price and/or (iii) any other affected terms of such Awards. (b) Change in Control. In the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount in exchange for the cancellation of an Award and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 9. Successors and Assigns The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 10. Amendments or Termination The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of any Participant under any Award theretofore granted without such Participant's consent. 11. Nontransferability of Awards An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 11 (or any part thereof) to the extent that this Section 11 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company. 9 12. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 13. Effectiveness of the Plan The Plan shall be effective as of the Spinoff Date. EX-10.6 8 NON-EMPLOYEE DIRECTORS' DEFERRED COMP. PLAN Exhibit 10.6 1998 IMS HEALTH INCORPORATED NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN 1. Purpose of the Plan The purpose of the Plan is to enhance the Company's ability to attract and retain talented individuals to serve as members of the Board and to promote a greater alignment of interests between non-employee directors and the shareholders of the Company. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Annual Deferral Amount: As such term is defined in Section 5(a) of the Plan. (c) Award: A Deferred Share Unit or Deferred Cash granted pursuant to the Plan. (d) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (e) Board: The Board of Directors of the Company. (f) Change in Control: The occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has 2 entered into an agreement with the Company to effect a transaction described in Sections 2(f)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (g) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (h) Cognizant: Cognizant Corporation, a Delaware corporation. (i) Committee: The Compensation and Benefits Committee of the Board. 3 (j) Company: IMS Health Incorporated, a Delaware corporation. (k) Deferred Cash: A bookkeeping entry credited in accordance with an election made by a Participant pursuant to Section 5 of the Plan. (l) Deferred Share Unit: A bookkeeping entry, equivalent in value to one Share, credited in accordance with an election made by a Participant pursuant to Section 5 of the Plan. (m) Determination Date: As such term is defined in Section 6 of the Plan. (n) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 13 of the Plan. (o) Election Date: The date on which a Participant files an election with the Secretary of the Company pursuant to Section 5 of the Plan. (p) Fair Market Value: On a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealers Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. 4 (q) First Trading Date: The first date on which the Shares are traded regular way on the principal national securities exchange on which such Shares are listed or admitted to trading. (r) Participant: Any director of the Company who is not an employee of the Company or any Subsidiary of the Company (i) as of any Election Date and (ii) during any years of service covered by the election made on such Election Date. (s) Person: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). (t) Plan: The 1998 IMS Health Incorporated Non-Employee Directors' Deferred Compensation Plan. (u) Prime Rate: The rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; provided that each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. (v) Shares: Shares of common stock, par value $0.01 per Share, of the Company. (w) Spinoff Date: The date on which the Shares that are owned by Cognizant are distributed to the holders of record of shares of Cognizant. (x) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. Administration The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, 5 conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). 4. Eligibility All Participants shall be eligible to participate under this Plan. 5. Voluntary Deferral of Cash Compensation A Participant may voluntarily elect to defer his or her cash compensation (including, but not limited to, annual retainer, board meeting fees, committee meeting fees and committee chairman fees) in the following manner: (a) Method of Election. In order to make a voluntary election pursuant to the Plan, the Participant must complete and deliver to the Secretary of the Company a written election, not later than 30 days after the date on which he or she commences service as a director of the Company (or, in subsequent years, not later than the anniversary of the normal commencement date for such director's term), designating (i) the portion of his or her cash compensation for a year of service as a director that is to be deferred (the "Annual Deferral Amount") and (ii) the portion of the Annual Deferral Amount that is to be deferred into (A) Deferred Share Units and/or (B) Deferred Cash. Such an election shall only be effective with respect to (i) the annual retainer and (ii) any other fees earned after the date of the election. Such election shall remain effective for all future years of service unless the Participant makes a new election in a subsequent year. (b) Deferred Share Units. If a Participant elects to defer his or her Annual Deferral Amount into Deferred Share Units, such Participant will have Deferred Share Units credited (as of each date on which his or her cash compensation would otherwise have been paid) to a Deferred Share Unit account maintained for him or her on the books of the Company. The number of Deferred Share Units (including fractional Deferred Share Units) to be credited shall be determined by dividing (i) the amount of cash compensation to be deferred into Deferred Share Units by (ii) the Fair Market Value of one Share on the date credited. Deferred Share Units shall be credited with dividend equivalents when dividends are paid on Shares, and such dividend equivalents shall be converted into additional Deferred Share Units based on the Fair Market Value of Shares on the date credited. Notwithstanding anything to the contrary in this Section 5(b), the Fair Market Value of one Share on any date prior to the First Trading Date shall be the Fair Market Value of one Share on the First Trading Date. 6 (c) Deferred Cash. If a Participant makes a voluntary election to defer his or her Annual Deferral Amount into Deferred Cash, such Participant will have Deferred Cash credited (as of each date on which his or her cash compensation would otherwise have been paid) to a Deferred Cash account maintained for him or her on the books of the Company. The amount of Deferred Cash to be credited shall equal the amount of cash compensation to be deferred into Deferred Cash. A Participant's account shall be credited with additional Deferred Cash equal to the amount of notional interest earned on the account, assuming that such interest is earned at the Prime Rate and compounded on an annual basis. 6. Termination of Board Service No later than the first business day of the calendar year immediately following the date on which a Participant terminates service with the Company (the "Determination Date"), the Participant shall receive (a) a lump sum payment in Shares equal in number to the Deferred Share Units credited to the Participant's Deferred Share Unit account (provided, however, that any fractional Shares shall be paid in cash based on the Fair Market Value of a Share as of the Determination Date) and (b) a lump sum payment in cash equal to the Deferred Cash credited to the Participant's Deferred Cash account. 7. Nontransferability of Units Awards shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, Awards shall be payable only to such Participant. Awards payable after the death of a Participant may be paid to the legatees, personal representatives or distributees of the Participant. 8. Unfunded Plan Unless otherwise determined by the Committee, the Plan shall be unfunded. To the extent any individual holds any rights by virtue of an Award granted under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured general creditor of the Company. 9. Adjustments Upon Certain Events Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to Awards: 7 (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to any Deferred Share Units granted under the Plan. (b) Change in Control. In the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Awards (including, without limitation, (i) the acceleration of Awards, (ii) the payment of a cash amount in exchange for the cancellation of Awards and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 10. Successors and Assigns The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 11. Amendments or Termination The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of any Participant under any Awards theretofore granted without such Participant's consent. 12. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 13. Effectiveness of the Plan The Plan shall be effective as of the Spinoff Date. EX-10.7 9 EMPLOYEES' STOCK INCENTIVE PLAN Exhibit 10.7 1998 IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN 1. Purpose of the Plan The purpose of the Plan is to aid the Company and its Subsidiaries in securing and retaining employees of outstanding ability and to motivate such employees to exert their best efforts on behalf of the Company and its Subsidiaries by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such employees will have in the welfare of the Company as a result of their proprietary interest in the Company's success. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Annual Limit: The limitation on the amount of certain Awards intended to qualify as "performance-based compensation" that may be granted to a given Participant each year. (c) Award: An Option, Stock Appreciation Right or Other Stock-Based Award granted pursuant to the Plan. (d) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (e) Board: The Board of Directors of the Company. (f) Change in Control: The occurrence of any of the following events after effective date: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(f) (i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board determines that a Change in Control shall be deemed to have occurred for purposes of the Plan, provided that the Board may impose limitations on the effects of a Change in Control on any Award or otherwise if the Change in Control has occurred under this Section 2(f)(v) and not under other subsections of this Section 2(f). (g) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. 2 (h) Cognizant: Cognizant Corporation, a Delaware corporation. (i) Committee: The Compensation and Benefits Committee of the Board. (j) Company: IMS Health Incorporated, a Delaware corporation. (k) Disability: Inability of a Participant to perform the services for the Company and its Subsidiaries required by his or her employment with the Company due to any medically determinable physical and/or mental incapacity or disability which is permanent. The determination whether a Participant has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. A Participant shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. (l) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 17 of the Plan. (m) Fair Market Value: With respect to Shares, unless otherwise determined by the Committee, on a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the Nasdaq System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the Nasdaq System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (n) LSAR: A limited stock appreciation right granted pursuant to Section 8(d) of the Plan. (o) Other Stock-Based Awards: Awards granted pursuant to Section 9 of the Plan. (p) Option: A stock option granted pursuant to Section 7 of the Plan. 3 (q) Option Price: The purchase price per Share of an Option, as determined pursuant to Section 7(a) of the Plan. (r) Participant: An individual who is selected by the Committee to participate in the Plan pursuant to Section 5 of the Plan. (s) Performance-Based Awards: Certain Other Stock-Based Awards granted pursuant to Section 9(b) of the Plan. (t) Person: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). (u) Plan: The 1998 IMS Health Incorporated Employees' Stock Incentive Plan. (v) Retirement: Termination of employment with the Company or a Subsidiary (i) after such Participant has attained age 65 or (ii), with the prior written consent of the Committee that such termination be treated as a Retirement hereunder, termination of employment under other circumstances. (w) Shares: Shares of common stock, par value $0.01 per Share, of the Company. (x) Spinoff Date: The date on which the Shares that are owned by Cognizant are distributed to the holders of record of shares of Cognizant. (y) Stock Appreciation Right: A stock appreciation right granted pursuant to Section 8 of the Plan. (z) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. Shares Subject to the Plan (a) Aggregate Share Limitations. Subject to adjustment as provided in Section 10(a), the total number of Shares which may be issued and/or delivered under the Plan is 13,000,000 plus the number of Shares reserved for awards under the IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards (the "Replacement Plan") that are not in fact issued or delivered in connection with such awards. The Shares may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. Shares subject to an Award under the Plan that is canceled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of Shares to the Participant (or a Beneficiary), including the number of Shares withheld or surrendered in payment of any exercise or purchase price of an Award or taxes relating to an Award, will become available for Awards under the Plan, and Shares shall be counted as issued or delivered under the Replacement Plan in a manner consistent with the counting of Shares under this Section 3. In 4 addition, in the case of any Award granted in substitution for awards of a company or business acquired by the Company or a Subsidiary, Shares issued or issuable in connection with such substitute Award shall not be counted against the number of Shares reserved under the Plan, but shall be deemed to be available under the Plan by virtue of the Company's assumption of the plan or arrangement of the acquired company or business. (b) Annual Per-Person Limitations. In each calendar year during any part of which the Plan is in effect, a Participant may be granted Awards under each of Section 7, Section 8, and Section 9(b) relating to up to the Participant's Annual Limit (such Annual Limit to apply separately to each Section). A Participant's Annual Limit, in any year during any part of which the Participant is then eligible under the Plan, shall equal 1,000,000 shares plus the amount of the Participant's unused Annual Limit as of the close of the previous year, subject to adjustment as provided in Section 10(a). 4. Administration The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and "outside directors" within the meaning of Section 162(m) of the Code (or any successor section thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the exercise or settlement of an Award. Unless the Committee specifies otherwise, the Participant may elect to pay a portion or all of such withholding taxes by (a) delivery in shares or (b) having shares withheld by the Company from any shares that would have otherwise been received by the Participant. The Committee may, in its discretion, grant Awards either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any subsidiary, or any business entity to be acquired by the Company or a subsidiary, or any other right of a Participant to receive payment from the Company or any subsidiary. If the chief executive officer of the Company is a member of the Board, the Board by specific resolution may constitute such chief executive officer as a committee of one which shall have the authority to grant Awards of up to an aggregate of 50,000 Shares in each calendar year to each Participant who is not subject to the rules promulgated under Section 16 of the Act (or any successor section thereto); provided, however, that such chief executive officer shall notify the Committee of any such grants made pursuant to this Section 4. 5. Eligibility 5 Employees (but not members of the Committee or any person who serves only as a director) of the Company and its Subsidiaries are eligible to be granted Awards. In addition, any person who has been offered employment by the Company or a Subsidiary is eligible to be granted Awards, provided that no such person may receive any payment or exercise any right relating to an Award until such person has commenced such employment. Participants shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of Shares to be covered by the Awards granted to each Participant. 6. Limitations No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date. 7. Terms and Conditions of Options Options granted under the Plan shall be, as determined by the Committee, non-qualified, incentive or other stock options for federal income tax purposes, as evidenced by the related Award agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Option Price. The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares on the date an Option is granted. The Committee may require the participant to pay a portion of the Option Price at the time of grant of the option, with the remainder of the Option Price payable upon exercise of the Option. Such prepayment of the Option Price shall be non-refundable, unless otherwise determined by the Committee (b) Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. (c) Exercise of Options. Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 7 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, (A) the date payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the following sentence, or (B) the date of sale by a broker of all or a portion of the Shares being purchased pursuant to clause (iv) in the following sentence. Unless otherwise determined by the Committee, the Option Price for the Shares as to which an Option is exercised shall be paid to the Company in full not later than the time of exercise at the election of the Participant (i) in cash, (ii) in Shares having a Fair Market Value equal to the aggregate unpaid Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (iii) partly in cash and partly in such Shares, or (iv) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Option Price for the Shares being purchased. The Award 6 agreement shall, unless otherwise provided by the Committee, permit the Participant to elect, subject to such terms and conditions as the Committee shall determine, to have the number of Shares deliverable to the Participant as a result of the exercise reduced by a number sufficient to pay the amount the Company determines to be necessary to withhold for federal, state, local or other taxes as a result of the exercise of the Option. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (d) Restrictions on Shares Issued Upon Exercise; Other Conditions. If and to the extent so determined by the Committee, Shares issued upon exercise of an Option may be subject to limitations on transferability, risks of forfeiture, deferral of delivery, or such other terms and conditions as the Committee may impose, subject to Section 14(b). Such terms and conditions may include required forfeiture of Options or gains realized upon exercise thereof, for a specified period after exercise, in the event the Participant fails to comply with conditions relating to non-competition, non-disclosure, non-solicitation or non-interference with employees, suppliers, or customers, and non-disparagement and other conditions specified by the Committee. (e) Termination Provisions. The Committee shall determine, in its discretion, whether and the extent to which an Option shall be forfeited or shall become exercisable on an accelerated basis in the event of the Participant's termination of employment due to death, Disability, Retirement, or for other reasons, the period following such a termination during which the Option shall be exercisable, and other provisions relating to such terminations. 8. Terms and Conditions of Stock Appreciation Rights (a) Grants. The Committee also may grant (i) a Stock Appreciation Right independent of an Option or (ii) a Stock Appreciation Right in connection with an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to clause (ii) of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option, (B) shall cover the same Shares covered by an Option (or such lesser number of Shares as the Committee may determine) and (C) shall be subject to the same terms and conditions as such Option except for such additional limitations as are contemplated by this Section 8 (or such additional limitations as may be included in an Award agreement). (b) Terms. The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the greater of (i) the Fair Market Value of a Share on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, the Option Price of the related Option and (ii) an amount permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant upon exercise to an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares covered by the Stock Appreciation Right. Each Stock Appreciation Right granted in conjunction with an Option, or a portion 7 thereof, shall entitle a Participant to surrender to the Company the unexercised Option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price per Share, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash, valued at such Fair Market Value, all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares subject to an exercisable Option with respect to which the Stock Appreciation Right is being exercised. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share. (c) Limitations. The Committee may impose, in its discretion, such conditions upon the exercisability or transferability of Stock Appreciation Rights as it may deem fit. (d) Limited Stock Appreciation Rights. The Committee may grant LSARs that are exercisable upon the occurrence of specified contingent events. Such LSARs may provide for a different method of determining appreciation, may specify that payment will be made only in cash and may provide that any related Awards are not exercisable while such LSARs are exercisable. Unless the context otherwise requires, whenever the term "Stock Appreciation Right" is used in the Plan, such term shall include LSARs. 9. Other Stock-Based Awards (a) Generally. The Committee, in its sole discretion, may grant Awards of Shares, Awards of restricted Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive one or more Shares (or the equivalent cash value of such Shares) as an outright bonus or upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made, the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof). Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section 9(a). In addition, the Committee is authorized to grant dividend equivalents to a Participant, entitling the Participant to receive cash, Shares, other Awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments. Dividend equivalents may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents 8 shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Shares, Awards, or other investment vehicles, subject to such restrictions on transferability and risks of forfeiture as the Committee may specify. (b) Performance-Based Awards. Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 9 may be granted in a manner which is deductible by the Company without limitation under Section 162(m) of the Code (or any successor section thereto) ("Performance-Based Awards"). A Participant's Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25 percent of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on stockholders' equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) economic value added; (xix) return on assets; (xx) total stockholder return (stock price appreciation plus dividends and distributions); (xxi) operating management goals; (xxii) and execution of pre-approved corporate strategy. The foregoing criteria may relate to the Company, one or more of its Subsidiaries or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. In the case of a Performance-Based Award which is not valued in a way in which the limitation set forth in the final sentence of Section 3 would operate as an effective limitation satisfying Treasury Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to any Participant with respect to performance in a single fiscal year of the Company shall be $5,000,000. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award. 10. Adjustments Upon Certain Events 9 Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares of other corporate exchange, or any large, special, and non-recurring distribution to Stockholders, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price, (iii) the number and kind of Shares by which annual per-person Award limitations are measured under Section 3 hereof and/or (iv) any other affected terms of such Awards (including making provision for the payment of cash, other Awards or other property in respect of any outstanding Award). In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company, any subsidiary or any business unit, or the financial statements of the Company or any subsidiary, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee's assessment of the business strategy of the Company, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized to be made if and to the extent that such authority or the making of such adjustment would cause Options, Stock Appreciation Rights, or Performance Awards granted under Section 9(b) hereof intended to qualify as "performance-based compensation" under Code Section 162(m) and regulations thereunder to otherwise fail to so qualify. (b) Change in Control. Except as otherwise provided in an Award agreement, in the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount in exchange for the cancellation of an Award and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 11. No Right to Employment The granting of an Award under the Plan shall impose no obligation on the Company or any Subsidiary to continue the employment of a Participant and shall not lessen or affect the Company's or Subsidiary's right to terminate the employment of such Participant. 12. Successors and Assigns 10 The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 13. Nontransferability of Awards An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 13 (or any part thereof) to the extent that this Section 13 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company. 14. Amendments or Termination (a) Changes to the Plan. The Board may amend, alter or discontinue the Plan, except that (i) any amendment or alteration shall be subject to the approval of the Company's stockholders at or before the next annual meeting of stockholders for which the record date is after the date of such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit amendments or alterations to stockholders for approval; (ii) without the consent of a Participant, no amendment or alteration shall materially impair any of the Participant's rights under an Award theretofore granted to such Participant; and (iii) the Committee may amend or alter the Plan in such manner as it deems necessary to permit the granting of Awards meeting requirements of the Code or other applicable laws. Notwithstanding anything to the contrary herein, the Board may not amend, alter or discontinue the provisions relating to Section 10(b) of the Plan after the occurrence of a Change in Control. (b) Changes to Outstanding Awards. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award. Other provisions of the Plan notwithstanding, if any right under this Plan would cause a transaction to be ineligible for pooling of interest accounting that would, but for the right hereunder, be eligible for such accounting treatment, the Committee may modify or adjust the right so that pooling of interest accounting shall be available, including the substitution of Shares having a Fair Market Value equal to the cash otherwise payable hereunder for the right which caused the transaction to be ineligible for pooling of interest accounting. 15. International Participants 11 With respect to Participants who reside or work outside the United States of America and either who are not (and who are not expected to be) "covered employees" within the meaning of Section 162(m) of the Code or who are granted Awards not intended to qualify as "performance-based compensation" under Section 162(m), the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms with local laws, regulations, or customs or otherwise to meet the objectives of the Plan, and may, where appropriate, establish one or more sub-plans to reflect such amended provisions. 16. Nonexclusivity of the Plan Neither the adoption of the Plan by the Board nor any submission of the Plan, specific Plan terms, or amendments thereto to a vote of stockholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements as it may deem desirable, including, without limitation, the granting of awards otherwise than under the Plan, and such other arrangements may be either applicable generally or only in specific cases. 17. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 18. Effectiveness of the Plan The Plan shall be effective as of the Spinoff Date. 12 EX-10.8 10 1998 IMS HEALTH INCORPORATED REPLACEMENT PLAN Exhibit 10.8 1998 IMS HEALTH INCORPORATED REPLACEMENT PLAN FOR CERTAIN EMPLOYEES HOLDING COGNIZANT CORPORATION EQUITY-BASED AWARDS 1. Purpose of the Plan The purpose of the 1998 IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards (the "Plan") is to provide for the award of substantially identical replacement stock options, replacement limited stock appreciation rights and replacement restricted stock to certain employees (the "Eligible Holders") of IMS Health Incorporated (the "Company") whose awards under the 1996 Cognizant Corporation Key Employees Stock Incentive Plan and 1996 Cognizant Corporation Replacement Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based Awards (the "Cognizant Plans") were cancelled pursuant to the spinoff of the Company from Cognizant Corporation ("Cognizant"). The Company expects that the Plan will allow it to retain such employees and to motivate them to exert their best efforts on behalf of the Company and its subsidiaries by providing incentives through the replacement awards. The Company also expects that it will benefit from the added interest which such employees will have in the welfare of the Company as a result of their proprietary interest in the Company's success. It is the intention of the Company that the terms of the replacement awards will (i) preserve the economic value of the cancelled Cognizant awards and (ii) except for the terms described in Sections 7, 8, 9 and 10 of this Plan, remain substantially identical to the terms of the cancelled Cognizant awards. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Award: A replacement Option, replacement stock appreciation right or replacement restricted stock granted pursuant to the Plan. (c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (d) Board: The Board of Directors of the Company. 2 (e) Change in Control: With respect to D&B Replacement Stock Options, as defined in the 1996 Cognizant Corporation Replacement Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based Awards. Otherwise, the occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(e)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (f) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (g) Cognizant Replacement Stock Option: A stock option granted pursuant to Section 7 of the Plan as a replacement for a stock option previously granted under the 1996 Cognizant Corporation Key Employees Stock Incentive Plan. (h) Cognizant Restricted Stock: Restricted stock held by an Eligible Holder that was granted under the Cognizant Plans. (i) Committee: The Compensation and Benefits Committee of the Board. (j) Company: IMS Health Incorporated, a Delaware corporation. (k) D&B Plans: The 1991 Key Employees Stock Option Plan for The Dun & Bradstreet Corporation and Subsidiaries and the 1982 Key Employees Stock Option Plan for The Dun & Bradstreet Corporation. (l) D&B Replacement Stock Option: A stock option granted pursuant to Section 7 of the Plan as a replacement for a stock option previously granted under the 1996 Cognizant Corporation Replacement Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based Awards. (m) Daily Average Trading Price: the average of the high and low trading prices for stock on a given day. (n) Disability: Inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which constitutes a permanent and total disability, as 4 defined in Section 22(e)(3) of the Code (or any successor section thereto). The determination whether an Eligible Holder has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. An Eligible Holder shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. (o) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 15 of the Plan. (p) Eligible Holder: As such term is defined in Section 1 of the Plan. (q) Fair Market Value: On a given date, the arithmetic mean of the high and low prices of the Shares asreported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealer Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (r) IMS Health Restricted Stock: Restricted stock received by an Eligible Holder as a result of the Spinoff. (s) Option: A Cognizant Replacement Stock Option and a D&B Replacement Stock Option. 5 (t) Person: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor sectionthereto). (u) Plan: As such term is defined in Section 1 hereof. (v) Post-Retirement Exercise Period: As such term is defined in Section 7(f) of the Plan. (w) Shares: Shares of common stock, par value $0.01 per Share, of the Company. (x) Special Exercise Period: As such term is defined in Section 7(f) of the Plan. (y) Spinoff: the distribution of the Shares owned by Cognizant to the holders of record of shares of Cognizant. (z) Spinoff Date: The date on which the Spinoff was effected. (aa) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor sectionthereto). 3. Shares Subject to the Plan The total number of Shares which may be issued under the Plan is equal to the aggregate number of shares subject to replacement awards, as calculated pursuant to Sections 7(a), 8(a) and 9 of this Plan. The Shares may consist, in whole or in part, of unissued shares or treasury shares. Issuance of Shares upon exercise of an option or reduction of the number of Shares subject to an option upon exercise of a stock appreciation right shall reduce the total number of Shares available under the Plan. In addition, Shares which are subject to unexercised stock options which terminate or lapse may not be optioned again under the Plan. 4. Administration The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and "outside directors" within the meaning of Section 162(m) of the Code (or any successor section thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may 6 correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Eligible Holders and their beneficiaries or successors). The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the exercise of an Award. Unless the Committee specifies otherwise, the Eligible Holder may elect to pay a portion or all of such withholding taxes by (a) delivery in Shares or (b) having Shares withheld by the Company from any Shares that would have otherwise been received by the Eligible Holder. The number of Shares so delivered or withheld shall have an aggregate Fair Market Value sufficient to satisfy the applicable withholding taxes. 5. Eligibility Only Eligible Holders shall receive grants of replacement stock options, replacement stock appreciation rights and replacement restricted stock under the Plan. The granting of a stock option, stock appreciation right or restricted stock under the Plan shall impose no obligation on the Company or any Subsidiary to continue the employment of an Eligible Holder and shall not lessen or affect the right to terminate the employment of such Eligible Holder. 6. Limitations Options hereunder shall only be granted in replacement of Cognizant Stock Options (as defined in Section 7(a) of the Plan) held by Eligible Holders immediately prior to the Spinoff Date. 7. Terms and Conditions of Options Stock options granted under the Plan shall be non-qualified, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Generally. As of the Spinoff Date, each unexercised stock option held by an Eligible Holder that was granted under the Cognizant Plans (a "Cognizant Stock Option") shall be cancelled, and such Eligible Holder shall receive a replacement stock option pursuant to this Plan. The number of Shares covered by each replacement stock option shall be determined by (i) multiplying the number of shares of Cognizant common stock covered by the cancelled Cognizant Stock Option by a 7 fraction, the numerator of which is the average of the Daily Average Trading Prices of Cognizant common stock for the five consecutive trading days immediately preceding the first date on which Cognizant common stock is traded ex-dividend, and the denominator of which is the average of the Daily Average Trading Prices of the Shares for the five consecutive trading days starting on the first date on which the Shares are traded regular way (the "IMS Health Ratio") and (ii) rounding down the result to a whole number of shares. The option price of each replacement stock option shall be determined by dividing the option price of the cancelled Cognizant Stock Option by the IMS Health Ratio. Unless otherwise specified in this Plan, all other terms of the replacement stock options shall remain substantially identical to those of the cancelled Cognizant Stock Options as set forth in the applicable Cognizant Plan and related option agreement(s). (b) Exercisability. Except as set forth in the Plan, stock options granted under the Plan shall have substantially identical terms as those of the stock options originally granted under the Cognizant Plans; provided, however, that in no event shall a replacement stock option be exercisable more than ten years after the date the original option was granted under the Cognizant Plans. (c) Exercise of Options. Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 7 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, (A) the date payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the following sentence or (B) the date of sale by a broker of all or a portion of the Shares being purchased pursuant to clause (iv) in the following sentence. The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise at the election of the Eligible Holder (i) in cash, (ii) in Shares having a Fair Market Value equal to the aggregate option price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (iii) partly in cash and partly in such Shares or (iv) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate option price for the Shares being purchased. No Eligible Holder shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Eligible Holder has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (d) Exercisability of a Cognizant Replacement Stock Option Upon Termination of Employment by Death or Disability. If an Eligible Holder's employment with the Company and its Subsidiaries terminates by reason of death or Disability after 8 the date of grant of a Cognizant Replacement Stock Option, (i) the unexercised portion of such option shall immediately vest in full and (ii) such portion may thereafter be exercised during the shorter of (A) the remaining stated term of such option or (B) five years after the date of death or Disability. (e) Exercisability of a D&B Replacement Stock Option Upon Termination of Employment by Death. If an optionee's employment by the Company or a subsidiary terminates by reason of death one year or more after the date of grant of the original stock option under the D&B Plans, the D&B Replacement Stock Option thereafter may be exercised, during the three years after the date of death or the remaining stated period of such option, whichever period is shorter, to the extent to which such option was exercisable at the time of death or thereafter would become exercisable during the three-year period after the date of death in accordance with its terms. (f) Exercisability of a Cognizant Replacement Stock Option Upon Termination of Employment by Retirement. If an Eligible Holder's employment with the Company and its Subsidiaries terminates by reason of Retirement after the date of grant of a Cognizant Replacement Stock Option, an unexercised Cognizant Replacement Stock Option may thereafter be exercised during the shorter of (i) the remaining stated term of such option or (ii) five years after the date of such termination of employment (the "Post-Retirement Exercise Period"), but only to the extent to which such option was exercisable at the time of such termination of employment or becomes exercisable during the Post-Retirement Exercise Period; provided, however, that if an Eligible Holder dies within a period of five years after such termination of employment, an unexercised Cognizant Replacement Stock Option may thereafter be exercised, during the shorter of (i) the remaining stated term of such option or (ii) the period that is the longer of (A) five years after the date of such termination of employment or (B) one year after the date of death (the "Special Exercise Period"), but only to the extent to which such option was exercisable at the time of such termination of employment or becomes exercisable during the Special Exercise Period. For purposes of this Section 7(f), "Retirement" shall mean termination of employment with the Company or a Subsidiary after such Eligible Holder has attained age 55 and five years of service with the Company; or, with the prior written consent of the Committee that such termination be treated as a Retirement hereunder, termination of employment under other circumstances. (g) Exercisability of a D&B Replacement Stock Option Upon Termination of Employment by Disability or Retirement. If an optionee's employment by the Company or a subsidiary terminates by reason of Disability or Retirement one year or more after the date of grant of the original stock option under the D&B Plans, the D&B Replacement Stock Option thereafter may be exercised, during the five years after the date of such termination of employment or the remaining stated period of such 9 option, whichever period is shorter, to the extent to which such option was exercisable at the time of such termination of employment or thereafter would become exercisable during such period in accordance with its terms; provided, however, that if the optionee dies within a period of five years after such termination of employment, any unexercised stock option may be exercised thereafter, during either (1) the period ending on the later of (i) five years after such termination of employment and (ii) one year after the date of death or (2) the period remaining in the stated term of the option, whichever period is shorter, to the extent to which such option was exercisable at the time of death or thereafter would become exercisable during the remainder of the five-year period after such termination of employment in accordance with its terms. For purposes of this Section 7(f), "Retirement" shall mean termination of employment with the Company or a subsidiary after the optionee has attained age 55 and completed ten or more years of employment with D&B and/or the Company; or after the optionee has attained age 65, regardless of the length of such optionee's employment with D&B and/or the Company. (h) Effect of Other Termination of Employment. If an Eligible Holder's employment with the Company and its Subsidiaries terminates for any reason other than death, Disability or Retirement after the date of grant of an Option as described above, an unexercised Cognizant Replacement Stock Option may thereafter be exercised during the period ending 90 days after the date of such termination of employment, but only to the extent to which such Option was exercisable at the time of such termination of employment. If an Eligible Holder's employment terminates for any reason, other than Disability, death or Retirement one year or more after the date of grant of the original stock option under the D&B Plans as described above, each D&B Replacement Stock Option held by such Eligible Holder shall thereupon terminate. Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the vesting of unvested Cognizant Replacement Stock Options held by an Eligible Holder if such Eligible Holder is terminated from employment without "cause" (as such term is defined by the Committee in its sole discretion) by the Company. 8. Terms and Conditions of Stock Appreciation Rights Stock appreciation rights (including limited stock appreciation rights) granted under the Plan shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Replacement Stock Appreciation Rights. As of the Spinoff Date, each unexercised stock appreciation right (including a limited stock appreciation right) held by an Eligible Holder that was granted under the Cognizant Plans (a "Cognizant SAR") shall be cancelled, and such Eligible Holder 10 shall receive a replacement stock appreciation right pursuant to this Plan. The number of Company stock appreciation rights covered by each replacement stock appreciation right shall be determined by (i) multiplying the number of Cognizant Stock Options covered by the cancelled Cognizant SAR by the IMS Health Ratio and (ii) rounding down the result to a whole number of stock appreciation rights. The exercise price of each replacement stock appreciation right shall be determined by dividing the exercise price of the cancelled Cognizant SAR by the IMS Health Ratio. Unless otherwise specified in this Plan, all other terms of the replacement stock appreciation rights shall remain substantially identical to those of the cancelled Cognizant SARs as set forth in the applicable Cognizant Plans and related Cognizant SAR agreement(s). (b) Terms. Stock appreciation rights shall cover the same Shares covered by a related option (or such lesser number of Shares as the Committee may determine) and shall be subject to the same terms and conditions as the option except for such additional limitations as are contemplated by this Paragraph 8 (or as may be included in a stock appreciation right granted hereunder). Each stock appreciation right shall entitle an optionee to surrender to the Company an unexercised option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to the excess of the fair market value on the exercise date of one Share over the option price per share times the number of Shares covered by the option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in shares and partly in cash, valued at such fair market value, all as shall be determined by the Committee. Stock appreciation rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares subject to an exercisable option with respect to which the stock appreciation right is being exercised. No fractional Shares will be issued in payment for stock appreciation rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole share. (c) Limitations on Exercisability. The Committee shall impose such conditions upon the exercisability of stock appreciation rights as will result, except upon the occurrence of an event contemplated by replacement limited stock appreciation rights granted pursuant to this Paragraph 8 or contemplated by the provisions of Paragraph 10, in the amount to be charged against the Company's consolidated income by reason of stock appreciation rights not to exceed, in any one calendar year, two percent of the Company's prior calendar year's consolidated income before income taxes. The Committee also may impose, in its discretion, such other conditions upon the exercisability of stock appreciation rights as it may deem fit. 11 (d) Replacement Limited Stock Appreciation Rights. The Committee shall grant replacement limited stock appreciation rights in substantially the same manner in which replacement stock appreciation rights are awarded pursuant to this Section 8 of the Plan. Unless the context otherwise requires, whenever the term "stock appreciation right" is used in the Plan, such term shall include limited stock appreciation rights. 9. Terms and Conditions of Restricted Stock As of the Spinoff Date, Cognizant Restricted Stock and IMS Health Restricted Stock held by an Eligible Holder shall be forfeited, and such Eligible Holder shall receive replacement restricted stock pursuant to this Plan. The number of shares of restricted stock shall equal (i) the number of Shares of forfeited IMS Health Restricted Stock plus (ii) the number of shares of forfeited Cognizant Restricted Stock multiplied by a fraction, the numerator of which is the average of the Daily Average Trading Prices of Cognizant common stock for the five consecutive trading days starting on the ex-dividend trading date, and the denominator of which is the average of the Daily Average Trading Prices of the Shares for the five consecutive trading days starting on the first date on which the Shares are traded regular way. Unless otherwise specified in this Plan, all other terms of the replacement restricted stock shall remain substantially identical to those of the forfeited Cognizant Restricted Stock as set forth in the applicable Cognizant Plans and related Cognizant Restricted Stock agreement(s). 12 Adjustments Upon Certain Events Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the option price and/or (iii) any other affected terms of such Awards. (b) Change in Control. Except as otherwise provided in an Award agreement or, with respect to D&B Replacement Options in the 1996 Cognizant Corporation Replacement Plan for Certain Employees Holding The Dun & Bradstreet Corporation Equity-Based Awards, in the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount in exchange for the cancellation of an Award and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 11. Successors and Assigns The Plan shall be binding on all successors and assigns of the Company and an Eligible Holder, including without limitation, the estate of such Eligible Holder and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Eligible Holder's creditors. 13 Nontransferability of Awards An Award shall not be transferable or assignable by the Eligible Holder otherwise than by will or by the laws of descent and distribution. During the lifetime of an Eligible Holder, an Award shall be exercisable only by such Eligible Holder. An Award exercisable after the death of an Eligible Holder may be exercised by the legatees, personal representatives or distributees of the Eligible Holder. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 12 (or any part thereof) to the extent that this Section 12 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company. 13. Amendments or Termination The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which, (a) without the approval of the stockholders of the Company, would (except as is provided in Section 10 of the Plan), increase the total number of Shares reserved for the purposes of the Plan or change the maximum number of Shares for which Awards may be granted to any Eligible Holder or (b) without the consent of an Eligible Holder, would impair any of the rights or obligations under any Award theretofore granted to such Eligible Holder under the Plan. Notwithstanding anything to the contrary herein, the Board may not amend, alter or discontinue the provisions relating to Section 10(b) of the Plan after the occurrence of a Change in Control. 14. International Eligible Holders With respect to Eligible Holders who reside or work outside the United States of America and who are not (and who are not expected to be) "covered employees" within the meaning of Section 162(m) of the Code, the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Eligible Holders in order to conform such terms with the requirements of local law. 15. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 16. Effectiveness of the Plan The Plan shall be effective as of the Spinoff Date. EX-10.9 11 REPLACEMENT PLAN/CERTAIN NON-EMPLOYEE 1998 IMS HEALTH INCORPORATED REPLACEMENT PLAN FOR CERTAIN NON-EMPLOYEE DIRECTORS HOLDING COGNIZANT CORPORATION EQUITY-BASED AWARDS 1. Purpose of the Plan The purpose of the 1998 IMS Health Incorporated Replacement Plan for Certain Non-employee Directors Holding Cognizant Corporation Equity-Based Awards is to provide for the award of substantially identical replacement stock options to certain non-employee directors of IMS Health Incorporated, a Delaware corporation whose awards under the 1996 Cognizant Corporation Non-Employee Directors' Stock Incentive Plan were cancelled pursuant to the spinoff of the Company from Cognizant Corporation, a Delaware corporation and to certain retired non-employee directors who elect, pursuant to the Spinoff, to have the awards granted under the Cognizant Plan cancelled (the "Eligible Holders"). The Company expects that the Plan will aid the Company in attracting, retaining and compensating non-employee directors and to enable them to increase their ownership of Shares. The Plan will be beneficial to the Company and its shareholders since it will allow non-employee directors to have a greater personal financial stake in the Company through the ownership of Shares, in addition to underscoring their common interest with shareholders in increasing the value of the Shares on a long-term basis. It is the intention of the Company that the terms of the replacement awards will (i) substantially preserve the economic value of the cancelled Cognizant awards and (ii) except for the terms described in Sections 7, 8 and 9 of this Plan, remain substantially identical to the terms of the cancelled Cognizant awards. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Awards: Replacement Options and Replacement Restricted Stock granted pursuant to the Plan. (c) Beneficial Owner: As defined in rule 13d-3 under the Act (or any successor rule thereto). (d) Board: The Board of Directors of the Company. 2 (e) Change in Control: The occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(e)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (f) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (g) Cognizant: Cognizant Corporation, a Delaware corporation. (h) Cognizant Plan: The 1996 Cognizant Corporation Non-Employee Directors' Stock Incentive Plan. (i) Committee: The Compensation and Benefits Committee of the Board. (j) Company: IMS Health Incorporated, a Delaware corporation. (k) Daily Average Trading Prices: The average of the high and low trading prices for stock on a given day. (l) Disability: Inability to continue to serve as a non-employee director of the Board due to a medically determinable physical or mental impairment which constitutes a permanent and total disability, as determined by the Committee (excluding any member thereof whose own Disability is at issue in a given case) based upon such evidence as it deems necessary and appropriate. An Eligible Holder shall not be considered disabled unless he or she furnished such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. 4 (m) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 14 of the Plan. (n) Eligible Holder: As such term is defined in Section 1 of the Plan. (o) Fair Market Value: On a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealers Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (p) Person: As such term is used in Section 13(d) or 14(d) of the Act (or any successor section thereto). (q) Plan: The 1998 IMS Health Incorporated Replacement Plan for Certain Non-Employees Directors Holding Cognizant Corporation Equity-Based Awards. (r) Replacement Option: A stock option granted pursuant to Section 7 of the Plan. (s) Replacement Restricted Stock: Restricted stock granted pursuant to Section 8 of the Plan. 5 (t) Retirement: Termination of service with the Company after such Eligible Holder has attained age 70, regardless of the length of such Eligible Holder's service; or with the prior written consent of the Committee (excluding any member thereof whose own Retirement is at issue in a given case), termination of service at an earlier age after the Eligible Holder has completed six or more years of service with the Company. (u) Shares: Shares of common stock, par value $.01 per share, of the Company. (v) Spinoff Date: The date on which the Shares are distributed to the shareholders. (w) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 6 3. Shares Subject to the Plan The total number of Shares which may be issued under the Plan is equal to the aggregate number of Shares to be issued as replacement awards, as calculated pursuant to Sections 7 and 8 of this Plan. The Shares may consist, in whole or in part, of unissued Shares or treasury shares. After the initial grant of awards, no further awards shall be granted under the Plan. 4. Administration The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Eligible Holders and their beneficiaries or successors). 5. Eligibility Only Eligible Holders shall receive grants of replacement stock options under the Plan. 6. Limitations Options hereunder shall only be granted in replacement of Cognizant Stock Options (as defined in Section 7(a) of the Plan) held by Eligible Holders immediately prior to the Spinoff Date. 7. Terms and Conditions of Options Options granted under the Plan shall be non-qualified stock options for federal income tax purposes, as evidenced by the related Option agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: 7 (a) Generally. As of the Spinoff, each unexercised stock option held by an Eligible Holder that was granted under the Cognizant Plan (a "Cognizant Stock Option") shall be cancelled, and such Eligible Holder shall receive a replacement stock option pursuant to this Plan. The number of Shares covered by each replacement stock option shall be determined by (i) multiplying the number of shares of Cognizant common stock covered by the cancelled Cognizant Stock Option by a fraction, the numerator of which is the average of the Daily Average Trading Prices of Cognizant common stock for the five consecutive trading days immediately preceding the first date on which Cognizant common stock is traded ex-dividend, and the denominator of which is the average of the Daily Average Trading Prices of the Shares for the five consecutive trading days starting on the first date on which the Shares are traded regular way (the "Cognizant Ratio") and (ii) rounding down the result to a whole number of shares. The option price of each replacement stock option shall be determined by dividing the option price of the cancelled Cognizant Stock Option by the Cognizant Ratio. Unless otherwise specified in this Plan, all other terms of the replacement stock options shall remain substantially identical to those of the cancelled Cognizant Stock Options as set forth in the Cognizant Plan and related option agreement(s). (b) Exercisability. Except as set forth in the Plan, stock options granted under the Plan shall have substantially identical terms as those of the stock options originally granted under the Cognizant Plan; provided, however, that in no event shall a replacement stock option be exercisable more than ten years after the date the original option was granted under the Cognizant Plan. (c) Exercise of Options. Except as otherwise provided in the Plan or in a related Option agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 7 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, (A) the date payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the following sentence or (B) the date of sale by a broker of all or a portion of the Shares being purchased pursuant to clause (iv) in the following sentence. The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise at the election of the Eligible Holder (i) in cash, (ii) in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (iii) partly in cash and partly in such Shares or (iv) through the delivery of irrevocable instructions to a broker to 8 deliver promptly to the Company an amount equal to the aggregate Option Price for the Shares being purchased. No Eligible Holder shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Eligible Holder has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (d) Exercisability Upon Termination of Service by Death. If an Eligible Holder's service with the Company and its Subsidiaries terminates by reason of death after the date of grant of an Option, (i) the unexercised portion of such Option shall immediately vest in full and (ii) such portion may thereafter be exercised during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of death. (e) Exercisability Upon Termination of Service by Disability or Retirement. If an Eligible Holder's service with the Company and its Subsidiaries terminates by reason of Disability or Retirement after the date of grant of an Option, (i) the unexercised portion of such Option shall immediately vest in full and (ii) such portion may thereafter be exercised during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of such termination of service; provided, however, that if an Eligible Holder dies within a period of five years after such termination of service, the unexercised portion of the Option may thereafter be exercised, during the shorter of (i) the remaining stated term of the Option or (ii) the period that is the longer of (A) five years after the date of such termination of service or (B) one year after the date of death. (f) Effect of Other Termination of Service. If an Eligible Holder's service with the Company and its Subsidiaries terminates for any reason other than death, Disability or Retirement after the date of grant of an Option as described above, the unexercised portion of an Option may thereafter be exercised during the period ending ninety days after the date of such termination of service, but only to the extent to which such Option was exercisable at the time of such termination of service. 8. Terms and Conditions of Restricted Stock As of the Spinoff Date, Cognizant Restricted Stock and IMS Health Restricted Stock held by an Eligible Holder shall be forfeited, and such Eligible Holder shall receive replacement restricted stock pursuant to this Plan. The number of shares of 9 restricted stock shall equal (i) the number of shares of forfeited IMS Health Restricted Stock plus (ii) the number of shares of forfeited Cognizant Restricted Stock multiplied by a fraction, the numerator of which is the average of the Daily Average Trading Prices of Cognizant common stock for the five consecutive trading days starting on the ex-dividend trading date, and the denominator of which is the average of the Daily Average Trading Prices of the Shares for the five consecutive trading days starting on the first date on which the Shares are traded regular way. Unless otherwise specified in this Plan, all other terms of the replacement restricted stock shall remain substantially identical to those of the forfeited Cognizant Restricted Stock as set forth in the applicable Cognizant Plans and related Cognizant Restricted Stock agreement(s). 9. Adjustments Upon Certain Events Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to shareholders of Shares other than regular cash dividends, the Committee, in its sole discretion and without liability to any person, may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price and/or (iii) any other affected terms of such Awards. (b) Change in Control. In the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount in exchange for the cancellation of an Award and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 10. Successors and Assigns The Plan shall be binding on all successors and assigns of the Company and an Eligible Holder, including without limitation, 10 the estate of such Eligible Holder and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Eligible Holder's creditors. 11. Amendments or Termination The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of any Eligible Holder under any Award theretofore granted without such Eligible Holder's consent. 12. Nontransferability of Awards An Award shall not be transferable or assignable by the Eligible Holder otherwise than by will or by the laws of descent and distribution. During the lifetime of an Eligible Holder, an Award shall be exercisable only by such Eligible Holder. An Award exercisable after the death of an Eligible Holder may be exercised by the legatees, personal representatives or distributees of the Eligible Holder. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 12 (or any part thereof) to the extent that this Section 12 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company. 13. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 14. Effectiveness of the Plan The Plan shall be effective as of the Spinoff Date. EX-10.10 12 NOTICE OF GRANT/ONE-SIXTH VESTING Exhibit 10.10 ================================================================================ Notice of Grant of Stock Options IMS Health Incorporated and Option Agreement ID: 06-1506026 200 Nyala Farms Westport, CT 06880 - - -------------------------------------------------------------------------------- Plan: D-98 - - ------------------------ ================================================================================ Effective ____________, you have been granted a Non-Qualified Stock Option to buy ______ shares of IMS Health Incorporated (the Company) stock at $_________ per share. Shares will vest in accordance with the following schedule: Percent Vesting Vest Date Expiration Date --------------- --------- --------------- one-sixth one-sixth one-sixth one-sixth one-sixth one-sixth - - -------------------------------------------------------------------------------- By the Company's signature below, and your acceptance of the stock option grant, you and the Company agree that these options are governed by the terms and conditions of the Non-Employee Directors' Stock Incentive Plan and the Plan Prospectus, all of which are attached and made part of this document. ================================================================================ /s/ Kenneth S. Siegel Kenneth S. Siegel SVP, General Counsel and Secretary IMS Health Incorporated EX-10.11 13 RESTRICTED STOCK AGMT/NONEMPLOY DIRECTOR Exhibit 10.11 RESTRICTED STOCK AGREEMENT UNDER THE 1998 IMS HEALTH INCORPORATED NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN This restricted stock agreement (the "Award Agreement") confirms the restricted stock award (the "Award") made on ____________ by the Compensation and Benefits Committee (the "Committee") of the Board of Directors of IMS Health Incorporated (the "Company") to ____________________ (the "Participant") of ________ shares of the Company's common stock, par value $0.01 per share (the "Restricted Stock"). The Restricted Stock is awarded in accordance with and is subject to all the terms and conditions of the 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan (the "Plan"), which Plan is incorporated herein by reference. Certificates issued in respect of the Restricted Stock shall be registered in the name of the Participant and shall bear the following legend, or any other similar legend as may be required by the Company: "The transferability of this certificate and the shares of stock represented hereby is subject to the terms and conditions (including forfeiture) of the 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan and an agreement entered into between the registered owner and IMS Health Incorporated. Copies of such Plan and the agreement are on file in the office of the Secretary of IMS Health Incorporated." Except as otherwise provided in this Award Agreement and the Plan, the Participant shall have all the rights of a shareholder of the Company with respect to the Restricted Stock, including the right to vote the shares and receive dividends and distributions. However, until the Restricted Stock is released to the Participant as set forth below, the Participant may not sell, transfer, pledge, assign or otherwise dispose of the Restricted Stock. The stock certificates evidencing the Restricted Stock shall be held in custody by a bank or other institution, or by the Company itself, until such shares are forfeited in accordance with the Plan, or until the restrictions thereon shall have lapsed as set forth below. The Participant hereby agrees as a condition to the award of the Restricted Stock to deliver to the Company, together with this Award Agreement, a stock power endorsed in blank relating to the Restricted Stock covered by this Award, so that, in the event of a forfeiture of the Award, the Restricted Stock will be transferred to the Company. Subject to earlier forfeiture (or release) of the Restricted Stock as provided in the Plan, all such shares will be released to the Participant free of all restrictions and delivered to the Participant on ______________. IN WITNESS WHEREOF, IMS Health Incorporated has caused this Award Agreement to be executed by its officer thereunto duly authorized. By the Company's signature below, and your acceptance of these restricted shares, you and the Company agree that these shares are governed by the terms and conditions of the Plan and the Plan Prospectus, all of which are attached and made part of this document. IMS HEALTH INCORPORATED /s/ Kenneth S. Siegel Kenneth S. Siegel SVP, General Counsel and Secretary EX-10.12 14 RESTRICTED STOCK UNITS AGREEMENT Exhibit 10.12 RESTRICTED STOCK UNITS AGREEMENT UNITS RESULTING FROM PERS AWARDS UNDER THE 1998 IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN This Restricted Stock Units Agreement (the "Agreement") confirms the grant of Restricted Stock Units ("RSUs") on ____________ (the "Grant Date") by the Compensation and Benefits Committee (the "Committee") of the Board of Directors of IMS Health Incorporated (the "Company") as follows: Participant Granted RSUs: Number of RSUs Granted: The RSUs are granted based upon the achievement of performance conditions during 1998, in accordance with the Company's Performance-Based Restricted Stock Program (the "PERS program") under the 1998 IMS Health Incorporated Employees' Stock Incentive Plan (the "Plan"). Accordingly, the RSUs represent performance-based restricted stock units or "PERS" as to which the performance conditions have been satisfied. The RSUs are subject to all the terms and conditions of the Plan, which is attached hereto and incorporated herein by reference, and are subject to the terms and conditions of this Agreement, including the Terms and Conditions attached hereto. Participant acknowledges and agrees that (i), until an RSU has become vested in accordance with Section 2(a) hereof, such RSU will be subject to a risk of forfeiture to the extent provided in Section 2 hereof, and (ii), until the later of the time each RSU becomes vested or the end of any additional period of deferral elected by Participant in accordance with Section 4 hereof, such RSU shall be generally nontransferable, as provided in Section 3 hereof. IN WITNESS WHEREOF, IMS Health Incorporated has caused this Agreement to be executed by its officer thereunto duly authorized. By the Company's signature, and your acceptance of these RSUs, you and the Company agree to the terms of this Agreement. If you make any election in this Agreement, you must sign the Agreement and return it to the Human Resources Department. IMS HEALTH INCORPORATED /s/ KENNETH S. SIEGEL --------------------- Kenneth S. Siegel SVP, General Counsel and Secretary Term and Conditions of Restricted Stock Units 1. Restricted Stock Units Each RSU represents a generally nontransferable, conditional right to receive one share of the Company's Common Stock (a "Share") at a specified future date, together with a right to Dividend Equivalents and other rights, subject to the terms and conditions of the Plan and this Agreement. RSUs are bookkeeping units, and do not represent ownership of Shares or any other equity security. The Company shall maintain a bookkeeping account for Participant (the "Account") reflecting the number of RSUs then credited to Participant hereunder as a result of this grant of RSUs and any crediting of additional RSUs to Participant pursuant to payments equivalent to dividends paid on Shares under Section 5 ("Dividend Equivalents"). For purposes of this Agreement, the term "RSUs" includes RSUs as to which the risk of forfeiture has lapsed but which remain subject to deferral of settlement. 2. Vesting and Forfeiture. (a) RSUs granted hereunder shall vest (meaning that the risk of forfeiture of such RSUs shall lapse) at the earliest of (i) [4:00 pm on December 31, 20001] [the second anniversary of the Grant Date] (the "Scheduled Lapse Date") , (ii) Termination of Employment (as defined below) by reason of Retirement (as defined in the Plan), (iii) Termination of Employment by reason of death or Disability (as defined in the Plan), (iv) the occurrence of a Change in Control (as defined in the Plan), or (v) any other event specified in an employment agreement between the Company and Participant in effect at the time of Termination of Employment. In addition, a portion of the RSUs, if not otherwise vested, shall vest upon the Participant's Termination of Employment by the Company not for Cause (as defined below), which portion shall equal the total number of RSUs originally granted pursuant to this Agreement multiplied by a fraction the numerator of which is the number of days elapsed from January 1, 1999 through the date of Termination of Employment and the denominator of which is the number of days from January 1, 1999 through the Scheduled Lapse Date. Each RSU credited as a result of Dividend Equivalents on a forfeitable RSU under Section 5(a)[(i) shall be fully vested and nonforfeitable from and after the date of such crediting, and each RSU credited as a result of Dividend Equivalents under Section 5(a)(ii) and (iii)] shall vest at the time of vesting of the forfeitable RSU which gives rise, directly or indirectly, to the crediting of such Dividend Equivalent RSU. Each RSU credited as a result of Dividend Equivalents on a then non-forfeitable RSU under Section 5(a) shall be fully vested and nonforfeitable from and after the date of such crediting. (b) In the event of Participant's Termination of Employment, all RSUs which are not vested at or prior to the time of such Termination shall be forfeited, unless otherwise determined by the Committee. Thus, upon Participant's voluntary Termination of Employment or a Termination of Employment by the Company for Cause, unvested RSUs generally will be forfeited. - - ---------- (1) Note to draft: This date would allow the vesting PERS to be excluded from the footnote to the Summary Compensation Table showing the value of restricted stock held at the end of the prior fiscal year. (c) For purposes of this Agreement, a "Termination of Employment" shall mean a termination of Participant's employment with the Company or a subsidiary or affiliate of the Company if, immediately thereafter, Participant is not employed by any of the Company or its subsidiaries or affiliates. (d) For purposes of this Agreement, "Cause" shall have the meaning defined in an employment agreement between the Company and Participant in effect at the time of Termination of Employment or, if there is no such employment agreement, "Cause" shall mean (a) willful malfeasance or willful misconduct by Participant in connection with his or her employment, (b) continuing failure to perform such duties as are requested by any employee to whom the Participant reports, directly or indirectly, or by the board of directors of either the Company or the subsidiary or affiliate employs Participant, (c) failure by Participant to observe material policies of the Company or his or her employer applicable to Participant, or (d) the commission by Participant of (i) any felony or (ii) any misdemeanor involving moral turpitude. 3. Nontransferability. Until RSUs become settleable under Section 4 hereof, RSUs shall not be transferable other than by will or by the laws of descent and distribution or to a designated beneficiary in the event of Participant's death, and no such transfer shall be effective to bind the Company unless the Committee shall have been furnished with a copy of such will or such other evidence as the Committee may deem necessary to establish the validity of the transfer. 4. Settlement and Election to Defer Settlement. RSUs granted hereunder, together with RSUs credited as a result of Dividend Equivalents, shall be settled by delivery of one Share for each RSU being settled. Settlement of an RSU granted hereunder shall occur upon the lapse of the risk of forfeiture of such RSU under Section 2, except settlement shall be deferred in certain cases if so elected by Participant in accordance with this Section 4. Settlement of RSUs which directly or indirectly result from Dividend Equivalents on RSUs granted hereunder shall occur at the time of settlement of the granted RSU. By filling out this Section 4, signing, and returning this Agreement to the Human Resources Department at least six months prior to Scheduled Lapse Date (or such other deadline as may be specified by the Director of Human Resources), Participant may elect to defer the date of settlement of RSUs. An election hereunder shall be effective only in the case of RSUs which, but for the election, would have been settled more than six months after the filing of the election. Check Only One: ____ I hereby elect to have my RSUs settled upon the lapse of the risk of forfeiture under Section 2 (Note: This election will apply if you do not return the Agreement to the Company or if you do not check any box). ____ I hereby elect to defer the settlement of my RSUs until the first business day of the year (subject to accelerated settlement in the event of a Change of Control Event, death of the Participant, or Termination of Employment for any reason other than Retirement). ____ I hereby elect to defer the settlement of my RSUs until my Termination of Employment for any reason. Termination of Employment includes my death or Disability. [Any elective deferral will be subject to such additional terms and conditions as the Committee may impose, including terms and conditions under the Company's 1999 Deferred Compensation Plan.] 5. Dividend Equivalents and Adjustments. (a) Dividend Equivalents shall be paid or credited on RSUs (other than RSUs that, at the relevant record date, previously have been settled or forfeited) as follows: (i) Cash Dividends. If the Company declares and pays a dividend or distribution on Common Stock in the form of cash, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution multiplied by the amount of cash actually paid as a dividend or distribution on each outstanding Share at such payment date, divided by the Fair Market Value of a Share at such payment date. (ii) Non-Share Dividends. If the Company declares and pays a dividend or distribution on Common Stock in the form of property other than Shares, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution multiplied by the Fair Market Value of such property actually paid as a dividend or distribution on each outstanding Share at such payment date, divided by the Fair Market Value of a Share at such payment date. (iii) Common Stock Dividends and Splits. If the Company declares and pays a dividend or distribution on Common Stock in the form of additional Shares, or there occurs a forward split of Common Stock, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution or forward split equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution or split multiplied by the number of additional Shares actually paid as a dividend or distribution or issued in such split in respect of each outstanding Share. (b) The number of RSUs credited to Participant's Account shall be appropriately adjusted, in order to prevent dilution or enlargement of Participants' rights with respect to RSUs, to reflect any changes in the outstanding Shares resulting from any event referred to in Section 10(a) of the Plan, taking into account any RSUs credited to Participant in connection with such event under Section 5(a) hereof. 6. Other Terms Relating to RSUs. (a) The number of RSUs credited to a Participant's Account shall include fractional RSUs calculated to at least three decimal places, unless otherwise determined by the Committee. Upon settlement of RSUs, Participant shall be paid, in cash, an amount equal to the value of any fractional share that would have otherwise been deliverable in settlement of such RSUs, unless the Company arranges to deliver shares to an account of Participant to which fractional shares may be credited without requiring the Company to in fact issue a fractional share. (b) It shall be a condition to the obligation of the Company to issue and deliver Shares in settlement of the RSUs that the Participant (or any Beneficiary) pay to the Company or a Participating Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, or local income or other taxes. If the amount requested is not paid, the Company may refuse to deliver the shares in settlement of the RSUs until such amount is paid. The Committee may, in its discretion, permit a Participant (or any Beneficiary of a Participant) to pay all or a portion of the amount requested by the Company for such taxes at such time and in such manner as the Committee shall deem to be appropriate, including by authorizing the Company to withhold from the shares to be delivered in settlement, or by agreeing to surrender to the Company on or about the date such tax liability is determinable, Shares having a fair market value (as determined by the Committee) equal to the amount of such tax liability or a specified portion of such tax liability. (c) An individual statement of each Participant's Account will be issued to each Participant not less frequently than [annually]. Such statements shall reflect the amount of RSUs credited to Participant's Account, transactions therein during the period covered by the statement, and other information deemed relevant by the [Director of Human Resources]. Such a statement may be combined with or include information regarding other plans and compensatory arrangements relating to Participant. A Participant's statements shall be deemed a part of this Agreement, and shall evidence the Company's obligations in respect of RSUs, including the number of RSUs credited as a result of Dividend Equivalents (if any); provided, however, that any statement containing an error shall not represent a binding obligation to the extent of such error. 7. Miscellaneous. (a) This Agreement shall be legally binding when executed by both the Company, provided that no election of Participant will be binding unless Participant has executed the Agreement and returned it to the Human Resources Department of the Company. (b) This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the RSUs, and supersedes any prior agreements or documents with respect to the RSUs. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of Participant with respect to the RSUs shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by Participant. (c) All designations of Beneficiary shall be on such forms as are specified by and filed with the Human Resources Department. Any Beneficiary designation made by Participant in accordance with this provision may be changed from time to time, without the consent of any previously designated Beneficiary (but subject to any spousal consent as may be required), by filing with the Human Resources Department a notice of such change on the form provided by the Committee and such change of Beneficiary designation shall become effective upon receipt by the Committee. In the event Participant's Beneficiary would otherwise become entitled to a distribution hereunder, and all Beneficiaries designated by Participant are not then living, or if no valid Beneficiary designation is in effect, Participant's estate or duly authorized personal representative shall be deemed to have been designated by Participant. (d) Any provision for distribution in settlement of Participant's Account hereunder shall be by means of bookkeeping entries on the books of the Company and shall not create in Participant or any Beneficiary any right to, or claim against any, specific assets of the Company, nor result in the creation of any trust or escrow account for Participant or any Beneficiary. Participant or any Beneficiary entitled to any distribution hereunder shall be a general creditor of the Company. (e) Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. * * * * * By signing below and returning this Agreement to the Human Resources Department, I elect to defer settlement of the RSUs until the applicable date specified in Section 4, subject to earlier settlement in accordance with Section 4 and the other terms of the Plan and this Agreement. (Note: If you do not wish to defer settlement past the Scheduled Lapse Date, you do not need to sign below and return this Agreement to the Human Resources Department. If you elect to further defer settlement, you should retain a copy of this Agreement for your records.) PARTICIPANT: Date: [For HR Use Only: Date Received by Human Resources Department: ] RESTRICTED STOCK UNITS AGREEMENT RESTRICTED STOCK UNITS GRANTED UNDER THE 1998 IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN This Restricted Stock Units Agreement (the "Agreement") confirms the grant of Restricted Stock Units ("RSUs") on ____________ (the "Grant Date") by the Compensation and Benefits Committee (the "Committee") of the Board of Directors of IMS Health Incorporated (the "Company") as follows: Participant Granted RSUs: Number of RSUs Granted: The RSUs are granted under the 1998 IMS Health Incorporated Employees' Stock Incentive Plan (the "Plan"). The RSUs are subject to all the terms and conditions of the Plan, which is attached hereto and incorporated herein by reference, and are subject to the terms and conditions of this Agreement, including the Terms and Conditions attached hereto. Participant acknowledges and agrees that (i), until an RSU has become vested in accordance with Section 2(a) hereof, such RSU will be subject to a risk of forfeiture to the extent provided in Section 2 hereof, and (ii), until the later of the time each RSU becomes vested or the end of any additional period of deferral elected by Participant in accordance with Section 4 hereof, such RSU shall be generally nontransferable, as provided in Section 3 hereof. IN WITNESS WHEREOF, IMS Health Incorporated has caused this Agreement to be executed by its officer thereunto duly authorized. By the Company's signature, and your acceptance of these RSUs, you and the Company agree to the terms of this Agreement. If you make any election in this Agreement, you must sign the Agreement and return it to the Human Resources Department. IMS HEALTH INCORPORATED /s/ KENNETH S. SIEGEL --------------------- Kenneth S. Siegel SVP, General Counsel and Secretary Term and Conditions of Restricted Stock Units 1. Restricted Stock Units Each RSU represents a generally nontransferable, conditional right to receive one share of the Company's Common Stock (a "Share") at a specified future date, together with a right to Dividend Equivalents and other rights, subject to the terms and conditions of the Plan and this Agreement. RSUs are bookkeeping units, and do not represent ownership of Shares or any other equity security. The Company shall maintain a bookkeeping account for Participant (the "Account") reflecting the number of RSUs then credited to Participant hereunder as a result of this grant of RSUs and any crediting of additional RSUs to Participant pursuant to payments equivalent to dividends paid on Shares under Section 5 ("Dividend Equivalents"). For purposes of this Agreement, the term "RSUs" includes RSUs as to which the risk of forfeiture has lapsed but which remain subject to deferral of settlement. 2. Vesting and Forfeiture. (a) RSUs granted hereunder shall vest (meaning that the risk of forfeiture of such RSUs shall lapse) [as to one-third of the RSUs on each of the first three anniversaries of the Grant Date (each being a "Scheduled Lapse Date")] [on the first anniversary of the Grant Date (the "Scheduled Lapse Date")], except that all RSUs shall vest on an accelerated basis upon the earliest of (i) Termination of Employment (as defined below) by reason of Retirement (as defined in the Plan), (ii) Termination of Employment by reason of death or Disability (as defined in the Plan), (iii) the occurrence of a Change in Control (as defined in the Plan), or (iv) any other event specified as resulting in acceleration of RSUs in an employment agreement between the Company and Participant in effect at the time of Termination of Employment. [In addition, a portion of the RSUs, if not otherwise vested, shall vest upon the Participant's Termination of Employment by the Company not for Cause (as defined below), which portion shall equal the number of unvested RSUs remaining subject to this Agreement and having the same Scheduled Lapse Date multiplied by a fraction the numerator of which is the number of days elapsed from the Grant Date through the date of Termination of Employment and the denominator of which is the number of days from the Grant Date through such Scheduled Lapse Date.] Each RSU credited as a result of Dividend Equivalents on a forfeitable RSU under Section 5(a)[(i) shall be fully vested and nonforfeitable from and after the date of such crediting, and each RSU credited as a result of Dividend Equivalents under Section 5(a)(ii) and (iii)] shall vest at the time of vesting of the forfeitable RSU which gives rise, directly or indirectly, to the crediting of such Dividend Equivalent RSU. Each RSU credited as a result of Dividend Equivalents on a then non-forfeitable RSU under Section 5(a) shall be fully vested and nonforfeitable from and after the date of such crediting. (b) In the event of Participant's Termination of Employment, all RSUs which are not vested at or prior to the time of such Termination shall be forfeited, unless otherwise determined by the Committee. Thus, upon Participant's voluntary Termination of Employment or a Termination of Employment by the Company for Cause, unvested RSUs generally will be forfeited. (c) For purposes of this Agreement, a "Termination of Employment" shall mean a termination of Participant's employment with the Company or a subsidiary or affiliate of the Company if, immediately thereafter, Participant is not employed by any of the Company or its subsidiaries or affiliates. (d) For purposes of this Agreement, "Cause" shall have the meaning defined in an employment agreement between the Company and Participant in effect at the time of Termination of Employment or, if there is no such employment agreement, "Cause" shall mean (a) willful malfeasance or willful misconduct by Participant in connection with his or her employment, (b) continuing failure to perform such duties as are requested by any employee to whom the Participant reports, directly or indirectly, or by the board of directors of either the Company or the subsidiary or affiliate employs Participant, (c) failure by Participant to observe material policies of the Company or his or her employer applicable to Participant, or (d) the commission by Participant of (i) any felony or (ii) any misdemeanor involving moral turpitude. 3. Nontransferability. Until RSUs become settleable under Section 4 hereof, RSUs shall not be transferable other than by will or by the laws of descent and distribution or to a designated beneficiary in the event of Participant's death, and no such transfer shall be effective to bind the Company unless the Committee shall have been furnished with a copy of such will or such other evidence as the Committee may deem necessary to establish the validity of the transfer. 4. Settlement and Election to Defer Settlement. RSUs granted hereunder, together with RSUs credited as a result of Dividend Equivalents, shall be settled by delivery of one Share for each RSU being settled. Settlement of an RSU granted hereunder shall occur upon the lapse of the risk of forfeiture of such RSU under Section 2, except settlement shall be deferred in certain cases if so elected by Participant in accordance with this Section 4. Settlement of RSUs which directly or indirectly result from Dividend Equivalents on RSUs granted hereunder shall occur at the time of settlement of the granted RSU. By filling out this Section 4, signing, and returning this Agreement to the Human Resources Department at least six months prior to Scheduled Lapse Date for any affected RSUs (or such other deadline as may be specified by the Director of Human Resources), Participant may elect to defer the date of settlement of RSUs. An election hereunder shall be effective only in the case of RSUs which, but for the election, would have been settled more than six months after the filing of the election. Check Only One: ____ I hereby elect to have my RSUs settled upon the lapse of the risk of forfeiture under Section 2 (Note: This election will apply if you do not return the Agreement to the Company or if you do not check any box). ____ I hereby elect to defer the settlement of my RSUs until the first business day of the year (subject to accelerated settlement in the event of a Change of Control Event, death of the Participant, or Termination of Employment for any reason other than Retirement). ____ I hereby elect to defer the settlement of my RSUs until my Termination of Employment for any reason. Termination of Employment includes my death or Disability. [Any elective deferral will be subject to such additional terms and conditions as the Committee may impose, including terms and conditions under the Company's 1999 Deferred Compensation Plan.] 5. Dividend Equivalents and Adjustments. (a) Dividend Equivalents shall be paid or credited on RSUs (other than RSUs that, at the relevant record date, previously have been settled or forfeited) as follows: (i) Cash Dividends. If the Company declares and pays a dividend or distribution on Common Stock in the form of cash, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution multiplied by the amount of cash actually paid as a dividend or distribution on each outstanding Share at such payment date, divided by the Fair Market Value of a Share at such payment date. (ii) Non-Share Dividends. If the Company declares and pays a dividend or distribution on Common Stock in the form of property other than Shares, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution multiplied by the Fair Market Value of such property actually paid as a dividend or distribution on each outstanding Share at such payment date, divided by the Fair Market Value of a Share at such payment date. (iii) Common Stock Dividends and Splits. If the Company declares and pays a dividend or distribution on Common Stock in the form of additional Shares, or there occurs a forward split of Common Stock, then a number of additional RSUs shall be credited to Participant's Account as of the payment date for such dividend or distribution or forward split equal to the number of RSUs credited to the Account as of the record date for such dividend or distribution or split multiplied by the number of additional Shares actually paid as a dividend or distribution or issued in such split in respect of each outstanding Share. (b) The number of RSUs credited to Participant's Account shall be appropriately adjusted, in order to prevent dilution or enlargement of Participants' rights with respect to RSUs, to reflect any changes in the outstanding Shares resulting from any event referred to in Section 10(a) of the Plan, taking into account any RSUs credited to Participant in connection with such event under Section 5(a) hereof. 6. Other Terms Relating to RSUs. (a) The number of RSUs credited to a Participant's Account shall include fractional RSUs calculated to at least three decimal places, unless otherwise determined by the Committee. Upon settlement of RSUs, Participant shall be paid, in cash, an amount equal to the value of any fractional share that would have otherwise been deliverable in settlement of such RSUs, unless the Company arranges to deliver shares to an account of Participant to which fractional shares may be credited without requiring the Company to in fact issue a fractional share. (b) It shall be a condition to the obligation of the Company to issue and deliver Shares in settlement of the RSUs that the Participant (or any Beneficiary) pay to the Company or a Participating Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, or local income or other taxes. If the amount requested is not paid, the Company may refuse to deliver the shares in settlement of the RSUs until such amount is paid. The Committee may, in its discretion, permit a Participant (or any Beneficiary of a Participant) to pay all or a portion of the amount requested by the Company for such taxes at such time and in such manner as the Committee shall deem to be appropriate, including by authorizing the Company to withhold from the shares to be delivered in settlement, or by agreeing to surrender to the Company on or about the date such tax liability is determinable, Shares having a fair market value (as determined by the Committee) equal to the amount of such tax liability or a specified portion of such tax liability. (c) An individual statement of each Participant's Account will be issued to each Participant not less frequently than [annually]. Such statements shall reflect the amount of RSUs credited to Participant's Account, transactions therein during the period covered by the statement, and other information deemed relevant by the [Director of Human Resources]. Such a statement may be combined with or include information regarding other plans and compensatory arrangements relating to Participant. A Participant's statements shall be deemed a part of this Agreement, and shall evidence the Company's obligations in respect of RSUs, including the number of RSUs credited as a result of Dividend Equivalents (if any); provided, however, that any statement containing an error shall not represent a binding obligation to the extent of such error. 7. Miscellaneous. (a) This Agreement shall be legally binding when executed by both the Company, provided that no election of Participant will be binding unless Participant has executed the Agreement and returned it to the Human Resources Department of the Company. (b) This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the RSUs, and supersedes any prior agreements or documents with respect to the RSUs. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of Participant with respect to the RSUs shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by Participant. (c) All designations of Beneficiary shall be on such forms as are specified by and filed with the Human Resources Department. Any Beneficiary designation made by Participant in accordance with this provision may be changed from time to time, without the consent of any previously designated Beneficiary (but subject to any spousal consent as may be required), by filing with the Human Resources Department a notice of such change on the form provided by the Committee and such change of Beneficiary designation shall become effective upon receipt by the Committee. In the event Participant's Beneficiary would otherwise become entitled to a distribution hereunder, and all Beneficiaries designated by Participant are not then living, or if no valid Beneficiary designation is in effect, Participant's estate or duly authorized personal representative shall be deemed to have been designated by Participant. (d) Any provision for distribution in settlement of Participant's Account hereunder shall be by means of bookkeeping entries on the books of the Company and shall not create in Participant or any Beneficiary any right to, or claim against any, specific assets of the Company, nor result in the creation of any trust or escrow account for Participant or any Beneficiary. Participant or any Beneficiary entitled to any distribution hereunder shall be a general creditor of the Company. (e) Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. * * * * * By signing below and returning this Agreement to the Human Resources Department, I elect to defer settlement of the RSUs until the applicable date specified in Section 4, subject to earlier settlement in accordance with Section 4 and the other terms of the Plan and this Agreement. (Note: If you do not wish to defer settlement past the Scheduled Lapse Date, you do not need to sign below and return this Agreement to the Human Resources Department. If you elect to further defer settlement, you should retain a copy of this Agreement for your records.) PARTICIPANT: Date: [For HR Use Only: Date Received by Human Resources Department: ] EX-10.13 15 STOCK OPTION AGREEMENT Exhibit 10.13 ================================================================================ Notice of Grant of Stock Options IMS Health Incorporated and Option Agreement ID: 06-1506026 200 Nyala Farms Westport, CT 06880 - - -------------------------------------------------------------------------------- Plan: IH98 - - ------------------------ ================================================================================ Effective ____________, you have been granted a non-qualified stock option to buy ______ shares of IMS Health Incorporated (the Company) stock at $_________ per share. Shares will vest in accordance with the following schedule: Percent Vesting Vest Date Expiration Date --------------- --------- --------------- one-third one-third one-third If your employment terminates for any reason, other than death or Disability (as defined in the Plan) after the date of grant of the above options, you may exercise any options that were vested on the date of termination for a period of 90 days after such date. All unvested options on the date of such termination of employment shall terminate. If your employment terminates by reason of death or Disability after the date of grant of the above options (i) any unexercised options will vest in full and (ii) such options may then be exercised during the shorter of (A) the remaining stated term of such options or (B) five years after the date of death or Disability. - - -------------------------------------------------------------------------------- By the Company's signature below, and your acceptance of the stock option grant, you and the Company agree that these options are governed by the terms and conditions of the Company's Employees' Stock Incentive Plan and the Plan Prospectus, all of which are attached and made part of this document. ================================================================================ /s/ Kenneth S. Siegel Kenneth S. Siegel SVP, General Counsel and Secretary IMS Health Incorporated EX-10.14 16 PURCHASED OPTION AGREEMENT [GRAPHIC OMITTED][GRAPHIC OMITTED] Exhibit 10.14 IMS Health Incorporated PURCHASED OPTIONS OPPORTUNITY ELECTION FORM PLEASE COMPLETE AND RETURN THIS FORM BY ___________________ TO MARIE SONDE AT THE ADDRESS SHOWN BELOW You have been granted certain options, which will be cancelled in the event you do not elect to purchase the options as described below. Steps For Completion: 1. Be sure to review the attached summary of the Employee Stock Incentive Plan describing the terms of the purchased options before making your election. 2. Purchasing options is voluntary. You may elect to purchase options in addition to your regular stock option grant. You may elect to purchase a minimum of ________ additional options up to a maximum of ________ options. This is a one-time opportunity which, if not acted upon by ____________, will expire and the associated options will be cancelled. 3. The exercise price of your purchased options is the Fair Market Value of the IMS Health Common Stock on ___________, the grant date. By signing this form, you agree to pay 10 percent of the exercise price, which is due by ______________. The remaining 90 percent will be payable when you exercise the options. 4. Payment for these options should be made in U.S. dollars and payable to: " IMS HEALTH Incorporated." Payment should be sent to: Marie Sonde Director - Executive Compensation IMS International 660 West Germantown Pike Plymouth Meeting, PA 19462 Telephone: 732-528-3188 Fax: 732-528-3616 5. Check One: [ ] The number of options I wish to purchase = _______ options [ ] I do not wish to purchase stock options. 6. I have received, reviewed and understand the materials describing the terms of the purchased option opportunity and agree to pay the required amount, if any, by _________________. ________________________________ Signature ________________________________ Date - - -------------------------------------------------------------------------------- For Office Use Only-Confirmation Notification - - --------------------------------------- ----------------------------------- Date Election Received from Participant Signature of Program Representative [GRAPHIC OMITTED][GRAPHIC OMITTED] IMS Health Incorporated PURCHASED OPTIONS OPPORTUNITY (Summary of Employee Stock Option Incentive Plan) Certain participants in the Plan, in addition to a stock option grant, have been provided the opportunity to purchase stock options. Unlike an outright option grant, a participant must commit to pay 10% of the Option Price of a Purchased Option at the time of grant. The Option Price will be the Fair Market Value (as defined on the Election Form) of the Common Stock on the grant date. By signing a Purchased Option election form the participant agrees to pay 10% of the Option Price on the date designated. The remaining 90% will be payable if and when the options are exercised. Purchasing options is voluntary. A participant may purchase a minimum of 1,000 Purchased Options up to a maximum number offered to the participant. This is a one-time opportunity which, if not acted upon by the designated date, will expire. The 10% purchase price is non-refundable if the Purchased Options expire without being exercised. However, there will be a refund of a portion of the purchase price if the participant's employment is terminated voluntarily or by the Company without "cause", as defined in the Plan. In that event, only the portion of the purchase price attributable to those Purchased Options that have not yet vested will be refunded. The portion of the purchase price attributable to those Purchased Options that have vested will be forfeited. The Purchased Options vest in equal _____ increments over _____ years. Thus, as an example, if employment is terminated without cause after one year, the participant will forfeit _____ of the original 10% purchase price. Upon retirement, death or disability, the general rules set forth in the Plan apply to determine when options vest and for what extended period (if any) they may be exercised. If any Purchased Options remain unvested at the end of such extended exercise period, the participant will receive only the portion of the purchase price attributable to those Purchased Options that have not yet vested, and will forfeit the portion attributable to those Purchased options that have vested. The 10% purchase price is a down payment on the full Option Price. As such, it will bear no interest, nor can a participant borrow against it. Payment of the 10% purchase price does not entitle a participant to any of the rights of a Company stockholder. Only by exercising a Purchased Option and paying the rest of the Option Price will a participant obtain any Common Stock. EX-10.15 17 CHANGE-IN-CONTROL AGREEMENT Exhibit 10.15 TIER-I CHANGE-IN-CONTROL AGREEMENT FOR CERTAIN EXECUTIVES OF IMS HEALTH INCORPORATED Date PERSONAL AND CONFIDENTIAL [FirstName] [JobTitle] [Company] Dear [LastName]: IMS Health Incorporated (the "Company") considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of such personnel to the detriment of the Company and its stockholders. As you are a skilled and dedicated executive with important management responsibilities and talents, the Company believes that its best interests will be served if you are encouraged to remain with the Company. The Company has determined that your ability to perform your responsibilities and utilize your talents for the benefit of the Company, and the Company's ability to retain you as an employee, will be significantly enhanced if you are provided with fair and reasonable protection from the risks of a change in ownership or control of the Company. Accordingly, in order to induce you to remain in the employ of the Company, you and the Company agree as follows: 1. Term of Agreement. (a) Generally. Except as provided in Section 1(b) hereof, (i) this Agreement shall be effective as of the date on which the shares of common stock of the Company that are owned by Cognizant Corporation ("Cognizant") are distributed to the holders of record of shares of Cognizant (July 1, 1998), and shall continue in effect through December 31, 2001, and (ii) commencing on January 1, 2002, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than September 30th of the preceding year, either party to this Agreement gives notice to the other that the Agreement shall not be extended under this Section 1(a); provided, however, that no such notice by the Company shall be effective if a Change in Control or Potential Change in Control (both as defined herein) shall have occurred prior to the date of such notice. (b) Upon a Change in Control. If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, this Agreement shall continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of 24 months beyond the month in which such Change in Control occurred (such entire period hereinafter referred to as the "Protected Period"). 2. Change in Control; Potential Change in Control. (a) A "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (b) A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; 2 (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (c) Employee Covenants. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the Company until the earliest of (i) a date which is 180 days from the occurrence of such Potential Change in Control, (ii) the termination of your employment by reason of Disability (as defined herein) or (iii) the date on which you first become entitled under this Agreement to receive the benefits provided in Section 3(b) hereof. (d) Company Covenant Regarding Potential Change in Control. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of your employment under Section 3(b). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company. 3. Termination. (a) Termination by the Company for Cause, by You Without Good Reason, or by Reason of Death or Disability. If during the Protected Period your employment by the Company is terminated by the Company for Cause, by you without Good Reason, or because of your death or Disability, the Company shall be relieved of its obligation to make any payments to you other than (i) its payment of amounts otherwise accrued and owing but not yet paid and (ii) any amounts payable under then-existing employee benefit programs at the time such amounts are due. (b) Termination by the Company Without Cause or by You for Good Reason. If during the Protected Period your employment by the Company is terminated by the Company without cause or by you for Good Reason, you shall be entitled to the compensation and benefits described in this Section 3(b). If your employment by the Company is terminated prior to a Change in Control at the request of a Person engaging in a transaction or series of transactions that would result in a Change in Control, the Protected Period shall commence upon the subsequent occurrence of a Change in Control, your actual termination shall be deemed a termination occurring during the Protected Period and covered by this Section 3(b), your Date of Termination shall be deemed to have occurred immediately following the Change in Control, and Notice of Termination shall be deemed to have been given by the Company immediately prior to your actual termination. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. The compensation and benefits provided under this Section 3(b) are as follows: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, no later than the fifth day following the Date of Termination, and you shall receive all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due. (ii) At the time specified in Section 3(d) hereof, the Company shall pay you, in lieu of any further salary, bonus or severance payments for periods subsequent to the Date of Termination, a lump sum amount in cash equal to three times the sum of: 3 (A) the greater of (I) your annual base salary in effect immediately prior to the Change in Control of the Company or (II) your annual base salary in effect at the time Notice of Termination is given; and (B) the greater of (I) your annual target bonus for the year in which the Change in Control occurs or, (II) if no such target bonus has yet been determined for such year, your annual target bonus actually earned by you in the year immediately preceding the year in which the Change in Control occurs. (iii) You shall be deemed fully vested under any nonqualified pension plan of a type described in Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended, in which you participate at the time of the Change in Control (except for any such plan established for the sole purpose of restoring qualified pension benefits that were reduced due to limitations imposed by Sections 415 and 401(a)(7) of the Internal Revenue Code of 1986, as amended (the "Code")), and such nonqualified pension plan shall be referred to as a "Covered Top-Hat Plan" for purposes of this Section 3(b)(iii). The benefit to which you shall be entitled under any Covered Top-Hat Plan (the "Covered Top-Hat Plan Benefit") shall be determined using: (A) the maximum credited service allowed to be taken into account under the Covered Top-Hat Plan's benefit formula; and (B) your salary and bonus taken into account under Section 3(b)(ii) hereof as your final average compensation. Your Covered Top-Hat Plan benefit shall be payable upon the later of (A) the date on which you turn 55 or (B) the date on which you terminate employment from the Company. For purposes of calculating your Covered Top-Hat Plan Benefit, you shall be deemed to have retired from the Company at normal retirement age as if the Company had consented to such retirement. Exhibit A to this Agreement sets forth an example of how the compensation and benefits provided under this Section 3(b)(iii) shall be determined. (iv) At the time specified in Section 3(d) hereof, the Company shall pay to you, in lieu of amounts which may otherwise be payable to you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your annual target bonus for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which you were employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to each performance period in progress under all other Bonus Plans in effect at the time of termination. Notwithstanding the foregoing, this Section 3(b)(iv) shall not apply with respect to any amounts which may otherwise be payable to you under the Company's Senior Executive Incentive Plan or any other Bonus Plan of the Company that applies primarily to "covered employees" within the meaning of Section 162(m) of the Code. (v) The Company shall provide you with a cash allowance, at the time specified in Section 3(d) hereof, for outplacement and job search activities (including, but not limited to, office and secretarial expenses) in the amount of 20% of your annual base salary and annual target bonus taken into account under Section 3(b)(ii) hereof, provided that (A) such cash allowance shall not exceed $100,000 and (B) such cash allowance shall apply only to those costs or obligations that are incurred by you during the 36-month period following your termination of employment. (vi) For a 36-month period following your termination of employment, the Company shall arrange to provide you with life and health insurance benefits no less favorable than those which you were receiving immediately prior to the Notice of Termination. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute 4 secondary coverage with respect to any life and health insurance benefits actually received by you in connection with any subsequent employment (or self-employment) during the 36-month period following your termination. (vii) Starting at age 55, you shall receive retiree medical and life benefits from the Company. Such benefits shall be no less favorable than the benefits that you would have received had you, at the time Notice of Termination is given, both (A) attained age 55 and (B) retired from the Company. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to retiree medical and life benefits actually received by you in connection with any subsequent employment (or self-employment) following your termination. (c) Excise Tax. In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 3(d) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(c), shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by you in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an 5 additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (d) Time of Payment. The payments provided for in Sections 3(b)(ii), 3(b)(iv) and 3(c) hereof shall be made not later than the fifteenth day following the Date of Termination; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section 3(b)(v) hereof shall be made not later than the fifteenth day following the submission of each receipt to the Company evidencing costs or obligations incurred by you in connection with outplacement counseling and job search activities. (e) Notice. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto. (f) Certain Definitions. Except as otherwise indicated in this Agreement, all definitions in this Section 3(f) shall be applicable during the Protected Period only. (i) Disability. "Disability" shall mean your absence from the full-time performance of your duties with the Company for six consecutive months as a result of your incapacity due to physical or mental illness or disability, and within 30 days after written Notice of Termination is thereafter given you shall not have returned to the full-time performance of your duties. (ii) Cause. "Cause" shall mean termination on account of (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or disability or any failure after the issuance of a Notice of Termination by you for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) off the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail. (iii) Good Reason. "Good Reason" shall mean, without your express written consent, the occurrence upon or after a Change in Control of any of the following circumstances unless, in the case of Sections 3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: 6 (A) the assignment to you of any duties inconsistent with the position in the Company that you held immediately prior to the Change in Control, or an adverse alteration in the nature or status of your responsibilities or the conditions of your employment from those in effect immediately prior to such Change in Control; for this purpose, if, at the time of the Change in Control, you held the office of Chief Executive Officer of the Company, it shall constitute duties inconsistent with such position if you shall be required to report to and take direction from anyone other than the Board of Directors of the Company, and if, at the time of the Change in Control, you held the office of Chief Operating Officer of the Company, it shall constitute duties inconsistent with such position if you shall be required to report to and take direction from anyone other than the Board of Directors or the Chief Executive Officer of the Company; (B) a reduction by the Company in your annual base salary, any target bonus or perquisites as in effect immediately prior to the Change in Control or as the same may be increased from time to time except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (C) the relocation of the principle place of your employment to a location outside of (I) New York City, (II) Westchester County, New York, (III) Fairfield County, Connecticut (IV) Montgomery County, Pennsylvania or (V) Passaic County, New Jersey; except for required travel on the Company's business to an extent substantially consistent with your business travel obligations prior to the Change in Control; (D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or (G) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f)(iv) hereof (and, if applicable, the requirements of Section 3(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement. (iv) Notice of Termination. "Notice of Termination" shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period) or (B) if your employment is terminated for any other reason, the date specified in the Notice of 7 Termination (which, in the case of a termination for Cause, shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a termination for Good Reason, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given). 4. Mitigation. Except as provided in Section 3(b)(vi) and (vii) hereof, you shall not be required to mitigate the amount of payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. Costs of Proceedings. The Company shall pay all costs and expenses, including all attorneys' fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; provided that if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys' fees and disbursements. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (a) personally delivered or (b) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; provided that all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All references to sections of the 8 Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. IMS HEALTH INCORPORATED By: _______________________________________ [Chairman and Chief Executive Officer] or [President and Chief Operating Officer] Agreed to this ____________________ day of ____________________________, 199[ ]. - - --------------------------------------- Name 9 EXHIBIT A Covered Top Hat Plan Sample Illustration Name of Participant Sample Employee Social Security Number 123-45-6789 Date of Birth 01/01/48 Date of Hire 01/01/91 Current Age 50 Calculation as of: 01/01/98 01/01/98 No Change Change in in Control Control ---------- ------- 1) Final Average 250,000 300,000 Earnings* 2) Credited Service 7 15 (for Covered Top Hat Plan) 3) Benefit 35% 60% Percentage (5% x (2) up to 10 years of service plus 2% x (2) from 10 to 15 years of service) 4) Total Gross 87,500 180,000 Benefit ((1) x (3)) 5) Retirement Plan 9,400 9,400 Offset ** 6) Social Security 6,700 6,700 Benefit Offset 7) Accrued Covered 71,400 163,900 Top Hat Plan Benefit ((4) - (5) - (6)) 8) Early Retirement 50% 100% Reduction Factor*** 9) Vested 100% 100% Percentage **** 10) Vested Covered 35,700 163,900 Top Hat Plan Benefit ((7) x (8) x (9)) ***** 10 - - ---------- * The calculations based on "No Change in Control" reflect the terms of the proposed covered top hat plan including five-year final average earnings; "Change in Control" calculations are based on earnings as determined under Section 3(b)(ii) of the Agreement. ** The retirement plan offset is based on the terms of Cognizant's current Master Retirement Plan. It is equal to the vested benefit payable from that plan. For participants with less than 5 years of service, the vested benefit is 0. *** If a participant terminates prior to retirement eligibility (age 55 and 10 years of service) and without the Corporation's consent, benefits are reduced 10% for each year that commencement precedes age 60. **** "No Change in Control" calculations reflect full vesting after 5 years; "Change in Control" calculations reflect automatic 100% vesting regardless of service. ***** Annual benefit payable for life starting at age 55, or immediately if over age 55. 11 TIER-2 CHANGE-IN-CONTROL AGREEMENT FOR CERTAIN EXECUTIVES OF IMS HEALTH INCORPORATED Date PERSONAL AND CONFIDENTIAL [FirstName] [JobTitle] [Company] Dear [LastName]: IMS Health Incorporated (the "Company") considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of such personnel to the detriment of the Company and its stockholders. As you are a skilled and dedicated executive with important management responsibilities and talents, the Company believes that its best interests will be served if you are encouraged to remain with the Company. The Company has determined that your ability to perform your responsibilities and utilize your talents for the benefit of the Company, and the Company's ability to retain you as an employee, will be significantly enhanced if you are provided with fair and reasonable protection from the risks of a change in ownership or control of the Company. Accordingly, in order to induce you to remain in the employ of the Company, you and the Company agree as follows: 1. Term of Agreement. (a) Generally. Except as provided in Section 1(b) hereof, (i) this Agreement shall be effective as of the date on which the shares of common stock of the Company that are owned by Cognizant Corporation ("Cognizant") are distributed to the holders of record of shares of Cognizant (July 1, 1998), and shall continue in effect through December 31, 2001, and (ii) commencing on January 1, 2002, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than September 30th of the preceding year, either party to this Agreement gives notice to the other that the Agreement shall not be extended under this Section 1(a); provided, however, that no such notice by the Company shall be effective if a Change in Control or Potential Change in Control (both as defined herein) shall have occurred prior to the date of such notice. (b) Upon a Change in Control. If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, this Agreement shall continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of 24 months beyond the month in which such Change in Control occurred (such entire period hereinafter referred to as the "Protected Period"). 2. Change in Control; Potential Change in Control. 12 (a) A "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (b) A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 13 (c) Employee Covenants. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the Company until the earliest of (i) a date which is 180 days from the occurrence of such Potential Change in Control, (ii) the termination of your employment by reason of Disability (as defined herein) or (iii) the date on which you first become entitled under this Agreement to receive the benefits provided in Section 3(b) hereof. (d) Company Covenant Regarding Potential Change in Control. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of your employment under Section 3(b). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company. 3. Termination. (a) Termination by the Company for Cause, by You Without Good Reason, or by Reason of Death or Disability. If during the Protected Period your employment by the Company is terminated by the Company for Cause, by you without Good Reason, or because of your death or Disability, the Company shall be relieved of its obligation to make any payments to you other than (i) its payment of amounts otherwise accrued and owing but not yet paid and (ii) any amounts payable under then-existing employee benefit programs at the time such amounts are due. (b) Termination by the Company Without Cause or by You for Good Reason. If during the Protected Period your employment by the Company is terminated by the Company without cause or by you for Good Reason, you shall be entitled to the compensation and benefits described in this Section 3(b). If your employment by the Company is terminated prior to a Change in Control at the request of a Person engaging in a transaction or series of transactions that would result in a Change in Control, the Protected Period shall commence upon the subsequent occurrence of a Change in Control, your actual termination shall be deemed a termination occurring during the Protected Period and covered by this Section 3(b), your Date of Termination shall be deemed to have occurred immediately following the Change in Control, and Notice of Termination shall be deemed to have been given by the Company immediately prior to your actual termination. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. The compensation and benefits provided under this Section 3(b) are as follows: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, no later than the fifth day following the Date of Termination, and you shall receive all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due. (ii) At the time specified in Section 3(d) hereof, the Company shall pay you, in lieu of any further salary, bonus or severance payments for periods subsequent to the Date of Termination, a lump sum amount in cash equal to three times the sum of: (A) the greater of (I) your annual base salary in effect immediately prior to the Change in Control of the Company or (II) your annual base salary in effect at the time Notice of Termination is given; and 14 (B) the greater of (I) your annual target bonus for the year in which the Change in Control occurs or, (II) if no such target bonus has yet been determined for such year, your annual target bonus actually earned by you in the year immediately preceding the year in which the Change in Control occurs. (iii) At the time specified in Section 3(d) hereof, the Company shall pay to you, in lieu of amounts which may otherwise be payable to you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your annual target bonus for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which you were employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to each performance period in progress under all other Bonus Plans in effect at the time of termination. Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with respect to any amounts which may otherwise be payable to you under the Company's Senior Executive Incentive Plan or any other Bonus Plan of the Company that applies primarily to "covered employees" within the meaning of Section 162(m) of the Code. (iv) The Company shall provide you with a cash allowance, at the time specified in Section 3(d) hereof, for outplacement and job search activities (including, but not limited to, office and secretarial expenses) in the amount of 20% of your annual base salary and annual target bonus taken into account under Section 3(b)(ii) hereof, provided that (A) such cash allowance shall not exceed $100,000 and (B) such cash allowance shall apply only to those costs or obligations that are incurred by you during the 36-month period following your termination of employment. (v) For a 36-month period following your termination of employment, the Company shall arrange to provide you with life and health insurance benefits no less favorable than those which you were receiving immediately prior to the Notice of Termination. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to any life and health insurance benefits actually received by you in connection with any subsequent employment (or self-employment) during the 36-month period following your termination. (vi) Starting at age 55, you shall receive retiree medical and life benefits from the Company. Such benefits shall be no less favorable than the benefits that you would have received had you, at the time Notice of Termination is given, both (A) attained age 55 and (B) retired from the Company. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to retiree medical and life benefits actually received by you in connection with any subsequent employment (or self-employment) following your termination. (c) Excise Tax. In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 3(d) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(c), shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute 15 payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by you in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (d) Time of Payment. The payments provided for in Sections 3(b)(ii), 3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day following the Date of Termination; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section 3(b)(iv) hereof shall be made not later than the fifteenth day following the submission of each receipt to the Company evidencing costs or obligations incurred by you in connection with outplacement counseling and job search activities. (e) Notice. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto. (f) Certain Definitions. Except as otherwise indicated in this Agreement, all definitions in this Section 3(f) shall be applicable during the Protected Period only. (i) Disability. "Disability" shall mean your absence from the full-time performance of your duties with the Company for six consecutive months as a result of your 16 incapacity due to physical or mental illness or disability, and within 30 days after written Notice of Termination is thereafter given you shall not have returned to the full-time performance of your duties. (ii) Cause. "Cause" shall mean termination on account of (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or disability or any failure after the issuance of a Notice of Termination by you for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) off the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail. (iii) Good Reason. "Good Reason" shall mean, without your express written consent, the occurrence upon or after a Change in Control of any of the following circumstances unless, in the case of Sections 3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) the assignment to you of any duties inconsistent with the position in the Company that you held immediately prior to the Change in Control, or an adverse alteration in the nature or status of your responsibilities or the conditions of your employment from those in effect immediately prior to such Change in Control; (B) a reduction by the Company in your annual base salary, any target bonus or perquisites as in effect immediately prior to the Change in Control or as the same may be increased from time to time except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (C) the relocation of the principle place of your employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company's business to an extent substantially consistent with your business travel obligations prior to the Change in Control; (D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially 17 less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or (G) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f)(iv) hereof (and, if applicable, the requirements of Section 3(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement. (iv) Notice of Termination. "Notice of Termination" shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period) or (B) if your employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a termination for Good Reason, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given). 4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you shall not be required to mitigate the amount of payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. Costs of Proceedings. The Company shall pay all costs and expenses, including all attorneys' fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; provided that if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys' fees and disbursements. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, 18 devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (a) personally delivered or (b) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; provided that all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. IMS HEALTH INCORPORATED By: _______________________________________ [Chairman and Chief Executive Officer] 19 or [President and Chief Operating Officer] Agreed to this ____________________ day of ____________________________, 1997. - - --------------------------------------- Name 20 TIER-3 CHANGE-IN-CONTROL AGREEMENT FOR CERTAIN EXECUTIVES OF IMS HEALTH INCORPORATED Date PERSONAL AND CONFIDENTIAL [FirstName] [JobTitle] [Company] Dear [LastName]: IMS Health Incorporated (the "Company") considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of such personnel to the detriment of the Company and its stockholders. As you are a skilled and dedicated executive with important management responsibilities and talents, the Company believes that its best interests will be served if you are encouraged to remain with the Company. The Company has determined that your ability to perform your responsibilities and utilize your talents for the benefit of the Company, and the Company's ability to retain you as an employee, will be significantly enhanced if you are provided with fair and reasonable protection from the risks of a change in ownership or control of the Company. Accordingly, in order to induce you to remain in the employ of the Company, you and the Company agree as follows: 1. Term of Agreement. (a) Generally. Except as provided in Section 1(b) hereof, (i) this Agreement shall be effective as of the date on which the shares of common stock of the Company that are owned by Cognizant Corporation ("Cognizant") are distributed to the holders of record of shares of Cognizant (July 1, 1998), and shall continue in effect through December 31, 2001, and (ii) commencing on January 1, 2002, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than September 30th of the preceding year, either party to this Agreement gives notice to the other that the Agreement shall not be extended under this Section 1(a); provided, however, that no such notice by the Company shall be effective if a Change in Control or Potential Change in Control (both as defined herein) shall have occurred prior to the date of such notice. 21 (b) Upon a Change in Control. If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, this Agreement shall continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of 24 months beyond the month in which such Change in Control occurred (such entire period hereinafter referred to as the "Protected Period"). 2. Change in Control; Potential Change in Control. (a) A "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (b) A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; 22 (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (c) Employee Covenants. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the Company until the earliest of (i) a date which is 180 days from the occurrence of such Potential Change in Control, (ii) the termination of your employment by reason of Disability (as defined herein) or (iii) the date on which you first become entitled under this Agreement to receive the benefits provided in Section 3(b) hereof. (d) Company Covenant Regarding Potential Change in Control. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of your employment under Section 3(b). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company. 3. Termination. (a) Termination by the Company for Cause, by You Without Good Reason, or by Reason of Death or Disability. If during the Protected Period your employment by the Company is terminated by the Company for Cause, by you without Good Reason, or because of your death or Disability, the Company shall be relieved of its obligation to make any payments to you other than (i) its payment of amounts otherwise accrued and owing but not yet paid and (ii) any amounts payable under then-existing employee benefit programs at the time such amounts are due. (b) Termination by the Company Without Cause or by You for Good Reason. If during the Protected Period your employment by the Company is terminated by the Company without cause or by you for Good Reason, you shall be entitled to the compensation and benefits described in this Section 3(b). If your employment by the Company is terminated prior to a Change in Control at the request of a Person engaging in a transaction or series of transactions that would result in a Change in Control, the Protected Period shall commence upon the subsequent occurrence of a Change in Control, your actual termination shall be deemed a termination occurring during the Protected Period and covered by this Section 3(b), your Date of Termination shall be deemed to have occurred immediately following the Change in Control, and Notice of Termination shall be deemed to have been given by the Company immediately prior to your actual termination. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. The compensation and benefits provided under this Section 3(b) are as follows: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, no later than the fifth day following the Date of Termination, and you shall receive all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due. (ii) At the time specified in Section 3(d) hereof, the Company shall pay you, in lieu of any further salary, bonus or severance payments for periods subsequent to the Date of Termination, a lump sum amount in cash equal two times the sum of: 23 (A) the greater of (I) your annual base salary in effect immediately prior to the Change in Control of the Company or (II) your annual base salary in effect at the time Notice of Termination is given; and (B) the greater of (I) your annual target bonus for the year in which the Change in Control occurs or, (II) if no such target bonus has yet been determined for such year, your annual target bonus actually earned by you in the year immediately preceding the year in which the Change in Control occurs. (iii) At the time specified in Section 3(d) hereof, the Company shall pay to you, in lieu of amounts which may otherwise be payable to you under any bonus plan (a "Bonus Plan"), an amount in cash equal to (A) your annual target bonus for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which you were employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to each performance period in progress under all other Bonus Plans in effect at the time of termination. Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with respect to any amounts which may otherwise be payable to you under the Company's Senior Executive Incentive Plan or any other Bonus Plan of the Company that applies primarily to "covered employees" within the meaning of Section 162(m) of the Code. (iv) The Company shall provide you with a cash allowance, at the time specified in Section 3(d) hereof, for outplacement and job search activities (including, but not limited to, office and secretarial expenses) in the amount of 20% of your annual base salary and annual target bonus taken into account under Section 3(b)(ii) hereof, provided that (A) such cash allowance shall not exceed $100,000 and (B) such cash allowance shall apply only to those costs or obligations that are incurred by you during the 36-month period following your termination of employment. (v) For a 24-month period following your termination of employment, the Company shall arrange to provide you with life and health insurance benefits no less favorable than those which you were receiving immediately prior to the Notice of Termination. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to any life and health insurance benefits actually received by you in connection with any subsequent employment (or self-employment) during the 24-month period following your termination. (vi) Starting at age 55, you shall receive retiree medical and life benefits from the Company. Such benefits shall be no less favorable than the benefits that you would have received had you, at the time Notice of Termination is given, both (A) attained age 55 and (B) retired from the Company. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to retiree medical and life benefits actually received by you in connection with any subsequent employment (or self-employment) following your termination. (c) Excise Tax. In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 3(d) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(c), shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any 24 other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 3(c)(i) hereof); and (iii) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by you in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (d) Time of Payment. The payments provided for in Sections 3(b)(ii), 3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day following the Date of Termination; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section 3(b)(iv) hereof shall be made not later than the fifteenth day following the submission of each receipt to the Company evidencing costs or obligations incurred by you in connection with outplacement counseling and job search activities. (e) Notice. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto. 25 (f) Certain Definitions. Except as otherwise indicated in this Agreement, all definitions in this Section 3(f) shall be applicable during the Protected Period only. (i) Disability. "Disability" shall mean your absence from the full-time performance of your duties with the Company for six consecutive months as a result of your incapacity due to physical or mental illness or disability, and within 30 days after written Notice of Termination is thereafter given you shall not have returned to the full-time performance of your duties. (ii) Cause. "Cause" shall mean termination on account of (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or disability or any failure after the issuance of a Notice of Termination by you for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) off the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail. (iii) Good Reason. "Good Reason" shall mean, without your express written consent, the occurrence upon or after a Change in Control of any of the following circumstances unless, in the case of Sections 3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) the assignment to you of any duties inconsistent with the position in the Company that you held immediately prior to the Change in Control, or an adverse alteration in the nature or status of your responsibilities or the conditions of your employment from those in effect immediately prior to such Change in Control; (B) a reduction by the Company in your annual base salary, any target bonus or perquisites as in effect immediately prior to the Change in Control or as the same may be increased from time to time except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (C) the relocation of the principle place of your employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company's business to an extent substantially consistent with your business travel obligations prior to the Change in Control; (D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; 26 (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; (G) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f)(iv) hereof (and, if applicable, the requirements of Section 3(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement; or (H) the lapse of twelve months following the last day of the month in which the Change in Control occurs. (iv) Notice of Termination. "Notice of Termination" shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period) or (B) if your employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a termination for Good Reason, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given). 4. Mitigation. Except as provided in Section 3(b)(v) and (vi) hereof, you shall not be required to mitigate the amount of payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. Costs of Proceedings. The Company shall pay all costs and expenses, including all attorneys' fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; provided that if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys' fees and disbursements. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or 27 assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (a) personally delivered or (b) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; provided that all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company. 28 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. IMS HEALTH INCORPORATED By:_______________________________________ [Chairman and Chief Executive Officer] or [President and Chief Operating Officer] Agreed to this ____________________ day of ____________________________, 199[ ]. - - ----------------------------------------- Name 29 EX-10.16 18 EMPLOYEE PROTECTION PLAN Exhibit 10.16 IMS HEALTH INCORPORATED EMPLOYEE PROTECTION PLAN IMS Health Incorporated (the "Company") wishes to define those circumstances under which it will provide assistance to an Eligible Employee in the event of his or her Eligible Termination (as such terms are defined herein). Accordingly, the Company hereby establishes the IMS Health Incorporated Employee Protection Plan (the "Plan"). Section 1 - DEFINITIONS 1.1 "Cause" shall mean (a) willful malfeasance or willful misconduct by the Eligible Employee in connection with his or her employment, (b) continuing failure to perform such duties as are requested by any employee to whom the Eligible Employee reports, directly or indirectly, or by the board of directors of either the Company or the Participating Company which employs the Eligible Employee, (c) failure by the Eligible Employee to observe material policies of the Company or Participating Company applicable to the Eligible Employee or (d) the commission by an Eligible Employee of (i) any felony or (ii) any misdemeanor involving moral turpitude. 1.2 "Change In Control" shall mean the occurrence, after the effective date hereof, of one of the following events: (a) any "Person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company) becomes the "Beneficial Owners" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (b) during any period of 24 months (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the board of directors of the Company (the "Board"), and any new director (other than (i) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraphs (a), (c), or (d) of this definition, (ii) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control, or (iii) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (i) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (ii) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (e) the Board adopts a resolution to the effect that, for purposes of this Plan, a Change in Control has occurred. 1.3 "Change in Control Period" shall mean the period beginning upon a Change in Control and ending at the end of the 12th month following the Change in Control. 1.4 "Cognizant" shall mean the Cognizant Corporation (which since the Spinoff Date has been renamed Neilsen Media Research, Inc.). 1.5 "Committee" shall mean the Compensation and Benefits Committee of the Board of Directors of the Company. 1.6 "Eligible Employee" shall mean a full-time salaried employee or regular part-time salaried employee of (a) the Company, (b) a Participating Company, or (c) any affiliated entity of the Company (other than a Participating Company) which employee has been selected to participate in the Plan by the Employee Benefits Committee; provided, however, that (i) an employee who has entered into an agreement with the Company or a Participating Company which expressly excludes such employee from participation in this Plan (e.g., by naming this Plan or excluding participation in Company-sponsored severance plans generally) and which remains in effect at the date of such employee's termination of employment shall not be an Eligible Employee; and (ii) an employee who otherwise would qualify but who is not on the United States payroll shall be an Eligible Employee only if so determined by the Employee Benefits Committee, and such Eligible Employee, and any employee who qualifies as an Eligible Employee under clause (c) of this definition, shall be subject to such additional terms and limitations as the Employee Benefits Committee may deem necessary or advisable. Each Eligible Employee shall be designated as within one of the groups specified as "Selected Executives," "Level A," "Level B," or "Level C" on Attachment A hereto. 1.7 "Eligible Termination" shall mean (a) an involuntary termination of employment by the Company or a Participating Company for any reason, except that, in the case of any Eligible Employee, an involuntary termination for Cause will not constitute an Eligible Termination and, in the case of any Eligible Employee designated as within Level A, Level B, or Level C on Attachment A hereto, an involuntary termination due to unsatisfactory performance will not constitute an Eligible Termination (unless otherwise determined by the Employee Benefits Committee or a person to whom such Committee has delegated authority under the Plan); or (b) a resignation mutually agreed to in writing by the Company or a Participating Company and the Eligible Employee, in which writing it is expressly agreed that benefits under this Plan will be available to the Eligible Employee. The foregoing notwithstanding, an Eligible Termination shall not include (x) a unilateral resignation; or (y) any termination where an offer of employment is made to the Eligible Employee of a comparable position at the Company or an affiliate or, if such termination occurs within six months following the Spinoff Date, at Nielsen Media Research, Inc., in any case concurrently with his or her termination. 1.8 "Employee Benefits Committee" shall mean a committee of Company management employees heretofore established by the Committee. 1.9 "Participating Company" shall mean any entity affiliated with the Company which has been designated to participate in the Plan by action of the Employee Benefits Committee. 1.10 "Salary" shall mean an Eligible Employee's annual base salary in effect immediately prior to his or her termination of employment, except as otherwise provided in Section 2 hereof and Section 1 of Attachment C hereto. 1.11 "Severance Agreement and Release" shall mean an agreement signed by the Eligible Employee substantially in the form attached hereto as Attachment D. The foregoing notwithstanding, the Company may, by action of its chief human resources officer or chief legal counsel or a person delegated authority by one of such persons, modify the form of Severance Agreement and Release to be signed by any Eligible Employee, subject to such limitations or procedures as may be specified by the Employee Benefits Committee, and provided that, during the Change in Control Period, such Agreement shall not be modified in a manner that increases the obligations or decreases the rights of the Eligible Employee as compared to the form of such Agreement in use prior to the Change in Control. 1.12 "Spinoff Date" shall mean the date on which there was effected the distribution of common stock of the Company owned by Cognizant to holders of record of shares of common stock, par value $0.01 per share, of Cognizant. 1.13 "Year of Service" shall mean, for purposes of applying the formula set forth in Attachment B, each full and partial year of employment with the Company, any Participating Company, and otherwise as specified in the final sentence of this definition, in each case beginning with the Eligible Employee's initial date of hire; provided, however, that (i) all partial years of service shall be aggregated for purposes of determining the total number of Years of Service; (ii), in the case of an Eligible Employee who was not continuously employed, no period of employment previously taken into account, if such Eligible Employee was eligible for severance benefits upon any prior termination, shall be taken into account in determining Years 3 of Service hereunder; and (iii), in the case of an Eligible Employee who was a regular part-time employee during any period of employment which would be taken into account in determining his or her Years of Service, such period shall be adjusted to equivalent full-time employment for purposes of determining Years of Service by multiplying the total number of weeks in such period by a fraction the numerator of which is the total number of hours such employee was scheduled to work during each week and the denominator of which is the number of hours a full-time employee would have been scheduled to work during such week, and dividing the product by 52. The Eligible Employee shall continue to accrue Service for purposes of this definition during approved leaves of absence, military service absences, paid holidays, paid vacations, temporary absences due to illness or injury, disability, or any other cause, if and to the extent that service is customarily accrued for purposes of the retirement plan or plans of the Company or Participating Company which then employs the Eligible Employee. With respect to periods of employment with companies which are acquired or become affiliated with the Company after the Spinoff Date, any periods of employment of an Eligible Employee prior to the date of acquisition or affiliation will not be taken into account in determining Years of Service unless expressly approved in writing by the Employee Benefits Committee. Other provisions of this Plan notwithstanding and to the extent required by any Employee Benefits Agreement among Cognizant, Nielsen Media Research, Inc., and the Company, "Years of Service" shall include all periods of employment prior to the Spinoff Date to the extent such employment would have been taken into account under the Cognizant Career Transition Plan as in existence immediately prior to the Spinoff Date. Section 2 - SEVERANCE BENEFITS 2.1 Subject to the provisions of this Section 2 (including the condition set forth in Section 2.4), in the event of an Eligible Termination by an Eligible Employee: (a) If the Eligible Termination occurs not within a Change in Control Period, the Eligible Employee shall be entitled to receive from the Company or a Participating Company the Salary continuation and benefits in the amount determined in accordance with Attachment C for the period specified on Attachment B hereto, subject to Section 2.2 and 2.3; and (b) If the Eligible Termination occurs within the Change in Control Period, the Eligible Employee shall be entitled to receive from the Company or a Participating Company the Salary continuation in an amount equal to 130% of the amount determined in accordance with Attachment C for the period specified on Attachment B hereto and benefits for the period specified on Attachment B hereto, subject to Section 2.2 and 2.3; provided, however, that if the Company or a Participating Company and the Eligible Employee have entered into a Change-in-Control Agreement or other agreement specifically providing for severance payments and benefits upon specified terminations following a change in control of the Company which is in effect at the date of the Eligible Termination (whether or not severance payments and benefits are actually payable under such other agreement), no Salary continuation or benefits shall be payable to the Eligible Employee under this Plan. 2.2 If, during the period that Salary and benefits continuation is to be provided under Section 2.1 and Attachment B hereto, the Eligible Employee earns or accrues compensation and benefits under any employment or compensatory arrangement for services provided to any 4 party other than the Company or a Participating Company (including as an employee, consultant, owner, partner, associate, agent, independent contractor, sole proprietor, security holder, or otherwise in an arrangement in which anything of value is earned or accrued based on services of the Eligible Employee), the Salary continuation payments and benefits continuation shall terminate as of the date such services commenced. The Eligible Employee shall inform the Employee Benefits Committee of any such employment or other arrangement under which such services will be provided, prior to or upon commencement of such employment or arrangement, including the date as of which such employment or services commenced. The Company or a Participating Company shall be entitled to recover from the Eligible Employee any payments and the fair market value of benefits previously made or provided to the Eligible Employee under the Plan which would not have been paid under this Section 2.2 if the Employee Benefits Committee had adequate prior notice of the matters specified in the preceding sentence. If, during the period that Salary and benefits continuation is to be provided under Section 2.1 and Attachment B hereto, the Eligible Employee becomes reemployed by the Company or a Participating Company or enters into a compensation arrangement with the Company or a Participating Company not contemplated at the time of his or her termination, Salary and benefits continuation hereunder will continue only if and to the extent determined by the Employee Benefits Committee. All determinations under this Section 2.2 shall be made in the sole discretion of the Employee Benefits Committee. 2.3 Unless otherwise determined by the Employee Benefits Committee, the amount of Salary payable during the period specified in Attachment B shall be reduced by each of the following amounts, if any, applicable to the Eligible Employee (but not reduced to an amount less than zero pursuant to this Section 2.3): (i) the amount of any sign-on bonus or any other amount(s) paid by the Company or any of its affiliated entities to the Eligible Employee (other than the payment of base salary, performance-related bonuses, or reimbursement of business-related expenses incurred by the Eligible Employee) in connection with the Eligible Employee's commencement of employment, if such payment(s) occurred within twelve months of the date of the Eligible Termination, or (ii) the amount of any severance payments, termination payments or any other amounts paid or payable to the Eligible Employee arising from or relating to the termination of employment of the Eligible Employee by the Company or any affiliated entity, whether the rights to such payments arise from (a) severance or other benefit plans sponsored by the Company or any of its affiliated entities, (b) the laws of any governmental entity, (c) the requirements of any works council or labor organization, or (d) the terms of any agreement between the Eligible Employee and the Company and/or any of its affiliated entities. If reduced in accordance with this Section 2.3, the aggregate amount of Salary payable during the period specified in Attachment B shall equal the aggregate amount of Salary that would have been payable over the entire period (i.e., before any reduction) minus the amount referred to in clause (i) of this Section and minus the amount referred to in clause (ii) of this Section. Such aggregate amount of Salary shall be payable proportionately over the period during which Salary continuation is to be paid, as specified in Attachment B hereto. 5 2.4 The grant of severance benefits pursuant to Section 2.1 hereof is conditioned upon an Eligible Employee's signing a Severance Agreement and Release and the expiration of any revocation period set forth therein. 2.5 Notwithstanding any other provision contained herein (except as set forth in this Section 2.5), the Chief Executive Officer of the Company or an officer to whom the Chief Executive Officer has delegated authority may, at any time, take such action as such officer, in such officer's sole discretion, deems appropriate to reduce or increase by any amount the benefits otherwise payable to an Eligible Employee pursuant to Section 2.1, including the amount payable as Salary during the period specified in Attachment B, or otherwise modify the terms and conditions applicable to an Eligible Employee under this Plan provided that the Chief Executive Officer or such delegatee reports any reduction or increase in benefits or other modification of the terms and conditions hereof to the Employee Benefits Committee. Notwithstanding the foregoing, during the Change in Control Period, the Chief Executive Officer and any delegatee may not reduce by any amount the benefits otherwise payable to an Eligible Employee pursuant to Section 2.1(b) or otherwise modify the terms and conditions applicable to an Eligible Employee under the Plan. Benefits granted hereunder may not exceed an amount nor be paid over a period which would cause the Plan to be other than a "welfare benefit plan" under section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 2.6 In the event the Company or a Participating Company, in its sole discretion, grants an Eligible Employee a period of inactive employee status, any amounts paid to such Eligible Employee during any such period shall offset the benefits payable under this Plan if the Eligible Employee does not resume active employment prior to termination of employment. For this purpose, a period of inactive employee status shall mean the period beginning on the date such status commences (of which the Eligible Employee shall be notified) and ending on the date of such Eligible Employee's termination of employment or resumption of active employment. Section 3 - AMENDMENT AND TERMINATION 3.1 The Company reserves the right to terminate the Plan at any time and without any further obligation by action of its Board of Directors or such other person or persons to whom the Board properly delegates such authority; provided, however, during a Change in Control Period, the Company may not terminate the Plan. 3.2 The Company shall have the right to modify or amend the terms of the Plan at any time, or from time to time, to any extent that it may deem advisable by action of its Board of Directors, the Committee or such other person or persons to whom the Board or the Committee properly has delegated such authority; provided, however, that during a Change in Control Period, the Company may not modify or amend the terms of the Plan in a manner which reduces the compensation or benefits otherwise payable hereunder; and provided further, that the Company may not modify or amend the terms of the Plan in a manner which materially adversely affects the rights of a person who has commenced to receive compensation or benefits hereunder following an Eligible Termination. 6 3.3 All modifications of or amendments to the Plan shall be in writing. Section 4 - ADMINISTRATION OF THE PLAN 4.1 The Employee Benefits Committee shall be the Plan Administrator and shall have the exclusive right, power and authority to: (a) construe and interpret any and all of the provisions of the Plan; (b) establish a claims and appeals procedure; and (c) consider and decide conclusively any questions (whether of fact or otherwise) arising in connection with the administration of the Plan or any claim for Salary and benefits continuation arising under the Plan. Any decision or action of the Employee Benefits Committee pursuant to this Section 4.1 shall be in the sole discretion of the Employee Benefits Committee and shall be conclusive and binding on any affected person. 4.2 With respect to any function of the Employee Benefits Committee under the Plan, the Employee Benefits Committee may, in its sole discretion, delegate its authority under the Plan to any employee(s) or committee of employees of the Company or Participating Companies, and may designate such employee(s) or committee to function as or act on behalf of the Employee Benefits Committee. 4.3 The Company shall indemnify any individual who is a director, officer or employee of the Company or any affiliate, or his or her heirs and legal representatives, against all liability and reasonable expense, including counsel fees, amounts paid in settlement and amounts of judgments, fines or penalties, incurred or imposed upon him or her in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, in connection with his or her duties with respect to the Plan, provided that any act or omission giving rise to such claim, action, suit or proceeding does not constitute willful misconduct or is not performed or omitted in bad faith. Section 5 - MISCELLANEOUS 5.1 Neither the establishment of the Plan nor any action of the Company or a Participating Company, the Committee, Employee Benefits Committee or any fiduciary shall be held or construed to confer upon any person any legal right to continue employment with the Company. The Company and Participating Companies expressly reserve the right to discharge any employee whenever the interest of the Company or a Participating Company, in its sole judgment, may so require, without any liability on the part of the Company or a Participating Company, the Committee, Employee Benefits Committee or any fiduciary. 5.2 Benefits payable under the Plan shall be paid out of the general assets of the Company or a Participating Company. The Company and any Participating Company need not 7 fund the benefits payable under this Plan; however, nothing in this Section 5.2 shall be interpreted as precluding the Company or any Participating Company from funding or setting aside amounts in anticipation of paying such benefits. Any benefits payable to an Eligible Employee under this Plan shall represent an unsecured claim by such Eligible Employee against the general assets of the Company or the Participating Company that employed such Eligible Employee. 5.3 The Company or a Participating Company shall deduct from the amount of any Salary continuation or other benefits payable hereunder amounts required by law to be withheld for the payment of any taxes and any other amount properly to be withheld. 5.4 Benefits payable under the Plan shall not be subject to assignment, alienation, transfer, pledge, encumbrance, commutation or anticipation by the Eligible Employee. Any attempt to assign, alienate, transfer, pledge, encumber, commute or anticipate Plan benefits shall be void. 5.5 This Plan shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to principles of conflicts of laws, except to the extent superseded by applicable federal law. 5.6 This Plan will be of no force or effect to the extent superseded by foreign law. In addition, the terms and conditions of participation of any Eligible Employee whose employment is subject to the laws or customs of any jurisdiction other than the United States or a state thereof may be modified by the Employee Benefits Committee to conform to or otherwise take into account such laws and customs; in no event shall severance benefits be payable hereunder if and to the extent that such benefits would duplicate severance benefits payable in accordance with such laws and customs, although severance benefits payable hereunder may supplement those payable under such laws and customs. 5.7 This Plan supersedes any and all prior severance arrangements, policies, plans or practices of the Company and any predecessor (whether written or unwritten), including any severance arrangement described in any document setting forth an offer of employment. Notwithstanding the preceding sentence, the Plan does not affect the severance provisions of (i) any written individual employment agreement between an employee and the Company or a Participating Company which results in such employee not being an Eligible Employee hereunder; (ii) any Change-in-Control Agreement or other agreement referred to in Section 2.1(b); and (iii) any other agreement entered into between an employee and the Company or a Participating Company after the effective date of this Plan which expressly supersedes the provisions of this Plan (i.e., by naming this plan) and which remains in effect at the date of such employee's termination of employment. Benefits payable under the Plan shall be offset by any other severance or termination payment made by the Company or any of its subsidiaries including, but not limited to, amounts paid pursuant to any agreement or law. 5.8 This Plan shall be effective as of December 1, 1998. 8 Attachment A IMS HEALTH INCORPORATED EMPLOYEE PROTECTION PLAN Designated Groups of Eligible Employees For purposes of the Employee Protection Plan (the "Plan") of IMS Health Incorporated (the "Company"), an employee of the Company or any Participating Company (as defined in the Plan) who is an Eligible Employee (as defined in the Plan) shall be assigned to the Designated Group in accordance with the chart below. An Eligible Employee's Designated Group assignment generally will determine the period of Salary and benefits continuation upon an Eligible Termination under Section 2 of the Plan and Attachment B thereto, subject to the terms of the Plan. Designated Group Participation Criteria Salary Range Selected Executives Persons who have N/A entered into Change in Control Agreements Level A Persons who have not $150,000 and greater entered into Change in Control Agreements Level B Persons who have not $75,000 - $149,999 entered into Change in Control Agreements Level C All other Eligible Em- N/A ployees as defined in the Plan Attachment C IMS HEALTH INCORPORATED EMPLOYEE PROTECTION PLAN Certain Terms and Conditions of Salary and Benefits Continuation An Eligible Employee entitled to salary and benefits continuation under the Employee Protection Plan (the "Plan") of IMS Health Incorporated (the "Company") shall, subject to Section 2 of the Plan, receive the payments and benefits specified below. Capitalized terms used but not defined herein shall have the meanings as defined in the Plan. 1. Salary Continuation The Eligible Employee shall receive Salary continuation for the period specified under Section 2 of the Plan and Attachment B thereto (the "Salary Continuation Period"). Salary continuation hereunder shall be paid at the times during such Salary Continuation Period the Eligible Employee's salary would have been paid if employment had not terminated. Solely for purposes of determining the amount payable during the Salary Continuation Period and for no other purposes of the Plan, the Employee Benefits Committee may, in its sole discretion, include an additional cash amount as part of the amount of Salary continuation, in order to reflect any periodic payment being received as compensation by the Eligible Employee in addition to Salary immediately prior to termination and to ensure comparability of benefits among Eligible Employees receiving benefits under the Plan. All Salary and benefit continuation payments shall be subject to termination upon commencement of employment or services and otherwise as provided in Section 2.2 of the Plan. 2. Welfare Benefit Continuation Medical, dental and life insurance benefits shall be provided throughout the Salary Continuation Period at the levels in effect for the Eligible Employee immediately prior to termination of employment but in no event greater than the levels in effect for active employees generally during the Salary Continuation Period, provided that the Eligible Employee shall pay the employee portion of any required premium payments at the level in effect for employees generally of the Company for such benefits. For purposes of determining an Eligible Employee's entitlement to continuation coverage as required by Title I, Subtitle B, Part 6 of ERISA, such employee's 18-month or other period of coverage shall commence on his or her termination of employment. 3. Annual Bonus Payment Subject to the provisions of this paragraph 3, a cash bonus for the calendar year of termination shall be paid if the Eligible Employee was a participant in the annual bonus plan of the Company or a Participating Company (the "Annual Incentive Plan") immediately prior to termination of employment and the Eligible Employee was employed by the Company or a Participating Company for at least six full months during the calendar year of termination. In such event, the Eligible Employee shall receive a cash amount equal to the actual bonus which would have been payable to the Eligible Employee under such Annual Incentive Plan had such employee remained employed through the end of the year of such termination multiplied by a fraction the numerator of which is the number of full months of employment during the calendar year of termination and the denominator of which is 12. Such bonus shall be payable at the time otherwise payable under the Annual Incentive Plan had employment not terminated. The foregoing notwithstanding, (i) no amount shall be paid under this paragraph in the event the Eligible Employee incurred an Eligible Termination by reason of unsatisfactory performance, unless otherwise determined by the Employee Benefits Committee or, in the case of an executive officer of the Company, by the Compensation and Benefits Committee of the Company's Board of Directors, and (ii) no amount shall be paid under this paragraph in the event that Salary and benefits continuation has previously ceased by operation of Section 2.2 of the Plan. The terms of this paragraph 3 supersede those of any Annual Incentive Plan, so that no payment shall be made under such Annual Incentive Plan to an Eligible Employee following an Eligible Termination except as provided hereunder. The foregoing provisions of this paragraph 3 shall be appropriately modified in the case of any plan providing bonuses based on 12-month performance periods other than the calendar year. 4. Long-Term Bonus Payments and Other Compensation Plans Bonus payouts under any bonus plan with a performance cycle of greater than one year (the "Long-Term Plan") of the Company or a Participating Company in which the Eligible Employee participates immediately prior to termination shall be determined and governed in accordance with the terms of such Long-Term Plan. Payments, forfeitures, and other events under any compensatory plan, other than those referred to in paragraphs 1 through 4 hereof, of the Company or a Participating Company shall be determined and governed in accordance with the terms of such plan. 5. Death Upon the death of an Eligible Employee during the Salary Continuation Period, the benefits described in paragraphs 1, 3 and 4 of this Attachment C shall continue to be paid to his or her estate, as applicable, at the time or times otherwise provided for herein. 6. Other Benefits The Eligible Employee shall be entitled to such outplacement services during the Salary Continuation Period as may be provided by the Company or a Participating Company. During the Salary Continuation Period, financial planning/counseling shall be afforded to the Eligible Employee to the same extent afforded immediately prior to termination of employment in the event the Eligible Employee incurred an Eligible Termination other than by reason of unsatisfactory performance. 7. No Further Grants, Etc. 2 Following an Eligible Employee's termination of employment, no further grants, awards, contributions, accruals or continued participation (except as otherwise provided for herein) shall be made to or on behalf of such employee under any plan or program maintained by the Company including, but not limited to, any Annual Incentive Plan, any Long-Term Plan or any qualified or nonqualified retirement, profit sharing, stock option or restricted stock plan of the Company. Any unexercised options (whether vested or unvested), unvested restricted stock and all other benefits under any plan or program maintained by the Company (including, but not limited to, any Long-Term Plan or any qualified or nonqualified retirement, profit sharing, stock option or restricted stock plan) which are held or accrued by an Eligible Employee at the time of his or her termination of employment shall be treated in accordance with the terms of such plans and programs under which such options, restricted stock or other benefits were granted or accrued. 3 Attachment D SEVERANCE AGREEMENT AND RELEASE THIS SEVERANCE AGREEMENT AND RELEASE, made by and between _______________ (hereinafter referred to as "Employee"), and IMS Health Incorporated (hereinafter deemed to include its worldwide subsidiaries and affiliates and referred to as the "Company"). WITNESSETH THAT: WHEREAS, Employee has been employed by the Company and/or a previously affiliated company or other predecessor since the date specified in the Appendix to this Agreement (the "Appendix"); and WHEREAS, the parties to this Agreement desire to enter into an agreement in order to provide certain salary and benefits continuation to Employee; NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and of the actions taken pursuant thereto, the parties agree as follows: 1. Employee's service with the Company, including Employee's service as an officer and Employee's membership on any committees, is terminated effective on the date specified in the Appendix. By execution of this Agreement, Employee confirms his or her resignation from all such offices and committees, effective as of the date specified as "Effective Date of Termination of Service" in the Appendix. 2. Effective on the date set forth in the Appendix, Employee will incur an "Eligible Termination" under the IMS Health Incorporated Employee Protection Plan (the "Plan"), a summary plan description of which Employee hereby acknowledges having received, and will, accordingly, be entitled to the salary and benefits continuation specified therein subject to the terms and conditions of such Plan. A summary of the benefits to which Employee is entitled under the Plan is set forth in the Appendix. Subject to the terms of the Plan, the salary and benefits continuation shall be provided during the "Severance Period," which shall extend from the date of the Eligible Termination until the earliest of (i) the "Severance Termination Date" specified in the Appendix, (ii) the termination of salary continuation and benefits under Section 2.2 of the Plan as a result of the eligible Employee earning or accruing compensation from a third party or otherwise under Section 2.2, or (iii) cessation of salary continuation and benefits under any other provision of the Plan or this Agreement (including paragraph 8 hereof). Subject to the terms of the Plan, Employee's obligations under paragraphs 3, 4 and 5 of this Agreement shall be in effect during the "Obligation Period," which shall extend from the date of the Eligible Termination until the later of (i) the "Severance Termination Date" specified in the Appendix (whether or not the Severance Period expires earlier than the Severance Termination Date) or (ii) the first anniversary of the date of the Eligible Termination. 3. Employee agrees that , during the Obligation Period, Employee will be reasonably available to consult on matters, and will cooperate fully with respect to any claims, litigations or investigations, relating to the Company. No reimbursement for expenses incurred after the commencement of a period of inactive employee status, or if there is no such period, after termination of employment, shall be made to Employee unless authorized in advance by the Company. 4. Employee agrees that, during the Obligation Period, Employee will not become an employee, officer, director, member, consultant, or holder of stock or other security (unless such stock or other security is listed on a national securities exchange or traded on a daily basis in the over-the-counter market and Employee's ownership interest is not in excess of 2% of the company whose stock or other securities are being acquired), of or to a corporation, partnership or any other business or firm, which competes with any of the businesses owned or operated by the Company; nor, if Employee becomes associated with a company, partnership or individual which company, partnership or individual acts as a consultant to businesses in competition with the Company, will Employee provide services to such competing businesses. Businesses which compete with the Company include, but are not limited to, businesses engaged in [specify nature of business] , including [specify companies] and their affiliates and successors thereto. The restrictions against competition contained in this paragraph shall apply in any state of the United States in which the Company was doing business at the time of Employee's termination of employment and in any territory in which, in the six months prior to Employee's termination of employment, Employee participated in or had responsibilities with respect to Company operations in such territory. The restrictions contained in this paragraph shall apply whether or not Employee accepts any form of compensation from such competing entity or consultant. Employee also agrees that, during the Obligation Period, Employee will not recruit or solicit any customers of the Company to become customers of any business entity which competes with any of the businesses owned or operated by the Company. In addition, Employee agrees that, during the Obligation Period, neither Employee nor any company or entity Employee controls or in which Employee participates in management, shall recruit or solicit any employee of the Company to become an employee of any business entity. 5. If, during the Obligation Period, Employee performs services for any party other than the Company or a Participating Company (whether or not such entity is in competition with the Company), Employee shall notify the Company by certified mail prior to the commencement thereof, and the salary continuation payments and benefits continuation provided under the Plan shall terminate as of the date such services commence. To "perform services" shall mean employment or other service as an employee, consultant, owner, partner, associate, agent, independent contractor, sole proprietor, security holder, or otherwise in an arrangement in which anything of value is earned or accrued based on services of the Eligible Employee. 6. Employee agrees that Employee will not directly or indirectly disclose any proprietary or confidential information, records, data, formulae, specifications and other trade secrets owned or held by the Company, whether oral or written, to any person or use any such information, except pursuant to court order (in which case Employee will first provide the Company with written notice of such). All records, files, drawings, documents, models, disks, equipment and the like relating to the businesses of the Company shall remain the sole property of the Company and shall not be removed from the premises of the Company. Employee further agrees to return to the Company any property of the Company which Employee may have, no matter where located, and not to keep any copies or portions thereof. 7. Employee shall not make any derogatory or defamatory statements about the Company and shall not make any written or oral statement, news release or other announcement relating to Employee's employment by the Company or relating to the Company (including its affiliates), customers or personnel, which is designed to embarrass or criticize any of the foregoing. 8. Employee agrees that in the event of any breach of the covenants contained in paragraphs 3, 4, 5, 6 or 7, in addition to any remedies that may be available to the Company, the Company may cease all payments and cease providing all other benefits required to be made or provided to Employee under the Plan and recover all such payments and the fair market value of all such benefits previously made to Employee pursuant to the Plan. The parties agree that any such breach would cause injury to the Company which cannot reasonably or adequately be quantified and that such relief does not constitute in any way a penalty or a forfeiture. 9. Employee, for Employee, Employee's family, representatives, successors and assigns, releases and forever discharges the Company and its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan from any and all claims, demands, debts, damages, injuries, actions or rights of action of any nature whatsoever, whether known or unknown, which Employee had, now has or may have against the Company, its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan, from the beginning of Employee's employment to and including the date of this Agreement, relating to or arising out of Employee's employment with the Company or the termination of such employment other than a claim with respect to a vested right Employee may have to receive benefits under any plan maintained by the Company. Employee represents that Employee has not filed any action, complaint, charge, grievance or arbitration against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan. 10. Employee covenants that neither Employee, nor any of Employee's respective heirs, representatives, successors or assigns, will commence, prosecute or cause to be commenced or prosecuted against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan any action or other proceeding based upon any claims, demands, causes of action, obligations, damages or liabilities which are being released by this Agreement, nor will Employee seek to challenge the validity of this Agreement, except that this covenant not to sue does not affect Employee's future right to enforce appropriately the terms of this Agreement in a court of competent jurisdiction. 11. Employee acknowledges that (a) Employee has been advised to consult with an attorney at Employee's own expense before executing this Agreement and that Employee has been advised by an attorney or has knowingly waived Employee's right to do so, (b) Employee has had a period of at least [twenty-one (21) days] [forty-five (45) days] within which to consider this Agreement, (c) Employee has a period of seven (7) days from the date that Employee signs this Agreement within which to revoke it and that this Agreement will not become effective or enforceable until the expiration of this seven (7) day revocation period, (d) Employee fully 3 understands the terms and contents of this Agreement and freely, voluntarily, knowingly and without coercion enters into this Agreement, (e) Employee is receiving greater consideration hereunder than Employee would receive had Employee not signed this Agreement and that the consideration hereunder is given in exchange for all of the provisions hereof and (f) the waiver or release by Employee of rights or claims Employee may have under Title VII of the Civil Rights Act of 1964, The Employee Retirement Income Security Act of 1974, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the Rehabilitation Act, the Worker Adjustment and Retraining Act (all as amended) and/or any other local, state or federal law dealing with employment or the termination thereof is knowing and voluntary and, accordingly, that it shall be a breach of this Agreement to institute any action or to recover any damages that would be in conflict with or contrary to this acknowledgment or the releases Employee has granted hereunder. Employee understands and agrees that the Company's payment of money and other benefits to Employee and Employee's signing of this Agreement does not in any way indicate that Employee has any viable claims against the Company or that the Company admits any liability whatsoever. 12. This Agreement constitutes the entire agreement of the parties and all prior negotiations or representations are merged herein. It shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives, but neither this Agreement nor any rights hereunder shall be assignable by Employee without the Company's written consent. In addition, this Agreement supersedes any prior employment or compensation agreement, whether written, oral or implied in law or implied in fact between Employee and the Company, other than those contracts and agreements excepted from the application of Section 5.7 of the Plan pursuant to the terms of such Section [(but subject to paragraph 15 hereof)], which prior agreements are hereby terminated. 13. If for any reason any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid by a court of competent jurisdiction, such circumstances shall not have the effect of rendering such provision invalid in any other case or rendering any other provisions of this Agreement inoperative, unenforceable or invalid. 14. This Agreement shall be construed in accordance with the laws of the State of New Jersey, except to the extent superseded by applicable federal law. 15. This Agreement shall terminate in its entirety the Change in Control Agreement between the Company and Employee. [USE PROVISION IF APPLICABLE] IN WITNESS WHEREOF, Employee and IMS Health Incorporated, by its duly authorized agent, have hereunder executed this Agreement. Dated:___________________ Employee: _______________________________ 4 IMS HEALTH INCORPORATED By:____________________________ Title:_________________________ Appendix to Severance Agreement and Release Summary of Terms Relating to Salary and Benefits Continuation Under the IMS Health Incorporated Employee Protection Plan Note: Terms have the meanings defined in the Employee Protection Plan and in the Severance Agreement and Release Employment with Company Since: ______________________________ Effective Date of Resignation: ______________________________ Positions Resigned: ______________________________ Effective Date of Eligible Termination ______________________________ Scheduled Date on Which Salary and Benefits will Cease (the "Severance Termination Date")*: ______________________________ Employee "Obligation Period" extends through date: ______________________________ Salary Continuation*: $____ per week for ____ weeks Welfare Benefit Continuation*: [LIST NAMES OF MEDICAL, DENTAL, LIFE PLANS UNDER WHICH EMPLOYEE COVERED] Annual Bonus Payment*: ___/12 of the annual bonus otherwise pay- able to you at time of normal payment. Long-Term Bonus Payments: [____/y of the long-term bonus otherwise payable to you for the __________ cycles at time of normal payment.] [CONFORM TO L-T BONUS PLAN TERMS] Executive Outplacement: As provided by the Company. [Financial Planning/Counseling:] * Subject to termination in the event Employee earns or accrues compensation from non-Company sources prior to Severance Termination Date The description of benefits contained in this Appendix is only a summary and is subject to the terms and conditions of the Employee Protection Plan. Refer to your summary plan description for more detail. Attachment B IMS HEALTH INCORPORATED - - -------------------------------------------------------------------------------- Employee Protection Plan - - --------------------------------------------------------------------------------
Selected Executives Level A (Persons with Change-in-Control (Persons with no C-in-C Agreement Agreements ("C-in-C Agreements") and Salary of $150,000 and up) ------------------------------- --------------------------------- Less than 1 Year of Service 26 weeks of salary and benefits 16 weeks of salary and benefits continuation continuation - - ---------------------------------------------------------------------------------------------------- One Year of Service and over 1.5 weeks of salary and benefits 1.5 weeks of salary and benefits continuation per $10,000 of continuation per $10,000 of salary salary plus plus 3 weeks of salary and benefits 2 weeks of salary and benefits continuation for each Year of continuation for each Year of Service Service Subject to minimum and maximum Subject to minimum and maximum - - ---------------------------------------------------------------------------------------------------- Minimum - 26 weeks 16 weeks Maximum - 104 weeks 78 weeks
Level B Level C (Persons with no C-in-C Agreement Less than 1 Year of Service and Salary of (All Other Eligible Employees) $75,000-$149,999) - - ---------------------------- ---------------------------------- --------------------------------- One Year of Service and over 8 weeks of salary and benefits 4 weeks of salary and benefits continuation continuation ---------------------------------------------------------------------- 1 week of salary and benefits 1 week of salary and benefits continuation per $10,000 of continuation per $10,000 of salary salary plus plus 2 weeks of salary and benefits 1.5 weeks of salary and - - ---------------------------- continuation for each Year of benefits continuation for each Minimum - Service Year of Service Maximum - Subject to minimum and maximum Subject to minimum and maximum ---------------------------------------------------------------------- 8 weeks 4 weeks 52 weeks 52 weeks
EX-10.17 19 EXECUTIVE ANNUAL INCENTIVE PLAN Exhibit 10.17 IMS HEALTH INCORPORATED EXECUTIVE ANNUAL INCENTIVE PLAN 1. Purpose of the Plan The purpose of the Plan is to advance the interests of the Company and its stockholders by providing incentives in the form of periodic cash bonus awards to certain management employees of the Company and its subsidiaries, thereby motivating such employees to attain corporate performance goals articulated under the Plan. 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Award: A periodic cash bonus award granted pursuant to the Plan. (c) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (d) Board: The Board of Directors of the Company. (e) Change in Control: The occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(e)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 2 (f) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (g) Committee: The Compensation and Benefits Committee of the Board. (h) Company: IMS Health Incorporated, a Delaware corporation. (i) Covered Employee: As such term is defined in Section 162(m) of the Code (or any successor section thereto). (j) Covered Participant: A Participant who is, or who is anticipated to become, a Covered Employee. (k) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 13 of the Plan. (l) Participant: An employee of the Company or any of its Subsidiaries who is selected by the Committee to participate in the Plan pursuant to Section 4 of the Plan. (m) Performance Period: The calendar year or any other period that the Committee, in its sole discretion, may determine. (n) Person: As such term is used for purposes of Sections 13(d) or 14(d) of the Act (or any successor sections thereto). (o) Plan: The IMS Health Incorporated Executive Annual Incentive Plan. (p) Shares: Shares of common stock, par value $0.01 per Share, of the Company. (q) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. Administration The Plan shall be administered by the Committee or such other persons designated by the Board. The Committee may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 of the Act (or any successor rule thereto) and "outside directors" within the meaning of 3 Section 162(m) of the Code (or any successor section thereto). The Committee shall have the authority to select the employees to be granted Awards under the Plan, to determine the size and terms of an Award (subject to the limitations imposed on Awards in Section 5 below), to modify the terms of any Award that has been granted (except for any modification that would increase the amount of the Award payable to a Covered Participant), to determine the time when Awards will be made and the Performance Period to which they relate, to establish performance objectives in respect of such performance periods and to certify that such performance objectives were attained; provided, however, that any such action shall be consistent with the applicable provisions of Section 162(m) of the Code. The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. Determinations made by the Committee under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. The Committee shall have the right to deduct from any payment made under the Plan any federal, state, local or foreign income or other taxes required by law to be withheld with respect to such payment. To the extent consistent with the applicable provisions of Section 162(m) of the Code, the Committee may delegate to one or more employees of the Company or any of its Subsidiaries the authority to take actions on its behalf pursuant to the Plan. 4. Eligibility and Participation The Committee shall designate those persons who shall be Participants for each Performance Period. Participants shall be selected from among the employees of the Company and any of its Subsidiaries who are in a position to have a material impact on the results of the operations of the Company or of one or more of its Subsidiaries. The designation of Participants may be made individually or by groups or classifications of employees, as the Committee deems appropriate. 5. Awards 4 (a) Performance Goals. A Participant's Award shall be determined based on the attainment of written performance goals approved by the Committee for a Performance Period established by the Committee (i) while the outcome for that Performance Period is substantially uncertain and (ii) no more than 90 days after the commencement of the Performance Period to which the performance goal relates or, if less than 90 days, the number of days which is equal to 25 percent of the relevant Performance Period. The performance goals, which must be objective with respect to Covered Participants, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per Share; (v) book value per Share; (vi) return on stockholders' equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) return on assets; (xix) customer satisfaction; and (xx) employee satisfaction. In addition, with respect to Participants who are not Covered Participants, the Committee may approve performance goals based on other criteria, which may or may not be objective. The foregoing criteria may relate to the Company, one or more of its Subsidiaries or one or more of its divisions, units, partnerships, joint venturers or minority investments, product lines or products or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. The maximum amount of an Award to any Participant with respect to a fiscal year of the Company shall be $3,000,000. (b) Payment. The Committee shall determine whether, with respect to a Performance Period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Award. No Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Award actually paid to a given Participant may be less or, with respect to Participants who are not Covered Participants, more than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Award determined by the Committee for a performance period shall be paid to the 5 Participant at such time as determined by the Committee in its sole discretion after the end of such Performance Period. (c) Termination of Employment. If a Participant who is not a Covered Participant dies, retires, is assigned to a different position, is granted a leave of absence, or if the Participant's employment is otherwise terminated (except with cause by the Company) during a Performance Period, a pro rata share of the Participant's award based on the period of actual participation may, at the Committee's discretion, be paid to the Participant after the end of the Performance Period if it would have become earned and payable had the Participant's employment status not changed. (d) Compliance with Section 162(m) of the Code. The provisions of this Section 5 shall be administered and interpreted in accordance with Section 162(m) of the Code to ensure the deductibility by the Company or its Subsidiaries of the payment of Awards. 6. Amendments or Termination The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair any of the rights or obligations under any Award theretofore granted to a Participant under the Plan without such Participant's consent; provided, however, that the Committee may amend the Plan in such manner as it deems necessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws. Notwithstanding anything to the contrary herein, the Board may not amend, alter or discontinue the provisions relating to Section 10(b)(ii) of the Plan after the occurrence of a Change in Control. 7. No Right to Employment Neither the Plan nor any action taken hereunder shall be construed as giving any Participant or other person any right to continue to be employed by or perform services for the Company or any Subsidiary, and the right to terminate the employment of or performance of services by any Participant at any time and for any reason is specifically reserved to the Company and its Subsidiaries. 8. Nontransferability of Awards An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. 6 9. Reduction of Awards Notwithstanding anything to the contrary herein, the Committee, in its sole discretion (but subject to applicable law), may reduce any amounts payable to any Participant hereunder in order to satisfy any liabilities owed to the Company or any of its Subsidiaries by the Participant. 10. Adjustments Upon Certain Events (a) Generally. In the event of any change in the outstanding Shares by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to any affected terms of outstanding Awards. (b) Change in Control. Notwithstanding any other provision in the Plan to the contrary, in the event of a Change in Control, (i) the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (A) the acceleration of an Award, (B) the payment of a cash amount in exchange for the cancellation of an Award and/or (C) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control and (ii) any Participant who, as a result of a Change in Control, receives payments pursuant to a Change-in-Control agreement shall receive, subject to the same terms and conditions under which such payments are made, an amount in cash equal to (A) the annual target bonus under the Plan for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which he or she was employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to all other performance periods in progress under this Plan at the time of his or her termination of employment from the Company. 11. Miscellaneous Provisions The Company is the sponsor and legal obligor under the Plan and shall make all payments hereunder, other than any payments to be made by any of the Subsidiaries (in 7 which case shall be made by such Subsidiary, as appropriate). The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to ensure the payment of any amounts under the Plan, and the Participants' rights to the payment hereunder shall be no greater than the rights of the Company's (or Subsidiary's) unsecured creditors. All expenses involved in administering the Plan shall be borne by the Company. 12. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 13. Effectiveness of the Plan The Plan shall be effective as of July 1, 1998. 8 EX-10.18 20 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Exhibit 10.18 IMS HEALTH INCORPORATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective as of July 1, 1998 IMS HEALTH INCORPORATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective as of July 1, 1998 INTRODUCTION Effective as of July 1, 1998, the IMS Health Incorporated Supplemental Executive Retirement Plan (the "Plan") is established to provide a means of ensuring the payment of a competitive level of retirement income and disability and survivor benefits, and thereby attract, retain and motivate a select group of executives of IMS Health Incorporated and its affiliated employers. SECTION 1 -- DEFINITIONS 1.1 "Actuarial Equivalent Value" shall mean a benefit of equivalent value computed on the basis of the 1983 Group Annuity Mortality Table and interest equal to the yield on 30-year Treasury Bonds as of the last business day of the Plan Year prior to the year in which the relevant calculation occurs. 1.2 "Affiliated Employer" shall mean an entity affiliated with the Company. 1.3 "Average Final Compensation" shall mean a Member's average annual Compensation during the five consecutive 12-month periods in the last ten consecutive 12-month periods of his or her Service (or during the total number of consecutive 12-month periods if fewer than five), immediately prior to the month following the Member's termination of employment with the Company or an Affiliated Employer or, if earlier, removal from participation under this Plan, affording the highest such Average Final Compensation. If 1 actual monthly Compensation for any month during the 120-month computational period is unavailable, Compensation for such month shall be determined by dividing the Member's annual rate of base pay in the month preceding such unavailable month by 12. 1.4 "Basic Disability Plan" shall mean as to any Member the long-term disability plan of the Company or an Affiliated Employer pursuant to which long-term disability benefits are payable to such Member. 1.5 "Basic Disability Plan Benefit" shall mean the amount of benefits payable to a Member from the Basic Disability Plan. 1.6 "Basic Plan" shall mean as to any Member or Vested Former Member the defined benefit pension plan of the Company or an Affiliated Employer intended to meet the requirements of Code Section 401(a) pursuant to which retirement benefits are payable to such Member or Vested Former Member or to the Surviving Spouse or designated beneficiary of a deceased Member or Vested Former Member. 1.7 "Basic Plan Benefit" shall mean the amount of benefits payable from the Basic Plan to a Member or Vested Former Member. 1.8 "Board" shall mean the Board of Directors of IMS Health Incorporated, except that any action authorized to be taken by the Board hereunder may also be taken by a duly authorized committee of the Board or its duly authorized delegees. 2 1.9 "Change in Control" shall mean: (a) any "Person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (b) during any period of 24 months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (i) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1.9(a), (c), or (d) hereof, (ii) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control, or (iii) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; 3 (c) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (i) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, and (ii) after which no "Person" holds 20% or more of the combined voting power of the then outstanding securities of the Company or such surviving entity; (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (e) the Board adopts a resolution to the effect that, for purposes of this Plan, a Change in Control has occurred. 1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.11 "Committee" shall mean the Compensation and Benefits Committee of the Board, except that any action authorized to be taken by the Committee hereunder may also be taken by the Board or by another duly authorized committee or duly authorized delegees. 1.12 "Company" shall mean IMS Health Incorporated. 1.13 "Compensation" shall mean base salary, annual bonuses, commissions, overtime and shift pay, in each case prior to reductions for pre-tax contributions made to a plan or salary 4 reduction contributions to a plan excludable from income under Code Section 125. Compensation excludes, however, severance pay (including, without limitation, severance amounts paid under any employment agreement, salary continuation under the Company's Employee Protection Plan, special stay-on bonuses, long-term bonuses, retirement income, change-in-control payments, contingent payments, amounts paid under this plan (other than Disability Benefits) income derived from stock options, stock appreciation rights and other equity based compensation and other forms of special remuneration). 1.14 "Covered Earnings" shall mean a Member's Compensation in the 12 months immediately preceding the onset of the Member's Disability. 1.15 "Deferred Vested Benefit" shall mean the benefits described in Section 3.2(b) hereof. 1.16 "Disability" or "Disabled" shall mean disability or disabled for purposes of the Basic Disability Plan. 1.17 "Disability Benefits" shall mean the benefits provided as described in Section 4.1(b) hereof. 1.18 "Effective Date" shall mean July 1, 1998. 1.19 "Former Member" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates before he or she has completed five or more years of Service, or (ii) a Member who was removed from participation in the Plan, in accordance with Section 2.2 hereof, before he or she has completed five or more years of Service. 5 1.20 "Lump Sum Election" shall mean an election to receive all or portion of the benefits payable hereunder in a lump sum pursuant to Section 3.4 hereof. 1.21 "Member" shall mean an employee of the Company or an Affiliated Employer who becomes a participant in the Plan pursuant to Section 2, but excludes any Former Member or Vested Former Member. 1.22 "Other Disability Income" shall mean (i) the disability insurance benefit that the Member is entitled to receive under the Federal Social Security Act while he or she is receiving the Basic Disability Plan Benefit and (ii) the disability income payable to a Member from any supplemental executive disability plan of the Company or any Affiliated Employer or from any other contract, agreement or other arrangement with the Company or an Affiliated Employer (excluding any Basic Disability Plan). 1.23 "Other Retirement Income" shall mean: (a) the Social Security retirement benefit that the Member or Former Member is entitled to receive under the Federal Social Security Act, assuming that for years prior to the Member's employment with the Company and for years following the Member's termination of employment with the Company until the Member attains age 62, the Member earned compensation so as to accrue the maximum Social Security benefits, and (b) the retirement income payable to a Member or Vested Former Member from any "excess benefit plan" as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any plan described in Section 201(2) of ERISA, and any other contract, agreement or other arrangement providing a defined pension benefit or defined contribution retirement benefit, in any case, 6 maintained or entered into with the Company or an Affiliated Employer (excluding any Basic Plan and any defined contribution plan intended to meet the requirements of Code Section 401(a)). 1.24 "Plan" shall mean the IMS Health Incorporated Supplemental Executive Retirement Plan, as embodied herein, and any amendments thereto. 1.25 "Predecessor to this Plan" shall mean the Supplemental Executive Benefit Plan of Cognizant Corporation, effective November 1, 1996. 1.26 "Retirement" shall mean the termination of a Member's or Vested Former Member's employment with the Company or an Affiliated Employer other than by reason of death or Disability (i) after reaching age 55 and completing ten years of Service, or (ii) immediately following the cessation of the payment of Disability Benefits under the Plan to such Member or Vested Former Member while he or she is Disabled. In determining whether age 55 has been attained under clause (i) of this definition, there shall be included as years of age the number of additional years credited as "age" for purposes of the Plan to the Member or Vested Former Member under a then-effective employment agreement between the Company and such person. 1.27 "Retirement Benefits" shall mean the benefits described in Section 3.1(b) hereof. 1.28 "Service" shall mean a Member's service defined as Vesting Service in the Basic Plan, which is taken into account for vesting purposes thereunder (including any such service prior to the date such individual becomes a Member but not including any such service after participation hereunder terminates), except that (i) Service will also include service while the Member is 7 receiving Disability Benefits under this Plan; (ii) if a Member was employed by a company acquired by the Company or an Affiliated Employer after the Effective Date, such Member's service with that company prior to the date of acquisition will not constitute Service hereunder; (iii) upon commencement of participation hereunder in accordance with Section 2.1 hereof, the CEO (as defined in such section) may limit any service otherwise to constitute Service hereunder with respect to periods prior to the date of participation in the Plan; and (iv) no service of a Former Member or Vested Former Member during any period after removal from participation under Section 2.2 shall constitute Service for purposes of the Plan. The foregoing notwithstanding, there shall be included as Service under the Plan the number of additional years (or other additional period) credited as "service" for purposes of the Plan to the Member of Former Member or Vested Former Member under an employment agreement between the Company or an Affiliated Employer and such person in effect at the time of such person's termination of employment. 1.29 "Surviving Spouse" shall mean the spouse of a deceased Member or Vested Former Member to whom such Member or Vested Former Member is married under applicable state law immediately preceding such Member or Vested Former Member's death. 1.30 "Surviving Spouse's Benefits" shall mean the benefits described in Section 5 hereof. 1.31 "Vested Former Member" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates on or after the date on which he or she has completed five or more years of Service, or (ii) a Member who was removed from participation in the Plan, in accordance with Section 2.2 hereof, on or after the date on which he or she has completed five or more years of Service. 8 SECTION 2 -- PARTICIPATION 2.1 Commencement of Participation. The Chief Executive Officer ("CEO") of the Company and such other key executives of the Corporation and its Affiliated Employers as are designated by the CEO in writing and approved by the Committee shall participate in the Plan as of a date determined by the CEO. 2.2 Termination of Participation. A Member's participation in the Plan shall terminate upon termination of his or her employment with the Company or any Affiliated Employer. Prior to termination of employment, a Member may be removed, upon written notice by the CEO as approved by the Committee, from further participation in the Plan. As of the date of termination or removal, no further benefits shall accrue to such individual hereunder. SECTION 3 -- AMOUNT AND FORM OF BENEFITS 3.1 Retirement Benefits. (a) Eligibility. Upon the Retirement of a Member or Vested Former Member from the Company or an Affiliated Employer, he or she shall be entitled to the Retirement Benefit described in Section 3.1(b) hereof, payable in the form specified in Section 3.3. (b) Amount. The Retirement Benefit of a Member or Vested Former Member shall be an annual benefit equal to the difference between (i) and the sum of (ii), (iii), (iv) and (v) where: (i) is 50% of his or her Average Final Compensation, plus 2% of such Average Final Compensation multiplied by the 9 number of his or her years of Service over ten but not in excess of 15 years; (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Basic Plan Benefit becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value as of such date of the Basic Plan Benefit that would become payable in the form of an annual life annuity starting on the earliest possible date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value as of such date of the Other Retirement Income that would become payable in the form of an annual life annuity starting on the earliest possible date under the terms of the appropriate retirement arrangement; and (iv) is the annual benefit payable to the Member or Vested Former Member under the terms of the Predecessor to this Plan as of the date of his or her Retirement, expressed in the form of an annual life annuity. 3.2 Deferred Vested Benefit. (a) Eligibility. Each Member and Vested Former Member who has completed five or more years of Service and whose employment with the Company or an Affiliated Employer terminates with the Company's consent, prior to Retirement, 10 other than by reason of death or Disability, shall be entitled to the Deferred Vested Benefit described in Section 3.2(b) hereof, payable in the form specified in Section 3.3. (b) Amount. The Deferred Vested Benefit of a Member or Vested Former Member who terminates and who meets the eligibility requirements of Section 3.2(a) shall be an annual benefit equal to the difference between (i) and the sum of (ii), (iii), and (iv), where: (i) is 25% of his or her Average Final Compensation, plus 5% of such Average Final Compensation multiplied by the number of his or her years of Service over five (5) but not in excess of ten (10), plus 2% of such Average Final Compensation multiplied by the number of his or her years of Service over ten but not in excess of 15; (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Basic Plan Benefit becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value as of such date of the Basic Plan Benefit that would become payable in the form of an annual life annuity starting on the earliest possible date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value as of such date of the Other Retirement 11 Income that would become payable in the form of an annual life annuity starting on the earliest possible date under the terms of the appropriate retirement arrangement; and (iv) is the annual benefit payable to the Member or Vested Former Member under the terms of the Predecessor to this Plan as of the date his or her Deferred Vested Benefit commences, expressed in the form of an annual life annuity. 3.3 Form of Payment. (a) Except as provided under Section 3.3(b) or Section 3.3(c), the Retirement Benefit or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in monthly installments in the form of a straight life annuity and without regard to any optional form of benefits elected under the Basic Plan. Payments shall commence on the first day of the calendar month coinciding with or next following (i) the Member's or Vested Former Member's Retirement, in the case of Retirement Benefits or (ii) the later of the date the Member or Vested Former Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (b) If a Member or Vested Former Member has made a Lump Sum Election pursuant to Section 3.4 and such Lump Sum Election becomes effective (i) prior to the date of such Member's or Vested Former Member's Retirement or termination of employment with the Company or an Affiliated Employer and (ii) while he or she was still a Member, the Retirement Benefit, or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in the form or combination of forms of payment elected pursuant to such Lump Sum Election under Section 3.4 and without regard to any optional form of benefits elected under the Basic Plan. Any portion of the benefits hereunder payable 12 in a lump sum shall be paid within 60 days following (i) the Member's or Vested Former Member's Retirement, in the case of Retirement Benefits or (ii) the later of the date the Member or Vested Former Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (c) Notwithstanding any Lump Sum Election made (or not made) under Section 3.3, if the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Member's or Vested Former Member's Retirement, or Deferred Vested Benefit is $10,000 or less at the time such benefit is payable under this Plan, such benefit shall be payable as a lump sum. 3.4 Lump Sum Election. (a) A Member or Vested Former Member may elect to receive all, none, or a specified portion, as provided in Section 3.4(c), of his or her Retirement Benefit or Deferred Vested Benefit under the Plan as a lump sum and to receive any balance of such benefit in the form of an annuity; provided that any such Lump Sum Election shall be effective for purposes of this Plan only if the conditions of Section 3.4(b) are satisfied. A Member or Vested Former Member may elect a payment form different than the payment form previously elected by him or her under this Section 3.4(a) by filing a revised election form; provided that any such new election shall be effective only if the conditions of Section 3.4(b) are satisfied with respect to such new election. Any prior Lump Sum Election made by a Member that has satisfied the conditions of Section 3.4(b) shall remain effective for purposes of the Plan until such Member has made a new election satisfying the conditions of Section 3.4(b). The amount of any portion of a Member's or a Vested Former Member's Retirement Benefit or Deferred Vested Benefit payable as a lump sum under this Section 3.4 shall equal the present value 13 of such portion of the benefit, and such present value shall be determined (i) based on a discount rate equal to 85% of the average of the 15-year non-callable U.S. Treasury bond yields as of the close of business on the last business day of each of the three months immediately preceding the date the annuity value is determined and (ii) using the 1983 Group Annuity Mortality Table. (b) A Member's Election under Section 3.4(a) becomes effective only if all of the following conditions are satisfied: (i) such Member remains in the employment of the Company or an Affiliated Employer, as the case may be, for the full 12 calendar months immediately following the date of such election (the "Election Date"), except in the case of death or Disability of such Member (in which case Section 3.4 (d) shall apply) and (ii) such Member complies with the administrative procedures set forth by the Committee with respect to the making of a Lump Sum Election. (c) A Member making an election under Section 3.4(a) may specify the portion of his Retirement or Deferred Vested Benefit under the Plan to be received in a lump sum as follows: 0%, 25%, 50%, 75%, or 100%. (d) In the event a Member who has made an Election pursuant to Section 3.4(a) dies or becomes Disabled while employed by the Company or an Affiliated Employer and such death or total and permanent Disability occurs during the 12 calendar-month period immediately following the Election Date , the condition under Section 3.4(b)(i) shall be deemed satisfied with respect to such Member. 3.5 Cessation of Benefits. Subject to Section 3.8 hereof, no benefits or no further benefits, as the case may be, shall be paid to a 14 Member, Vested Former Member or Surviving Spouse if the Member or Vested Former Member has: (a) become a stockholder (unless such stock is listed on a national securities exchange or traded on a daily basis in the over-the-counter market and the Member's or Vested Former Member's ownership interest is not in excess of 2% of the company whose shares are being purchased), employee, officer, director or consultant of or to a Company, or a member or an employee of or a consultant to a partnership or any other business or firm, which competes with any of the businesses owned or operated by the Company, or if the Member or Vested Former Member becomes associated with a company, partnership or individual which company, partnership or individual acts as a consultant to businesses in competition with the Company, such Member or Vested Former Member provided services to such competing businesses, whether or not, in any of the foregoing cases, such Member or Vested Former Member accepts any form of compensation from such competing entity or consultant; or (b) been discharged from employment with the Company or any Affiliated Employer for "cause." "Cause" shall mean "Cause" as defined in an employment agreement between the Company and the Member or Former Member or Vested Former Member then in effect or, if no such employment agreement containing a definition of Cause is then in effect, "Cause" shall mean (i) willful malfeasance or willful misconduct by the Member or Former Vested Member in connection with his or her employment, (ii) continuing failure to perform such duties as are requested by any employee to whom the Member or Vested Former Member reports or the Board, or (iii) the commission by a Member or Vested Former Member of (A) any felony or (B) any misdemeanor involving moral turpitude. 15 3.6 Notification of Cessation of Benefits. Subject to Section 3.8 hereof, in any case described in Section 3.5, the Member, Vested Former Member or Surviving Spouse shall be given prior written notice that no benefits or no further benefits, as the case may be, will be paid to such Member, Vested Former Member or Surviving Spouse. Such written notice shall specify the particular act(s), or failures to act, and the basis on which the decision to cease paying his or her benefits has been made. 3.7 Repayment of Benefits Paid as Lump Sum. (a) Subject to Section 3.8 hereof, a Member or Vested Former Member who receives in a lump sum any portion of his or her Retirement Benefit or Deferred Vested Benefit pursuant to a Lump Sum Election, shall receive such lump sum portion of such Retirement Benefit or Deferred Vested Benefit subject to the condition that if such Member or Vested Former Member engages in any of the acts described in Section 3.5(a), then such Member or Vested Former Member shall, within 60 days after written notice by the Company, repay to the Company the amount described in Section 3.7(b). (b) The amount described in this section shall equal the amount of the Member's or Vested Former Member's lump sum benefit paid under this Plan to which such Member or Vested Former Member would not have been entitled, if such lump sum benefit had instead been payable in the form of an annuity under this Plan and such annuity payments were subject to the provisions of Section 3.5. 3.8 Change in Control. Notwithstanding anything to the contrary contained herein, the provisions of Sections 3.5 through 3.7 shall be of no force or effect from and after a Change in Control with respect to any Member and Vested Former Member who is 16 employed by the Company or an Affiliated Employer as of such Change in Control. SECTION 4 -- DISABILITY BENEFITS 4.1 (a) Eligibility. A Member who is enrolled for the maximum disability insurance coverage available under the Basic Disability Plan and who has become Disabled shall be entitled to the Disability Benefit described in Section 4.1(b). (b) Amount. The Disability Benefit of a Member entitled thereto shall be an annual benefit payable in monthly installments under this Plan during the same period as disability benefits are actually paid by the Basic Disability Plan, in an amount equal to 60% of the Member's Covered Earnings, offset by the Member's (i) Basic Disability Plan Benefit, (ii) Basic Plan Benefit, if the Basic Disability Plan Benefit does not already include an offset for such Basic Plan Benefit, and (iii) Other Disability Income. SECTION 5 -- SURVIVING SPOUSE'S BENEFITS 5.1 Death Prior to Benefit Commencement. Upon the death of a Member or Vested Former Member, prior to the commencement of his or her Retirement Benefit or Deferred Vested Benefit hereunder, his or her Surviving Spouse will be entitled to a Surviving Spouse's Benefit under this Plan equal to 50% of the Retirement or Deferred Vested Benefit that would have been provided from the Plan had the Member or Vested Member retired from or terminated employment with the Company or an Affiliated Employer on the date of death. 5.2 Death On or After Benefit Commencement. Upon the death of a Vested Former Member while he or she is receiving Retirement or Deferred Vested Benefits, his or her Surviving Spouse shall 17 receive a Surviving Spouse's Benefit equal to 50% of the Benefit he or she was receiving at the time of death. Notwithstanding the foregoing, no benefit shall be payable under this Section 5.2 to the extent a Retirement Benefit or Deferred Vested Benefit was previously paid to a Member or Vested Former Member in the form of a lump sum. 5.3 Commencement of Surviving Spouse's Benefit. Except as provided in Section 5.4, the Surviving Spouse's Benefit provided under Sections 5.1 or 5.2 will be payable monthly, commencing on the first day of the month coincident with or next following the date of the Member's or Vested Former Member's death, or, if the Member or Vested Former Member had not attained age 55, on the date such Member or Vested Former Member would have attained age 55 had he or she lived. Such benefits shall continue until the first day of the month in which the Surviving Spouse dies. 5.4 Lump Sum Payment. (a) If a Member or a Vested Former Member made an Election under Section 3.4 but such Member or Vested Former Member died prior to such lump sum payment, the Surviving Spouse's Benefit payable under Section 5.1 hereof will be payable in the form or combination of forms of payment so elected by such Member or Vested Former Member pursuant to such Lump Sum Election. The amount of any lump sum payment under the Plan shall be determined using the actuarial assumptions set forth in Section 3.4(a). (b) If the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Surviving Spouse's Benefit is $10,000 or less at the time such Surviving Spouse's Benefit is payable under this Plan, such benefit shall be payable as a lump sum. 18 (c) Any Surviving Spouse's Benefit which is payable as a lump sum shall be paid within 60 days after the date when any portion of such benefit payable in annuity form commences or would commence if any portion of such Surviving Spouse's Benefit were payable as an annuity as set forth in Section 5.3. 5.5 Reduction. Notwithstanding the foregoing provisions of Section 5, the amount of a Surviving Spouse's Benefit shall be reduced by one percentage point for each year (where a half year or more is treated as a full year) in excess of ten years that the age of the Member or Vested Former Member exceeds the age of the Surviving Spouse. SECTION 6 -- COMMITTEE 6.1 Duties and Authority. The Committee shall be responsible for the administration of the Plan and may delegate to any management committee, employee, director or agent its responsibility to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion; provided, that such delegation shall be subject to revocation at any time at the Committee's discretion. The Committee shall have the authority to determine all questions arising in connection with the Plan, to interpret the provisions of the Plan and to construe all of its terms, to adopt, amend, and rescind rules and regulations for the administration of the Plan, and generally to conduct and administer the Plan and to make all determinations in connection with the Plan as may be necessary or advisable. All such actions of the Committee shall be conclusive and binding upon all Members, Former Members, Vested Former Members and Surviving Spouses. 19 SECTION 7 -- MISCELLANEOUS 7.1 Amendment; Termination. The Committee may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of the Plan may adversely affect (a) a Member's or Vested Former Member's benefit under the Plan to which he or she is entitled hereunder or, (b) a Vested Former Member's right or the right of a Surviving Spouse to receive or to continue to receive a benefit in accordance with the Plan, such benefits or rights as in effect on the date immediately preceding the date of such termination, suspension or amendment. 7.2 No Employment Rights. Nothing contained herein will confer upon any Member, Former Member or Vested Former Member the right to be retained in the service of the Company or any Affiliated Employee, nor will it interfere with the right of the Company or any Affiliated Employer to discharge or otherwise deal with Members, Former Members or Vested Former Members with respect to matters of employment. 7.3 Payout in Discretion of the Committee. Notwithstanding anything herein to the contrary, at any time following the termination of service of the Member or Vested Former Member, the Committee may authorize, under uniform rules applicable to all Members, Vested Former Members and Surviving Spouses under the Plan, a lump sum distribution of a Member's, Vested Former Member's and/or Surviving Spouse's Retirement Benefit or Surviving Spouse's Benefit under the Plan in an amount equal to the present value of such Retirement Benefit or Surviving Spouse's Benefit, using the actuarial assumptions then in use for funding purposes under the IMS Health Incorporated Retirement Plan, in full satisfaction of all present and future Plan liability with respect to such Member, Vested Former Member and/or Surviving Spouse, if the amount of such present value is less than $250,000. Such lump sum 20 distribution may be made without the consent of the Member, Vested Former Member or Surviving Spouse. 7.4 Unfunded Status. Members and Vested Former Members shall have the status of general unsecured creditors of the Company, and this Plan constitutes a mere promise by the Company to make benefit payments at the time or times required hereunder. It is the intention of the Company that this Plan be unfunded for tax purposes and for purposes of Title I of ERISA and any trust created by the Company and any assets held by such trust to assist the Company in meeting its obligations under the Plan shall meet the requirements necessary to retain such unfunded status. 7.5 Arbitration. Any dispute or controversy arising under or in connection with the Plan shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association in effect at the time of such arbitration. The Company shall pay the entire costs of any proceeding brought by a Member, Vested Former Member, Former Member, or Surviving Spouse hereunder, including the fees and expenses of counsel and pension experts engaged by such person, and such expenses shall be reimbursed promptly upon evidence that such expenses have been incurred without awaiting the outcome of the proceedings; provided, however, that such costs and expenses shall be repaid to the Company by the recipient of same if it is finally determined by the arbitrators that the position taken by such person was entirely without merit. Failure of such person to prevail in any dispute or controversy shall not be the sole basis on which such determination shall be made. 7.6 No Alienation. A Member's or Vested Former Member's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors or 21 such Member or Vested Former Member or his or her Surviving Spouse. 7.7 Withholding. The Company may withhold from any benefit under the Plan an amount sufficient to satisfy its tax withholding obligations. 7.8 Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state to the extent not preempted by federal law. 22 IN WITNESS WHEREOF, the Company has caused this document to be executed by its officer effective July 1, 1998. IMS Health Incorporated By: ______________________________________________________ Its: ______________________________________________________ Date:______________________________________________________ 23 Table of Contents Page INTRODUCTION 1 SECTION 1 - DEFINITIONS 1 .1 Actuarial Equivalent.................. 1 .2 Affiliated Employer................... 1 .3 Average Final Compensation............ 1 .4 Basic Disability Plan................. 2 .5 Basic Disability Plan Benefit......... 2 .6 Basic Plan............................ 2 .7 Basic Plan Benefit.................... 2 .8 Board................................. 2 .9 Change in Control..................... 3 .10 Code................................. 4 .11 Committee............................ 4 .12 Company.............................. 4 .13 Compensation......................... 4 .14 Covered Earnings..................... 5 .15 Deferred Vested Benefits............. 5 .16 Disability or Disabled............... 5 .17 Disability Benefits.................. 5 .18 Effective Date....................... 5 .19 Former Member........................ 5 .20 Lump Sum Election.................... 5 .21 Member............................... 5 .22 Other Disability Income.............. 6 .23 Other Retirement Income.............. 6 .24 Plan................................. 6 .25 Predecessor to this Plan............. 7 .26 Retirement........................... 7 .27 Retirement Benefits.................. 7 .28 Service.............................. 7 .29 Suriving Spouse...................... 7 .30 Surviving Spouse's Benefits.......... 8 .31 Vested Former Member................. 9 SECTION 2 - PARTICIPATION......................... 9 .1 Commencement of Participation......... 9 .2 Termination of Participation.......... 9 SECTION 3 - AMOUNT AND FORM OF BENEFITS........... 9 .1 Retirement Benefits.................. 9 .2 Deferred Vested Benefit.............. 10 .3 Form of Payment...................... 12 .4 Lump Sum Election.................... 13 .5 Cessation of Benefits................ 14 .6 Notification of Cessation of Benefits 15 .7 Repayment of Benefits Paid as Lump Sum 16 .8 Change in Control.................... 16 SECTION 4 - DISABILITY BENEFITS................... 17 .1(a) Eligibility........................ 17 (b) Amount............................. 17 SECTION 5 - SURVIVING SPOUSE'S BENEFITS........... 17 .1 Death Prior to Benefit Commencement.. 17 .2 Death On or After Benefit Commencement 17 24 .3 Commencement of Surviving Spouse's Benefit............................ 18 .4 Lump Sum Payment..................... 18 .5 Reduction............................ 19 SECTION 6 - COMMITTEE............................. 20 .1 Duties and Authority................. 20 SECTION 7 - MISCELLANEOUS......................... 21 .1 Amendment; Termination............... 21 .2 No Employment Rights................. 21 .3 Payout in Discretion of the Committee 21 .4 Unfunded Status...................... 22 .5 Arbitration.......................... 22 .6 No Alienation........................ 22 .7 Withholding.......................... 23 .8 Governing Law........................ 23 25 EX-10.19 21 RETIREMENT EXCESS PLAN Exhibit 10.19 IMS HEALTH INCORPORATED RETIREMENT EXCESS PLAN Effective as of July 1, 1998 IMS HEALTH INCORPORATED RETIREMENT EXCESS PLAN Effective as of July 1, 1998 Introduction Effective as of July 1, 1998, the IMS Health Incorporated Retirement Excess Plan (the "Plan") is established by IMS Health Incorporated (the "Company") to provide participating employees with retirement benefits in excess of those permitted to be paid under the IMS Health Incorporated Retirement Plan (the "Qualified Plan") due to the limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the "Code"). For purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), this Plan is intended to be unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Section I -- Participation in the Plan All participants in the Qualified Plan shall participate in this Plan whenever their benefits under the Qualified Plan as from time to time in effect would have exceeded the limitations on benefits imposed by Sections 401(a)(17) and 415 of the Code if such benefits were determined as though no provision were contained in the Qualified Plan incorporating such limitations. Section II -- Benefits The Corporation shall pay to each participant in the Qualified Plan (or his or her beneficiaries designated to receive benefits from the Qualified Plan) a benefit equal to the excess of (a) over (b), where: (a) equals the amount that would be payable to the participant (or his or her beneficiaries) under the Qualified Plan in the absence of any provision reducing benefits due to the benefit limitations imposed by Sections 401(a)(17) and 415 of the Code; and (b) equals the sum of (i) the actual benefits payable to the participant (or his or her beneficiaries) from the Qualified Plan and (ii) the benefits payable to the participant (or his or her beneficiaries) from the Pension Benefit Equalization Plan of The Dun & Bradstreet Corporation (as in effect on October 31, 1996), as determined by the Company in accordance with the methods and assumptions specified in Appendix A of this Plan. Notwithstanding the foregoing, no benefits shall be payable hereunder unless the participant has a nonforfeitable right to benefits under the Qualified Plan. Benefits hereunder shall be payable at the same time and in the same form as the participant's (or his or her beneficiaries') benefits under the Qualified Plan; provided, however, if an Election (as defined in Section IV of this Plan) has been made and becomes effective prior to the date when benefits under this Plan would otherwise be payable to the participant, the form of payment of benefits under this Plan shall be in the form so elected pursuant to such Election. If an Election becomes effective prior to the date when benefits would be payable and the participant dies prior to the date when benefits would be payable, his or her beneficiaries designated to receive benefits from the Qualified Plan shall receive benefits in the form so elected pursuant to such Election. If the participant has not designated a beneficiary under the Qualified Plan, or if no such beneficiary is living at the time of the participant's death, the amount, if any, payable hereunder upon his or her death shall be distributed to the person or persons who would otherwise be entitled to receive a distribution of the participant's Qualified Plan benefits. Notwithstanding any Election, if the lump sum value, determined in the same manner as provided under Section IV below, of the benefits payable to the participant (or his or her beneficiaries) under this Plan is $10,000 or less at the time such benefits are payable under this Plan, such benefits shall be payable as a lump sum. Any portion of the benefits payable under this Plan as a lump sum shall be paid commencing at the same time as benefits payable in any other form hereunder would otherwise be paid. Section III -- Unfunded Status Participants hereunder shall have the status of general unsecured creditors of the Company and this Plan constitutes a mere promise by the Company to make benefit payments at the time or times required hereunder. It is the intention of the Company that this Plan be unfunded for tax purposes and for purposes of Title I of ERISA, and any trust created by the Company and any assets held by such trust to assist the Company in meeting its obligations under the Plan shall meet the requirements necessary to retain such unfunded status. Section IV -- Election of Form of Payment (a) A participant under this Plan may elect to receive all, none, or a specified portion, as provided below, of his benefits hereunder as a lump sum and to receive any balance of such benefits in the form of an annuity (an "Election"); provided that any such Election shall be effective for purposes of this Plan only if (i) such participant remains in the employment of the Company or an Affiliate, as the case may be, for a period not less than the full 12 calendar months immediately following the Election Date of such Election (except in the case of such participant's death or disability as provided below), and (ii) such participant complies with the administrative procedures set forth by the Committee with respect to the making of an Election. "Affiliate" shall mean the Company and any other employer which is a member of a "controlled group of corporations," a group under "common control," or an "affiliated service group," all as determined under Code Sections 414(b), (c), (m), (o). (b) Any portion of the benefit payable to the participant (or his or her beneficiaries) in the form of an annuity shall be paid at the same time and in the same form as his or her benefits under the Qualified Plan. Any portion of the benefit payable to the participant (or his or her beneficiaries) in the form of a lump sum shall be paid in full at the same time as the benefits commence under the Qualified Plan, and no subsequent lump sum benefits will be paid. (c) A participant may elect a payment form different than the payment form previously elected by him or her by filing a revised election form; provided that any such new Election shall be effective only if the conditions in clauses (i) and (ii) of Section IV(a) above are satisfied with respect to such new Election. Any prior Election made by a participant that has satisfied such conditions remains effective for purposes of this Plan until such participant has made a new Election satisfying such conditions. (d) A participant making an election under this Section IV may specify the portion of his benefits under this Plan to be received in a lump sum as follows: 0 percent, 25 percent, 50 percent, 75 percent or 100 percent. (e) In the event a participant who has made an Election dies or becomes disabled within the meaning of the Company's long-term disability plan while employed by the Company or an affiliate and such death or disability occurs during the 12-calendar-month period immediately following the Election Date of such Election, the condition that such participant remain employed with the Company or an affiliate for such 12-month period shall be deemed to be satisfied and such Election shall be effective with respect to benefits payable to such participant or participant's beneficiaries under this Plan. (f) The amount of any portion of the benefits payable as a lump sum under this Section IV will equal the present value of such portion of such benefits, and the present value shall be determined (i) based on a discount rate equal to the average of 85% of the 15-year non-callable U.S. Treasury bond yields as of the close of business on the last business day of each of the three months immediately preceding the date the annuity value is determined and (ii) using the 1983 Group Annuity Mortality Table. (g) "Election Date" for purposes of this Plan means the date that a properly completed election form with respect to an Election is received by the Company. Section V -- Cessation of Benefits (a) Notwithstanding any other provision of the Plan (except as provided below in this Section V), no benefits or no further benefits, as the case may be, shall be paid to a participant (or his or her beneficiary) if the participant has: (i) become a stockholder (unless such stock is listed on a national securities exchange or traded on a daily basis in the over-the-counter market and the participant's ownership interest is not in excess of 2% of the company of which the shares are being purchased), employee, officer, director or consultant of or to a Company, or a member or an employee of or a consultant to a partnership or any other business or firm, which competes with any of the businesses owned or operated by the Company, or if the participant becomes associated with a company, partnership or individual which company, partnership or individual acts as a consultant to businesses in competition with the Company, such participant provided services to such competing businesses, whether or not, in any of the foregoing cases, such participant accepts any form of compensation from such competing entity or consultant; or (ii) been discharged from employment with the Company or any affiliate for "cause." "Cause" means (1) willful malfeasance or willful misconduct by the participant in connection with his or her employment, (2) continuing failure to perform such duties as are requested by any employee to whom the participant reports or the board of directors of the Company, or (3) the commission by a participant of (I) any felony or (II) any misdemeanor involving moral turpitude. (b) In any case described in this Section V, the participant (or his or her beneficiary) shall be given prior written notice that no benefits or no further benefits, as the case may be, will be paid to such participant (or his or her beneficiary). Such written notice shall specify the particular act(s), or failures to act, on the basis of which the decision to cease paying his or her benefits has been made. (c) Notwithstanding any other provision of the Plan, a participant who receives in a lump sum any portion of his or her benefits hereunder shall receive such lump sum portion of such benefits subject to the condition that if such participant engages in any of the acts described in this Section V, then such participant shall within 60 days after written notice by the Company repay to the Company the amount described in the immediately succeeding sentence. The amount described in this sentence shall equal the amount of the participant's lump sum benefit under this Plan to which such participant would not have been entitled, if such lump sum benefit had instead been payable in the form of an annuity under this Plan and such annuity payments were subject to the provisions of this Section V. (d) Notwithstanding anything to the contrary contained herein, the provisions of this Section V shall be of no further force or effect from and after a "Change in Control" with respect to participants then employed by the Company or its Affiliates. For this purpose, a "Change in Control" shall mean: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d)of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of 24 months (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the board of directors of the Company (the "Board"), and any new director (other than (a) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraphs (i), (iii) or (iv) of this Section V(d), (b) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (c) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (1) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 % of the combined voting powers of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (2) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Section VI -- Funding Benefits payable under this Plan shall not be funded and shall be made out of the general funds of the Company; provided, however, that the Company reserves the right to establish one or more trusts to provide alternate sources of benefit payments under this Plan, provided, further, however, that upon the occurrence of a "Potential Change in Control" of the Company, as defined below, the appropriate officers of the Company are required to make contributions to such a trust fund, established as an alternate source of benefits payable under the Plan, as are necessary to fund the lump sum payments to Plan participants required pursuant to Section V of this Plan in the event of a Change in Control of the Company; provided, further, however, that if payments are made from such trust fund, such payments will satisfy the Company's obligations under this Plan to the extent made from such trust fund. In determining the amount of the necessary contribution to the trust fund in the event of a Potential Change in Control, the following actuarial assumptions shall be used: (i) the interest rate used shall be the interest rate used by the Pension Benefit Guaranty Corporation for determining the value of immediate annuities as of January 1st of the year of the occurrence of the Potential Change in Control, (ii) the 1983 Group Annuity Mortality Table shall be used; and (iii) it shall be assumed that all participants will retire or terminate employment with the Company as soon as practicable after the occurrence of the Potential Change in Control. For the purpose of this Plan, "Potential Change in Control" means: (a) the Company enters into an agreement, the consumption of which would result in the occurrence of a Change in Control of the Company; (b) any person (including the Company) publicly announces its intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (c) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company (or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities, increases his or her beneficial ownership of such securities by 5% or more over the percentage so owned by such person; or (d) The Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control of the Company has occurred. Section VII -- Miscellaneous (a) The Compensation and Benefits Committee of the board of directors of the Company shall be responsible for the administration of the Plan and may delegate to any management committee, employee, director or agent its responsibility to perform any act hereunder, including without limitation those matters involving the exercise of discretion, provided that such delegation shall be subject to revocation at any time at the Committee's discretion. The Committee shall have the authority to determine all questions arising in connection with the Plan, to interpret the provisions of the Plan and construe all of its terms, to adopt, amend, and rescind rules and regulations for the administration of the Plan, and generally to conduct and administer the Plan and to make all determinations in connection with the Plan as may be necessary or advisable. All such actions of the Committee shall be conclusive and binding upon all participants and beneficiaries. (b) The Committee may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part; provided, however, that in the event of termination, the rights of participants to their accrued benefits hereunder shall become nonforfeitable. No termination, suspension or amendment of the Plan may adversely affect a participant's or beneficiary's benefit to which he or she is entitled under the Plan as in effect on the date immediately preceding the date of such termination, suspension or amendment. (c) Nothing contained herein will confer upon any participant the right to be retained in the service of the Company or any affiliate, nor will it interfere with the right of the Company or any affiliate to discharge or otherwise deal with participants with respect to matters of employment. (d) A participant's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of such participant or his or her beneficiary. (e) The Company may withhold from any benefit under the Plan an amount sufficient to satisfy its tax withholding obligations. (f) The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state to the extent not preempted by federal law. In witness whereof, the Company has caused this document to be executed by its officer effective July 1, 1998. IMS Health Incorporated By: Its: Date: APPENDIX A The benefits payable from the Retirement Benefit and Equalization Plan of The Dun & Bradstreet Corporation (the "Excess Plan") to participants of this Plan shall be determined as amounts payable monthly in the form of a single life annuity commencing on the first day of the month coincident with or next following the date the participant attains age 65 (the "Normal Retirement Date"). In the event a participant's benefit from this Plan is paid in a form other than a single life annuity, however, the benefits payable from the PBEP shall be adjusted to equal the actuarial equivalent value of the single life annuity amount computed on the basis of mortality rates shown in Appendix B of this Plan and 6.75% interest. In the event a participant's benefit from this Plan commences prior to the participant's Normal Retirement Date, and the participant terminated employment with the Company on or after he or she attained age 55, the benefits payable from the PBEP commencing on the first day of the month coincident with or next following the participant's Normal Retirement Date shall be reduced by 3/12% for each month prior to the Normal Retirement Date (or age 60 if the participant has 35 years of service on his or her Early Retirement Date) that benefits commence. In the event a participant's benefit from this Plan commences prior to the participant's Normal Retirement Date, and the participant terminated employment with the Company before he or she attained age 55, the benefits payable from the PBEP as determined in accordance with the provisions set forth above shall be adjusted to equal the actuarial equivalent value of such amount computed on the basis of mortality rates shown in Appendix B of this Plan and 6.75% interest. APPENDIX B MORTALITY RATES Age Participant Beneficiary Age Participant Beneficiary 25 .000581 .000470 68 .024559 .018359 26 .000610 .000497 69 .026871 .020335 27 .000644 .000526 70 .029559 .022766 28 .000681 .000557 71 .032952 .025919 29 .000720 .000591 72 .036762 .029529 30 .000763 .000629 73 .040907 .033496 31 .000811 .000669 74 .045427 .037808 32 .000866 .000714 75 .050298 .042428 33 .000923 .000762 76 .055809 .047551 34 .000988 .000814 77 .062080 .053217 35 .001059 .000873 78 .069068 .059419 36 .001136 .000936 79 .076746 .066152 37 .001223 .001077 80 .084955 .073330 38 .001318 .001084 81 .093582 .080901 39 .001423 .001168 82 .102603 .088868 40 .001539 .001261 83 .111984 .097236 41 .001682 .001369 84 .121754 .106074 42 .001869 .001497 85 .131910 .115436 43 .002097 .001647 86 .142522 .125403 44 .002364 .001815 87 .153693 .136075 45 .002670 .002005 88 .165518 .147557 46 .003011 .002216 89 .178093 .159954 47 .003388 .002449 90 .191529 .173397 48 .003797 .002705 91 .203702 .185997 49 .004241 .002983 92 .216646 .199614 50 .004717 .003289 93 .230478 .214387 51 .005216 .003594 94 .245331 .230463 52 .005746 .003926 95 .261353 .248008 53 .006310 .004288 96 .278704 .267202 54 .006907 .004683 97 .297562 .288242 55 .007538 .005112 98 .318124 .311344 56 .008206 .005588 99 .340598 .336741 57 .008916 .006123 100 .365204 .364688 58 .009679 .006729 101 .392179 .395460 59 .010510 .007415 102 .421772 .429358 60 .011426 .008190 103 .455805 .467222 61 .012449 .009063 104 .496440 .510917 62 .013608 .010042 105 .545840 .562310 63 .014928 .011131 106 .606167 .623265 64 .016449 .012338 107 .679585 .695646 65 .018207 .013671 108 .768255 .781319 66 .020245 .015129 109 .874340 .882150 67 .022388 .016662 110 .999999 .999999 Table of Contents Page - - ----------------- ---- Introduction 1 Section I - Participation in the Plan 2 Section II - Benefits 3 Section III - Unfunded Status 5 Section IV - Election of Form of Payment 6 Section V - Cessation of Benefits 8 Section VI - Funding 11 Section VII - Miscellaneous 13 EX-10.20 22 RIGHTS AGREEMENT Exhibit 10.20 RIGHTS AGREEMENT Agreement, dated as of June 15, 1998 between IMS Health Incorporated, a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"). The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right") for each share of Common Stock (as hereinafter defined) of the Company outstanding as of the close of business (as defined below) on June 29, 1998 (the "Record Date") each Right representing the right to purchase one-thousandth (subject to adjustment) of a share of Preferred Stock (as hereinafter defined), upon the terms and subject to the conditions herein set forth, and the Board of Directors has further authorized and directed the issuance of one Right (subject to adjustment as provided herein) with respect to each share of Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined); provided, however, that Rights may be issued with respect to shares of Common Stock that shall become outstanding after the Distribution Date and prior to the Redemption Date and the Final Expiration Date in accordance with Section 22. 2 Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section Certain Definitions. For purposes of this Agreement, the following terms have the meaning indicated: "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the shares of Common Stock then outstanding (or, if an Institutional Investor (as hereinafter defined) 20% or more of the shares of Common Stock then outstanding), but shall not include an Exempt Person (as such term is hereinafter defined); provided, however, that if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" has become such inadvertently (including, without limitation, because (i) such Person was unaware that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an "Acquiring Person" or (ii) such Person was aware of the extent of its Beneficial Ownership of Common Stock but had no actual knowledge of the consequences of such Beneficial Ownership under this Rights Agreement) and without any intention of changing or influencing control of the Company, and such Person, as promptly as practicable after being advised of such determination divested or 3 divests himself or itself of Beneficial Ownership of a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, then such Person shall not be deemed to be or to have become an "Acquiring Person" for any purposes of this Agreement. Notwithstanding the foregoing, (i) the sole stockholder of the Company at the time of the adoption of this Agreement will not be deemed an Acquiring Person for any purposes of this Agreement prior to the distribution by such Person of the Company's outstanding Common Stock to the stockholders of such Person and (ii) no Person shall become an "Acquiring Person" as the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more (20% or more in the case of an Institutional Investor) of the shares of Common Stock then outstanding, provided, however, that if a Person shall become the Beneficial Owner of 15% or more (20% or more in the case of an Institutional Investor) of the shares of Common Stock then outstanding by reason of such share acquisitions by the Company and thereafter becomes the Beneficial Owner of any additional shares of Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding Common Stock in shares of Common Stock or pursuant to a split or subdivision of 4 the outstanding Common Stock), then such Person shall be deemed to be an "Acquiring Person" unless upon the consummation of the acquisition of such additional shares of Common Stock such Person does not own 15% or more (20% or more in the case of an Institutional Investor) of the shares of Common Stock then outstanding. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date hereof. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. A Person shall be deemed the "Beneficial Owner" of, shall be deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially own" any securities: which such Person or any of such Person's Affiliates or Associates is deemed to 5 beneficially own, directly or indirectly within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement; which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase, (y) securities which such Person has a right to acquire on the exercise of Rights at any time prior to the time a Person becomes an Acquiring Person or (z) securities issuable upon exercise of Rights from and after the time a Person becomes an Acquiring Person if such Rights were acquired by such Person or any of such 6 Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof ("original Rights") or pursuant to Section 11(i) or Section 11(n) with respect to an adjustment to original Rights; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security by reason of such agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent 7 contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company. "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of New York, or the State in which the principal office of the Rights Agent is located, are authorized or obligated by law or executive order to close. "close of business" on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. "Common Stock" when used with reference to the Company shall mean the common stock, par value $.01, of the Company (but shall not include the Series Common Stock, par value $.01 of the Company). "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock (or, in the case of an unincorporated entity, the equivalent equity interest) with the greatest voting power of such other Person or, if such other Person is a subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. "Distribution Date" shall have the meaning set forth in Section 3 hereof. 8 "equivalent preferred shares" shall have the meaning set forth in Section 11(b) hereof. "Exempt Person" shall mean the Company, any Subsidiary (as such term is hereinafter defined) of the Company, in each case including, without limitation, in its fiduciary capacity, or, any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity or trustee holding Common Stock for or pursuant to the terms of any such plan or for the purpose of funding any such plan or funding other employee benefits for employees of the Company or of any Subsidiary of the Company. "Final Expiration Date" shall have the meaning set forth in Section 7 hereof. "Institutional Investor" shall mean a Person (i) which is principally engaged in the business of managing investment funds for unaffiliated securities investors and, as part of such Person's duties as agent for fully managed accounts, holds or exercises voting or dispositive power over shares of Common Stock of the Company, (ii) which acquires Beneficial Ownership of shares of Common Stock of the Company pursuant to trading activities undertaken in the normal course of such Person's business and not for the purpose of exercising, either alone or in concert with any Person, power to direct or cause the direction of the management and policies of the Company and (iii) which, if such Person is a Person included in Rule 13d 9 -1(b)(ii), does not file a Schedule 13D with respect to securities of the Company. "New York Stock Exchange" shall mean the New York Stock Exchange, Inc. "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" shall mean the Series A Junior Participating Preferred Stock, without par value, of the Company having the rights and preferences set forth in the Form of Certificate of Designation attached to this Agreement as Exhibit A. "Record Date" shall have the meaning set forth in the preamble to this Agreement. "Redemption Date" shall have the meaning set forth in Section 7 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Stock Acquisition Date" shall mean the first date of public announcement (which for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such or such earlier date as a majority of the Board of Directors shall become aware of the existence of an Acquiring Person. "Subsidiary" of any Person shall mean any corporation or other entity of which securities or 10 other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by such Person, and any corporation or other entity that is otherwise controlled by such Person. Section Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section Issue of Right Certificates. Until the earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than an Exempt Person) of, or of the first public announcement of the intention of such Person (other than an Exempt Person) to commence, a tender or exchange offer the consummation of which would result in any Person (other than an Exempt Person) becoming the Beneficial Owner of shares of Common Stock aggregating 15% or more of the Common Stock then outstanding (including any such date which is after the date 11 of this Agreement and prior to the issuance of the Rights), the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Stock registered in the names of the holders thereof and not by separate Right Certificates, and (y) the Rights will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing one Right (subject to adjustment as provided herein) for each share of Common Stock so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Shares of Preferred Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of Common Stock as of the close of business on 12 the Record Date (other than any Acquiring Person or any Associate or Affiliate of any Acquiring Person), at the address of such holder shown on the records of the Company. With respect to certificates for Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with the Summary of Rights. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Stock outstanding on the Record Date, with or without a copy of the Summary of Rights, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. Certificates issued for Common Stock (including, without limitation, upon transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between IMS Health Incorporated and First Chicago Trust Company of New York, dated as of June 15, 1998 as the same may be amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of IMS 13 Health Incorporated. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. IMS Health Incorporated will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer be transferable. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate, except as otherwise provided herein, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or otherwise acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such Common Stock shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Stock which are no longer outstanding. Notwithstanding this paragraph (c), the omission of a legend shall not affect the enforceability of any part of this Agreement or the rights of any holder of the Rights. Section Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares 14 and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of the New York Stock Exchange or of any other stock exchange or automated quotation system on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price per one one-thousandth of a share of Preferred Stock set forth therein (the "Purchase Price"), but the number of such one one-thousandths of a share of Preferred Stock and the Purchase Price shall be subject to adjustment as provided herein. Section Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by the Chairman of the Board of Directors, the President, any of the Vice Presidents, the Treasurer or the Controller of the Company, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or 15 by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the Person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any Person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such Person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at an office or agency designated for such purpose, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions 16 of Sections 7(e), 11(a)(ii) and 14 hereof, at any time after the close of business on the Distribution Date, and prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or agency of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. Subject to the provisions of Section 11(a)(ii) hereof, at any time after the Distribution Date and prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably 17 satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section Exercise of Rights, Purchase Price; Expiration Date of Rights. Except as otherwise provided herein, the Rights shall become exercisable on the Distribution Date, and thereafter the registered holder of any Right Certificate may, subject to Section 11(a)(ii) hereof and except as otherwise provided herein, exercise the Rights evidenced thereby in whole or in part upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office or agency of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-thousandth of a share of Preferred Stock as to which the Rights are exercised, at any time which is both after the Distribution Date and prior to the earliest of (i) the close of business on June 30, 2008 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the 18 "Redemption Date") or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. The Purchase Price shall be initially $225 for each one one-thousandth of a share of Preferred Stock purchasable upon the exercise of a Right. The Purchase Price and the number of one one-thousandths of a share of Preferred Stock or other securities or property to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) of this Section 7. Except as otherwise provided herein, upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the aggregate Purchase Price for the shares of Preferred Stock to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, in cash or by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Stock certificates for the number of shares of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing interests in such number of one one-thousandths 19 of a share of Preferred Stock as are to be purchased (in which case certificates for the Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. Except as otherwise provided herein, in case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the exercisable Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of Rights upon the occurrence of any purported transfer or exercise of Rights pursuant to Section 20 6 hereof or this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or election to purchase set forth on the reverse side of the Rights Certificate surrendered for such transfer or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof as the Company shall reasonably request. Section Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section Availability of Shares of Preferred Stock. The Company covenants and agrees that it 21 will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock or any shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding Rights. So long as the shares of Preferred Stock (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and other securities) issuable upon the exercise of Rights may be listed or admitted to trading on the New York Stock Exchange or listed on any other national securities exchange or quotation system, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed or admitted to trading on the New York Stock Exchange or listed on any other exchange or quotation system upon official notice of issuance upon such exercise. From and after such time as the Rights become exercisable, the Company shall use its best efforts, if then necessary to permit the issuance of shares of Preferred Stock (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) upon the exercise of Rights, to register and qualify such shares of Preferred Stock (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) under the Securities Act and any applicable state securities or "Blue Sky" laws (to the extent exemptions therefrom are not available), 22 cause such registration statement and qualifications to become effective as soon as possible after such filing and keep such registration and qualifications effective until the earlier of the date as of which the Rights are no longer exercisable for such securities and the Final Expiration Date. The Company may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement under the Securities Act (if required) shall have been declared effective. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates therefor (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. 23 The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Preferred Stock (or shares of Common Stock or other securities) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Stock (or shares of Common Stock or other securities) in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates or depositary receipts for Preferred Stock (or shares of Common Stock or other securities) upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by that holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section Preferred Stock Record Date. Each Person in whose name any certificate for Preferred Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of 24 the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Stock for which the Rights shall be exercisable, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section Adjustment of Purchase Price, Number of Shares and Number of Rights. The Purchase Price, the number of shares of Preferred Stock or other securities or property purchasable upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of Preferred Stock or (D) issue any shares of its capital stock 25 in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, the holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. Subject to Section 24 of this Agreement, in the event that any Person becomes an Acquiring Person, then (A) the Purchase Price 26 shall be adjusted to be the Purchase Price in effect immediately prior to such Person becoming an Acquiring Person multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such Person becoming an Acquiring Person, whether or not such Right was then exercisable, and (B) each holder of a Right, except as otherwise provided in this Section 11(a)(ii) and Subsection 11(a)(iii), hereof, shall thereafter have the right to receive, upon exercise at a price equal to the Purchase Price (as so adjusted), in accordance with the terms of this Agreement and in lieu of shares of Preferred Stock, such number of shares of Common Stock (or at the option of the Company, such number of one one-thousandths of shares of Preferred Stock) as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Stock (determined pursuant to Section 11(d) hereof) on the date such Person became an Acquiring Person; provided, however, that the Purchase Price and the number of shares of Common Stock so receivable upon exercise of a Right shall thereafter be 27 subject to further adjustment as appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in this Agreement to the contrary, however, from and after the time (the "invalidation time") when any Person first becomes an Acquiring Person, any Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (II) a transfer which the Board of Directors has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this paragraph, and subsequent transferees of such Persons, shall be void without any further action and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company shall 28 use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. From and after the invalidation time, no Right Certificate shall be issued pursuant to Section 3 or Section 6 hereof that represents Rights that are or have become void pursuant to the provisions of this paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of this paragraph shall be cancelled. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and not pursuant to this Section 11(a)(ii). (iii) The Company may at its option substitute for a share of Common Stock issuable upon the exercise of Rights in accordance with the foregoing subparagraph (ii) such number or fractions of shares of Preferred Stock having an aggregate current market value equal to the current per share market price of a share of 29 Common Stock. In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Board of Directors shall, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party (A) determine the excess of (1) the value of the shares of Common Stock issuable upon the exercise of a Right in accordance with the foregoing subparagraph (ii) (the "Current Value") over (2) the then current Purchase Price multiplied by the number of one one-thousandths of shares of Preferred Stock for which a Right was exercisable immediately prior to the time that the Acquiring Person became such (such excess, the "Spread"), and (B) with respect to each Right (other than Rights which have become void pursuant to Section 11(a)(ii)), make adequate provision to substitute for the shares of Common Stock issuable in accordance with subparagraph (ii) upon exercise of the Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) shares of Preferred Stock or other equity securities of the Company (including, without limitation, shares or fractions of shares of preferred stock which, by virtue of having 30 dividend, voting and liquidation rights substantially comparable to those of the shares of Common Stock, are deemed in good faith by the Board of Directors to have substantially the same value as the shares of Common Stock (such shares of preferred stock and shares or fractions of shares of preferred stock are hereinafter referred to as "Common Stock equivalents"), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having a value which, when added to the value of the shares of Common Stock actually issued upon exercise of such Right, shall have an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board of Directors upon the advice of a nationally recognized investment banking firm selected in good faith by the Board of Directors; provided, however, if the Company shall not make adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the date that the Acquiring Person became such (the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party, upon the surrender for 31 exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available), and then, if necessary, such number or fractions of shares of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If, upon the date any Person becomes an Acquiring Person, the Board of Directors shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, then, if the Board of Directors so elects, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the second and/or third sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the 32 exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such second sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the shares of Common Stock shall be the current per share market price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or fractional value of any "Common Stock equivalent" shall be deemed to equal the current per share market price of the Common Stock. The Board of Directors of the Company may, but shall not be required to, establish procedures to allocate the right to receive shares of Common Stock upon the exercise of the Rights among holders of Rights pursuant to this Section 11(a)(iii). In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring within 45 calendar days after such record 33 date) to subscribe for or purchase Preferred Stock (or shares having similar rights, privileges and preferences as the Preferred Stock ("equivalent preferred shares")) or securities convertible into Preferred Stock or equivalent preferred shares at a price per share of Preferred Stock or equivalent preferred shares (or having a conversion price per share, if a security convertible into shares of Preferred Stock or equivalent preferred shares) less than the then current per share market price of the Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock and equivalent preferred shares outstanding on such record date plus the number of shares of Preferred Stock and equivalent preferred shares which the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of Preferred Stock and equivalent preferred shares outstanding on such record date plus the number of additional shares of Preferred Stock and/or 34 equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Shares of Preferred Stock and equivalent preferred shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a 35 regular quarterly cash dividend or a dividend payable in Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Preferred Stock, and the denominator of which shall be such current per share market price (determined pursuant to Section 11(d) hereof) of the Preferred Stock; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. 36 Except as otherwise provided herein, for the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported by the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New 37 York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. For the purpose of any computation hereunder, if the Preferred Stock is publicly traded, the "current per share market price" of the Preferred Stock shall be determined in accordance with the method set forth in Section 11(d)(i). If the Preferred Stock is not publicly traded but the Common Stock is publicly 38 traded, the "current per share market price" of the Preferred Stock shall be conclusively deemed to be the current per share market price of the Common Stock as determined pursuant to Section 11(d)(i) multiplied by one thousand (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof). If neither the Common Stock nor the Preferred Stock is publicly traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-thousandth of a share of Preferred Stock or share of Common Stock or other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the 39 date of the expiration of the right to exercise any Rights. If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than the Preferred Stock, thereafter the Purchase Price and the number of such other shares so receivable upon exercise of a Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), 11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right 40 outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one ten- thousandth of a share of Preferred Stock) obtained by (i) multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to such adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price 41 in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company may, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of 42 record of Right Certificates on the record date specified in the public announcement. Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-thousandths of a share of Preferred Stock which were expressed in the initial Right Certificates issued hereunder. Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Preferred Stock or other shares of capital stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Preferred Stock or other such shares at such adjusted Purchase Price. In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise 43 over and above the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Preferred Stock, issuance wholly for cash of any shares of Preferred Stock at less than the current market price, issuance wholly for cash or Preferred Stock or securities which by their terms are convertible into or exchangeable for Preferred Stock, dividends on Preferred Stock payable in shares of Preferred Stock or issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. Anything in this Agreement to the contrary notwithstanding, in the event that at any time after the date of this Agreement and prior to the 44 Distribution Date, the Company shall (i) declare or pay any dividend on the Common Stock payable in Common Stock or (ii) effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of a dividend payable in Common Stock) into a greater or lesser number of Common Stock, then in any such case, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. The Company agrees that, after the earlier of the Distribution Date or the Stock Acquisition Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or eliminate the benefits intended to be afforded by the Rights. 45 Section Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Stock or the Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof (if so required under Section 25 hereof). The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. Section Consolidation, Merger or Sale or Transfer of Assets or Earnings Power. (a) In the event, directly or indirectly, at any time after any Person has become an Acquiring Person, (i) the Company shall merge with and into any other Person, (ii) any Person shall consolidate with the Company, or any Person shall merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or exchanged for stock or other securities of any other Person (or of the Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or 46 otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or one or more of its wholly-owned Subsidiaries), then upon the first occurrence of such event, proper provision shall be made so that: (A) each holder of record of a Right (other than Rights which have become void pursuant to Section 11(a)(ii)) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable (whether or not such Right was then exercisable) immediately prior to the time that any Person first became an Acquiring Person (each as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)), in accordance with the terms of this Agreement and in lieu of Preferred Stock, such number of validly issued, fully paid and non-assessable and freely tradeable shares of Common Stock of the Principal Party (as defined herein) not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the time that any Person first became an Acquiring Person (as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 47 11(c), 11(h), 11(i) and 11(m)) and (2) dividing that product by 50% of the then current per share market price of the Common Stock of such Principal Party (determined pursuant to Section 11(d)(i) hereof) on the date of consummation of such consolidation, merger, sale or transfer; provided that the Purchase Price and the number of shares of Common Stock of such Principal Party issuable upon exercise of each Right shall be further adjusted as provided in Section 11(f) of this Agreement to reflect any events occurring in respect of such Principal Party after the date of the such consolidation, merger, sale or transfer; (B) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (D) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its shares of Common Stock in accordance with Section 9 hereof) in connection with such consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights; provided that, upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon 48 exercise of a Right and payment of the Purchase Price as provided in this Section 13(a), such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of a Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property. (b) "Principal Party" shall mean (i) in the case of any transaction described in (i) or (ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it 49 survives) or (z) the Person resulting from the consolidation; and (ii) in the case of any transaction described in (iii) of the first sentence in Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest aggregate market value of shares outstanding; provided, however, that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, and the Common Stocks of all of such persons have been so registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or 50 indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests. (c) The Company shall not consummate any consolidation, merger, sale or transfer referred to in Section 13(a) hereof unless prior thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the requirements of Sections 13(a) and (b) hereof shall promptly be performed in accordance with their terms and that such consolidation, merger, sale or transfer of assets shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and providing that, as soon as practicable after executing such agreement pursuant to this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Securities Act, if necessary, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use 51 its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Final Expiration Date, and similarly comply with applicable state securities laws; (ii) use its best efforts, if the Common Stock of the Principal Party shall be listed or admitted to trading on the New York Stock Exchange or on another national securities exchange, to list or admit to trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on the New York Stock Exchange or such securities exchange, or, if the Common Stock of the Principal Party shall not be listed or admitted to trading on the New York Stock Exchange or a national securities exchange, to cause the Rights and the securities receivable upon exercise of the Rights to be reported by such other system then in use; (iii) deliver to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iv) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common 52 Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. (d) In case the Principal Party has provision in any of its authorized securities or in its certificate of incorporation or by-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to this Section 13), in connection with, or as a consequence of, the consummation of a transaction referred to in this Section 13, shares of Common Stock of such Principal Party at less than the then current market price per share thereof (determined pursuant to Section 11(d) hereof) or securities exercisable for, or convertible into, Common Stock of such Principal Party at less than such then current market price, or (ii) providing for any special payment, tax or similar provision in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of Section 13, then, in such event, the Company hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been cancelled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a 53 consequence of, the consummation of the proposed transaction. (e) The Company covenants and agrees that it shall not, at any time after a Person first becomes an Acquiring Person enter into any transaction of the type contemplated by (i) - (iii) of Section 13(a) hereof if (x) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (y) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer of other transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (z) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. Section Fractional Rights and Fractional Shares. The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights (except prior to the Distribution Date in accordance with Section 11(n) hereof). In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such 54 fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the 55 Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. The Company shall not be required to issue fractions of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). Interests in fractions of Preferred Stock in integral multiples of one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Stock represented by such depositary receipts. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share of Preferred Stock. For the purposes of this Section 14(b), the current market value of a share of Preferred Stock shall be the closing 56 price of a share of Preferred Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock upon the exercise or exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable in an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock (as determined in accordance with Section 14(a) hereof) for the Trading Day immediately prior to the date of such exercise or exchange. The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). Section Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate 57 (or, prior to the Distribution Date, of the Common Stock), on his own behalf and for his own benefit, may enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, such Common Stock) in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. Section Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock; after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or agency of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and 58 the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in this Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights 59 evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Preferred Stock or Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, 60 verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Section Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full 61 force provided in the Right Certificates and in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or 62 suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Controller or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. The Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or wilful misconduct. The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor 63 shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate furnished pursuant to Section 12, describing such change or adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Preferred Stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. 64 The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person reasonably believed by the Rights Agent to be one of the Chairman of the Board of Directors, the President, the Chief Financial Officer or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions 65 in response to such application specifying the action to be taken or omitted. The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an 66 Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction 67 for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (A) a corporation organized and doing business under the laws of the United States or any State thereof, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million or (B) an affiliate of a corporation described in clause (A) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Stock, and, following the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent 68 or the appointment of the successor Rights Agent, as the case may be. Section Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such forms as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Stock following the Distribution Date and prior to the earlier of the Redemption Date and the Final Expiration Date, the Company may with respect to shares of Common Stock so issued or sold pursuant to (i) the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company or (iv) a contractual obligation of the Company in each case existing prior to the Distribution Date, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale. Section Redemption. The Board of Directors of the Company may, at any time prior to such time as any Person first becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect 69 any stock split, stock dividend or similar transaction occurring after the date hereof (the redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the 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. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the current market price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. Immediately upon the action of the Board of Directors ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at such later time as the Board of Directors may establish for the effectiveness of such redemption), and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights (or such later time as the Board of Directors may establish for the effectiveness of such redemption), the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the 70 Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. Section Exchange. The Board of Directors of the Company may, at its option, at any time after any Person first becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have not become effective or that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such amount per Right being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time (1) after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of shares of Common Stock aggregating 50% or more of the shares of Common Stock then outstanding. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exchanged pursuant to this 71 Section 24(a) shall thereafter be exercisable only in accordance with Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange of the Rights by the Board of Directors 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 the effectiveness of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall promptly mail a notice of any such exchange to all of the holders of the Rights so exchanged at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have 72 become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. The Company may at its option and, in the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit an exchange of Rights as contemplated in accordance with this Section 24, the Company shall substitute to the extent of such insufficiency, for each share of Common Stock that would otherwise be issuable upon exchange of a Right, a number of shares of Preferred Stock or fraction thereof (or equivalent preferred shares as such term is defined in Section 11(b)) such that the current per share market price (determined pursuant to Section 11(d) hereof) of one share of Preferred Stock (or equivalent preferred share) multiplied by such number or fraction is equal to the current per share market price of one share of Common Stock (determined pursuant to Section 11(d) hereof) as of the date of such exchange). Section Notice of Certain Events. In case the Company shall at any time after the earlier of the Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Stock or to make any other distribution to the holders of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other 73 securities, rights or options, (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision or combination of outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or winding up of the Company, or (v) to declare or pay any dividend on the Common Stock payable in Common Stock or to effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of the Common Stock and/or Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Stock for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Stock and/or Preferred Stock, whichever shall be the earlier. In case any event described in Section 11(a)(ii) or Section 13 shall occur then the Company shall as soon as 74 practicable thereafter give to each holder of a Right Certificate (or if occurring prior to the Distribution Date, the holders of the Common Stock) in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) and Section 13 hereof. Section Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: IMS Health Incorporated 200 Nayala Farms Westport, Connecticut 06880 Attn: General Counsel Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York 525 Washington Boulevard -- Suite 4660 Jersey City, New Jersey 07310 Attn: Tenders and Exchanges Administration Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if 75 sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section Supplements and Amendments. Except as otherwise provided in this Section 27, for so long as the Rights are then redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, supplement or amend any provision of this Agreement in any respect without the approval of any holders of the Rights. At any time when the Rights are no longer redeemable, except as otherwise provided in this Section 27, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv) change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable; provided that no such supplement or amendment shall adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no such amendment may cause the rights again to become redeemable or cause the Agreement again to become amendable other than in accordance with this sentence. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall 76 be made which decreases the Redemption Price. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Section Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock). Section Determinations and Actions by the Board of Directors. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the 77 provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including, without limitation, a determination to redeem or not redeem the Rights or to amend this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors of the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other parties, and (y) not subject the Board of Directors to any liability to the holders of the Rights. Section Severability. If any term, provision, covenant or restriction of this Agreement or applicable to this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. 78 Section Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 79 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. Attest: /s/ Robin Nance IMS HEALTH INCORPORATED Robin Nance Assistant Secretary By /s/ Kenneth S. Siegel -------------------------------- Name: Kenneth S. Siegel Title: Senior Vice President FIRST CHICAGO TRUST COMPANY OF NEW YORK By /s/ Joanne Gorostiola -------------------------------- Name: Joanne Gorostiola Title: Assistant Vice President Exhibit A FORM OF CERTIFICATE OF DESIGNATION OF Series A JUNIOR PARTICIPATING PREFERRED STOCK OF IMS Health Incorporated (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ---------- IMS Health Incorporated, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on June 15, 1998. RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share, of the Company and hereby states the designation and number of shares, and fixes the relative rights, powers and preferences thereof, and the limitations thereof, as follows: Section Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Stock. A-1 Section Dividends and Distributions. Subject to the rights of the holders of any shares of any series of Preferred Stock of the Company (the "Preferred Stock") (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share, of the Company (the "Common Stock") and of any other stock of the Company ranking junior to the Series A Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of January, April, July, and October in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock, declared on the Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall at any time after June 15, 1998 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. The Company shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $10 per share on the Series A Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. A-2 Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series A Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights; Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes on all matters upon which the holders of the Common Stock of the Company are entitled to vote. In the event the Company shall at any time after June 15, 1998 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any A-3 similar stock, and except as otherwise required by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section Certain Restrictions. Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Company shall not: declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series A Preferred Stock; declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock or rights, warrants or options to acquire such junior stock; redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and A-4 other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. Section Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event, however, that there are not sufficient assets available to permit payment in full of the Series A liquidation preference and the liquidation preferences of all other classes and series of stock of the Company, if any, that rank on a parity with the Series A Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Preferred Stock and the holders of such parity shares in the proportion to their respective liquidation preferences. In the event the Company shall at any time after June 15, 1998 declare or pay any dividend on the A-5 Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted, exchanged or converted. In the event the Company shall at any time after June 15, 1998 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section No Redemption. The shares of Series A Preferred Stock shall not be redeemable from any holder. Section Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, junior to all other series of Preferred Stock and senior to the Common Stock. Section Amendment. If any proposed amendment to the Certificate of Incorporation (including A-6 this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely, then the holders of the Series A Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series A Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section Fractional Shares. Series A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. A-7 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its and attested by its Secretary this day of June, 1998. ----------------------------------- [Title] Attest: - - ----------------------------------- Secretary A-8 Exhibit B Form of Right Certificate Certificate No. R- ____ ___ Rights NOT EXERCISABLE AFTER JUNE 30, 2008 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. Right Certificate IMS HEALTH INCORPORATED This certifies that ___________ or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of June 15, 1998 as the same may be amended from time to time (the "Rights Agreement"), between IMS Health Incorporated, a Delaware corporation (the "Company"), and First Chicago Trust Company of New York (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on June 30, 2008 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company, at a purchase price of $225 per one one-thousandth of a share of Preferred Stock (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Rights Certificate (and the number of one one-thousandths of a share of Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of June 15, 1998 based on the Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one one-thousandths of a share of Preferred Stock (or other securities or property) which may B-1 be purchased upon the exercise of the Rights and the number of Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Right Certificate, with or without other Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Preferred Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for shares of Preferred Stock or shares of the Company's Common Stock, par value $.01 per share. No fractional shares of Preferred Stock or Common Stock will be issued upon the exercise or exchange of any Right or Rights evidenced hereby (other than fractions of Preferred Stock which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise or exchange hereof, nor shall B-2 anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. B-3 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________________. ATTEST: IMS HEALTH INCORPORATED By By --------------------------------- --------------------------------- Countersigned: - - -----------------------------------, as Rights Agent By --------------------------------- Authorized Signature B-4 Form of Reverse Side of Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfer unto ___________________________ - - -------------------------------------------------------------------------------- (Please print name and address of transferee) Rights represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer said Rights on the books of the within-named Company, with full power of substitution. Dated: ----------------------------- ----------------------------------- Signature Signature Guaranteed: Signatures must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program - - -------------------------------------------------------------------------------- (To be completed) The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ----------------------------------- Signature B-5 Form of Reverse Side of Right Certificate - continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Rights Certificate) To IMS Health Incorporated: The undersigned hereby irrevocably elects to exercise __________________ Rights represented by this Right Certificate to purchase the shares of Preferred Stock (or other securities or property) issuable upon the exercise of such Rights and requests that certificates for such shares of Preferred Stock (or such other securities) be issued in the name of: - - -------------------------------------------------------------------------------- (Please print name and address) - - -------------------------------------------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivery to: Please insert social security or other identifying number - - -------------------------------------------------------------------------------- (Please print name and address) - - -------------------------------------------------------------------------------- Dated: ----------------------------- - - ----------------------------------- Signature (Signature must conform to holder specified on Right Certificate) Signature Guaranteed: Signature must be guaranteed by bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program. B-6 Form of Reverse Side of Right Certificate -- continued - - -------------------------------------------------------------------------------- (To be completed) The undersigned certifies that the Rights evidenced by this Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) ----------------------------------- Signature - - -------------------------------------------------------------------------------- NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored. B-7 Exhibit C UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SUMMARY OF RIGHTS TO PURCHASE Shares of Preferred Stock On June 15, 1998 the Board of Directors of IMS Health Incorporated (the "Company") declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value $.01 per share of the Company (the "Common Stock"). The dividend is payable on June 29, 1998 (the "Record Date") to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Stock") of the Company at a price of $225 per one one-thousandth of a share of Preferred Stock (as the same may be adjusted, the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated as of June 15, 1998 as the same may be amended from time to time (the "Rights Agreement"), between the Company and First Chicago Trust Company of New York as Rights Agent (the "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 an "Acquiring Person") have acquired beneficial ownership of 15% or more (20% or more in the case of an "Institutional Investor" as defined) of the outstanding shares of 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 an 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 Common Stock (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced by such Common Stock certificate together with a copy of this Summary of Rights. The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the Common Stock. Until the Distribution Date 1 (or earlier redemption or expiration of the Rights), Common Stock certificates will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for shares of Common Stock outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights, will also constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on June 30, 2008 (the "Final Expiration Date"), unless the Final Expiration Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company, in each case as described below. The Purchase Price payable, and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the 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 Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants (other than those referred to above). The Rights are also subject to adjustment in the event of a stock dividend on the Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of the Common Stock occurring, in any such case, prior to the Distribution Date. Shares of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of 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 1000 times the dividend declared per share of Common Stock. In the event of liquidation, dissolution or winding up of the Company, the holders of the 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 1000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1000 votes, voting together with the Common Stock. Finally, in the 2 event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 1000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions. Because of the nature of the Preferred Stock's dividend, liquidation and voting rights, the value of the one one-thousandth interest in a share of Preferred Stock purchasable upon exercise of each Right should approximate the value of one share of Common Stock. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right and payment of the Purchase Price, that number of shares of Common Stock having a market value of two times the Purchase Price. In the event that, after a person or group has become an Acquiring Person, the Company 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 Right (other than Rights beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the person with whom the Company 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 Purchase Price. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Common Stock or the occurrence of an event described in the prior paragraph, the Board of Directors of the Company may exchange the Rights (other than 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 Common Stock, or a fractional share of Preferred Stock (or of a share of a similar class or series of the Company's preferred stock having similar rights, preferences and privileges) of equivalent value, per Right (subject to adjustment). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares of Preferred Stock will be issued (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary 3 receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading day prior to the date of exercise. At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"). The redemption of the 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 Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. For so long as the Rights are then redeemable, the Company may, except with respect to the redemption price, amend the Rights in any manner. After the Rights are no longer redeemable, the Company may, except with respect to the redemption price, amend the Rights in any manner that does not adversely affect the interests of holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated June 23, 1998. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as the same may be amended from time to time, which is hereby incorporated herein by reference. 4 Exhibit 1 IMS HEALTH INCORPORATED and FIRST CHICAGO TRUST COMPANY OF NEW YORK, as Rights Agent Rights Agreement Dated as of June 15, 1998 TABLE OF CONTENTS Page ---- Section 1. Certain Definitions 2 Section 2. Appointment of Rights Agent 9 Section 3. Issue of Right Certificates 9 Section 4. Form of Right Certificates 13 Section 5. Countersignature and Registration 14 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates 15 Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights 16 Section 8. Cancellation and Destruction of Right Certificates 19 Section 9. Availability of Shares of Preferred Stock 20 Section 10. Preferred Stock Record Date 22 Section 11. Adjustment of Purchase Price, Number of Shares and Number of Rights 23 Section 12. Certificate of Adjusted Purchase Price or Number of Shares 42 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earnings Power 43 Section 14. Fractional Rights and Fractional Shares 51 Section 15. Rights of Action 54 Section 16. Agreement of Right Holders 54 Section 17. Right Certificate Holder Not Deemed a Stockholder 55 Section 18. Concerning the Rights Agent 56 Section 19. Merger or Consolidation or Change of Name of Rights Agent 57 Section 20. Duties of Rights Agent 58 -i- Page ---- Section 21. Change of Rights Agent 63 Section 22. Issuance of New Right Certificates 64 Section 23. Redemption 65 Section 24. Exchange 66 Section 25. Notice of Certain Events 69 Section 26. Notices 70 Section 27. Supplements and Amendments 71 Section 28. Successors 72 Section 29. Benefits of this Agreement 72 Section 30. Determinations and Actions by the Board of Directors 73 Section 31. Severability 73 Section 32. Governing Law 74 Section 33. Counterparts 74 Section 34. Descriptive Headings 74 -ii- EX-10.21 23 SAVINGS EQUALIZATION PLAN Exhibit 10.21 IMS HEALTH INCORPORATED SAVINGS EQUALIZATION PLAN I. Purpose of the Plan The purpose of the IMS Health Incorporated Savings Equalization Plan (the "Plan") is to provide a means of equalizing the benefits of those employees participating in the IMS Health Incorporated Savings Plan (the "401(k) Plan") whose matching contributions under the 401(k) Plan are or will be limited by the application of sections 401(a)(17) or 415 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be an "excess benefit plan" as that term is defined in section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") with respect to those participants whose benefits under the 401(k) Plan have been limited by Section 415 of the Code, and a plan which is unfunded and is maintained by an employer primarily for the purposes of providing deferred compensation for a select group of management or highly compensated employees for purposes of ERISA. II. Administration of the Plan The Compensation Committee of the Board of Directors (the "Committee") of IMS Health Incorporated (the "Corporation" or the "Company") shall administer the Plan and may delegate to any committee, employee, director or agent its responsibility to perform any act hereunder, including without limitation those matters involving the exercise of discretion, provided that such delegation shall be subject to revocation at any time at its discretion. The Committee shall have full authority to determine all questions arising in connection with the Plan, other than those determinations delegated to employees or independent third parties by the Board of Directors, including interpreting its provisions and construing all of its terms; may adopt procedural rules; and may employ and rely on such legal counsel, such actuaries, such accountants and such agents as it may deem advisable to assist in the administration of the Plan. All of its rules, interpretations and decisions shall be applied in a uniform manner to all participants similarly situated and decisions of the Committee shall be conclusive and binding on all persons. III. Participation in the Plan All members of the 401(k) Plan shall be eligible to participate in this Plan whenever their benefits under the 401(k) Plan as from time to time in effect would exceed the limitations on benefits and contributions imposed by sections 401(a)(17) or 415 of the Code. For purposes of this Plan, benefits of a participant in this Plan shall be determined as though no provision were contained in the 401(k) Plan incorporating limitations imposed by Sections 401(a)(17) or 415 of the Code. IV. Equalized Benefits If member participating contributions or Company contributions to the 401(k) Plan are suspended during any calendar year because any such contributions would cause the participant's account under such plan to exceed the benefit limitations related to such plan as described in Section III of this Plan, the Corporation shall pay the participant, on or about March 1st of the following year, an amount equal to: (1) the Company matching contributions that otherwise would have been credited to such to such participant's account under the 401(k) Plan for the balance of the year in which such suspension occurs, as if no provision were set forth therein incorporating limitations imposed by section 401(a)(17) or 415 of the Code, and the participant had continued his elective deferrals to the 401(k) Plan at the rate in effect at the time such contributions were suspended for the balance of the year in which such suspension occurs, plus (2) an interest factor equal to one-half of the annual return which would have been received by the participant had such payment been invested eighty percent (80%) in the Special Fixed Income Fund (Fund C) of the 401(k) Plan and twenty percent (20%) in the BZW Equity Index Fund (Fund A) of the 401(k) plan during the year which such suspension occurs, less (3) any applicable withholding taxes. V. Miscellaneous This Plan may be terminated at any time by the Board of Directors of the Corporation, in which event the rights of participants to their accrued benefits shall become nonforfeitable. This Plan may also be amended at any time by the Board of Directors of the Corporation, except that no such amendment shall deprive any participant of benefits accrued at the time of such amendment. Benefits payable under this Plan shall not be funded and shall be made out of the general funds of the Corporation; provided, however, that the Corporation reserves the right to establish a trust fund as an alternate source of benefits payable under the Plan and to the extent payments are made from such trust, such payments will satisfy he Corporation's obligations under this Plan. No right to payment or any other interest under this Plan may be alienated, sold, transferred, pledged, assigned, or made subject to attachment, execution, or levy of any kind. Nothing in this Plan shall be construed as giving any employee the right to be retained in the employ of the Corporation. The Corporation expressly reserves the right to dismiss any employee at any time without regard to the effect which such dismissal might have upon him under the Plan. This Plan shall be construed, administered and enforced according to the laws of the State of Connecticut unless preempted by federal law. VI. Effective Date This Plan shall be effective as of the date on which shares of common stock of the Company that are owned by Cognizant Corporation ("Cognizant") are distributed to the holders of record of shares of Cognizant. EX-10.22 24 EMPLOYMENT AGREEMENT/ROBERT WEISSMAN Exhibit 10.22 IMS HEALTH INCORPORATED - - -------------------------------------------------------------------------------- Employment Agreement for Robert E. Weissman - - -------------------------------------------------------------------------------- IMS HEALTH INCORPORATED - - -------------------------------------------------------------------------------- Employment Agreement for Robert E. Weissman - - -------------------------------------------------------------------------------- Page 1. Employment.......................................................... 1 2. Term................................................................ 1 3. Offices and Duties.................................................. 2 (a) Generally..................................................... 2 (b) Place of Employment........................................... 2 (c) Rank of Executive Within Company.............................. 2 4. Salary and Annual Incentive Compensation............................ 2 (a) Base Salary................................................... 2 (b) Annual Incentive Compensation................................. 3 5. Long Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement........................... 3 (a) Executive Compensation Plans.................................. 3 (b) Employee and Executive Benefit Plans.......................... 3 (c) Acceleration of Awards Upon a Change in Control .............. 4 (d) Deferral of Compensation...................................... 4 (e) Company Registration Obligations.............................. 4 (f) Reimbursement of Expenses..................................... 5 6. Termination Due to Retirement, Death, or Disability................. 5 (a) Retirement.................................................... 5 (b) Death......................................................... 5 (c) Disability.................................................... 6 (d) Other Terms of Payment Following Retirement, Death, or Disability.. 7 7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability.............................................. 8 (a) Termination by the Company for Cause.......................... 8 (b) Termination by Executive Other Than For Good Reason........... 8 (c) Termination by the Company Without Cause Prior to or More than Two Years After a Change in Control............................. 8 (d) Termination by Executive for Good Reason Prior to or More than Two Years After a Change in Control............................. 10 (e) Termination by the Company Without Cause Within Two Years After a Change in Control......................................... 12 (f) Termination by Executive for Good Reason Within Two Years After a Change in Control......................................... 14 (g) Other Terms Relating to Certain Terminations of Employment.... 17 8. Definitions Relating to Termination Events.......................... 17 (a) "Cause"....................................................... 17 (b) "Change in Control"........................................... 17 (c) "Compensation Accrued at Termination"......................... 18 (d) "Disability".................................................. 19 (e) "Good Reason"................................................. 19 (f) "Potential Change in Control"................................. 20 9. Rabbi Trust Obligation Upon Potential Change in Control; Excise Tax Related Provisions............................................ 21 (a) Rabbi Trust Funded Upon Potential Change in Control........... 21 (b) Gross-up If Excise Tax Would Apply............................ 21 10. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement................................................. 23 (a) Non-Competition............................................... 23 (b) Non-Disclosure; Ownership of Work............................. 23 (c) Cooperation With Regard to Litigation......................... 24 (d) Non-Disparagement............................................. 24 (e) Release of Employment Claims.................................. 24 (f) Forfeiture of Outstanding Options............................. 24 (g) Survival...................................................... 25 11. Governing Law; Disputes; Arbitration................................ 25 (a) Governing Law................................................. 25 (b) Reimbursement of Expenses in Enforcing Rights................. 25 (c) Arbitration................................................... 25 (d) Interest on Unpaid Amounts.................................... 25 12. Miscellaneous....................................................... 26 (a) Integration................................................... 26 (b) Successors; Transferability................................... 26 (c) Beneficiaries................................................. 26 (d) Notices....................................................... 26 (e) Reformation................................................... 27 (f) Headings...................................................... 27 (g) No General Waivers............................................ 27 (h) No Obligation To Mitigate..................................... 27 (i) Offsets; Withholding.......................................... 27 (j) Successors and Assigns........................................ 27 (k) Counterparts.................................................. 27 13. Indemnification..................................................... 28 IMS HEALTH INCORPORATED - - -------------------------------------------------------------------------------- Employment Agreement for Robert E. Weissman - - -------------------------------------------------------------------------------- THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH INCORPORATED, a Delaware corporation (the "Company"), and Robert E. Weissman ("Executive") shall become effective as of July 1, 1998 (the "Effective Date"). WITNESSETH WHEREAS, Executive has served the Company and its predecessors in the position of Chairman of the Board and Chief Executive Officer since April 1995, and in senior executive capacities since January 1985; WHEREAS, the Company desires to continue to employ Executive as Chairman of the Board and Chief Executive Officer of the Company, and Executive desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration the receipt and adequacy of which the Company and Executive each hereby acknowledge, the Company and Executive hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive as its Chairman of the Board and Chief Executive Officer, and Executive hereby agrees to accept such employment and serve in such capacities, during the Term as defined in Section 2 (subject to Section 7(c) and 7(e)) and upon the terms and conditions set forth in this Employment Agreement (the "Agreement"). 2. Term. The term of employment of Executive under this Agreement (the "Term") shall be the period commencing on the Effective Date and ending on June 30, 2001 and any period of extension thereof in accordance with this Section 2, except that the Term will end at a date, prior to the end of such period or extension thereof, specified in Section 6 or 7 in the event of termination of Executive's employment. The Term, if not previously ended, shall be extended automatically without further action by either party by one additional year (added to the end of the Term) first on June 30, 2001 (extending the Term to June 30, 2002) and on each succeeding June 30 thereafter, unless either party shall have served written notice in accordance with Section 12(d) upon the other party on or before the December 31 preceding a June 30 extension date electing not to extend the Term further as of that June 30 extension date, in which case employment shall terminate on that June 30 and the Term shall end at that date, subject to earlier termination of employment and earlier termination of the Term in accordance with Section 6 or 7. The foregoing notwithstanding, in the event there occurs a Potential Change in Control during the period of 180 days prior to the June 30 on which the Term will terminate as a result of notice given by Executive hereunder, the Term shall be extended automatically at that June 30 by an additional period such that the Term will extend until the 180th day following such Potential Change in Control. 3. Offices and Duties. The provisions of this Section 3 will apply during the Term, except as otherwise provided in Section 7(c) and 7(e): (a) Generally. Executive shall serve as the Chief Executive Officer and Chairman of the Board of the Company and, if elected, shall serve as a member of the Board of Directors of the Company (the "Board") and, for so long as he is serving on the Board, Executive agrees to serve as a member of any Board committee if the Board shall elect Executive to such committee. In any and all such capacities, Executive shall report only to the Board of Directors of the Company. Executive shall have and perform such duties, responsibilities, and authorities as are customary for the chairman of the board and chief executive officer of a publicly held corporation of the size, type, and nature of the Company as they may exist from time to time and consistent with such position and status, but in no event shall such duties, responsibilities, and authorities be reduced from those of Executive at the Effective Date. Executive shall devote his full business time and attention, and his best efforts, abilities, experience, and talent, to the positions of Chairman of the Board and Chief Executive Officer and for the businesses of the Company without commitment to other business endeavors, except that Executive (i) may make personal investments which are not in conflict with his duties to the Company and manage personal and family financial and legal affairs, (ii) may serve as a member of the board of directors of each of State Street Corporation, Gartner Group, Inc., and the New York Stock Exchange, Inc., (iii) undertake public speaking engagements, and (iv) serve as a director of (or similar position with) any other business or an -2- educational, charitable, community, civic, religious, or similar type of organization with the approval of the Board of Directors of the Company, so long as such activities (i.e., those listed in clauses (i) through (iv)) do not preclude or render unlawful Executive's employment or service to the Company or otherwise materially inhibit the performance of Executive's duties under this Agreement or materially impair the business of the Company or its subsidiaries. (b) Place of Employment. Executive's principal place of employment shall be at the Corporate Offices of the Company which shall be in (i) New York City, (ii) Westchester County, New York, (iii) Fairfield County, Connecticut (iv) Montgomery County, Pennsylvania, (v) Passaic County, New Jersey, or (vi) London, England. (c) Rank of Executive Within Company. As Chairman of the Board and Chief Executive Officer of the Company, Executive shall be the highest-ranking executive of the Company. 4. Salary and Annual Incentive Compensation. As partial compensation for the services to be rendered hereunder by Executive, the Company agrees to pay to Executive during the Term the compensation set forth in this Section 4. (a) Base Salary. The Company will pay to Executive during the Term a base salary at the initial annual rate of $775,000, payable in cash in substantially equal semi-monthly installments commencing at the beginning of the Term, and otherwise in accordance with the Company's usual payroll practices with respect to senior executives (except to the extent deferred under Section 5(d)). Executive's annual base salary shall be reviewed by the Compensation and Benefits Committee of the Board (the "Committee") at least once in each calendar year and may be increased above, but may not be reduced below, the then-current rate of such base salary. For purposes of this Agreement, "Base Salary" means Executive's then-current base salary. (b) Annual Incentive Compensation. The Company will pay to Executive during the Term annual incentive compensation which shall offer to Executive an opportunity to earn additional compensation based upon performance in amounts determined by the Committee in accordance with the applicable plan and consistent with past practices of the Company; provided, however, that the annual target incentive opportunity shall be not less than the greater of 100% of Base Salary or the annual target incentive opportunity for the prior year for achievement of target level performance, with the nature of the performance and the levels of performance triggering payments of such annual target incentive compensation for each year to be established and communicated to Executive during the first quarter of such year by the Committee. In addition, the Committee (or the Board) may determine, in its discretion, to increase the Executive's annual target incentive opportunity or provide an additional annual incentive opportunity, in excess of the annual target incentive opportunity, payable for performance in excess of or in addition to the performance required for payment of the annual target incentive amount. Any annual incentive compensation payable to Executive shall be paid in accordance with the Company's usual practices with respect to payment of incentive -3- compensation to senior executives (except to the extent deferred under Section 5(d)). 5. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement (a) Executive Compensation Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all executive compensation plans and programs intended for general participation by senior executives of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, subject to the eligibility and other requirements of such plans and programs, including without limitation any stock option plans, plans under which restricted stock/restricted stock units, performance-based restricted stock/restricted stock units ("PERS") or performance-accelerated restricted stock/restricted stock units ("PARS") may be awarded, other annual and long-term cash and/or equity incentive plans, and deferred compensation plans; provided, however, that such plans and programs, in the aggregate, shall provide Executive with compensation and incentive award opportunities substantially no less favorable than those provided by the Company to Executive under such plans and programs as in effect on the Effective Date. (b) Employee and Executive Benefit Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all employee and executive benefit plans and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, to the extent such plans are available to other senior executives or employees of the Company, subject to the eligibility and other requirements of such plans and programs, including without limitation plans providing pensions, supplemental pensions, supplemental and other retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance, as well as savings, profit-sharing, and stock ownership plans; provided, however, that such benefit plans and programs, in the aggregate, shall provide Executive with benefits and compensation substantially no less favorable than those provided by the Company to Executive under such plans and programs as in effect on the Effective Date. The foregoing notwithstanding, Executive shall not be eligible to participate or receive benefits under the Company's Employee Protection Plan. In furtherance of and not in limitation of the foregoing, during the Term: (i) Executive will participate as Chief Executive Officer in all executive and employee vacation and time-off programs; (ii) The Company will provide Executive with coverage as Chief Executive Officer with respect to long-term disability insurance and benefits substantially no less favorable (including any required contributions by Executive) than such insurance and benefits in effect on the Effective Date; (iii) Executive will be covered by Company-paid group and individual term life insurance providing a death benefit no less than the death benefit provided under Company-paid insurance in effect at the Effective Date; provided, -4- however, that, with the consent of Executive, such insurance may be combined with a supplementary retirement funding vehicle; (iv) Executive will be entitled to retirement benefits substantially no less favorable than those under the defined benefit pension plans and programs of the Company, including the IMS Health Incorporated Supplemental Executive Retirement Plan (the "SERP"), as in effect on the Effective Date; and (v) The Company will provide Executive with health and medical benefits consistent with its policies for other senior executives. Any provision to the contrary contained in this Agreement notwithstanding, unless Executive is terminated by the Company for "Cause" (as defined in Section 8(a)) or Executive terminates voluntarily and not for "Good Reason" (as defined in Section 8(e)), Executive may elect continued participation after termination of employment in the Company's health and medical coverage for himself and his spouse and dependent children after such coverage would otherwise end until such time as Executive becomes eligible for similar coverage with a subsequent employer or other entity to which Executive provides services or becomes eligible for Medicare (under rules in effect at the Effective Date hereof); provided, however, that in the event of such election, Executive shall pay the Company each year an amount equal to the then-current annual COBRA premium being paid (or payable) by any other former employee of the Company, unless otherwise provided under Section 6 or 7. (c) Acceleration of Awards Upon a Change in Control. In the event of a Change in Control (as defined in Section 8(b)), all outstanding stock options and restricted stock then held by Executive shall become vested and exercisable. (d) Deferral of Compensation. If the Company has in effect or adopts any deferral program or arrangement permitting executives to elect to defer any compensation, Executive will be eligible to participate in such program on terms no less favorable than the terms of participation of any other executive officer of the Company. (e) Company Registration Obligations. The Company will use its best efforts to file with the Securities and Exchange Commission and thereafter maintain the effectiveness of one or more registration statements registering under the Securities Act of 1933, as amended (the "1933 Act"), the offer and sale of shares by the Company to Executive pursuant to stock options or other equity-based awards granted to Executive under Company plans or otherwise or, if shares are acquired by Executive in a transaction not involving an offer or sale to Executive but resulting in the acquired shares being "restricted securities" for purposes of the 1933 Act, registering the reoffer and resale of such shares by Executive. (f) Reimbursement of Expenses. The Company will promptly reimburse Executive for all reasonable business expenses and disbursements incurred by Executive in the performance of Executive's duties during the Term in accordance with the Company's reimbursement policies as in effect from time to time. -5- 6. Termination Due to Retirement, Death, or Disability. (a) Retirement. Executive may elect to terminate employment hereunder by retirement at or after age 55 or at such earlier age as may be approved by the Board (in either case, "Retirement"). At the time Executive's employment terminates due to Retirement, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after termination of employment due to Retirement, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination (as defined in Section 8(c)); (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if his employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iii) The vesting and exercisability of stock options held by Executive at termination and all other terms of such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 10(f) hereof); and (iv) All restricted stock and deferred stock awards, including outstanding PERS awards, all other long-term incentive awards, and all deferral arrangements under Section 5(d), shall be governed by the plans and programs under which the awards were granted or governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (b) Death. In the event of Executive's death which results in the termination of Executive's employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after death, and the Company will pay Executive's beneficiary or estate, and Executive's beneficiary or estate will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's death occurred, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive -6- (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if his employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of his death and the denominator of which is the total number of days in the year of death; (iii) The vesting and exercisability of stock options held by Executive at death and all other terms of such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; and (iv) All restricted stock and deferred stock awards, including outstanding PERS awards, all other long-term incentive awards, and all deferral arrangements under Section 5(d), shall be governed by the plans and programs under which the awards were granted or governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (c) Disability. The Company may terminate the employment of Executive hereunder due to the Disability (as defined in Section 8(d)) of Executive. Such employment shall terminate at the expiration of the 30-day period referred to in the definition of Disability set forth in Section 8(d), unless Executive has returned to service and presented to the Company a certificate of good health prior to such termination as specified in Section 8(d). Upon termination of employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after termination of employment due to Disability, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if his employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iii) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to -7- which such options were granted; (iv) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (v) Disability benefits shall be payable in accordance with the Company's plans, programs and policies (including the SERP), and all deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; and (vi) For the period extending from the date of termination due to Disability until the date Executive reaches age 65, Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if the terms of such plans or programs do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits (of the type described in this Section 6(c)(vi)) Executive would have received under such plans or programs had Executive continued to be employed during such period following Executive's termination until age 65, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 6(c)(vi). (d) Other Terms of Payment Following Retirement, Death, or Disability. Nothing in this Section 6 shall limit the benefits payable or provided In the event Executive's employment terminates due to Retirement, death, or Disability under the terms of plans or programs of the Company more favorable to the Executive (or his beneficiaries) than the benefits payable or provided under this Section 6 (except in the case of annual incentives in lieu -8- of which amounts are paid hereunder), including plans and programs adopted after the date of this Agreement. Amounts payable under this Section 6 following Executive's termination of employment, other than those expressly payable following determination of performance for the year of termination for purposes of annual incentive compensation or otherwise expressly payable on a deferred basis, will be paid as promptly as practicable after such termination of employment. 7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability. (a) Termination by the Company for Cause. The Company may terminate the employment of Executive hereunder for Cause (as defined in Section 8(a)) at any time. At the time Executive's employment is terminated for Cause the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination (as defined in Section 8(c)); (ii) All stock options, restricted stock and deferred stock awards, including outstanding PERS awards, and all other long-term incentive awards will be governed by the terms of the plans and programs under which the awards were granted; and (iii) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (b) Termination by Executive Other Than For Good Reason. Executive may terminate his employment hereunder voluntarily for reasons other than Good Reason (as defined in Section 8(e)) at any time. An election by Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of employment by Executive for reasons other than Good Reason at the date of expiration of the Term, unless a Change in Control (as defined in Section 8(b)) occurs prior to, and there exists Good Reason at, such date of expiration. At the time Executive's employment is terminated by Executive other than for Good Reason the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) All stock options, restricted stock and deferred stock awards, including outstanding PERS awards, and all other long-term incentive awards will be governed by the terms of the plans and programs under which the awards were granted; and -9- (iii) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (c) Termination by the Company Without Cause Prior to or More than Two Years After a Change in Control. The Company may terminate the employment of Executive hereunder without Cause, if at the date of termination no Change in Control has occurred or such date of termination is at least two years after the most recent Change in Control, upon at least 90 days' written notice to Executive. The foregoing notwithstanding, the Company may elect, by written notice to Executive, to terminate Executive's positions specified in Sections 1 and 3 and all other obligations of Executive and the Company under Section 3 at a date earlier than the expiration of such 90-day period, if so specified by the Company in the written notice, provided that Executive shall be treated as an employee of the Company (without any assigned duties) for all other purposes of this Agreement, including for purposes of Sections 4 and 5, from such specified date until the expiration of such 90-day period. An election by the Company not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of Executive's employment by the Company without Cause at the date of expiration of the Term and shall be subject to this Section 7(c) if at the date of such termination no Change in Control has occurred or such date of termination is at least two years after the most recent Change in Control; provided, however, that, if Executive has attained age 65 at such date of termination, such termination shall be deemed a Retirement of Executive. At the time Executive's employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to two times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(c)(ii) shall be payable in monthly installments over the 24 months following termination, without interest, except the Company may elect to accelerate payment of the remaining balance of such amount and to pay it as a lump sum, without discount; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to -10- Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For a period of two years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(c)(vii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(c)(vii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would -11- have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(c)(vii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(c)(vii); and the Company be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(c)(vii) if the Company had received adequate prior notice as required by this sentence. (d) Termination by Executive for Good Reason Prior to or More than Two Years After a Change in Control. Executive may terminate his employment hereunder for Good Reason, prior to a Change in Control or after the second anniversary of the most recent Change in Control, upon 90 days' written notice to the Company; provided, however, that, if the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not terminate his employment for Good Reason, and therefore Executive's notice of termination will automatically become null and void. At the time Executive's employment is terminated by Executive for Good Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to two times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(d)(ii) shall be payable in monthly installments over the 24 months following termination, without interest, except the Company may elect to accelerate payment of the remaining balance of such amount and to pay it as a lump sum, without discount; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in -12- which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For a period of two years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(d)(vii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(d)(vii) Executive would have received under such plans or programs had Executive -13- continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(d)(vii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(d)(vii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(d)(vii) if the Company had received adequate prior notice as required by this sentence. If any payment or benefit under this Section 7(d) is based on Base Salary or other level of compensation or benefits at the time of Executive's termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive's termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(d). (e) Termination by the Company Without Cause Within Two Years After a Change in Control. The Company may terminate the employment of Executive hereunder without Cause, simultaneously with or within two years after a Change in Control, upon at least 90 days' written notice to Executive. The foregoing notwithstanding, the Company may elect, by written notice to Executive, to terminate Executive's positions specified in Sections 1 and 3 and all other obligations of Executive and the Company under Section 3 at a date earlier than the expiration of such 90-day notice period, if so specified by the Company in the written notice, provided that Executive shall be treated as an employee of the Company (without any assigned duties) for all other purposes of this Agreement, including for purposes of Sections 4 and 5, from such specified date until the expiration of such 90-day period. An election by the Company not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of Executive's employment by the Company without Cause at the date of expiration of the Term and shall be subject to this Section 7(e) if the date of such termination coincides with or is within two years after a Change in Control; provided, however, that, if Executive has attained age 65 at such date of termination, such termination shall be deemed a Retirement of Executive. At the time Executive's employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; -14- (ii) Cash in an aggregate amount equal to three times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(e)(ii) shall be paid by the Company not later than 15 days after Executive's termination; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and any such options granted on or after the date hereof shall remain outstanding and exercisable until the stated expiration date of the Option as though Executive's employment did not terminate, and, in other respects, such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent -15- required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP and so that Executive will be entitled the maximum "Retirement Benefit" in accordance with Section 3.1 of the SERP. (viii) For a period of three years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(e)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(e)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(e)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(e)(viii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(e)(viii) if the Company had received adequate prior notice as required by this sentence. (f) Termination by Executive for Good Reason Within Two Years After a Change in Control. Executive may terminate his employment hereunder for Good Reason, simultaneously with or within two years after a Change in Control, upon 90 days' written notice to the Company; provided, however, that, if the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not terminate his employment for Good Reason, and therefore Executive's notice of termination will automatically become null and void. At the time Executive's employment is terminated by Executive for Good -16- Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to three times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(f)(ii) shall be paid by the Company not later than 15 days after Executive's termination; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and any such options granted on or after the date hereof shall remain outstanding and exercisable until the stated expiration date of the Option as though Executive's employment did not terminate, and, in other respects, such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; -17- (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP and so that Executive will be entitled the maximum "Retirement Benefit" in accordance with Section 3.1 of the SERP. (viii) For a period of three years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(f)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(f)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(f)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(f)(viii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(f)(viii) if the Company had received adequate prior notice as required by this sentence. If any payment or benefit under this Section 7(f) is based on Base Salary or other level of -18- compensation or benefits at the time of Executive's termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive's termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(f). (g) Other Terms Relating to Certain Terminations of Employment. Whether a termination is deemed to be at or within two years after a Change in Control for purposes of Sections 7(c), (d), (e), or (f) is determined at the date of termination, regardless of whether the Change in Control had occurred at the time a notice of termination was given. In the event Executive's employment terminates for any reason set forth in Section 7(b) through (f), Executive will be entitled to the benefit of any terms of plans or agreements applicable to Executive which are more favorable than those specified in this Section 7 (except in the case of annual incentives in lieu of which amounts are paid hereunder). Amounts payable under this Section 7 following Executive's termination of employment, other than those expressly payable on a deferred basis, will be paid as promptly as practicable after such a termination of employment, and such amounts payable under Section 7(e) or 7(f) will be paid in no event later than 15 days after Executive's termination of employment unless not determinable within such period. 8. Definitions Relating to Termination Events. (a) "Cause." For purposes of this Agreement, "Cause" shall mean Executive's (i) willful and continued failure to substantially perform his duties hereunder (other than any such failure resulting from incapacity due to physical or mental illness or disability or any failure after the issuance of a notice of termination by Executive for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes that Executive has not substantially performed his duties hereunder and the demonstrable and material damage caused thereby; or (ii) the willful engaging by Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the part of Executive shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, -19- Executive was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail. (b) "Change in Control." For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (8)(b)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or -20- substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (c) "Compensation Accrued at Termination." For purposes of this Agreement, "Compensation Accrued at Termination" means the following: (i) The unpaid portion of annual base salary at the rate payable, in accordance with Section 4(a) hereof, at the date of Executive's termination of employment, pro rated through such date of termination, payable in accordance with the Company's regular pay schedule; (ii) All vested, nonforfeitable amounts owing or accrued at the date of Executive's termination of employment under any compensation and benefit plans, programs, and arrangements set forth or referred to in Sections 4(b) and 5(a) and 5(b) hereof (including any earned and vested annual incentive compensation and long-term incentive award) in which Executive theretofore participated, payable in accordance with the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted or accrued; and (iii) Reasonable business expenses and disbursements incurred by Executive prior to Executive's termination of employment, to be reimbursed to Executive, as authorized under Section 5(f), in accordance the Company's reimbursement policies as in effect at the date of such termination. (d) "Disability." For purposes of this Agreement, "Disability" means Executive's absence from the full-time performance of Executive's duties hereunder for six consecutive months as a result of his incapacity due to physical or mental illness or disability, and, within 30 days after written notice of termination is thereafter given by the Company, Executive shall have not returned to the full-time performance of such duties. (e) "Good Reason." For purposes of this Agreement, "Good Reason" shall mean, without Executive's express written consent, the occurrence of any of the following circumstances unless, in the case of subsections (i), (iv), (vi) or (viii) hereof, such circumstances are fully corrected prior to the date of termination specified in the notice of termination given in respect thereof: (i) the assignment to Executive of duties inconsistent with Executive's position and status hereunder, or an alteration, adverse to Executive, in the nature of Executive's duties, responsibilities, and authorities, Executive's positions or the conditions of Executive's employment from those specified in Section 3 or otherwise hereunder (other than inadvertent actions which are promptly remedied); for this purpose, it shall constitute "Good Reason" under this subsection (e)(i) if (A) Executive shall be required to report to and take direction -21- from any person or body other than the Board of Directors of the Company; and (B) if Executive shall be removed from the Board, from the office of Chairman of the Board, or from any Board committee on which Executive has served during the Term, or there occurs any failure of Executive to be nominated, reappointed or reelected as a member of the Board, as Chairman of the Board, or as a member of any Board committee on which he has served during the Term, including a failure of the Board or stockholders to take such actions (notwithstanding their legal right to do so), except the foregoing shall not constitute Good Reason if occurring in connection with the termination of Executive's employment for Cause, Disability, Retirement, as a result of Executive's death, or as a result of action by or with the consent of Executive; for purposes of this Section 8(e)(i), references to the Company (and the Board and stockholders of the Company) refer to the ultimate parent company (and its board and stockholders) succeeding the Company following an acquisition in which the corporate existence of the Company continues, in accordance with Section 12(b); (ii) (A) a reduction by the Company in Executive's Base Salary, (B) the setting of Executive's annual target incentive opportunity or payment of earned annual incentive in amounts less than specified under or otherwise not in conformity with Section 4 hereof, (C) a change in compensation or benefits not in conformity with Section 5, or (D) a reduction, after a Change in Control, in perquisites from the level of such perquisites as in effect immediately prior to the Change in Control or as the same may have been increased from time to time after the Change in Control except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (iii) the relocation of the principle place of Executive's employment not in conformity with Section 3(b) hereof; for this purpose, required travel on the Company's business will not constitute a relocation so long as the extent of such travel is substantially consistent with Executive's customary business travel obligations in periods prior to the Effective Date; (iv) the failure by the Company to pay to Executive any portion of Executive's compensation or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (v) the failure by the Company to continue in effect any material compensation or benefit plan in which Executive participated immediately prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of Executive's participation relative to -22- other participants, as existed at the time of the Change in Control; (vi) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company's obligations and to perform under this Agreement, as contemplated in Section 12(b) hereof, in a form reasonably acceptable to Executive; (vii) any election by the Company not to extend the Term of this Agreement at the next possible extension date under Section 2 hereof, unless Executive will have attained age 65 at or before such extension date; or (viii) any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement. (f) "Potential Change in Control" For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 9. Rabbi Trust Obligation Upon Potential Change in Control; Excise Tax-Related Provisions. (a) Rabbi Trust Funded Upon Potential Change in Control. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of Executive's employment under Section 7(e) or 7(f). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company; provided, however, that if no Change in Control has occurred within two years after such Potential Change in Control, such rabbi trust(s) shall at the end of such two-year period become revocable and may thereafter be revoked by the Company. (b) Gross-up If Excise Tax Would Apply. In the event Executive becomes entitled to any amounts payable in connection with a Change in Control or other change in control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance -23- Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to Executive at the time specified in Section 9(b)(iii) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by Section 9(b)(i), shall be equal to the Total Payments. (i) For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (A) any other payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (B) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Total Payments and (y) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 9(b)(i)(A) hereof); and (C) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by Executive in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (ii) For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could -24- be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (iii) The payments provided for in this Section 9(b) shall be made not later than the fifteenth day following the date of Executive's termination of employment; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the date of Executive's termination of employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (iv) All determinations under this Section 9(b) shall be made at the expense of the Company by a nationally recognized public accounting firm selected by Executive, and such determination shall be binding upon Executive and the Company. 10. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement. (a) Non-Competition. Without the consent in writing of the Board, Executive will not, at any time during the Term and for a period of two years following termination of Executive's employment for any reason, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor, or director) in any business in which he has been directly engaged on -25- behalf of the Company or any affiliate, or has supervised as an executive thereof, during the last two years prior to such termination, or which was engaged in or planned by the Company or an affiliate at the time of such termination, in any geographic area in which such business was conducted or planned to be conducted; (ii) induce any customers of the Company or any of its affiliates with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of her employment with the Company or any of its affiliates, to curtail or cancel their business with the Company or any such affiliate; (iii) induce, or attempt to influence, any employee of the Company or any of its affiliates to terminate employment; or (iv) solicit, hire or retain as an employee or independent contractor, or assist any third party in the solicitation, hire, or retention as an employee or independent contractor, any person who during the previous 12 months was an employee of the Company or any affiliate; provided, however, that the limitation contained in clause (i) above shall not apply if Executive's employment is terminated as a result of a termination by the Company without Cause within two years following a Change in Control or is terminated by Executive for Good Reason within two years following a Change in Control; and provided further, that activities engaged in by or on behalf of the Company are not restricted by this covenant. The provisions of subparagraphs (i), (ii), (iii), and (iv) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this Section 10(a). (b) Non-Disclosure; Ownership of Work. Executive shall not, at any time during the Term and thereafter (including following Executive's termination of employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any proprietary information, secrets, organizational or employee information, or other confidential information belonging or relating to the Company and its affiliates and customers so long as such information has not otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. In addition, upon termination of employment for any reason, Executive will return to the Company or its affiliates all documents and other media containing information belonging or relating to the Company or its affiliates. Executive will promptly disclose in writing to the Company all inventions, discoveries, developments, improvements and innovations (collectively referred to as "Inventions") that Executive has conceived or made during the Term; provided, however, that in this context "Inventions" are limited to those which (i) relate in any manner to the existing or contemplated business or research activities of the Company and its affiliates; (ii) are suggested by or result from Executive's work at the Company; or (iii) result from the use of the time, materials or facilities of the Company and its affiliates. All Inventions will be the Company's property rather than Executive's. Should the Company request it, Executive agrees to sign any document that the Company may reasonably require to establish ownership in any Invention. (c) Cooperation With Regard to Litigation. Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive's termination of employment for any reason), by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, -26- criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate of the Company, as requested. The Company agrees to reimburse the Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) Non-Disparagement. Executive shall not, at any time during the Term and thereafter, make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements that are required by applicable law, regulation or legal process. (e) Release of Employment Claims. Executive agrees, as a condition to receipt of any termination payments and benefits provided for in Sections 6 and 7 herein (other than Compensation Accrued at Termination), that he will execute a general release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than enforcement of this Agreement). (f) Forfeiture of Outstanding Options. The provisions of Sections 6 and 7 notwithstanding, if Executive willfully and materially fails to substantially comply with any restrictive covenant under this Section 10 or willfully and materially fails to substantially comply with any material obligation under this Agreement, all options to purchase Common Stock granted by the Company and then held by Executive or a transferee of Executive shall be immediately forfeited and thereupon such options shall be cancelled. Notwithstanding the foregoing, Executive shall not forfeit any option unless and until there shall have been delivered to him, within six months after the Board (i) had knowledge of conduct or an event allegedly constituting grounds for such forfeiture and (ii) had reason to believe that such conduct or event could be grounds for such forfeiture, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such forfeiture and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive has engaged and continues to engage in conduct set forth in this Section 10(f) which constitutes grounds for forfeiture of Executive's options; provided, however, that if any option is exercised after delivery of such notice and the Board subsequently makes the determination described in this sentence, Executive shall be required to pay to the Company an amount equal to the difference between the aggregate value of the shares acquired upon such exercise at the date of the Board determination and the aggregate exercise price paid by Executive. Any such forfeiture shall apply to such options notwithstanding any term or provision of any option agreement. (g) Survival. The provisions of this Section 10 shall survive the termination -27- of the Term and any termination or expiration of this Agreement. 11. Governing Law; Disputes; Arbitration. (a) Governing Law. This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to conflicts of law principles, except insofar as federal laws and regulations and the Delaware General Corporation Law may be applicable. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 10 is unenforceable because of the duration or geographic scope of such provision, it is the parties' intent that such court shall have the power to modify the duration or geographic scope of such provision, as the case may be, to the extent necessary to render the provision enforceable and, in its modified form, such provision shall be enforced. (b) Reimbursement of Expenses in Enforcing Rights. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to interpret this Agreement or enforce rights pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; provided, however, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by arbitrators in accordance with Section 11(c) or a court having jurisdiction over the matter. (c) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Westport CT by three arbitrators in accordance with the rules of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators' award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the District of Connecticut, (ii) any of the courts of the State of Connecticut, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to Section 11(b), the Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 11. Notwithstanding any provision in this Section 11, Executive shall be entitled to seek specific performance of Executive's right to be paid during the pendency of any dispute or controversy arising under or in connection with this Agreement. -28- (d) Interest on Unpaid Amounts. Any amount which has become payable pursuant to the terms of this Agreement or any decision by arbitrators or judgment by a court of law pursuant to this Section 11 but which has not been timely paid shall bear interest at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company's principal bank. 12. Miscellaneous. (a) Integration. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company, any parent or predecessor company, and the Company's subsidiaries during the Term, except for contracts relating to compensation under executive compensation and employee benefit plans of the Company and its subsidiaries. The foregoing notwithstanding, Executive shall not participate in the Company's Employee Protection Plan. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings or under any benefit or compensation plan of the Company. (b) Successors; Transferability. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether or not the corporate existence of the Company continues) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise and, in the case of an acquisition of the Company in which the corporate existence of the Company continues, the ultimate parent company following such acquisition. Subject to the foregoing, the Company may transfer and assign this Agreement and the Company's rights and obligations hereunder. Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 12(c). (c) Beneficiaries. Executive shall be entitled to designate (and change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits provided hereunder following Executive's death. (d) Notices. Whenever under this Agreement it becomes necessary to give notice, such notice shall be in writing, signed by the party or parties giving or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set -29- forth below or at such other address as may be designated by such party by like notice: If to the Company: IMS HEALTH INCORPORATED 200 Nyala Farms Westport, CT 06880 Attention: General Counsel If to Executive: Robert E. Weissman 200 Nyala Farms Westport, CT 06880 If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective two days after deposit into the mails by delivery to the U.S. Post Office. (e) Reformation. The invalidity of any portion of this Agreement shall not deemed to render the remainder of this Agreement invalid. (f) Headings. The headings of this Agreement are for convenience of reference only and do not constitute a part hereof. (g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (h) No Obligation To Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive's damages upon any termination of employment; provided, however, that, to the extent Executive receives from a subsequent employer health or other insurance benefits that are substantially similar to the benefits referred to in Section 5(b) hereof, any such benefits to be provided by the Company to Executive following the Term shall be correspondingly reduced. (i) Offsets; Withholding. The amounts required to be paid by the Company to Executive pursuant to this Agreement shall not be subject to offset other than with respect to any amounts that are owed to the Company by Executive due to his receipt of funds as a result of his fraudulent activity. The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement, including under Sections 6 and 7, or otherwise by the Company, will be subject to withholding to satisfy required withholding taxes and other required deductions. (j) Successors and Assigns. This Agreement shall be binding upon and shall -30- inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. (k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Indemnification. All rights to indemnification by the Company now existing in favor of the Executive as provided in the Company's Certificate of Incorporation or By-laws or pursuant to other agreements in effect on or immediately prior to the Effective Date shall continue in full force and effect from the Effective Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that the Executive provide an undertaking to repay such advances if it is ultimately determined that the Executive is not entitled to indemnification; provided, however, that any determination required to be made with respect to whether the Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Certificate of Incorporation, By-laws, or other agreement shall be made by independent counsel mutually acceptable to the Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Certificate of Incorporation or By-laws or any agreement in any manner which adversely affects the rights of the Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Agreement shall not limit or reduce any rights of the Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive during the Term and for a period of six years thereafter on terms substantially no less favorable than those in effect on the Effective Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. IMS HEALTH INCORPORATED By:________________________________ Name: Title: EXECUTIVE ________________________________ Robert E. Weissman -31- EX-10.23 25 EMPLOYMENT AGREEMENT FOR VICTORIA R. FASH Exhibit 10.23 IMS HEALTH INCORPORATED Employment Agreement for Victoria R. Fash IMS HEALTH INCORPORATED Employment Agreement for Victoria R. Fash Page 1. Employment ............................................................ 1 2. Term .................................................................. 1 3. Offices and Duties .................................................... 2 (a) Generally ......................................................... 2 (b) Place of Employment ............................................... 2 4. Salary and Annual Incentive Compensation .............................. 2 (a) Base Salary ....................................................... 2 (b) Annual Incentive Compensation ..................................... 3 5. Long Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ............................. 3 (a) Executive Compensation Plans ...................................... 3 (b) Employee and Executive Benefit Plans .............................. 3 (c) Acceleration of Awards Upon a Change in Control ................... 4 (d) Deferral of Compensation .......................................... 4 (e) Company Registration Obligations .................................. 4 (f) Reimbursement of Expenses ......................................... 5 6. Termination Due to Retirement, Death, or Disability ................... 5 (a) Retirement ........................................................ 5 (b) Death ............................................................. 5 (c) Disability ........................................................ 6 (d) Other Terms of Payment Following Retirement, Death, or Disability . 7 7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability ................................................ 8 (a) Termination by the Company for Cause .............................. 8 (b) Termination by Executive Other Than For Good Reason ............... 8 (c) Termination by the Company Without Cause Prior to or More than Two Years After a Change in Control ................................. 8 (d) Termination by Executive for Good Reason Prior to or More than Two Years After a Change in Control ................................. 11 (e) Termination by the Company Without Cause Within Two Years After a Change in Control ............................................. 13 (f) Termination by Executive for Good Reason Within Two Years After a Change in Control ............................................. 15 (g) Other Terms Relating to Certain Terminations of Employment ........ 17 8. Definitions Relating to Termination Events ............................ 17 (a) "Cause" ........................................................... 17 (b) "Change in Control" ............................................... 18 (c) "Compensation Accrued at Termination" ............................. 19 (d) "Disability" ...................................................... 19 (e) "Good Reason" ..................................................... 19 (f) "Potential Change in Control" ..................................... 21 9. Rabbi Trust Obligation Upon Potential Change in Control; Excise Tax Related Provisions .............................................. 21 (a) Rabbi Trust Funded Upon Potential Change in Control ............... 21 (b) Gross-up If Excise Tax Would Apply ................................ 21 10. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement ................................................... 23 (a) Non-Competition ................................................... 23 (b) Non-Disclosure; Ownership of Work ................................. 23 (c) Cooperation With Regard to Litigation ............................. 24 (d) Non-Disparagement ................................................. 24 (e) Release of Employment Claims ...................................... 24 (f) Forfeiture of Outstanding Options ................................. 24 (g) Survival .......................................................... 25 11. Governing Law; Disputes; Arbitration .................................. 25 (a) Governing Law ..................................................... 25 (b) Reimbursement of Expenses in Enforcing Rights ..................... 25 (c) Arbitration ....................................................... 25 (d) Interest on Unpaid Amounts ........................................ 26 12. Miscellaneous ......................................................... 26 (a) Integration ....................................................... 26 (b) Successors; Transferability ....................................... 26 (c) Beneficiaries ..................................................... 26 (d) Notices ........................................................... 27 (e) Reformation ....................................................... 27 (f) Headings .......................................................... 27 (g) No General Waivers ................................................ 27 (h) No Obligation To Mitigate ......................................... 27 (i) Offsets; Withholding .............................................. 27 (j) Successors and Assigns ............................................ 28 (k) Counterparts ...................................................... 28 13. Indemnification ....................................................... 28 IMS HEALTH INCORPORATED Employment Agreement for Victoria R. Fash THIS EMPLOYMENT AGREEMENT by and between IMS HEALTH INCORPORATED, a Delaware corporation (the "Company"), and Victoria R. Fash ("Executive") shall become effective as of July 1, 1998 (the "Effective Date"). W I T N E S S E T H WHEREAS, Executive has served the Company and its predecessors in executive and senior executive capacities since September 1991; WHEREAS, the Company desires to continue to employ Executive as President and Chief Operating Officer of the Company, and Executive desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration the receipt and adequacy of which the Company and Executive each hereby acknowledge, the Company and Executive hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive as its President and Chief Operating Officer, and Executive hereby agrees to accept such employment and serve in such capacities, during the Term as defined in Section 2 (subject to Section 7(c) and 7(e)) and upon the terms and conditions set forth in this Employment Agreement (the "Agreement"). 2. Term. The term of employment of Executive under this Agreement (the "Term") shall be the period commencing on the Effective Date and ending on June 30, 2001 and any period of extension thereof in accordance with this Section 2, except that the Term will end at a date, prior to the end of such period or extension thereof, specified in Section 6 or 7 in the event of termination of Executive's employment. The Term, if not previously ended, shall be extended automatically without further action by either party by one additional year (added to the end of the Term) first on June 30, 2001 (extending the Term to June 30, 2002) and on each succeeding June 30 thereafter, unless either party shall have served written notice in accordance with Section 12(d) upon the other party on or before the December 31 preceding a June 30 extension date electing not to extend the Term further as of that June 30 extension date, in which case employment shall terminate on that June 30 and the Term shall end at that date, subject to earlier termination of employment and earlier termination of the Term in accordance with Section 6 or 7. The foregoing notwithstanding, in the event there occurs a Potential Change in Control during the period of 180 days prior to the June 30 on which the Term will terminate as a result of notice given by Executive hereunder, the Term shall be extended automatically at that June 30 by an additional period such that the Term will extend until the 180th day following such Potential Change in Control. 3. Offices and Duties. The provisions of this Section 3 will apply during the Term, except as otherwise provided in Section 7(c) and 7(e): (a) Generally. Executive shall serve as the President and Chief Operating Officer of the Company and, if elected, shall serve as a member of the Board of Directors of the Company (the "Board") and, for so long as she is serving on the Board, Executive agrees to serve as a member of any Board committee if the Board shall elect Executive to such committee. In any and all such capacities, Executive shall report only to the Chairman of the Board and Chief Executive Officer of the Company and to the Board. Executive shall have and perform such duties, responsibilities, and authorities as are customary for the president and chief operating officer of a publicly held corporation of the size, type, and nature of the Company as they may exist from time to time and consistent with such position and status, but in no event shall such duties, responsibilities, and authorities be reduced from those of Executive at the Effective Date. Executive shall devote her full business time and attention, and her best efforts, abilities, experience, and talent, to the positions of President and Chief Operating Officer and for the businesses of the Company without commitment to other business endeavors, except that Executive (i) may make personal investments which are not in conflict with her duties to the Company and manage personal and family financial and legal affairs, (ii) may serve as a member of the board of directors of each of Orion Capital Corporation and Ligand Pharmaceuticals Incorporated, (iii) undertake public speaking engagements, and (iv) serve as a director of (or similar position with) any other business or an educational, charitable, community, civic, religious, or similar type of organization with the approval of the Chief Executive Officer and the Board, so long as such activities (i.e., those listed in clauses (i) through (iv)) do not preclude or render unlawful Executive's employment or service to the Company or otherwise materially inhibit the performance of Executive's duties under this Agreement or materially impair the business of the Company or its subsidiaries. -2- (b) Place of Employment. Executive's principal place of employment shall be at the Corporate Offices of the Company which shall be in (i) New York City, (ii) Westchester County, New York, (iii) Fairfield County, Connecticut (iv) Montgomery County, Pennsylvania, (v) Passaic County, New Jersey, or (vi) London, England. 4. Salary and Annual Incentive Compensation. As partial compensation for the services to be rendered hereunder by Executive, the Company agrees to pay to Executive during the Term the compensation set forth in this Section 4. (a) Base Salary. The Company will pay to Executive during the Term a base salary at the initial annual rate of $600,000, payable in cash in substantially equal semi-monthly installments commencing at the beginning of the Term, and otherwise in accordance with the Company's usual payroll practices with respect to senior executives (except to the extent deferred under Section 5(d)). Executive's annual base salary shall be reviewed by the Compensation and Benefits Committee of the Board (the "Committee") at least once in each calendar year and may be increased above, but may not be reduced below, the then-current rate of such base salary. For purposes of this Agreement, "Base Salary" means Executive's then-current base salary. (b) Annual Incentive Compensation. The Company will pay to Executive during the Term annual incentive compensation which shall offer to Executive an opportunity to earn additional compensation based upon performance in amounts determined by the Committee in accordance with the applicable plan and consistent with past practices of the Company; provided, however, that the annual incentive opportunity shall be not less than the greater of 58% of Base Salary or the annual target incentive opportunity for the prior year for achievement of target level performance, with the nature of the performance and the levels of performance triggering payments of such annual target incentive compensation for each year to be established and communicated to Executive during the first quarter of such year by the Committee. In addition, the Committee (or the Board) may determine, in its discretion, to increase the Executive's annual target incentive opportunity or provide an additional annual incentive opportunity, in excess of the annual target incentive opportunity, payable for performance in excess of or in addition to the performance required for payment of the annual target incentive amount. Any annual incentive compensation payable to Executive shall be paid in accordance with the Company's usual practices with respect to payment of incentive compensation to senior executives (except to the extent deferred under Section 5(d)). 5. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement (a) Executive Compensation Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all executive compensation plans and programs intended for general participation by senior executives of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, -3- subject to the eligibility and other requirements of such plans and programs, including without limitation any stock option plans, plans under which restricted stock/restricted stock units, performance-based restricted stock/restricted stock units ("PERS") or performance-accelerated restricted stock/restricted stock units ("PARS") may be awarded, other annual and long-term cash and/or equity incentive plans, and deferred compensation plans; provided, however, that such plans and programs, in the aggregate, shall provide Executive with compensation and incentive award opportunities substantially no less favorable than those provided by the Company to Executive under such plans and programs as in effect on the Effective Date. (b) Employee and Executive Benefit Plans. Executive shall be entitled during the Term to participate, without discrimination or duplication, in all employee and executive benefit plans and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, to the extent such plans are available to other senior executives or employees of the Company, subject to the eligibility and other requirements of such plans and programs, including without limitation plans providing pensions, supplemental pensions, supplemental and other retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance, as well as savings, profit-sharing, and stock ownership plans; provided, however, that such benefit plans and programs, in the aggregate, shall provide Executive with benefits and compensation substantially no less favorable than those provided by the Company to Executive under such plans and programs as in effect on the Effective Date. The foregoing notwithstanding, Executive shall not be eligible to participate or receive benefits under the Company's Employee Protection Plan. In furtherance of and not in limitation of the foregoing, during the Term: (i) Executive will participate as President and Chief Operating Officer in all executive and employee vacation and time-off programs; (ii) The Company will provide Executive with coverage as President and Chief Operating Officer with respect to long-term disability insurance and benefits substantially no less favorable (including any required contributions by Executive) than such insurance and benefits in effect on the Effective Date; (iii) Executive will be covered by Company-paid group and individual term life insurance providing a death benefit no less than the death benefit provided under Company-paid insurance in effect at the Effective Date; provided, however, that, with the consent of Executive, such insurance may be combined with a supplementary retirement funding vehicle; (iv) Executive will be entitled to retirement benefits substantially no less favorable than those under the defined benefit pension plans and programs of the Company, including the IMS Health Incorporated Supplemental Executive Retirement Plan (the "SERP"), as in effect on the Effective Date; and (v) The Company will provide Executive with health and medical benefits consistent -4- with its policies for other senior executives. Any provision to the contrary contained in this Agreement notwithstanding, unless Executive is terminated by the Company for "Cause" (as defined in Section 8(a)) or Executive terminates voluntarily and not for "Good Reason" (as defined in Section 8(e)), Executive may elect continued participation after termination of employment in the Company's health and medical coverage for herself and her spouse and dependent children after such coverage would otherwise end until such time as Executive becomes eligible for similar coverage with a subsequent employer or other entity to which Executive provides services or becomes eligible for Medicare (under rules in effect at the Effective Date hereof); provided, however, that in the event of such election, Executive shall pay the Company each year an amount equal to the then-current annual COBRA premium being paid (or payable) by any other former employee of the Company, unless otherwise provided under Section 6 or 7. (c) Acceleration of Awards Upon a Change in Control. In the event of a Change in Control (as defined in Section 8(b)), all outstanding stock options and restricted stock then held by Executive shall become vested and exercisable. (d) Deferral of Compensation. If the Company has in effect or adopts any deferral program or arrangement permitting executives to elect to defer any compensation, Executive will be eligible to participate in such program on terms no less favorable than the terms of participation of any other executive officer of the Company. (e) Company Registration Obligations. The Company will use its best efforts to file with the Securities and Exchange Commission and thereafter maintain the effectiveness of one or more registration statements registering under the Securities Act of 1933, as amended (the "1933 Act"), the offer and sale of shares by the Company to Executive pursuant to stock options or other equity-based awards granted to Executive under Company plans or otherwise or, if shares are acquired by Executive in a transaction not involving an offer or sale to Executive but resulting in the acquired shares being "restricted securities" for purposes of the 1933 Act, registering the reoffer and resale of such shares by Executive. (f) Reimbursement of Expenses. The Company will promptly reimburse Executive for all reasonable business expenses and disbursements incurred by Executive in the performance of Executive's duties during the Term in accordance with the Company's reimbursement policies as in effect from time to time. 6. Termination Due to Retirement, Death, or Disability. (a) Retirement. Executive may elect to terminate employment hereunder by retirement at or after age 55 or at such earlier age as may be approved by the Board (in either case, "Retirement"). At the time Executive's employment terminates due to Retirement, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after termination of employment due to Retirement, and the Company will pay Executive, and Executive will be entitled to receive, the following: -5- (i) Executive's Compensation Accrued at Termination (as defined in Section 8(c)); (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if her employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iii) The vesting and exercisability of stock options held by Executive at termination and all other terms of such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted (subject to Section 10(f) hereof); and (iv) All restricted stock and deferred stock awards, including outstanding PERS awards, all other long-term incentive awards, and all deferral arrangements under Section 5(d), shall be governed by the plans and programs under which the awards were granted or governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (b) Death. In the event of Executive's death which results in the termination of Executive's employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after death, and the Company will pay Executive's beneficiary or estate, and Executive's beneficiary or estate will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's death occurred, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if her employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of her death and the denominator of which is the total number of days in the year of death; (iii) The vesting and exercisability of stock options held by Executive at death and all other terms of such options shall be governed by the plans and programs and -6- the agreements and other documents pursuant to which such options were granted; and (iv) All restricted stock and deferred stock awards, including outstanding PERS awards, all other long-term incentive awards, and all deferral arrangements under Section 5(d), shall be governed by the plans and programs under which the awards were granted or governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (c) Disability. The Company may terminate the employment of Executive hereunder due to the Disability (as defined in Section 8(d)) of Executive. Such employment shall terminate at the expiration of the 30-day period referred to in the definition of Disability set forth in Section 8(d), unless Executive has returned to service and presented to the Company a certificate of good health prior to such termination as specified in Section 8(d). Upon termination of employment, the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease except for obligations which expressly continue after termination of employment due to Disability, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of annual incentive compensation that would have become payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for that year if her employment had not terminated, based on performance actually achieved in that year (determined by the Committee following completion of the performance year), multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iii) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (iv) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the -7- date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (v) Disability benefits shall be payable in accordance with the Company's plans, programs and policies (including the SERP), and all deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; and (vi) For the period extending from the date of termination due to Disability until the date Executive reaches age 65, Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if the terms of such plans or programs do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits (of the type described in this Section 6(c)(vi)) Executive would have received under such plans or programs had Executive continued to be employed during such period following Executive's termination until age 65, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 6(c)(vi). (d) Other Terms of Payment Following Retirement, Death, or Disability. Nothing in this Section 6 shall limit the benefits payable or provided In the event Executive's employment terminates due to Retirement, death, or Disability under the terms of plans or programs of the Company more favorable to the Executive (or her beneficiaries) than the benefits payable or provided under this Section 6 (except in the case of annual incentives in lieu of which amounts are paid hereunder), including plans and programs adopted after the date of this Agreement. Amounts payable under this Section 6 following Executive's termination of employment, other than those expressly payable following determination of performance for the year of termination for purposes of annual incentive compensation or otherwise expressly payable on a deferred basis, will be paid as promptly as practicable after such termination of employment. 7. Termination of Employment For Reasons Other Than Retirement, Death, or Disability. -8- (a) Termination by the Company for Cause. The Company may terminate the employment of Executive hereunder for Cause (as defined in Section 8(a)) at any time. At the time Executive's employment is terminated for Cause the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination (as defined in Section 8(c)); (ii) All stock options, restricted stock and deferred stock awards, including outstanding PERS awards, and all other long-term incentive awards will be governed by the terms of the plans and programs under which the awards were granted; and (iii) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (b) Termination by Executive Other Than For Good Reason. Executive may terminate her employment hereunder voluntarily for reasons other than Good Reason (as defined in Section 8(e)) at any time. An election by Executive not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of employment by Executive for reasons other than Good Reason at the date of expiration of the Term, unless a Change in Control (as defined in Section 8(b)) occurs prior to, and there exists Good Reason at, such date of expiration. At the time Executive's employment is terminated by Executive other than for Good Reason the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease, and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) All stock options, restricted stock and deferred stock awards, including outstanding PERS awards, and all other long-term incentive awards will be governed by the terms of the plans and programs under which the awards were granted; and (iii) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral, and all rights under the SERP and any other benefit plan shall be governed by such plan. (c) Termination by the Company Without Cause Prior to or More than Two Years After a Change in Control. The Company may terminate the employment of Executive hereunder without Cause, if at the date of termination no Change in Control has occurred or such date of termination is at least two years after the most recent Change in Control, upon at least 90 days' written notice to Executive. The foregoing notwithstanding, the Company may -9- elect, by written notice to Executive, to terminate Executive's positions specified in Sections 1 and 3 and all other obligations of Executive and the Company under Section 3 at a date earlier than the expiration of such 90-day period, if so specified by the Company in the written notice, provided that Executive shall be treated as an employee of the Company (without any assigned duties) for all other purposes of this Agreement, including for purposes of Sections 4 and 5, from such specified date until the expiration of such 90-day period. An election by the Company not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of Executive's employment by the Company without Cause at the date of expiration of the Term and shall be subject to this Section 7(c) if at the date of such termination no Change in Control has occurred or such date of termination is at least two years after the most recent Change in Control; provided, however, that, if Executive has attained age 65 at such date of termination, such termination shall be deemed a Retirement of Executive. At the time Executive's employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to two times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(c)(ii) shall be payable in monthly installments over the 24 months following termination, without interest, except the Company may elect to accelerate payment of the remaining balance of such amount and to pay it as a lump sum, without discount; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination -10- during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP, so that Executive will be entitled to not less than the minimum "Retirement Benefit" determined in accordance with Section 3.1 of the SERP. (viii) For a period of two years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(c)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(c)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on -11- the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(c)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(c)(viii); and the Company be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(c)(viii) if the Company had received adequate prior notice as required by this sentence. (d) Termination by Executive for Good Reason Prior to or More than Two Years After a Change in Control. Executive may terminate her employment hereunder for Good Reason, prior to a Change in Control or after the second anniversary of the most recent Change in Control, upon 90 days' written notice to the Company; provided, however, that, if the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not terminate her employment for Good Reason, and therefore Executive's notice of termination will automatically become null and void. At the time Executive's employment is terminated by Executive for Good Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to two times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(d)(ii) shall be payable in monthly installments over the 24 months following termination, without interest, except the Company may elect to accelerate payment of the remaining balance of such amount and to pay it as a lump sum, without discount; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to -12- Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and, in other respects (including the period following termination during which such options may be exercised), such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP, so that Executive will be entitled to not less than the minimum "Retirement Benefit" determined in accordance with Section 3.1 of the SERP. (viii) For a period of two years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period -13- providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(d)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(d)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(d)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(d)(viii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(d)(viii) if the Company had received adequate prior notice as required by this sentence. If any payment or benefit under this Section 7(d) is based on Base Salary or other level of compensation or benefits at the time of Executive's termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive's termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(d). (e) Termination by the Company Without Cause Within Two Years After a Change in Control. The Company may terminate the employment of Executive hereunder without Cause, simultaneously with or within two years after a Change in Control, upon at least 90 days' written notice to Executive. The foregoing notwithstanding, the Company may elect, by written notice to Executive, to terminate Executive's positions specified in Sections 1 and 3 and all other obligations of Executive and the Company under Section 3 at a date earlier than the expiration of such 90-day notice period, if so specified by the Company in the written notice, provided that Executive shall be treated as an employee of the Company (without any assigned duties) for all other purposes of this Agreement, including for purposes of Sections 4 and 5, from such specified date until the expiration of such 90-day period. An election by the Company not to extend the Term pursuant to Section 2 hereof shall be deemed to be a termination of Executive's employment by the Company without Cause at the date of expiration of the Term and shall be subject to this Section 7(e) if the date of such termination coincides with or is within two years after a Change in Control; provided, however, that, if Executive has attained age 65 at such date of termination, such termination shall be deemed a Retirement of Executive. At the time Executive's employment is terminated by the Company (i.e., at the expiration of such notice period), the Term will terminate, all remaining obligations of the -14- Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to three times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(e)(ii) shall be paid by the Company not later than 15 days after Executive's termination; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and any such options granted on or after the date hereof shall remain outstanding and exercisable until the stated expiration date of the Option as though Executive's employment did not terminate, and, in other respects, such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; -15- (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP and so that Executive will be entitled the maximum "Retirement Benefit" in accordance with Section 3.1 of the SERP. (viii) For a period of three years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(e)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(e)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(e)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(e)(viii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits previously made or provided to Executive hereunder which would not have been paid under this Section 7(e)(viii) if the Company had received adequate prior notice as required by this sentence. (f) Termination by Executive for Good Reason Within Two Years After a Change in Control. Executive may terminate her employment hereunder for Good Reason, -16- simultaneously with or within two years after a Change in Control, upon 90 days' written notice to the Company; provided, however, that, if the Company has corrected the basis for such Good Reason within 30 days after receipt of such notice, Executive may not terminate her employment for Good Reason, and therefore Executive's notice of termination will automatically become null and void. At the time Executive's employment is terminated by Executive for Good Reason (i.e., at the expiration of such notice period), the Term will terminate, all obligations of the Company and Executive under Sections 1 through 5 of this Agreement will immediately cease (except as expressly provided below), and the Company will pay Executive, and Executive will be entitled to receive, the following: (i) Executive's Compensation Accrued at Termination; (ii) Cash in an aggregate amount equal to three times the sum of (A) Executive's Base Salary under Section 4(a) immediately prior to termination plus (B) an amount equal to the greater of (x) the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination or (y) the portion of Executive's annual incentive compensation that became payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the latest year preceding the year of termination based on performance actually achieved in that latest year. The amount determined to be payable under this Section 7(f)(ii) shall be paid by the Company not later than 15 days after Executive's termination; (iii) In lieu of any annual incentive compensation under Section 4(b) for the year in which Executive's employment terminated, an amount equal to the portion of Executive's annual target incentive compensation potentially payable in cash to Executive (i.e., excluding the portion payable in PERS or in other non-cash awards) for the year of termination, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (iv) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and any such options granted on or after the date hereof shall remain outstanding and exercisable until the stated expiration date of the Option as though Executive's employment did not terminate, and, in other respects, such options shall be governed by the plans and programs and the agreements and other documents pursuant to which such options were granted; (v) Any performance objectives upon which the earning of performance-based restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term incentive awards is conditioned shall be deemed to have been met at target level at the date of termination, and restricted stock and deferred stock awards, including outstanding PERS awards, and other long-term -17- incentive awards (to the extent then or previously earned, in the case of performance-based awards) shall become fully vested and non-forfeitable at the date of such termination, and, in other respects, such awards shall be governed by the plans and programs and the agreements and other documents pursuant to which such awards were granted; (vi) All deferral arrangements under Section 5(d) will be settled in accordance with the plans and programs governing the deferral; (vii) For purposes of the SERP, Executive shall be credited with additional years of age and/or years of Service (as defined in the SERP) if and to the extent required so that Executive's termination will qualify as a "Retirement" within the meaning of the SERP and so that Executive will be entitled the maximum "Retirement Benefit" in accordance with Section 3.1 of the SERP. (viii) For a period of three years after such termination (but not after Executive attains age 65), Executive shall continue to participate in those employee and executive benefit plans and programs under Section 5(b) to the extent such plans and programs provide medical insurance, disability insurance and life insurance benefits (but not other benefits, such as pension and retirement benefits, provided under Section 5(b)) in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period; provided, however, that such participation shall terminate, or the benefits under such plans and programs shall be reduced, if and to the extent Executive becomes covered (or is eligible to become covered) by plans of a subsequent employer or other entity to which Executive provides services during such period providing comparable benefits. If the terms of the Company plans and programs referred to in this Section 7(f)(viii) do not allow Executive's continued participation, Executive shall be paid a cash payment equivalent on an after-tax basis to the value of the additional benefits described in this Section 7(f)(viii) Executive would have received under such plans or programs had Executive continued to be employed during such period, with such benefits provided by the Company at the same times and in the same manner as such benefits would have been provided to Executive under such plans and programs (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); provided, however, that Executive must continue to satisfy the conditions set forth in Section 10 in order to continue receiving the benefits provided under this Section 7(f)(viii). Executive agrees to promptly notify the Company of any employment or other arrangement by which Executive provides services during the benefits-continuation period and of the nature and extent of benefits for which Executive becomes eligible during such period which would reduce or terminate benefits under this Section 7(f)(viii); and the Company shall be entitled to recover from Executive any payments and the fair market value of benefits -18- previously made or provided to Executive hereunder which would not have been paid under this Section 7(f)(viii) if the Company had received adequate prior notice as required by this sentence. If any payment or benefit under this Section 7(f) is based on Base Salary or other level of compensation or benefits at the time of Executive's termination and if a reduction in such Base Salary or other level of compensation or benefit was the basis for Executive's termination for Good Reason, then the Base Salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 7(f). (g) Other Terms Relating to Certain Terminations of Employment. Whether a termination is deemed to be at or within two years after a Change in Control for purposes of Sections 7(c), (d), (e), or (f) is determined at the date of termination, regardless of whether the Change in Control had occurred at the time a notice of termination was given. In the event Executive's employment terminates for any reason set forth in Section 7(b) through (f), Executive will be entitled to the benefit of any terms of plans or agreements applicable to Executive which are more favorable than those specified in this Section 7 (except in the case of annual incentives in lieu of which amounts are paid hereunder). Amounts payable under this Section 7 following Executive's termination of employment, other than those expressly payable on a deferred basis, will be paid as promptly as practicable after such a termination of employment, and such amounts payable under Section 7(e) or 7(f) will be paid in no event later than 15 days after Executive's termination of employment unless not determinable within such period. 8. Definitions Relating to Termination Events. (a) "Cause." For purposes of this Agreement, "Cause" shall mean Executive's (i) willful and continued failure to substantially perform her duties hereunder (other than any such failure resulting from incapacity due to physical or mental illness or disability or any failure after the issuance of a notice of termination by Executive for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes that Executive has not substantially performed her duties hereunder and the demonstrable and material damage caused thereby; or (ii) the willful engaging by Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the part of Executive shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive -19- shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail. (b) "Change in Control." For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (8)(b)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which -20- no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (c) "Compensation Accrued at Termination." For purposes of this Agreement, "Compensation Accrued at Termination" means the following: (i) The unpaid portion of annual base salary at the rate payable, in accordance with Section 4(a) hereof, at the date of Executive's termination of employment, pro rated through such date of termination, payable in accordance with the Company's regular pay schedule; (ii) All vested, nonforfeitable amounts owing or accrued at the date of Executive's termination of employment under any compensation and benefit plans, programs, and arrangements set forth or referred to in Sections 4(b) and 5(a) and 5(b) hereof (including any earned and vested annual incentive compensation and long-term incentive award) in which Executive theretofore participated, payable in accordance with the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted or accrued; and (iii) Reasonable business expenses and disbursements incurred by Executive prior to Executive's termination of employment, to be reimbursed to Executive, as authorized under Section 5(f), in accordance the Company's reimbursement policies as in effect at the date of such termination. (d) "Disability." For purposes of this Agreement, "Disability" means Executive's absence from the full-time performance of Executive's duties hereunder for six consecutive months as a result of her incapacity due to physical or mental illness or disability, and, within 30 days after written notice of termination is thereafter given by the Company, Executive shall have not returned to the full-time performance of such duties. (e) "Good Reason." For purposes of this Agreement, "Good Reason" shall mean, without Executive's express written consent, the occurrence of any of the following circumstances unless, in the case of subsections (i), (iv), (vi) or (viii) hereof, such circumstances are fully corrected prior to the date of termination specified in the notice of termination given in respect thereof: (i) the assignment to Executive of duties inconsistent with Executive's position and status hereunder, or an alteration, adverse to Executive, in the nature of -21- Executive's duties, responsibilities, and authorities, Executive's positions or the conditions of Executive's employment from those specified in Section 3 or otherwise hereunder (other than inadvertent actions which are promptly remedied); for this purpose, it shall constitute "Good Reason" under this subsection (e)(i) if (A) Executive shall be required to report to and take direction from any person or body other than the Chairman of the Board and Chief Executive Officer of the Company and the Board; and (B) if Executive shall be removed from the Board or from any Board committee on which Executive has served during the Term, or there occurs any failure of Executive to be nominated, reappointed or reelected as a member of the Board or as a member of any Board committee on which she has served during the Term, including a failure of the Board or stockholders to take such actions (notwithstanding their legal right to do so), except the foregoing shall not constitute Good Reason if occurring in connection with the termination of Executive's employment for Cause, Disability, Retirement, as a result of Executive's death, or as a result of action by or with the consent of Executive; for purposes of this Section 8(e)(i), references to the Company (and the Board and stockholders of the Company) refer to the ultimate parent company (and its board and stockholders) succeeding the Company following an acquisition in which the corporate existence of the Company continues, in accordance with Section 12(b); (ii) (A) a reduction by the Company in Executive's Base Salary, (B) the setting of Executive's annual target incentive opportunity or payment of earned annual incentive in amounts less than specified under or otherwise not in conformity with Section 4 hereof, (C) a change in compensation or benefits not in conformity with Section 5, or (D) a reduction, after a Change in Control in perquisites from the level of such perquisites as in effect immediately prior to the Change in Control or as the same may have been increased from time to time after the Change in Control except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (iii) the relocation of the principle place of Executive's employment not in conformity with Section 3(b) hereof; for this purpose, required travel on the Company's business will not constitute a relocation so long as the extent of such travel is substantially consistent with Executive's customary business travel obligations in periods prior to the Effective Date; (iv) the failure by the Company to pay to Executive any portion of Executive's compensation or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (v) the failure by the Company to continue in effect any material compensation or benefit plan in which Executive participated immediately prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or -22- alternative plan) has been made with respect to such plan, or the failure by the Company to continue Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of Executive's participation relative to other participants, as existed at the time of the Change in Control; (vi) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company's obligations and to perform under this Agreement, as contemplated in Section 12(b) hereof, in a form reasonably acceptable to Executive; (vii) any election by the Company not to extend the Term of this Agreement at the next possible extension date under Section 2 hereof, unless Executive will have attained age 65 at or before such extension date; or (viii) any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement. (f) "Potential Change in Control" For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 9. Rabbi Trust Obligation Upon Potential Change in Control; Excise Tax-Related Provisions. (a) Rabbi Trust Funded Upon Potential Change in Control. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of Executive's employment under Section 7(e) or 7(f). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company; provided, however, that if no Change in Control has occurred within two years after such Potential Change in Control, such rabbi trust(s) shall at the end of such two-year period become revocable and may thereafter be revoked by the Company. -23- (b) Gross-up If Excise Tax Would Apply. In the event Executive becomes entitled to any amounts payable in connection with a Change in Control or other change in control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to Executive at the time specified in Section 9(b)(iii) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by Section 9(b)(i), shall be equal to the Total Payments. (i) For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (A) any other payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (B) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Total Payments and (y) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 9(b)(i)(A) hereof); and (C) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by Executive in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (ii) For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of -24- federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (iii) The payments provided for in this Section 9(b) shall be made not later than the fifteenth day following the date of Executive's termination of employment; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the date of Executive's termination of employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (iv) All determinations under this Section 9(b) shall be made at the expense of the Company by a nationally recognized public accounting firm selected by Executive, and such determination shall be binding upon Executive and the Company. 10. Non-Competition and Non-Disclosure; Executive Cooperation; Non-Disparagement. (a) Non-Competition. Without the consent in writing of the Board, Executive -25- will not, at any time during the Term and for a period of two years following termination of Executive's employment for any reason, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor, or director) in any business in which he has been directly engaged on behalf of the Company or any affiliate, or has supervised as an executive thereof, during the last two years prior to such termination, or which was engaged in or planned by the Company or an affiliate at the time of such termination, in any geographic area in which such business was conducted or planned to be conducted; (ii) induce any customers of the Company or any of its affiliates with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of her employment with the Company or any of its affiliates, to curtail or cancel their business with the Company or any such affiliate; (iii) induce, or attempt to influence, any employee of the Company or any of its affiliates to terminate employment; or (iv) solicit, hire or retain as an employee or independent contractor, or assist any third party in the solicitation, hire, or retention as an employee or independent contractor, any person who during the previous 12 months was an employee of the Company or any affiliate; provided, however, that the limitation contained in clause (i) above shall not apply if Executive's employment is terminated as a result of a termination by the Company without Cause within two years following a Change in Control or is terminated by Executive for Good Reason within two years following a Change in Control; and provided further, that activities engaged in by or on behalf of the Company are not restricted by this covenant. The provisions of subparagraphs (i), (ii), (iii), and (iv) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this Section 10(a). (b) Non-Disclosure; Ownership of Work. Executive shall not, at any time during the Term and thereafter (including following Executive's termination of employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any proprietary information, secrets, organizational or employee information, or other confidential information belonging or relating to the Company and its affiliates and customers so long as such information has not otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. In addition, upon termination of employment for any reason, Executive will return to the Company or its affiliates all documents and other media containing information belonging or relating to the Company or its affiliates. Executive will promptly disclose in writing to the Company all inventions, discoveries, developments, improvements and innovations (collectively referred to as "Inventions") that Executive has conceived or made during the Term; provided, however, that in this context "Inventions" are limited to those which (i) relate in any manner to the existing or contemplated business or research activities of the Company and its affiliates; (ii) are suggested by or result from Executive's work at the Company; or (iii) result from the use of the time, materials or facilities of the Company and its affiliates. All Inventions will be the Company's property rather than Executive's. Should the Company request it, Executive agrees to sign any document that the Company may reasonably require to establish ownership in any Invention. -26- (c) Cooperation With Regard to Litigation. Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive's termination of employment for any reason), by making herself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate of the Company, as requested. The Company agrees to reimburse the Executive, on an after-tax basis, for all expenses actually incurred in connection with her provision of testimony or assistance. (d) Non-Disparagement. Executive shall not, at any time during the Term and thereafter, make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements that are required by applicable law, regulation or legal process. (e) Release of Employment Claims. Executive agrees, as a condition to receipt of any termination payments and benefits provided for in Sections 6 and 7 herein (other than Compensation Accrued at Termination), that she will execute a general release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than enforcement of this Agreement). (f) Forfeiture of Outstanding Options. The provisions of Sections 6 and 7 notwithstanding, if Executive willfully and materially fails to substantially comply with any restrictive covenant under this Section 10 or willfully and materially fails to substantially comply with any material obligation under this Agreement, all options to purchase Common Stock granted by the Company and then held by Executive or a transferee of Executive shall be immediately forfeited and thereupon such options shall be cancelled. Notwithstanding the foregoing, Executive shall not forfeit any option unless and until there shall have been delivered to her, within six months after the Board (i) had knowledge of conduct or an event allegedly constituting grounds for such forfeiture and (ii) had reason to believe that such conduct or event could be grounds for such forfeiture, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such forfeiture and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with her counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive has engaged and continues to engage in conduct set forth in this Section 10(f) which constitutes grounds for forfeiture of Executive's options; provided, however, that if any option is exercised after delivery of such notice and the Board subsequently makes the determination described in this sentence, Executive shall be required to pay to the Company an amount equal to the difference between the aggregate value of the shares acquired upon such exercise at the date of the Board determination and the aggregate exercise price paid by Executive. Any such -27- forfeiture shall apply to such options notwithstanding any term or provision of any option agreement. (g) Survival. The provisions of this Section 10 shall survive the termination of the Term and any termination or expiration of this Agreement. 11. Governing Law; Disputes; Arbitration. (a) Governing Law. This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to conflicts of law principles, except insofar as federal laws and regulations and the Delaware General Corporation Law may be applicable. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 10 is unenforceable because of the duration or geographic scope of such provision, it is the parties' intent that such court shall have the power to modify the duration or geographic scope of such provision, as the case may be, to the extent necessary to render the provision enforceable and, in its modified form, such provision shall be enforced. (b) Reimbursement of Expenses in Enforcing Rights. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to interpret this Agreement or enforce rights pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; provided, however, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by arbitrators in accordance with Section 11(c) or a court having jurisdiction over the matter. (c) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Westport CT by three arbitrators in accordance with the rules of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators' award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the District of Connecticut, (ii) any of the courts of the State of Connecticut, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to Section 11(b), the Company shall -28- bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 11. Notwithstanding any provision in this Section 11, Executive shall be entitled to seek specific performance of Executive's right to be paid during the pendency of any dispute or controversy arising under or in connection with this Agreement. (d) Interest on Unpaid Amounts. Any amount which has become payable pursuant to the terms of this Agreement or any decision by arbitrators or judgment by a court of law pursuant to this Section 11 but which has not been timely paid shall bear interest at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company's principal bank. 12. Miscellaneous. (a) Integration. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company, any parent or predecessor company, and the Company's subsidiaries during the Term, except for contracts relating to compensation under executive compensation and employee benefit plans of the Company and its subsidiaries. The foregoing notwithstanding, Executive shall not participate in the Company's Employee Protection Plan. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings or under any benefit or compensation plan of the Company. (b) Successors; Transferability. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise and, in the case of an acquisition of the Company in which the corporate existence of the Company continues, the ultimate parent company following such acquisition. Subject to the foregoing, the Company may transfer and assign this Agreement and the Company's rights and obligations hereunder. Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 12(c). (c) Beneficiaries. Executive shall be entitled to designate (and change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits provided hereunder following Executive's death. (d) Notices. Whenever under this Agreement it becomes necessary to give notice, such notice shall be in writing, signed by the party or parties giving or making the same, -29- and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: IMS HEALTH INCORPORATED 200 Nyala Farms Westport, CT 06880 Attention: General Counsel If to Executive: Victoria R. Fash 200 Nyala Farms Westport, CT 06880 If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective two days after deposit into the mails by delivery to the U.S. Post Office. (e) Reformation. The invalidity of any portion of this Agreement shall not deemed to render the remainder of this Agreement invalid. (f) Headings. The headings of this Agreement are for convenience of reference only and do not constitute a part hereof. (g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (h) No Obligation To Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive's damages upon any termination of employment; provided, however, that, to the extent Executive receives from a subsequent employer health or other insurance benefits that are substantially similar to the benefits referred to in Section 5(b) hereof, any such benefits to be provided by the Company to Executive following the Term shall be correspondingly reduced. (i) Offsets; Withholding. The amounts required to be paid by the Company to Executive pursuant to this Agreement shall not be subject to offset other than with respect to any amounts that are owed to the Company by Executive due to her receipt of funds as a result of her fraudulent activity. The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement, including under Sections 6 and 7, or otherwise by the Company, will be -30- subject to withholding to satisfy required withholding taxes and other required deductions. (j) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Executive, her heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. (k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Indemnification. All rights to indemnification by the Company now existing in favor of the Executive as provided in the Company's Certificate of Incorporation or By-laws or pursuant to other agreements in effect on or immediately prior to the Effective Date shall continue in full force and effect from the Effective Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that the Executive provide an undertaking to repay such advances if it is ultimately determined that the Executive is not entitled to indemnification; provided, however, that any determination required to be made with respect to whether the Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Certificate of Incorporation, By-laws, or other agreement shall be made by independent counsel mutually acceptable to the Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Certificate of Incorporation or By-laws or any agreement in any manner which adversely affects the rights of the Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Agreement shall not limit or reduce any rights of the Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive during the Term and for a period of six years thereafter on terms substantially no less favorable than those in effect on the Effective Date. IN WITNESS WHEREOF, Executive has hereunto set her hand and the Company has caused this instrument to be duly executed as of the day and year first above written. IMS HEALTH INCORPORATED By: ______________________________ Name: Title: EXECUTIVE ______________________________ Victoria R. Fash -31- EX-10.25 26 UNDERTAKING OF IMS HEALTH Exhibit 10.25 IMS Health Incorporated 200 Nyala Farms Westport, CT 06880 June 29, 1998 Nancy Henry, Esq. The Dun & Bradstreet Corporation One Diamond Hill Road Murray Hill, NJ 07974 Earl Doppelt, Esq. ACNielsen Corporation 177 Broad Street Stamford, CT 06901 Dear Ms. Henry and Mr. Doppelt: Reference is made to the Distribution Agreement (the "1996 Distribution Agreement"), dated as of October 28, 1996, among Cognizant Corporation ("Cognizant"), The Dun & Bradstreet Corporation ("D&B") and ACNielsen Corporation ("ACNielsen"). Cognizant has announced its intention to separate into two separate companies through a distribution (the "IMS HEALTH Distribution") to its stockholders of all of the shares of common stock of its subsidiary IMS Health Incorporated ("IMS HEALTH"). In Section 8.9(c) of the 1996 Distribution Agreement, Cognizant agreed not to make a distribution such as the IMS HEALTH Distribution unless it caused the distributed entity to undertake to both D&B and ACNielsen to be jointly and severally liable for all Cognizant Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in accordance with Section 8.9(c) of the 1996 Distribution Agreement and intending to be legally bound hereby, from and after the effective time of the IMS HEALTH Distribution, IMS HEALTH undertakes to each of D&B and ACNielsen to be jointly and severally liable with Cognizant for all Cognizant Liabilities under the 1996 Distribution Agreement. Very truly yours, IMS HEALTH INCORPORATED By: /s/ Kenneth S. Siegel Name: Kenneth S. Siegel Title: Senior Vice President, General Counsel and Secretary EX-21 27 LIST OF SUBSIDIARIES EXHBIT 21 IMS HEALTH INCORPORATED ACTIVE SUBSIDIARIES AS OF DECEMBER 31, 1998
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATION AS NOTED ---- --------------- ------------- CLARK-O'NEILL, INC. New Jersey COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Delaware 61.70 Cognizant Technology Solutions U.S. Corporation Delaware Cognizant Technology Solutions Canada, Inc. Ontario Cognizant Technology Solutions India Limited India Cognizant Technology Solutions UK Limited United Kingdom CSS Investment Corporation Delaware COORDINATED MANAGEMENT SYSTEMS, INC. Delaware DBHC, INC. Delaware LexHealth, Inc. Illinois ENTERPRISE ASSOCIATES, INC. Delaware ERISCO MANAGED CARE TECHNOLOGIES, INC. New York IMS ASIA (1989) PTE. LTD. Singapore IMS OF CANADA LTD. Nova Scotia IMS CHINAMETRIK LIMITED Hong Kong IMS CHINAMETRIK INCORPORATED Delaware IMS DEUTSCHLAND GMBH Germany IMS-MIDOC Medizinische Informations, Dokumentations und Consultinggesellschaft mbH Germany GIC Gesellschaft fur Informationstechnologie und Consulting mbH Germany Infor-med Gesellschaft fur Marketing mbH Germany IMS Holding Deutschland GmbH Germany IFNS Marktforschung GmbH Germany IMS GmbH Institut fur Medizinische Germany Statistik IMS Data GmbH Germany IMS Hellas Ltd. Greece GPI Krankenhausforschung Germany 60.00 Gesellschaft Fur Pharma- Informations-systeme m.b.H. MedVantage GmbH Integriertes Germany 60.00 Datenmanagement im Health Care-Markt IMS HEALTH INDIA HOLDING CORPORATION Delaware RX India Corporation Delaware IMS Health India Private Limited India
EXHBIT 21 IMS HEALTH INCORPORATED ACTIVE SUBSIDIARIES AS OF DECEMBER 31, 1998
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATION AS NOTED ---- --------------- ------------- IMS HEALTH STRATEGIC TECHNOLOGIES, INC. Delaware IMSH L.L.C. Delaware IMS Australia Pty. Ltd. Australia Amfac Pty. Limited Australia Chemdata Pty. Limited Australia Data Design Hisoft Pty. Limited Australia Medrecord Australia Pty. Limited Australia Permail Pty. Limited Australia Healthnet Pty. Limited Australia Walsh International Pty. Ltd. Australia Walsh New Zealand Ltd. New Zealand PMS Pty. Ltd. Australia IMS Health HQ Limited United Kingdom IMS H Nederland BV Netherlands Walsh European Holdings BV Netherlands Walsh Belgium BV Belgium Walsh Hispania S.A. Spain IMS HEALTH STRATEGIC TECHNOLOGIES S.A France Walsh Italy S.r.L. Italy Walsh Nederland BV Netherlands Walsh International Holdings GmbH Germany Walsh International Holdings GesmbH Austria Walsh Ltd. United Kingdom PMSI Database B.V. Netherlands IMS Services Nederland B.V. Netherlands Walsh Asia Pacific (Pte.) Ltd. Singapore 51.00 Walsh Pharmaceutical Marketing Services Ltd. Ontario IMS HEALTH TRADING CORPORATION Delaware IMS South Africa (Pty.) Ltd. South Africa Decision Surveys International(Pty.) Ltd. South Africa IPRA (Pty.) Ltd. South Africa PMSA (Pty.) Ltd. South Africa IMS HEALTH TRANSPORTATION SERVICES CORPORATION Delaware IMS HOLDINGS (U.K.) LIMITED United Kingdom Intercontinental Medical Statistics Ltd. United Kingdom Imsworld Publications Ltd. United Kingdom Medical Direct Mail Organisation Ltd. United Kingdom PMS International Limited United Kingdom Pharma Strategy Group Limited United Kingdom IMS INFORMATION MEDICAL STATISTICS (ISRAEL) LTD. Israel IMS INTERNATIONAL (SOUTH AFRICA) (PTY.) LTD. South Africa IMS South Africa (Pty.) Ltd. South Africa IMS ITALIA S.P.A. Italy IMS Holding (Belgium) S.A. Belgium IMS JAPAN K.K. Japan SSJ K.K. Japan IMS KOREA LTD. Korea
EXHBIT 21 IMS HEALTH INCORPORATED ACTIVE SUBSIDIARIES AS OF DECEMBER 31, 1998
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATION AS NOTED ---- --------------- ------------- IMS (NZ) LIMITED New Zealand IMS PHARMINFORM HOLDING AG Switzerland IMS Health Licensing Associates, L.P. Delaware 84.52 Spartan Leasing Corporation Delaware Pharmadat Marktforschungs-Gesellschaft m.b.H. Austria Pharmacall Statistik Ges. m.b.H. Austria Informations Medicales Et Statistiques S.A. Belgium Pharma Data Boliviana S.R.L. Bolivia IMS Servicos Ltda. Brazil Intercomunicaciones Y Servicio de Datos S.A. Colombia 98.96 IMS Medinform A.S. Czech Republic IMS Republica Dominicana, S.A. Dominican Republic Datandina Ecuador S.A. Ecuador IMS Egypt Limited Egypt Institute for Medical Statistics Oy Finland Asserta Centroamerica Medicion de Mercados, S.A. Guatemala IMS Medinform Hungaria Market Research Services Ltd. Hungary IMS Data (M) Sdn. Bhd. Malaysia Interdata S.A. de C.V. Mexico Informations Medicales & Statistiques S.A.R.L. Morocco I.M.S. (Nederland) B.V. Netherlands IMS Denmark ApS Denmark I.M.S. Finance (Nederland) B.V. Netherlands Institute for Medical Statistics Norge A/S Norway Pharma Data Paraguaya S.R.L. Paraguay IMS Lanka (Private) Limited Sri Lanka Datandina S.A. Peru Intercontinental Marketing Services Iberica, S.A. Spain Mercados Y Analisis, S.A. Spain Data Coordination AG Switzerland PMA Sociedad Anonima Argentina IMS AG Switzerland IMS Information Medical Statistics AG Switzerland IMS Poland Limited Sp. z.o.o. Poland IMS Institute for Medical Statistics Sweden AB Sweden RCI Research Consultants AG Switzerland Marketing Y Datos Limitada Chile Interstatistik AG Switzerland IMS Ges m.b.H. Austria Datec Industria e Comercio, Distribuidora Grafica Brazil e Mala Direta Ltda. IMS Tunisia Tunisia IMS Tibbi Istatistik Ticaret ve Musavirlik Ltd Sirketi Turkey Pharma Data Uruguaya S.A. Uruguay PMV De Venezuela, C.A. Venezuela IMS PHILIPPINES, INC. Philippines 99.96 I.M.S. PORTUGAL-CONSULTORES INTERNACIONAIS DE MARKETUNG FARMACEUTICO, LDA Portugal IMS SOFTWARE SERVICES, LTD. Delaware IMS TAIWAN COMPANY LTD. Taiwan 99.99
EXHBIT 21 IMS HEALTH INCORPORATED ACTIVE SUBSIDIARIES AS OF DECEMBER 31, 1998
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATION AS NOTED ---- --------------- ------------- IMSH MEDICAL S.A. France INFORMATIONS MEDICALES ET STATISTIQUES S.A. France INTERCONTINENTAL MEDICAL STATISTICS INTERNATIONAL, LTD. Delaware INTERCONTINENTAL MEDICAL STATISTICS IRELAND LIMITED Ireland 99.99 LOGIMED S.A.R.L. France MEDICARE AUDIT LIMITED United Kingdom 50.00 MEDI-DIFF S.A. France PMSI HISPANIA S.A. Spain PMSI JAPAN K.K. Japan PMSI MEDILOG GESUNDHEITSFORSCHUNG DEUTSCHLAND G.M.B.H. Germany PMSI UK LIMITED United Kingdom PMSI Medical Research Factors Limited United Kingdom Mediphase Limited United Kingdom Pharmacy Systems Limited United Kingdom Docpal Systems Limited United Kingdom Specialist Media Services Limited United Kingdom CMA Data Services Limited United Kingdom CMA Medical Data Limited United Kingdom 98.50 SOURCE INFORMATICS FRANCE S.A. France SOURCE INFORMATICS DEUTSCHLAND GMBH Germany SOURCE INFORMATICS EUROPE B.V. Netherlands SOURCE INFORMATICS ITALIA S.R.L. Italy SOURCE INFORMATICS LIMITED United Kingdom SOURCE INFORMATICS NEDERLAND B.V. Netherlands
EX-23 28 ACCOUNTANTS' CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of IMS Health Incorporated ("accounting successor to Cognizant Corporation") on Forms S-8 (File Nos. 333-69195, 333-67779 and 333-58361) of our reports dated February 16, 1999 on our audits of the consolidated financial statements and financial statement schedule of IMS Health Incorporate as of December 31, 1998 and 1997 and for each of the years in the three year period ended December 31, 1998, which reports are incorporated by reference or included in this Form 10-K. PricewaterhouseCoopers LLP New York, New York February 24, 1999 EX-99.1 29 CONSENT OF KPMG LLP The Board of Directors and Stockholder Gartner Group, Inc.: We consent to the incorporation by reference of our report dated October 30, 1998, except with respect to Note 18 which is as of November 12, 1998, and the eighth paragraph of Note 3 (Interpose acquisition), which is as of December 10, 1998, with respect to the consolidated balance sheets of Gartner Group, Inc., and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1998, which report appears in the September 30, 1998 Form 10-K Gartner Group, Inc., in the December 31, 1998 Form 10-K of IMS Health, Incorporated. KPMG LLP St. Petersburg, Florida February 26, 1999 EX-99.2 30 ANNUAL REPORT/GARTNER GROUP INDEX TO FINANCIAL STATEMENTS AND SCHEDULE GARTNER GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report ...............................................F-2 Consolidated Balance Sheets as of September 30, 1998 and 1997 ..............F-3 Consolidated Statements of Operations for Fiscal Years Ended September 30, 1998 and 1997 ........................F-4 Consolidated Statements of Changes in Stockholders' Equity for Fiscal Years Ended September 30, 1998, 1997 and 1996 ..................F-5 Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 1998, 1997 and 1996 ..................F-6 Notes to the Consolidated Financial Statements .............................F-7 Independent Auditors' Report on Schedule ...................................F-21 Schedule II--Valuation and Qualifying Accounts, Fiscal Years Ended September 30, 1998, 1997 and 1996 ......................F-22 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Gartner Group, Inc.: We have audited the accompanying consolidated balance sheets of Gartner Group, Inc. and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended September 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gartner Group, Inc. and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1998, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP St. Petersburg, Florida October 30, 1998, except as to note 18 which is as of November 12, 1998, and the eighth paragraph of note 3 (Interpose acquisition), which is as of December 10, 1998 F-2
GARTNER GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, ----------------------- 1998 1997 - - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents ................................................................... $157,744 $142,415 Marketable securities ....................................................................... 60,940 28,639 Fees receivable, net of allowances of $4,125 and $5,340 ..................................... 239,243 205,760 Deferred commissions ........................................................................ 28,287 23,019 Prepaid expenses and other current assets ................................................... 24,865 25,775 -------- -------- Total current assets ...................................................................... 511,079 425,608 Long-term marketable securities .............................................................. 43,610 17,691 Property, equipment and leasehold improvements, net .......................................... 50,801 44,102 Intangible assets, net ....................................................................... 155,786 132,195 Other assets ................................................................................. 71,595 25,716 -------- -------- Total assets .............................................................................. $832,871 $645,312 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities .................................................... $ 96,151 $ 85,411 Commissions payable ......................................................................... 20,422 16,979 Accrued bonuses payable ..................................................................... 10,249 15,722 Deferred revenues ........................................................................... 288,013 254,071 -------- -------- Total current liabilities ................................................................. 414,835 372,183 -------- -------- Long-term deferred revenues .................................................................. 3,098 3,259 Commitments and contingencies Stockholders' equity: Preferred Stock: $.01 par value, authorized 2,500,000 shares; none issued or outstanding ................... -- -- Common stock: $.0005 par value, authorized 200,000,000 shares of Class A Common Stock and 1,600,000 shares of Class B Common Stock; issued 113,719,037 shares of Class A Common (108,334,601 in 1997) and 0 shares of Class B Common Stock ......................... 57 54 Additional paid-in capital ................................................................... 262,776 179,017 Cumulative translation adjustment ............................................................ (2,155) (1,098) Accumulated earnings ......................................................................... 193,485 105,138 Treasury stock, at cost, 12,540,576 and 11,624,805 shares .................................... (39,225) (13,241) -------- -------- Total stockholders' equity ................................................................. 414,938 269,870 -------- -------- Total liabilities and stockholders' equity ................................................ $832,871 $645,312 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3
GARTNER GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR ENDED SEPTEMBER 30, 1998 1997 1996 - - ----------------------------------------------------------------------------------------------------------------------------------- Revenues: Advisory and measurement ............................................ $494,701 $396,219 $306,542 Learning ............................................................ 18,076 21,314 12,219 Other, principally consulting and conferences ....................... 129,180 93,706 75,911 -------- -------- -------- Total revenues .... ............................................... 641,957 511,239 394,672 Costs and expenses: Cost of services and product development ............................ 247,913 202,815 152,982 Selling, general and administrative ................................. 215,928 173,610 144,473 Acquisition-related charges ......................................... 4,494 -- 34,898 Nonrecurring charges ................................................ 2,819 -- -- Depreciation ........................................................ 17,909 11,758 9,064 Amortization of intangibles ......................................... 9,357 6,443 3,815 -------- -------- -------- Total costs and expenses .......................................... 498,420 394,626 345,232 -------- -------- -------- Operating income ..................................................... 143,537 116,613 49,440 Minority interest .................................................... -- -- 25 Loss on sale of GartnerLearning ...................................... (1,973) -- -- Interest income, net ................................................. 9,557 7,260 3,665 -------- -------- -------- Income before provision for income taxes ............................. 151,121 123,873 53,130 Provision for income taxes ........................................... 62,774 50,743 36,692 -------- -------- -------- Net income ........................................................... $ 88,347 $ 73,130 $ 16,438 ======== ======== ======== Net income per common share: Basic ............................................................... $ .88 $ .77 $ .18 ======== ======== ======== Diluted ............................................................. $ .84 $ .71 $ .17 ======== ======== ======== Weighted average shares outstanding: Basic ............................................................... 100,194 94,742 89,739 ======== ======== ======== Diluted ............................................................. 105,699 102,751 98,854 ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4
GARTNER GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) ADDITIONAL PREFERRED COMMON PAID-IN STOCK STOCK CAPITAL - - --------------------------------------------------------------------------------------------------- Balances at September 30, 1995 ............................ $ 0 $51 $ 73,278 Net income ................................................ -- -- -- Issuance of 3,036,403 shares of Class A Common Stock upon exercise of stock options ..................... -- 1 5,752 Issuance of 199,648 shares of Class A Common Stock from purchases by employees ........................ -- -- 2,407 Issuance from treasury stock of 117,470 shares of Class A Common Stock from purchases by employees ............................................. -- -- 2,140 Tax benefits of stock transactions with employees ......... -- -- 29,415 Net transfers to D&B by Dataquest ......................... -- -- -- Cumulative translation adjustment ......................... -- -- -- Acquisition of Dataquest, Inc. ............................ -- -- (15,000) Acquisition of J3 Learning, Inc. .......................... -- -- 36,719 --- --- -------- Balances at September 30, 1996 ............................ 0 52 134,711 Net income ................................................ -- -- -- Issuance of 4,036,862 shares of Class A Common Stock upon exercise of stock options ..................... -- 2 13,594 Issuance from treasury stock of 195,721 shares of Class A Common Stock from purchases by employees ............................................. -- -- 5,883 Conversion of 1,600,000 shares of Class B Common Stock into Class A Common Stock ................... -- -- -- Tax benefits of stock transactions with employees ......... -- -- 36,833 Net share settlement of 449,932 shares of Class A Common Stock on forward purchase agreement ............... -- -- -- Net cash settlement paid on forward purchase agreement ................................................ -- -- (12,004) Cumulative translation adjustment ......................... -- -- -- --- --- -------- Balances at September 30, 1997 ............................ 0 54 179,017 Net Income ................................................ -- -- -- Issuance of 5,370,690 shares of Class A Common Stock upon exercise of stock options ..................... -- 3 35,727 Issuance from treasury stock of 195,904 shares of Class A Common Stock from purchases by employees ............................................. -- -- 5,885 Tax benefits of stock transactions with employees ......... -- -- 47,273 Net share settlement of 365,949 shares of Class A Common Stock on forward purchase agreement ............... -- -- -- Net cash settlement paid on forward purchase agreement ................................................ -- -- (12,045) Acquisition of 655,800 shares of Class A Common Stock .................................................... -- -- -- 302,003 shares of Class A Common stock received in settlement of officer loans ........................... -- -- -- Issuance of 225,927 shares of Class A Common Stock related to acquisitions ............................ -- -- 6,919 Cumulative translation adjustment ......................... -- -- -- --- --- -------- Balances at September 30, 1998 ............................ $ 0 $57 $262,776 === === ======== CUMULATIVE TOTAL TRANSLATION ACCUMULATED TREASURY STOCKHOLDER'S ADJUSTMENT EARNINGS STOCK EQUITY ----------- ----------- -------- ------------- Balances at September 30, 1995 .................................... $(2,500) $ 17,257 $(13,835) $ 74,251 Net income ........................................................ -- 16,438 -- 16,438 Issuance of 3,036,403 shares of Class A Common Stock upon exercise of stock options ............................. -- -- -- 5,753 Issuance of 199,648 shares of Class A Common Stock from purchases by employees ................................ -- -- -- 2,407 Issuance from treasury stock of 117,470 shares of Class A Common Stock from purchases by employees ..................................................... -- -- 264 2,404 Tax benefits of stock transactions with employees ................. -- -- -- 29,415 Net transfers to D&B by Dataquest ................................. -- (1,687) -- (1,687) Cumulative translation adjustment ................................. (465) -- -- (465) Acquisition of Dataquest, Inc. .................................... -- -- -- (15,000) Acquisition of J3 Learning, Inc. .................................. -- -- -- 36,719 ------- -------- -------- -------- Balances at September 30, 1996 .................................... (2,965) 32,008 (13,571) 150,235 Net income ........................................................ -- 73,130 -- 73,130 Issuance of 4,036,862 shares of Class A Common Stock upon exercise of stock options ............................. -- -- -- 13,596 Issuance from treasury stock of 195,721 shares of Class A Common Stock from purchases by employees ..................................................... -- -- 330 6,213 Conversion of 1,600,000 shares of Class B Common Stock into Class A Common Stock ........................... -- -- -- -- Tax benefits of stock transactions with employees ................. -- -- -- 36,833 Net share settlement of 449,932 shares of Class A Common Stock on forward purchase agreement ....................... -- -- -- -- Net cash settlement paid on forward purchase agreement ........................................................ -- -- -- (12,004) Cumulative translation adjustment ................................. 1,867 -- -- 1,867 ------- -------- -------- -------- Balances at September 30, 1997 .................................... (1,098) 105,138 (13,241) 269,870 Net Income ........................................................ -- 88,347 -- 88,347 Issuance of 5,370,690 shares of Class A Common Stock upon exercise of stock options ............................. -- -- -- 35,730 Issuance from treasury stock of 195,904 shares of Class A Common Stock from purchases by employees ..................................................... -- -- 184 6,069 Tax benefits of stock transactions with employees ................. -- -- -- 47,273 Net share settlement of 365,949 shares of Class A Common Stock on forward purchase agreement ....................... -- -- -- -- Net cash settlement paid on forward purchase agreement ........................................................ -- -- -- (12,045) Acquisition of 655,800 shares of Class A Common Stock ............................................................ -- -- (16,187) (16,187) 302,003 shares of Class A Common stock received in settlement of officer loans ................................... -- -- (9,985) (9,985) Issuance of 225,927 shares of Class A Common Stock related to acquisitions .................................... -- -- 4 6,923 Cumulative translation adjustment ................................. (1,057) -- -- (1,057) ------- -------- -------- -------- Balances at September 30, 1998 .................................... $(2,155) $193,485 $(39,225) $414,938 ======= ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5
GARTNER GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30, ----------------------------------- 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Operating activities: Net income ......................................................................... $ 88,347 $ 73,130 $ 16,438 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization of intangibles ....................................... 27,266 18,201 12,879 Acquisition-related charges ........................................................ 4,494 -- 34,898 Provision for doubtful accounts .................................................... 4,051 3,421 3,295 Equity in losses of minority owned company ......................................... 512 202 (25) Deferred revenues .................................................................. 30,292 41,750 35,800 Deferred tax expense (benefit) ..................................................... 906 1,554 (1,394) Pre-acquisition tax benefit applied to reduce goodwill ............................. -- 275 517 Loss on sale of GartnerLearning .................................................... 1,973 -- -- Changes in assets and liabilities, net of effects of acquisitions: Increase in fees receivable ........................................................ (39,737) (60,378) (31,779) Increase in deferred commissions ................................................... (5,132) (4,262) (1,154) Increase in prepaid expenses and other current assets .............................. (10,645) (7,915) (1,995) (Increase) decrease in other assets ................................................ (5,100) (2,707) 116 Increase (decrease) in accounts payable and accrued liabilities .................... 2,311 23,058 (5,414) Increase in commissions payable .................................................... 3,566 1,785 2,160 (Decrease) increase in accrued bonuses payable ..................................... (5,309) (957) 1,347 --------- -------- -------- Cash provided by operating activities ............................................... 97,795 87,157 65,689 --------- -------- -------- Investing activities: Proceeds from sale of GartnerLearning .............................................. 5,000 -- -- Payment for businesses acquired (excluding cash acquired) .......................... (45,418) (33,306) (46,176) Investments in unconsolidated subsidiaries ......................................... (19,814) (9,089) (750) Addition of property, equipment and leasehold improvements ......................... (24,269) (21,513) (15,614) Marketable securities purchased, net ............................................... (58,220) (13,229) (4,268) Loans to officers .................................................................. (2,475) (7,163) -- --------- -------- -------- Cash used for investing activities .................................................. (145,196) (84,300) (66,808) --------- -------- -------- Financing activities: Principal payments on long-term debt and capital lease obligations ................. -- -- (6,725) Issuance of common stock and warrants .............................................. 35,730 13,596 5,753 Proceeds from Employee Stock Purchase Plan offering ................................ 5,885 5,883 4,547 Tax benefits of stock transactions with employees .................................. 47,273 36,833 29,415 Distributions of capital between Dataquest and former parent ....................... -- -- (1,687) Net cash settlement on forward purchase agreement .................................. (12,045) (12,004) -- (Purchase) sale of treasury stock .................................................. (13,931) 330 264 --------- -------- -------- Cash provided by financing activities ............................................... 62,912 44,638 31,567 --------- -------- -------- Net increase in cash and cash equivalents ........................................... 15,511 47,495 30,448 Effect of exchange rates on cash and cash equivalents ............................... (182) (1,835) (274) Cash and cash equivalents, beginning of period ...................................... 142,415 96,755 66,581 --------- -------- -------- Cash and cash equivalents, end of period ............................................ $ 157,744 $142,415 $ 96,755 ========= ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ........................................................................... -- -- $ 437 Income taxes ....................................................................... $ 7,721 $ 6,597 $ 8,463 Supplemental schedule of non-cash investing and financing activities: Stock received in settlement of officer loans and related interest ................. $ 9,985 -- -- Equity interest received in connection with sale of GartnerLearning ................ $ 42,500 -- -- Stock and options issued in connection with acquisitions ........................... $ 6,923 -- $ 36,719 Treasury stock transactions settled subsequent to year end ......................... $ 2,072 -- --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Gartner Group, Inc. ("GGI" or the "Company") and its majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Minority interest represents the minority stockholder's proportionate share of the equity in businesses owned less than 100%. The results of operations for acquisitions of companies accounted for using the purchase method have been included in the Consolidated Statements of Operations beginning on the effective date of acquisition. The Company's investments in 20% to 50% owned companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for on the equity method. Investments of less than 20% are carried at cost. REVENUE AND COMMISSION EXPENSE RECOGNITION. Revenue from advisory, measurement and learning ("AML") contracts is recognized as products and services are delivered, and as the Company's obligation to the client is completed over the contract, generally twelve months. The Company's policy is to record at the time of signing of an AML contract the fees receivable and related deferred revenues for the full amount of the contract billable on that date. All such contracts are non-cancelable and non-refundable, except for government contracts which have a 30-day cancellation clause. Government contracts have not produced material cancellations to date. All contracts are billable upon signing, absent special terms granted on a limited basis. The Company also records the related commission obligation upon the signing of the contract and amortizes the corresponding deferred commission expense over the contract period in which the related revenues are earned and amortized to income. Revenue from software licensing fees is recognized when the products have been delivered, collectibility is probable, and the related software license fees are fixed or determinable. Components of revenues attributable to future service are deferred and recognized as such services are performed. Other revenues consist principally of revenues recognized as earned from consulting services and conferences. CASH EQUIVALENTS AND MARKETABLE SECURITIES. Marketable securities that mature within three months of purchase are considered cash equivalents. Investments with maturities of more than three months are classified as marketable securities. The Company's marketable securities consist of marketable debt securities which are classified as held-to-maturity and valued at amortized cost, which approximates market. It is management's intent to hold all investments to maturity. INVENTORIES. Inventories, which have primarily consisted of finished goods related to the Company's training business, GartnerLearning, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Inventories consist primarily of material costs, and are included in the balance sheet caption "Prepaid expenses and other current assets". Inventories were $0 and $2.1 million at September 30, 1998 and 1997, respectively. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the asset or the remaining term of the related leases. SOFTWARE DEVELOPMENT COSTS. Under Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," capitalization of computer software development costs is to begin upon the establishment of technological feasibility, limited to the net realizable value of the software product, and cease when the software product is available for general release to clients. Until these products reach technological feasibility, all costs related to development efforts are charged to expense. Amortization of capitalized computer software development costs begins when the products are available for general release to customers. Software development costs, subsequent to technological feasibility and prior to general release, have not been material and have been expensed. INTANGIBLE ASSETS. Intangible assets include goodwill, non-compete agreements, tradenames and other intangibles. Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the tangible and identifiable intangible net assets acquired. Amortization is recorded using the straight-line method over periods ranging from seven to thirty years. These amounts have been and are subject to adjustment in accordance with the provisions of the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") (see Note 9. Income Taxes). Non-compete agreements are being amortized on a straight-line basis over the period of the agreement ranging from three to five years. Tradenames and other intangibles are being amortized on a straight-line basis over their estimated useful lives ranging from four to thirty years. At the end of each quarter, the Company reviews events and F-7 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) changes in circumstances to determine whether the recoverability of the carrying value of the intangible asset should be assessed. Should events or circumstances indicate that the carrying value may not be recoverable based on undiscounted future cash flows, an impairment loss measured by the difference between the discounted future cash flows (or another acceptable method for determining fair value) and the carrying value of the intangible would be recognized by the Company. FOREIGN CURRENCY TRANSLATION. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The resulting translation adjustments are recorded as a component of stockholders' equity. INCOME TAXES. Deferred tax assets and liabilities are recognized based on 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. Undistributed earnings of subsidiaries outside of the U.S. amounted to approximately $12.1 million and will either be indefinitely reinvested or remitted substantially free of tax. Accordingly, no material provision has been made for taxes that may be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability. The Company credits additional paid-in capital for realized tax benefits arising from stock transactions with employees. The tax benefit on a non-qualified stock option is equal to the tax effect of the difference between the market price of a share of the Company's common stock on the exercise and grant dates. To the extent the Company incurs employment taxes as a direct result of the exercise of such stock options, this cost is charged to additional paid-in capital. COMPUTATIONS OF INCOME PER SHARE OF COMMON STOCK. In February 1997, Statement of Financial Accounting Standards No. 128 "Earning per Share" ("FAS 128") was issued. The Statement sets forth guidance on the presentation of earnings per share ("EPS") and requires dual presentation of basic and diluted earnings per share on the face of the income statement. Basic EPS is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in earnings, including stock options and warrants. EPS amounts have been calculated and presented under the provisions of FAS 128. The following table sets forth the required disclosures of the reconciliation of the basic and diluted net earnings per share computations.
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------- 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Numerator: Net income ......................................................................... $ 88,347 $ 73,130 $16,438 ======== ======== ======= Denominator Denominator for basic earnings per share--weighted average number of common shares outstanding ......................................................... 100,194 94,742 89,739 Effect of dilutive securities: Weighted average number of common shares under warrant outstanding ................ 298 274 310 Weighted average number of option shares outstanding .............................. 5,207 7,735 8,805 -------- -------- ------- Dilutive potential common shares .................................................. 5,505 8,009 9,115 -------- -------- ------- Denominator for diluted earnings per share--adjusted weighted average number of common shares outstanding .............................................. 105,699 102,751 98,854 ======== ======== ======= Basic earnings per common share ..................................................... $ 0.88 $ 0.77 $ 0.18 ======== ======== ======= Diluted earnings per common share ................................................... $ 0.84 $ 0.71 $ 0.17 ======== ======== =======
For the fiscal year ended September 30, 1998, options to purchase 2.2 million shares of Class A Common Stock of the Company with exercise prices greater than the average fair market value of the Company's stock for the period of F-8 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $32.67 were not included in the calculation because the effect would have been antidilutive. All outstanding options for the fiscal years ended September 30, 1997 and 1996 were dilutive and were included in the calculation of diluted earnings per share. RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") and "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131") were issued. FAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders which is currently not required. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company is required to adopt both new disclosure standards in the first quarter of fiscal 1999. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires companies to capitalize certain costs of computer software developed or obtained for internal use and amortize such costs over the software's estimated useful life. The Company is required to adopt SOP 98-1 in fiscal 2000. The Company is currently evaluating the effect of adoption of SOP 98-1 on the Company's financial position and results of operations. In June 1998, Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities " ("FAS 133") was issued. FAS 133 establishes a new model for accounting for derivatives and hedging activities. The Statement requires all derivatives be recognized in the statement of financial position as either assets or liabilities and measured at fair value. The Company is required to adopt FAS 133 in fiscal 2000. The Company is currently evaluating the effect of adoption of FAS 133 on the Company's financial position and results of operations. FAIR VALUE OF FINANCIAL INSTRUMENTS. Most of Company's financial instruments, including cash, marketable securities, trade receivables and payables, and accruals are short-term in nature. Accordingly, the carrying amount of these financial instruments approximates its fair value (see Note 11 regarding forward purchase agreements). CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, marketable securities and fees receivable. The Company invests its cash primarily in a diversified portfolio of highly-rated municipal and government bonds. Concentrations of credit risk with respect to fees receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographic regions. USE OF 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 and disclosures, if any, of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates are used when accounting for such items as allowance for doubtful accounts, depreciation, amortization, income taxes and certain accrued liabilities. 2--RELATED PARTIES The Dun and Bradstreet Corporation ("D&B"), an investor in Information Partners Capital Fund, L.P. ("the Fund"), provided a portion of the financing in connection with the acquisition of the Company in October 1990. In April 1993, D&B acquired a majority of the outstanding voting securities of the Company in transactions among the Company, D&B and persons and entities associated with the Fund. On November 1, 1996, D&B transferred ownership of its Class A and Class B Common Stock of the Company to Cognizant Corporation ("Cognizant"), a spin-off of D&B and an independent public company. At the date of transfer, these shares represented 51% of the Company's outstanding common stock. During fiscal 1997, Cognizant's ownership of the Company's outstanding common stock fell below 50%. On June 30, 1998, Cognizant transferred its ownership in the Company to IMS Health Incorporated, ("IMS Health"), a spin-off of Cognizant and an independent public company. (See Note 18--Subsequent Event.) F-9 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On June 4, 1997, with the Board of Directors approval, the Company provided loans totaling $7.2 million to certain officers to facilitate the purchase of common stock arising out of the exercise of stock options. The loans proceeds were not used to fund the option exercise price of the common stock acquired. The loans were full recourse obligations to the officers and were secured by shares of the Company's stock. The loans bore interest at an annual rate of 6.1%. The principal amount of the loans totaling $7.2 million are included in other assets on the September 30, 1997 Consolidated Balance Sheets. On December 18, 1997, with the Board of Directors approval, the Company provided additional loans for the same purpose to certain officers totaling $2.5 million. The loans bore interest at an annual rate of 5.6%. On July 23, 1998, with Board of Directors' approval, the Company received 302,003 shares of Class A Common Stock in settlement of the loan balance and accrued interest due. 3--ACQUISITIONS On December 1, 1995, the Company acquired all the outstanding shares of Dataquest, a wholly-owned subsidiary of D&B, for consideration of $15.0 million in cash, 3,000,000 shares of Class A Common Stock with an approximate fair market value of $60.0 million, and a five year warrant to purchase 600,000 shares of Class A Common Stock at $16.42 per share. Dataquest is a provider of information technology ("IT") market research and consulting for the IT vendor manufacturer and financial communities which complements the GGI end user focus. The Company has accounted for the acquisition as a transfer and exchange between companies under common control and the 3,000,000 shares have been assumed to be outstanding for all periods presented. Accordingly, the accounts of Dataquest have been combined with the Company's at historical cost in a manner similar to a pooling of interests. Transaction costs of $1.7 million relating to the acquisition have been included in acquisition-related charges in the Consolidated Statement of Operations for fiscal 1996. Combined and separate results of the Company and Dataquest during the periods preceding the merger were as follows (in thousands):
- - ----------------------------------------------------------------------------------------- THREE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) GGI DATAQUEST COMBINED - - ----------------------------------------------------------------------------------------- Total revenues ................................... $76,005 $20,469 $96,474 Net income ....................................... $10,570 $ 923 $11,493
There were no intercompany transactions between the two companies for the period. On July 31, 1996, the Company acquired all of the outstanding shares of J3 Learning Corporation ("J3") for consideration of approximately $8.0 million in cash, 1,065,290 shares of Class A Common Stock which had an approximate fair market value of $35.4 million and options to purchase Class A Common Stock which had a value of $1.3 million. J3 publishes, markets and distributes software educational materials for corporate and individual training (collectively known as "technology based training"). The acquisition was accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess purchase price over the fair value of amounts assigned to the net tangible assets acquired was $51.1 million. Of such amount, $32.2 million was expensed at acquisition as purchased in-process research and development costs and is included in acquisition-related charges in the Consolidated Statement of Operations for fiscal 1996, and substantially all of the remaining excess purchase price was allocated to goodwill and tradename. The following unaudited pro forma summary presents the consolidated results of operations of the Company for the fiscal year ended September 30, 1996 as if the acquisition of J3 had occurred at the beginning of the year and does not purport to be indicative of what would have occurred had the acquisition been made as of that date (in thousands, except per share data): Total revenue ................................ $401,329 Net income ................................... $ 11,749 Net income per diluted common share ........ $ 0.12 F-10 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On September 1, 1998, the Company sold its technology based training business (see Note 4--Sale of GartnerLearning). On August 1, 1997, the Company acquired all of the outstanding shares of Datapro Information Services ("Datapro"), a unit of McGraw-Hill Companies for consideration of approximately $25.0 million in cash. Datapro is a provider of information on product specifications and pricing, product comparisons, technology reports, market overviews, case studies and user ratings surveys. Datapro's services and products provide feature and side-by-side comparisons of computer hardware, software and communications products. The acquisition was accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess purchase price over the fair value of amounts assigned to the net tangible assets acquired was $33.5 million and has been recorded as goodwill which is being amortized over 30 years. In addition, $2.5 million of the purchase price was allocated to a non-compete agreement which is being amortized over 4 years. If the acquisition of Datapro had occurred at the beginning of fiscal year 1996, consolidated total revenues on a pro forma basis would have been $536.6 million and $431.4 million for fiscal years 1997 and 1996, respectively. This revenue does not purport to be indicative of what would have occurred had the acquisition been made as of that date or of total revenues which may occur in the future. The pro forma effect on the Company's net income and net income per common share for fiscal 1997 and 1996 is not material. On October 22, 1997, the Company acquired a 32% membership interest in Jupiter Communications, LLC ("Jupiter") for $8.0 million in cash. On September 16, 1998, the Company increased its membership interest in Jupiter to 37% for an additional $1.3 million in cash. Jupiter is a provider of analyst-based research and strategic planning services to the consumer and Internet and interactive industries. This investment is accounted for under the equity method of accounting. The excess of the cost of the investment over the underlying proportionate share of net assets (goodwill) in Jupiter totaling $9.3 million is being amortized over 30 years and is included in other assets in the Consolidated Balance Sheets. On January 30, 1998, the Company acquired all the assets and assumed the liabilities of Interpose, Inc. ("Interpose"), for $7.5 million in cash and 13,746 shares of Class A Common Stock of the Company which had an approximate fair market value of $0.5 million. Interpose is a provider of total cost of ownership (TCO) measurement and analysis tools and training. The acquisition was accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and liabilities assumed, based upon estimated fair values at the date of acquisition. The excess purchase price over the fair value of amounts assigned to the net tangible assets acquired was $7.5 million. Of such amount, $6.3 million was expensed during the second quarter of 1998 as purchased in-process research and development costs and is presented as the acquisition-related charge in the Consolidated Statements of Operations. On December 10, 1998, the Company revised the amount of expensed purchased in-process research and development costs from $6.3 million to $4.5 million. The change was in response to recently developed guidance from the Securities and Exchange Commission. Of the remaining excess purchase price, $2.3 million was allocated to goodwill which is being amortized over 12 years and $0.9 million was allocated to a non-compete agreement which is being amortized over 5 years. On May 18, 1998, the Company acquired all the assets and assumed the liabilities of The Research Board, Inc., for $6.4 million in cash and 183,945 shares of Class A Common Stock of the Company which had an approximate fair market value of $5.7 million. The Research Board compiles and provides information technology ("IT") research on suppliers and new technologies, validated management practices and IT best practices to its membership, which consist principally of senior IT executives. The acquisition was accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and the liabilities assumed, based upon estimated fair values at the date of acquisition. The excess purchase price over the fair value of amounts assigned to the net tangible assets acquired was $13.5 million, of which $12.9 million has been recorded as goodwill, which is being amortized over 30 years. In addition, $0.6 million of the purchase price was allocated to a non-compete agreement which is being amortized over 5 years. On September 4, 1998, the Company acquired all of the outstanding shares of Vision Events International, Inc., for $20.5 million in cash. Vision Events International, Inc. produces premiere channel events that serve to bring information technology vendors, value-added resellers, and system integrators together with vendors and distributors selling through these channels. The acquisition was accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and the liabilities assumed, based upon estimated fair values at the date of acquisition. The excess purchase price over the fair value of amounts assigned to the net tangible assets acquired was $24.0 million of which $23.6 million has been recorded as goodwill which is being amortized over 30 years. In addition, $0.4 million of the purchase price was allocated to a non-compete agreement which is being amortized over 3 years. During fiscal 1998, the Company completed additional acquisitions for consideration of $12.8 million in cash and 28,236 shares of Class A Common Stock of the Company which had an approximate fair market value of $0.7 million. F-11 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During fiscal 1997, the Company completed additional acquisitions for $8.1 million in cash. These acquisitions have been accounted for under the purchase method and substantially all of the purchase price has been assigned to goodwill. The pro forma results of operations for fiscal years 1998 and 1997, assuming the fiscal 1998 acquisitions were made at the beginning of each year would not differ significantly from the historical results. On October 7, 1998, the Company acquired all the assets and assumed the liabilities of Griggs-Anderson, Inc., for $10.9 million in cash and 306,475 shares of Class A Common Stock of the Company which had an approximate fair market value of $7.3 million. Griggs-Anderson, Inc. provides custom market research to vendors in the technology marketplace, research and surveys for the evaluation of Web sites for effectiveness of content, technical performance, ease of navigation, impact of graphics, and demographic profiles of users. The acquisition was accounted for by the purchase method. 4--SALE OF GARTNERLEARNING On September 1, 1998, the Company sold GartnerLearning, a division of the Company that provides technology based training and services for information technology professionals to Netg Inc. ("Netg"), a subsidiary of Harcourt Brace & Company, for $5.0 million in cash and an 8% equity interest in Netg. In addition, the Company received a put option which allows the Company to sell its 8% equity interest to an affiliate of Harcourt Brace & Company for $48.0 million in cash. This put option may be exercised for two years beginning on September 1, 2002, if certain conditions are met. The Company's 8% interest in Netg has an independently appraised fair value of $42.5 million and is included in other assets in the Consolidated Balance Sheets. Including transaction costs related to the sale of $3.8 million, the pre-tax loss on sale of GartnerLearning was approximately $2.0 million (also see Note 10--Income Taxes for the impact of the sale on the income tax provision). 5--NONRECURRING CHARGES During fiscal 1998, the Company recorded nonrecurring charges, primarily consisting of relocation and severance costs, totaling approximately $2.8 million related to the Company's relocation of certain accounting and order processing operations from Stamford, Connecticut to a new financial services center in Ft. Myers, Florida. These expenses are recorded as nonrecurring charges in the Consolidated Statements of Operations. 6--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements, carried at cost, less accumulated depreciation and amortization consist of the following (in thousands):
SEPTEMBER 30, USEFUL ------------------ LIFE (YEARS) 1998 1997 - - ------------------------------------------------------------------------------------------------------------- Furniture and equipment ............................................. 3-8 $ 27,278 $ 25,568 Computer equipment .................................................. 2-3 60,809 56,979 Leasehold improvements .............................................. 2-15 21,916 19,257 -------- -------- 110,003 101,804 Less--accumulated depreciation and amortization ..................... (59,202) (57,702) -------- -------- $ 50,801 $ 44,102 ======== ========
7--INTANGIBLE ASSETS, NET Intangible assets, net, carried at cost, less accumulated amortization consist of the following (in thousands): SEPTEMBER 30, AMORTIZATION --------------------- PERIOD (YEARS) 1998 1997 - - ---------------------------------------------------------------------------- Goodwill ...................... 7-30 $168,936 $138,537 Non-compete agreements ........ 3-5 5,489 3,462 Tradenames .................... 12 778 6,978 Title library ................. 4 -- 1,900 -------- -------- 175,203 150,877 Less--accumulated amortization (19,417) (18,682) -------- -------- $155,786 $132,195 ======== ======== F-12 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8--COMMITMENTS AND CONTINGENCIES The Company leases various facilities, furniture and computer equipment under lease arrangements expiring between fiscal 1999 and 2022. Future minimum annual payments under operating lease agreements as of September 30, 1998 are as follows (in thousands): FISCAL YEAR -------------------------------------------------- 1999 ................................. $ 16,259 2000 ................................. 13,973 2001 ................................. 11,140 2002 ................................. 8,546 2003 ................................. 7,225 Thereafter ........................... 52,840 -------- Total minimum lease payments ......... $109,983 ======== Rental expense for operating leases, net of sublease income, was $21.3 $16.8, and $11.0 million for the fiscal years ended September 30, 1998, 1997 and 1996, respectively. The Company has commitments with two facilities management companies for printing, copying, mail room and other related services. The minimum annual obligations under these service agreements are $4.8 million for fiscal 1998, 1999, and 2000, $4.2 million for fiscal 2001 and 2002, and $1.1 million for fiscal year 2003. The Company is involved in legal proceedings and litigation arising in the ordinary course of business. The Company believes the outcome of all current proceedings, claims and litigation will not have a material effect on the Company's financial position or results of operations when resolved in a future period. 9--LONG-TERM OBLIGATIONS The Company has available two unsecured credit lines with The Bank of New York and Chase Manhattan Bank for $5.0 million and $25.0 million, respectively. Borrowings under The Bank of New York line accrue interest charges at LIBOR plus 2%. Alternatively, the rate shall be the higher of the prime commercial lending rate of the bank or the Federal Funds Rate plus 1/2 of 1% in the event LIBOR is unavailable. The Chase Manhattan Bank line carries an interest rate equal to either the prime rate of Chase Manhattan Bank, LIBOR plus .25% for periods of 30, 60 or 90 days as the Company may choose, or a "fixed option" rate. There are no commitment fees associated with these lines. These lines may be canceled by the banks at any time without prior notice or penalty. No borrowings were outstanding under either line at September 30, 1998 and 1997. Letters of credit are issued by the Company in the ordinary course of business. The Company had outstanding letters of credit with Chase Manhattan Bank of $4.1 million and $2.0 million with The Bank of New York as of September 30, 1998. 10--INCOME TAXES Following is a summary of the components of income before provision for income taxes (in thousands): FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------------- 1998 1997 1996 - - -------------------------------------------------------------- U.S. ................. $113,589 $ 93,758 $40,650 Non-U.S. ............. 37,532 30,115 12,480 -------- -------- ------- Consolidated ......... $151,121 $123,873 $53,130 ======== ======== ======= F-13 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The provision for income on the above income consists of the following components (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30, ------------------------------------- 1998 1997 1996 - - -------------------------------------------------------------------------------------------------------- Current tax expense: U.S. federal .................................................. $ 2,081 $ 797 $ 1,775 State and local ............................................... 2,257 1,872 2,178 Foreign ....................................................... 8,927 8,208 3,164 ------- ------- ------- Total current .................................................. 13,265 10,877 7,117 Deferred tax expense (benefit): ................................ U.S. federal .................................................. 921 434 58 State and local ............................................... 552 912 (1,347) Foreign ....................................................... (567) 208 (105) ------- ------- ------- Total deferred ................................................. 906 1,554 (1,394) ------- ------- ------- Total current and deferred ..................................... 14,171 12,431 5,723 Benefit of stock transactions with employees allocated to additional paid-in capital ................................. 48,603 38,037 30,452 Benefit of purchased tax benefits credited to goodwill ......... -- 275 517 ------- ------- ------- Total provision for income taxes ............................... $62,774 $50,743 $36,692 ======= ======= =======
Current and long-term deferred tax assets and liabilities are comprised of the following (in thousands):
SEPTEMBER 30, ---------------------- 1998 1997 - - ------------------------------------------------------------------------ Depreciation ............................... $ 666 $ 895 Expense accruals for book purposes ......... 4,285 6,992 Loss and credit carryforwards .............. 11,456 9,380 Intangible assets .......................... 1,814 -- Other ...................................... 1,104 1,706 ------- ------- Gross deferred tax asset ................... 19,325 18,973 Intangible assets .......................... (2,299) (3,383) Equity interest ............................ (2,477) -- Other ...................................... (89) (858) ------- ------- Gross deferred tax liability ............... (4,865) (4,241) Valuation allowance ........................ (6,444) (4,962) ------- ------- Net deferred tax asset ..................... $ 8,016 $ 9,770 ======= =======
Current and long-term net deferred tax assets are $1.8 million and $6.2 million as of September 30, 1998 and $5.1 million and $4.7 million as of September 30, 1997, respectively, and are included in Prepaid expenses and other current assets and other assets, respectively, in the Consolidated Balance Sheets. The valuation allowance relates to domestic and foreign tax loss carryforwards that more likely than not will expire unutilized. The net increase in the valuation allowance of approximately $1.5 million in the current year results primarily from the increase in state tax carryforwards of approximately $2.0 million and the net utilization of foreign tax loss carryforwards of approximately $0.5 million. The net decrease in the valuation allowance of approximately $1.6 million in fiscal 1997 was due primarily from the utilization of foreign tax loss carryforwards. The tax benefit from such tax loss carryforwards was $1.2, $1.7, and $1.0 million for fiscal years 1998, 1997, and 1996, respectively. Approximately $3.4 million of the valuation allowance would reduce paid-in-capital upon subsequent recognition of any related tax benefits. F-14 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The differences between the U.S. federal statutory income tax rate and the Company's effective rate are:
SEPTEMBER 30, ------------------------------------ 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------- Statutory tax rate ..................................................................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit ............................................. 4.3 4.5 5.3 Foreign income taxed at a different rate ............................................... 0.7 0.6 1.5 Non-deductible goodwill and direct acquisition costs ................................... 3.5 0.9 0.9 Non-taxable interest income ............................................................ (1.3) (0.9) (1.3) Exempt foreign trading gross receipts .................................................. (1.4) (1.0) -- Other items ............................................................................ 0.7 1.9 1.6 ---- ---- ---- Effective rate without write-off of purchased in-process research and development costs 41.5 41.0 43.0 Non-deductible write-off of purchased in-process research and development costs ........ -- -- 26.1 ---- ---- ---- Effective tax rate ..................................................................... 41.5% 41.0% 69.1% ==== ==== ====
The sale of GartnerLearning resulted in an additional tax provision of $4.2 million primarily due to the reversal of non-deductible goodwill. The effective tax rate, less the impact of the sale of GartnerLearning, was 39%. As of September 30, 1998, the Company had U.S. federal tax loss carryforwards of $10.0 million which will expire in ten to twelve years and state and local tax loss carryforwards of $57.6 million, the majority of which will expire in three to five years. The U.S. federal tax loss carryforwards are subject to limitations on their use under the Internal Revenue Code. In addition, the Company has foreign tax loss carryforwards of $4.6 million, of which $0.5 million will expire within three to five years, and $4.1 million can be carried forward indefinitely. 11--CAPITAL STOCK AND STOCK REPURCHASE PROGRAM The Company effected a two-for-one stock split of its Class A and Class B Common Stock by means of a stock dividend in March 1996, June 1995 and August 1994. All earnings per share and share data presented herein have been restated retroactively to reflect such splits. As of September 30, 1997, the Company had recorded the conversion of all Class B Common Stock into Class A Common Stock on a one for one basis, pursuant to a provision of the Articles of Incorporation which requires conversion when the Class B Common Stockholder's voting equity falls below a certain ownership percentage after considering all exercisable options and warrants outstanding. Class A Common Stock stockholders are entitled to one vote per share on all matters to be voted by stockholders, other than the election of directors. Prior to the conversion of the Class B Common Stock, Class B Common stockholders had certain preferential voting rights with respect to the election of members of the Board of Directors. Beginning in fiscal 1997, the Company has entered into a series of forward purchase agreements on its Class A Common Stock. These agreements are settled quarterly at the Company's option on a net basis in either shares of its own Class A Common Stock or cash. To the extent that the market price of the Company's Class A Common Stock on a settlement date is higher (lower) than the forward purchase price, the net differential is received (paid) by the Company. During fiscal 1997, two settlements resulted in the Company receiving 449,932 shares of Class A Common Stock (recorded in Treasury stock at no cost) and paying approximately $12.0 million in cash (recorded as a reduction of additional paid-in capital). During fiscal 1998, four settlements resulted in the Company receiving 365,949 shares of Class A Common Stock and paying approximately $12.0 million in cash. As of September 30, 1998, a forward purchase agreement in place covered approximately $27.2 million or 984,119 shares of Class A Common Stock having forward purchase prices established at $27.63 per share. If the market priced portion of this agreement was settled based on the September 30, 1998 market price of Class A Common Stock ($21.94 per share), the Company would settle under the terms of the forward purchase agreement with a payment of either $5.6 million in cash or 255,142 shares of Class A Common Stock. On August 24, 1998, the Company's Board of Directors approved the repurchase of up to 2,500,000 shares of Class A Common Stock. The stock repurchase program is intended to offset the dilutive effect of the Company's stock-based employee compensation plans. As of September 30, 1998, the Company has repurchased 655,800 shares of Class A Common Stock at a cost of approximately $16.2 million. F-15 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12--EMPLOYEE STOCK PURCHASE PLANS In January 1993, the Company adopted an employee stock purchase plan (the "1993 Employee Stock Purchase Plan"), and reserved an aggregate of 4,000,000 shares of Class A Common Stock for issuance under this plan. The plan permits eligible employees to purchase Class A Common Stock through payroll deductions, which may not exceed 10% of an employee's compensation (or $21,250 in any calendar year), at a price equal to 85% of Class A Common Stock price as reported by NYSE at the beginning or end of each offering period, whichever is lower. During fiscal year 1998, 195,904 shares were issued from treasury stock at an average purchase price of $30.98 per share in conjunction with this plan. At September 30, 1998, 2,078,933 shares were available for offering under the plan. 13--STOCK OPTIONS AND WARRANTS Under the terms of the 1991 Stock Option Plan, (the "Option Plan"), the Board of Directors may grant non-qualified and incentive options, entitling employees to purchase shares of the Company's common stock at the fair market value on the date of grant. The Board can determine the date on which options vest and become exercisable. A total of 32,800,000 and 22,800,000 shares of Class A Common Stock were reserved for issuance under the Option Plan as of September 30, 1998 and 1997, respectively. In April 1998, the Board of Directors adopted an amendment, subject to final shareholder approval, to the Option Plan to increase the number of shares reserved for issuance thereunder by 10,000,000 shares. At September 30, 1998 and 1997, 9,001,508 and 2,955,416 options were available for grant, respectively. In January 1993, the Company adopted a stock option plan for directors (the "1993 Director Option Plan") and reserved an aggregate of 1,200,000 shares of Class A Common Stock for issuance under this plan. The plan provided for the automatic grant of 120,000 options to purchase shares of Class A Common Stock to each non-employee director upon first becoming a director on or after February 1, 1993, and the automatic grant of an option to purchase an additional 24,000 options to purchase shares of Class A Common Stock annually based on continuous service as a director. In January 1996, the plan was amended to provide for the automatic grant of 15,000 options to purchase shares of Class A Common Stock to each non-employee director upon first becoming a director and the automatic grant of an option to purchase an additional 3,000 options to purchase shares of Class A Common Stock annually based on continuous service as a director. The exercise price of each option granted under the plan is equal to the fair value of the Class A Common Stock at the date of grant. Options granted are subject to cumulative yearly vesting over a three year period after the date of grant and the number of shares to be granted under the amended terms will not be adjusted for any future stock splits. At September 30, 1998 and 1997, 603,000 and 621,000 options were available for grant, respectively. In October 1994, the Board of Directors and stockholders of the Company approved the adoption of a Long-Term Stock Option Plan ("the 1994 Long-Term Plan") and the reservation of an aggregate of 6,560,000 shares of Class A Common Stock for issuance thereunder. The purpose of the plan is to provide to senior personnel long-term equity participation in the Company as an incentive to promote the long-term success of the Company. The exercise price of each option granted under the plan is equal to the fair value of the Class A Common Stock at the date of grant. All options granted under the plan vest and become fully exercisable five years following the date of grant, based on continued employment, and have a term of ten years from the date of grant assuming continued employment. Vesting and exercisability accelerates upon achievement of certain financial performance targets determined by the Board of Directors. If all financial performance targets are met timely in accordance with parameters as set by the Board in its sole discretion, 25% of the shares granted become exercisable on the first anniversary date following the date of grant and, if subsequent financial performance targets are met for both the first and second fiscal years following the date of grant, a second 25% become exercisable three years following the date of grant. If financial performance targets are met consecutively for all three fiscal years following the date of grant, a third 25% become exercisable on the fourth anniversary date following the date of grant and the final 25% become exercisable on the fifth anniversary following the date of grant. Failure to achieve the specified target or targets for any one fiscal year or consecutive fiscal years can be remedied by achievement of the cumulative target in a succeeding fiscal year or years. Based on fiscal 1996, 1997 and 1998 performance, 1,048,280 shares were exercisable on September 30, 1998. An additional 1,475,000 options became exercisable on October 10, 1998. At September 30, 1998 and 1997, 287,500 and 810,000 shares were available for grant, respectively. In October 1996, the Company adopted the 1996 Long Term Stock Option Plan ("the 1996 long-term Plan"). Under the terms of the plan, the Board of Directors may grant non-qualified and incentive options, entitling employees to purchase shares of the Company's common stock at the fair market value at the date of option grant. A total of 1,800,000 shares of Class A Common Stock was reserved for issuance under this plan. All options granted under the plan vest and become fully exercisable six years following the date of grant, based on continued employment, and have a term of ten years from the date of grant assuming continued employment. Vesting and exercisability accelerates upon achieve- F-16 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ment of certain financial performance targets determined by the Board of Directors. If all financial performance targets are met timely in accordance with parameters as set by the Board in its sole discretion, 25% of the shares granted become exercisable on the third anniversary date following the date of grant and, if subsequent financial performance targets are met for both the first and second years following the date of grant, a second 25% become exercisable four years following the date of grant. If financial performance targets are met consecutively for all three years following the date of grant, a third 25% become exercisable on the fifth anniversary date following the date of grant and the final 25% become exercisable on the sixth anniversary following the date of grant. Based on fiscal 1997 and 1998 performance, 815,250 options will be exercisable on February 24, 2000. At September 30, 1998 and 1997, 169,500 and 25,000 options to purchase common stock were available for grant. On April 4, 1997, the Company repriced certain stock options granted from October 1995 through January 1997 under the 1991 Option Plan and the 1994 Long-Term Plan. In total, options to purchase 1,647,000 shares of common stock were repriced at an exercise price of $23.875 per share. The original vesting schedules and expiration dates associated with these stock options were also amended to coincide with the stock option repricing date. These amounts have been included as granted and canceled options during fiscal 1997 in the summary activity table shown below. A summary of stock option activity under the plans and agreement through September 30, 1998 follows:
WEIGHTED AVERAGE SHARES UNDER EXERCISE OPTION PRICE - - ------------------------------------------------------------------------- Outstanding at September 30, 1995 ......... 19,126,154 $ 4.439 Granted .................................. 3,665,506 $21.943 Exercised ................................ (3,036,403) $ 1.994 Canceled ................................. (968,660) $ 9.809 ---------- ------- Outstanding at September 30, 1996 ......... 18,786,597 $ 6.922 Granted .................................. 5,694,814 $23.023 Exercised ................................ (4,036,862) $ 3.385 Canceled ................................. (2,623,199) $26.416 ---------- ------- Outstanding at September 30, 1997 ......... 17,821,350 $11.462 Granted .................................. 5,060,949 $33.329 Exercised ................................ (5,370,690) $ 6.716 Canceled ................................. (1,380,577) $20.539 ---------- ------- Outstanding at September 30, 1998 ......... 16,131,032 $19.086 ========== =======
Options for the purchase of 4,317,310 and 3,492,390 shares were exercisable at September 30, 1998 and 1997, respectively. The following table summarizes information about stock options outstanding at September 30, 1998:
WEIGHTED AVERAGE WEIGHTED REMAINING RANGE OF AVERAGE CONTRACTUAL EXERCISE PRICES NUMBER OUTSTANDING NUMBER EXERCISABLE EXERCISE PRICE LIFE (YEARS) - - -------------------------------------------------------------------------------------------------- $ 0.63 - 0.94 401,673 401,673 $ 0.82 1.0 $ 1.13 - 4.83 1,144,180 625,140 $ 3.07 2.1 $ 5.84 - 9.50 4,500,270 1,563,750 $ 7.20 5.9 $10.28 - 13.88 361,798 361,798 $12.07 5.5 $16.63 - 21.09 3,957,508 950,173 $20.02 8.0 $25.15 - 38.44 5,765,603 414,776 $32.49 9.2 ---------- --------- 16,131,032 4,317,310 ========== =========
F-17 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A warrant expiring December 1, 2000 to purchase 600,000 shares of Class A Common Stock at $16.42 per share is held by IMS Health. The warrant was issued in connection with the acquisition of Dataquest. The Company has chosen to continue applying APB No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the fixed stock option plans. Pursuant to the requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", (FAS 123), the following are the pro forma net income and net income per share for the years ended September 30, 1998, 1997 and 1996 had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant date for grants under those plans:
SEPTEMBER 30, ------------------------------------------ 1998 1997 1996 - - -------------------------------------------------------------------------------------------------- Net Income As reported $88,347 $73,130 $16,438 Pro forma $58,480 $62,497 $10,616 Net Income Per Diluted Common Share As reported $ 0.84 $ 0.71 $ 0.17 Pro forma $ 0.55 $ 0.61 $ 0.11 - - --------------------------------------------------------------------------------------------------
The pro forma disclosures shown above reflect options granted after fiscal 1995 and are not likely to be representative of the effects on net income and net income per common share in future years. The fair value of the Company's stock plans used to compute pro forma net income and diluted earnings per share disclosures is the estimated fair value at grant date using the Black-Scholes option pricing model. The following weighted-average assumptions were for stock options granted or modified:
1998 1997 1996 - - -------------------------------------------------------------------------- Expected life (in years) 2.4 - 6.4 2.4 - 6.4 2.4 - 6.4 Expected volatility .40 .40 .38 Risk free interest rate 4.22% - 4.39% 6.00% - 6.09% 6.00% Expected dividend yield 0.00% 0.00% 0.00%
The weighted average fair values of the Company's stock options granted in fiscal 1998, 1997 and 1996 are $12.00, $12.32 and $5.56, respectively. 14--EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS The Company has a savings and investment plan covering substantially all domestic employees. The Company contributes amounts to this plan based upon the level of the employee contributions. In addition, the Company also contributes fixed and discretionary amounts based on employee participation and attainment of operating margins specified by the Board. Amounts expensed in connection with the plan totaled $5.4, $4.6, and $3.2 million for the years ended September 30, 1998, 1997 and 1996, respectively. 15--GEOGRAPHIC DATA The Company's consolidated revenues are generated primarily through direct sales to clients by domestic and international sales forces, a network of independent international distributors, and to a lesser extent by international joint venture partners. The Company defines "Europe Revenues" as revenues attributable to clients located in England and the European region and "Other International Revenues" as revenues attributable to all other areas located outside of the United States. European identifiable tangible assets consist primarily of the assets of the European subsidiaries and include the accounts receivable balances carried directly by the subsidiaries located in England, France and Germany. All other European customer receivables are maintained by, and therefore are included as identifiable assets of, the U.S. operations. F-18 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Summarized information by geographic location is as follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------- 1998 1997 1996 - - ------------------------------------------------------------------------- United States: Revenues $402,957 $333,038 $253,451 Operating Income $ 74,191 $ 62,884 $ 26,359 Identifiable tangible assets $551,030 $407,262 $282,201 Europe: Revenues $183,803 $121,971 $ 98,789 Operating Income $ 52,879 $ 36,800 $ 15,968 Identifiable tangible assets $ 93,409 $ 73,974 $ 50,564 Other International: Revenues $ 55,197 $ 56,230 $ 42,432 Operating Income $ 16,467 $ 16,929 $ 7,113 Identifiable tangible assets $ 31,888 $ 27,654 $ 18,199
Excluding acquisition-related and nonrecurring charges, operating income in the United States was $81.5 million for fiscal 1998 and $61.3 million for fiscal 1996. 16--SELECTED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS DATA A summary of Selected Consolidated Balance Sheets and Statements of Operations Data is set forth below (in thousands):
BALANCE SHEETS DATA STATEMENTS OF OPERATIONS DATA ---------------------------- --------------------------------------- TOTAL GROSS FEES DEFERRED AML OTHER FISCAL YEAR RECEIVABLE REVENUES REVENUE REVENUES REVENUES - - --------------------------------------------------------------------------------------------------------------------- Balance as of September 30, 1995 ........... $ 115,849 $ 164,449 $237,168 $ 57,978 $295,146 Billings ................................... 420,037 340,474 22,071 67,432 Acquisition balances ....................... 3,976 1,663 -- -- Cash collections ........................... (391,640) -- -- -- AML revenue amortization ................... -- (296,690) 296,690 -- Other service revenue amortization ......... -- (8,479) -- 8,479 --------- --------- -------- -------- Balance as of September 30, 1996 ........... 148,222 201,417 318,761 75,911 394,672 ======== ======== ======== Billings ................................... 574,588 452,271 18,160 80,723 Acquisition balances ....................... 4,297 15,998 -- -- Cash collections ........................... (516,007) -- -- -- AML revenue amortization ................... -- (399,373) 399,373 -- Other service revenue amortization ......... -- (12,983) -- 12,983 --------- --------- -------- -------- Balance as of September 30, 1997 ........... 211,100 257,330 417,533 93,706 511,239 ======== ======== ======== Billings ................................... 685,082 539,530 24,940 106,821 Acquisition balances ....................... 2,365 7,646 -- -- Cash collections ........................... (647,602) -- -- -- AML revenue amortization ................... -- (487,837) 487,837 -- Other service revenue amortization ......... -- (22,359) -- 22,359 Sale of GartnerLearning .................... (7,577) (3,199) -- -- --------- --------- -------- -------- Balance as of September 30, 1998 ........... $ 243,368 $ 291,111 $512,777 $129,180 $641,957 ========= ========= ======== ======== ========
For a description of the Company's revenue recognition policies, see Note 1--Significant Accounting Policies. AML revenues shown above of $512.8, $417.5, and $318.7 million for fiscal 1998, 1997 and 1996, respectively, are recognized as services and products are delivered, and the Company's obligation to the client is completed over the contract period. Included in AML revenue are catch-up adjustments also shown above for the fiscal years 1998, 1997, and 1996 of $24.9, F-19 GARTNER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $18.2, and $22.1 million, respectively, to account for certain renewals. Catch-up adjustments occur when there is a lag between the month that a contract expires and the month that it is renewed. The Company continues to provide services for a certain period of time after expiration, based on the Company's historical experience that most clients who do not renew prior to expiration do so on a retroactive basis. The Company recognizes no revenues, however, during this period. When a client renews the service on a retroactive basis, the Company records the previously unrecognized revenue as a catch-up adjustment. 17--QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands except per share data)
Fiscal Year 1998 1st 2nd 3rd 4th - - ------------------------------------------------------------------------------------------------------ Revenues $162,667 $149,565 $160,992 $168,733 Operating Income $ 41,145 $ 31,083 $ 35,462 $ 35,847 Net Income $ 25,644 $ 20,099 $ 22,982 $ 19,622 Diluted earnings per common share(1) $ 0.25 $ 0.19 $ 0.22 0.19 Fiscal Year 1997 1st 2nd 3rd 4th - - ------------------------------------------------------------------------------------------------------ Revenues $125,367 $119,125 $126,349 $140,398 Operating Income $ 31,519 $ 29,620 $ 28,842 $ 26,632 Net Income $ 19,042 $ 18,200 $ 18,455 $ 17,433 Diluted earnings per common share(1) $ 0.19 $ 0.18 $ 0.18 $ 0.17
(1) The aggregate of the four quarters' diluted earnings per common share does not total the reported full fiscal year amount due to rounding. 18--SUBSEQUENT EVENT On November 12, 1998, the Company's Board of Directors approved an agreement in principle with IMS Health Inc. ("IMS Health") which owns 47.6 million or 47% of the Company's Class A Common Stock to undertake a recapitalization of the Company and facilitate a tax-free spin-off by IMS Health of its equity position in Gartner Group Inc. to its shareholders. As part of the recapitalization, IMS Health will exchange 40.7 million shares of Class A Common Stock for an equal number of shares of new Class B Common Stock of the Company prior to the spin-off. This new class of common stock will be entitled to elect at least 80% of the Company's Board of Directors, but will otherwise be substantially identical to existing Class A Common Stock. The Class B Common Stock will be distributed to IMS Health shareholders in a tax-free distribution. IMS Health will continue to hold 6.9 million shares of Class A Common Stock after the spin-off. It is the intention of IMS Health to sell these shares within one year of the spin-off, subject to certain conditions. In addition, the Company agreed that it would pay a one-time special cash dividend of $300.0 million to its shareholders of record immediately prior to the IMS Health spin-off. Further, the Company also agreed that it would repurchase $300.0 million of its Class A Common Stock on the open market after the spin-off. The exchange, spin-off and special cash dividend are expected to be completed in the third quarter of fiscal 1999, subject to approval by the IRS of the tax-free status of the spin-off and approval of the recapitalization plan by the non-IMS Health shareholders of the Company. The share repurchase program will commence after the spin-off and is expected to be completed within one year. F-20 EX-27 31 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 DEC-31-1998 206,390 0 324,219 7,767 31,413 634,477 363,330 184,179 1,731,519 550,318 0 0 0 3,352 821,918 1,731,519 0 1,186,513 0 1,054,029 0 0 1,168 270,661 92,196 178,465 42,093 0 0 220,558 .68 .66
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